Written Commentary
Ag Market View for July 26.24
July 26, 2024
G7 flash PMIs in focus, as record Australia Trade surplus, softer Japan and Australia PMIs digested; US New Home Sales and Current Account, Canada Retail Sales; Czech rate decision, Fed and ECB speakers; Germany, UK and US Bond auctions
G7 flash PMIs: seen robust across board but little changed outside of Europe services; some risk for manufacturing from bottlenecks, but UK CBI survey suggests large order books underpinning optimism for now
Czech rate decision: CNB to follow Hungary’s MNB with rate hike, signal two more rate hikes this year
EVENTS PREVIEW
It will be all eyes on the G7 flash PMIs today, which are accompanied by the overnight Australia Trade, while ahead lie South African CPI, US New Home Sales and Current Account, along with the less than timely Canada Retail Sales. On the central bank front, the Bank of Thailand held rates at 0.50% as expected, while the Czech National Bank is expected to follow Hungary’s MNB yesterday (+30 bps) and embark on a tightening cycle with an initial 25 bps rate hike to 0.50%, with five of its seven board members having signalled that they would support a rate hike at this meeting, and CNB forecasts assuming a further two hikes to 1.0% by year end. There are also speeches from Fed’s Bowman, Bostic and Rosengren and ECB’s de Guindos, as markets take some comfort from Powell’s comments that the Fed is above all focussed on its employment mandate, and still sees inflation as transient, rather than signalling broad based demand pressures. Govt bond supply comes via way of UK 44-yr Index-Linked, German 15-yr and US 5-yr and FRN 2-yr.
G7 – June flash PMIs
The consensus forecasts for these are typically agnostic (i.e. assuming little change), though European Services are unsurprisingly seen improving as lockdown measures are unwound. The key short-term risks for these surveys is a) that there is some loss of momentum simply because these are diffusion indices, i.e. there is only so long that companies will report business conditions being better than the previous month, and thus see them still reporting solid levels of output, but unchanged vs. prior months, thus weighing on indices. b) The continued and widespread supply chain disruptions appear unlikely to resolve themselves until well in the first half of 2022, and may temper optimism on the outlook, as well as obviously showing up in price pressures and lengthening of supplier delivery times. That said, yesterday’s UK CBI Industrial Trends saw rising output, orders and prices, despite a new all-time low on inventories (see chart); which tends to suggest that optimism remains buoyant due to strong order backlogs, and regardless of suppply chain bottlenecks. This may change if prolonged delays to deliveries result in order cancellations, but that is more likely to be a problem in the latter part of H2.
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© 2021 ADM Investor Services International Limited.
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