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Macroeconomics: The Day Ahead for 9 September

  • ECB takes centre stage on relatively busy day for data & events; digesting China inflation, German Trade, UK RICS House Prices & Fed Beige Book; awaiting South Africa Current Account, US weekly jobless claims; Peru, Serbia & Ukraine rate decisions; Fed, BoC and ECB speakers; Ireland and US govt bond auctions
  • China: PPI sees some finished good pressure, but no pass through to consumer goods; CPI dragged lower by food prices again
  • ECB set to revise up near-term forecasts, may signal some slowdown in PEPP QE purchase pace, but stress long-term commitment to liquidity provision
  • Chart: China CPI vs PPI & components; Beige Book mentions of ‘shortages’

EVENTS PREVIEW

The ECB meeting tops a relatively busy data and events agenda, with the overnight China CPI & PPI, UK RICS House price survey, German Trade and Norway’s monthly GDP to digest ahead of South Africa’s Q2 Current Account, US weekly jobless claims and inflation data from Brazil and Mexico. Outside of the ECB, there are also rate decisions in Malaysia, Peru, Serbia and Ukraine, along with BoC’s Macklem post policy meeting press conference, following on from yesterday’s decision to maintain QE at the current pace of C$2.0 Bln per week, rather than tapering again. The statement underlined that the economy is recovering more slowly than expected, and highlighted risks from rise in infection rates, though sticking to the view that the recovery will get traction in Q2, and doubtless also mindful of the need to tread very carefully around the upcoming general election. There are also a number of Fed speakers, though most of these are not scheduled to be speaking specifically about the economic or monetary policy outlook. Ukraine’s NBU looks to be set for a further 50 bps hike to 8.0%, and likely to signal further tightening given that this would still leave real rates in negative territory. Peru’s BCRP has stood firm in adjusting policy rates in response to the political turmoil and the accompanying slide in the PEN, but with inflation picking up, it is expected to initiate a rate hike cycle tonight with a modest 25 bps hike to 0.75%. inflation data in Brazil are likely to see a further acceleration in y/y terms to 9.5% from 8.99%, though pipeline pressures as measured by FGV IGP-DI (-0.14% m/m) did ease more than expected, while Mexico’s CPI should dip for a fourth month (5.6% y/y vs. 5.81%). Govt debt auctions will see Ireland sell 10 & 16-yr, and the US round off this week’s refunding with $24.0 Bln of 10-yr.

** China – August CPI & PPI **

– Once again the divergence between CPI (-0.8% y/y) and PPI (9.5% y/y) was the key feature, as food prices (-4.1% y/y vs. prior -3.7%) base effects (above all Pork) continue to pull CPI lower, though non-Food CPI also dipped to 1.9% y/y from 2.1%, with transport & communication slowing to 5.9%% from 6.9% (mostly fuel prices). By contrast PPI rose 0.7% m/m to a 13-yr high of 9.5% y/y, paced above all by mining (41.8% y/y vs. 38.7%), though also evidencing some pick-up in finished manufacturing goods (8.0% y/y vs. a run of 7.4%/7.5% readings in the prior 3 months). But as can be seen from the attached graphic, there remains little or no pass through to Consumer Goods, which have essentially flatlined. Per se there is nothing that the PBOC will be concerned about.

** Eurozone – ECB council meeting **

– Opinions are divided on what the ECB may signal today, and much may depend on the staff forecasts, which will certainly see upward revisions to near-term GDP and CPI forecast, but probably little change in longer-term estimates, i.e. still showing CPI below target on 2 and 3-yr time horizons. The question is whether they signal any changes from the ‘significantly higher’ PEPP purchase pace (ca. EUR 85 Bln per month) of recent meetings. If this were to be reduced (perhaps to EUR 60-65 Bln pace), the emphasis will be that it should not be seen as ‘tapering’, but rather an acknowledgement of very favourable ‘financing conditions’ and the improved near-term outlook. Given the internal tensions between hawks and doves, any decisions on the future of the PEPP, and accompanying adjustments to the APP will doubtless be posted to the Q4 council meetings.

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Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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