Macroeconomics: The Week Ahead: 19 to 23 July 2021

The new week’s data schedule is typically sparse for the third working week of the month, with G7 flash PMIs and various other surveys, US housing data, UK and Canadian Retail Sales, Japanese Trade and national CPI the only potential market movers. In what will be a seasonally light week for speakers, the ECB policy meeting will be the highlight on the central bank agenda, with policy meetings also taking place in Indonesia, Russia and South Africa. As the spectator free Tokyo Olympics gets under way, concerns about the spread of the Covid-19 delta variant, and low vaccination rates in many parts of Asia, Africa and Latin America continue to cast a long shadow over global recovery hopes. It will be a very busy week for corporate earnings, above all in the US (81 S&P 500 companies reporting), but a very light week for govt bond supply, with auctions in the US (20-yr and I-L 10-yr), Germany (7 & 27-yr) and UK (50-yr). Beyond the impact of the usual northern hemisphere summer holiday lull in trading activity (though travel will remain heavily impacted by the pandemic), the Eid al-Adha holiday in Islamic countries will also serve to reduce volumes and liquidity.

In the commodity space, the focus will be on market reaction to the weekend OPEC+ agreement to increase production by 400K bbls every month until the end of the year, and indeed beyond until the remaining 5.8 Mln bbls of halted production comes back on stream, subject to the current monthly reviews and a more comprehensive discussion in December. The latter offering a clear signal that OPEC+ will continue to try and exercise a degree of control over prices. Earnings reports from key oilfield services providers (Baker Hughes, Halliburton & Schlumberger) will also be on the radar. Soaring temperatures in North America and China, floods and storms and heatwaves in Europe, and droughts in Latin America and elsewhere will remain the focal point for agricultural commodities, while the metals sectors will be watching production reports from the likes of Anglo American, Antofagasta, BHP, Newcrest, Norilsk Nickel, Santos and Vale.

In terms of the data schedule, Friday’s flash PMI data will be the focal point, with consensus estimates looking for manufacturing and services readings in the Eurozone, UK and US to dip modestly to what would still be very robust levels, but if correct, this will play into concerns that the recovery is plateauing in Europe and North America. The key question is whether there will be any meaningful easing of price and supplier delivery pressures, and how these compare with orders and production trends. There are also a number of national business, US regional Fed and consumer surveys. US Housing data are expected to remain robust, though off their best levels, while UK Retail Sales are seen little changed on the month.

The ECB meets and will be updating its guidance on the policy outlook in the wake of its strategy review, but as Lagarde has admitted there is going to be an almighty scrap between hawks and doves, so what emerges may well be as confused and sometimes contradictory as has been the case at the last three meetings. Given the tensions, no changes to the pace of QE purchases are expected to be made, with the September meeting with its fresh set of staff forecasts being earmarked for signals on both the PEPP and APP purchase paces going into Q1 Q2022.  By contrast Russia’s Bank Rossi is expected to hike rates by at least 75 bps (to 6.25%) as it seeks to rein in stubbornly high inflation (June headline 6.5%, core 6.6%). But it is South Africa’s SARB which is faced with a dilemma as social unrest in the wake of the sentencing of former president Zuma has upended what always appeared to be rather too much blue sky thinking about South Africa’s prospects, above all given the pressure that many other EM countries and currencies have been subjected to over the past year. But with this week’s June headline and core CPI expected to ease, Unemployment sky high, and the SARB largely powerless to address the country’s numerous structural challenges, and the ZAR recovering from last week’s initially sharp setback, rates are seen on hold at 3.50%. (Some thoughts on the commodity / EM FX risk equation from earlier this year: https://cfuat.admis.com/video-commentary/em-currencies-commodities-equation-politics-10-yr-yields-commodity-prices/.)

The US Q2 earnings cranks into full gear, with numerous bellwether companies reporting in many sectors, but the focus likely to be on the array of tech and energy sector companies reporting in the US and elsewhere. Bloomberg News identify the following as likely to be among the highlights: Abbott Laboratories, American Airlines, American Express, Anthem, Asian Paints, ASML Holding, AT&T, Biogen, Blackstone Group, Canadian National Railway, Capital One, Centrica, Chipotle, Coca-Cola, Daimler, D.R. Horton, Equifax, Evolution, Fifth Third, Honeywell, Iberdrola, Intel, Interactive Brokers, IBM, J&J, Julius Baer, Kimberly-Clark, Marsh & McLennan, Mulberry, Nasdaq, Netflix, Newmont, NextEra Energy, Nordea Bank, Novartis, Philip Morris, Prologis, Roche, SAP, Sartorius, Schindler Holding, Schlumberger, Sika, Snap, Synchrony Financial, Texas Instruments, Travelers, Twitter, UBS, Unilever, Union Pacific, VeriSign, Verizon and Volvo.