Written Commentary
Ag Market View for July 26.24
July 26, 2024
Busier day for events with focus on central bank; UK PSNB to digest ahead of CBI Industrial Trends and US Housing Starts; Riksbank, Bank Indonesia, Hungary MNB & Paraguay BCP rate decisions; China Evergrande, Europe power crisis, geopolitical tensions still dominate; Germany, Finland and US debt auctions
Sweden: Riksbank on hold, but focus on long-term rate trajectory adjustments
US Housing Starts: modest rebound expected, weather disruptions and out of sync seasonal adjustment heighten chance of large outlier
EVENTS PREVIEW
While China, South Korea and Taiwan are still on holiday, a rather busier day awaits in terms of events and to a lesset extent data. Statistically there are the UK PSNB budget data to digest ahead of the CBI Industrial Trends survey and US Housing Starts. Sweden’s Riksbank tops the run of central bank policy meetings with Bank Indonesia holding rates as expected, Hungary’s MNB is seen hiking rates a further 25 bps to 1.75%, and Paraguay’s central bank will likely hike rates a further 25 bps to 1.25%, as inflation pressures across Latin America continue to force the hands of national central banks. The OECD’s updated economic outlook bears some scrutiny, given that supply chain disruptions and activity restrictions in Asia due to the delta variant have seen US economists and Germany’s research institutes all start to cut growth forecasts for 2021, while upgrading estimates for 2022. The govt bond auction schedule has 7-yr in Germany, 21-yr in Finland and 20-yr in the US, while corporate earnings from Novatek and FedEx will get particular attention in the current environment of gas supply shortages in Europe and logistical impasses in the global economy. Indeed the array of risks from China Evergrande, the power crunch in Europe and ongoing pandemic related uncertainties to the numerous geop-political tensions leaves the more mundane world of economic statistics reduced to walk on role. Credit spreads have pushed wider in the wake of Evergrande and the pressure on normally ‘ultra-safe’ Utilities, and do require some attention, but at the current juncture it would be premature to suggest that these moves are anything more than a typically grudging re-pricing of risk premia, outside of Asian USD High Yield (see attached charts).
Sweden – Riksbank policy meeting
– The Riksbank is seen holding rates at 0.0%, but the focus will be on its revised forecasts for the economy and its rete trajectory, following a run of generally stronger than expected activity data, and the much sharper than expected jump in August CPI. The latter may prompt it to adjust its long-term rate forecasts slightly higher, given that its current forecasts assume rates will be held at current levels until 2024.
U.S.A. – Aug Housing Starts
– Housing Starts are seen edging back up 1.0% after a sharp 7.0% fall in July, while Building Permits are expected to dip 1.8% m/m to 1.60 Mln after a strong rebound in July. As with so many data series in the pandemic era, and indeed its inherent volatility, the risk of a large outlier is very high. That said the SAAR pace of both starts and permits remain way over pre-pandemic levels, even if a form of mean reversion does look to be under way, above all due to the squeeze on builder’s margins, due to high input costs (even if lumber prices have come back to earth with a bump).
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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.
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© 2021 ADM Investor Services International Limited.
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