Macroeconomics: The Day Ahead for 19 August

Today’s modest schedule of data has the overnight Australian labour data to digest (heavily distorted by lockdown, above all the illusory drop in the Unemployment Rate), while the US Philly Fed Manufacturing survey and weekly jobless claims are the highlights of the remaining schedule. A busier day for central banks has as expected no change rate decisions in Indonesia and surprise rate hike in Sri Lanka to digest, while ahead lies Norges Bank’s policy meeting. Govt bond supply sees medium-dated conventional and inflation linked auctions in France, Canada 2-yr and US 30-yr TIPS, while retailers again dominate US corporate earnings with Kohl’s, Macy’s and Tapestry reporting. The July FOMC minutes highlighted that while the FOMC was agreed that tapering should commence, they are very much at odds on the pace and exact timing, and on how risks to the outlook (inflation, labour market and renewed virus surge) should be weighted in their assessment. Per se the challenge for Powell is how to forge some form of consensus view on policy guidance, given that the biggest risk looks to be that this highly divergent range of views ends up confusing markets.

Norway – Norges Bank rate decision

The consensus looks for change from the current 0.0%, but practically all forecasters anticipate a rate hike in September, and one more hike in December, as per the most recent rate trajectory update from Norges Bank, which will likely be reaffirmed today. While headline inflation remains elevated at 2.9% y/y, “underlying” (core) remains very subdued at 1.4%, and the central bank expects it to remain so until 2024. However Norges Bank’s remit also includes financial stability, and with house prices on a tear (as they are in many countries), while growth and capacity utilization recovering sharply, it has more than sufficient justification for gradually adopting a less accommodative policy stance

U.S.A. – Aug Philly fed Manufacturing / Weekly Jobless Claims

After a sharper than expected setback to 21.9 (vs. Jun 30.7 and April’s multi-decade high of 40.2), the headline (non-composite) is seen rebounding modestly to 24.0, still indicative of a solid pace of sector activity. However the focus will be on the 6-month outlook, which dropped back to a very strong 48.6 from June’s 30 yr high 69.2, in so far as another strong reading would continue to underline optimism even in the face of the near-term challenges such as labour and raw materials bottlenecks, along with skills shortages and attendance issues due to the spread of the delta variant. Initial Claims have been edging lower after a choppy rangebound profile since the end of May, and is expected to make a new pandemic low of 365k (vs. prior low of 368K in mid-July). While the spread of the delta variant appears not have prompted any significant layoffs, it does appear to be having some impact on claims, in so far as the worst affected state California also saw a large increase in the prior reporting week, and creates some upside risks, which may offset the downward pressure from the impending end of enhanced benefits in early September.