Macroeconomics: The Day Ahead for 28 June

Statistically the week gets off to a very quiet start, with China’s Industrial Profits. Thai Production, Malaysia Trade and German Import Prices to digest, and only the Dallas Fed Manufacturing survey ahead, as markets will likely be dominated by month and quarter end flows. By contrast the events schedule has the BoJ June summary of opinions to digest along with a raft of Fed, ECB and BoE speakers, though it seems likely that these will not offer any fresh market moving insights into policy outlooks.  The UK move to ban crypto exchange Binance serves as a reminder that the regulatory pressure on the sector goes well beyond China, and will only serve to heighten already high levels of volatility. The other talking will be progress on the US infrastructure spending bill in Congress, as Biden withdrew his threat to veto the bi-partisan bill proposal. As noted on Friday, what is being proposed is so modest as to be rather insignificant, and could yet be cut back further as it passages through Congress; stimulus it is certainly not. Otherwise the latest Covid-19 curbs on activity in Australia and increases in case numbers elsewhere (Indonesia, Malaysia & Thailand) remind us that for all of the success of the vaccine roll-out in Europe and the U.S., the war against the pandemic is anything but won.

RECAP: The Week Ahead – Preview: 

The new week brings month and quarter end, which will doubtless sees some occasionally anomalous price action in markets, i.e. seemingly out of sync with incoming fundamental news. Statistically there are Eurozone and national CPI readings, Japan’s Q2 Tankan and its usual end of month run of activity and labour data, UK credit aggregates, Manufacturing PMIs from around the world, as well as the US labour report, Auto Sales, Construction Spending and Pending Home Sales, with plenty of central banks speakers, and Sweden’s Riksbank seen holding rates at 0.0%. Meanwhile OPEC+ holds a potentially critical ministerial meeting to decide on a further easing of production cuts, with an increase of 500K mooted out of the still idled 5.0 Mln capacity, though outside of the Russian 500k proposal last week, there have been few clues offered. In the agricultural sector there are the annual crop planting acreage reports and a number other key USDA monthly and quarterly reports, even if these will likely remain subordinate to short-term weather prospects. In the industrial metals sector, Copper markets will be keeping a very close eye on LME warehouse stocks after a sharp 25% rise last week, and in turn be even more sensitive to this week’s China NBS and Caixin Manufacturing PMIs, and to any comments at this week’s centennial celebration of the founding of China’s Communist Party; as will Iron Ore, where China’s intervention threats remain a persistent source of volatility, though dwindling steel product margins and milling profitability may prove to be the greater threat.

There is a fair volume of major data this week, though the fact remains that markets remain in thrall to central banks and their continued ‘largesse to excess’, and are simply in no position to pre-empt any tapering given the flow of liquidity remains enormous, and the challenge of trying to generate anything more than meagre returns large, thus underpinning FOMO and TINA. Be that as it may, US Payrolls are expected to post a reasonably strong 600K after two months of disappointments, but with the participation rate seen at 61.6% vs. pre-pandemic 63.3%, and the U-6 Underemployment Rate unlikely to fall sharply from May’s 10.2% (vs. pre-pandemic 7.0%), the Fed will be of the view that there remains an enormous amount of labour market slack. It is likely that demographics (above all those retiring), and changing attitudes to what jobs employees want will continue to act as a constraint to hiring, and quite widespread reports of skills shortages, which makes the task of assessing what full employment looks like even more difficult. Ahead of the labour data, Auto Sales are seen little changed at 17.0 Mln SAAR, as semiconductor shortages continue to constrain inventories, and skew risks to the downside of forecasts, despite a favourable seasonal adjustment. Headline Consumer Confidence is seen picking to up 119.0 from 117.2, but the details will be the more important aspect, with the labour market differential at pre-pandemic highs, it will be interesting to see if income expectations rise, as well as spending intentions with demand for homes and appliances dropping sharply last month, and demand for travel / vacations seen rebounding from very low levels, given a jump in air passenger traffic. House Price data (CS and FHFA) are likely to see another sizeable jump, judging by the already reported NAR sales price data, and is increasingly the major constraint to the sector, beyond input prices and labour shortages.

Manufacturing PMIs are expected to echo flash G7 readings, showing continued strength in Europe and North America, with price pressures and long delivery times a key feature. The questions are a) how uneven will the picture look in Asia given localized lockdowns? b) are outlooks still buoyant or showing signs of ebbing given supply chain bottlenecks. In the Eurozone CPI will be the focus, with a combination of changed weightings (lower) for travel / holiday related components, and favourable energy price base effects set to driven German HICP sharply lower, and edge headline and core Eurozone CPI modestly lower to 1.9% and 0.9% y/y respectively, however July and August base effects will be much less favourable. EC Confidence surveys are expected to echo national surveys and pick up even further, while German Unemployment is seen falling modestly (-20K), but the focus will be on how much of a drop there will be in the number of “short-time” workers, which has fallen sharply in recent months, above all in terms of new applicants (last 96K), but was still high in overall terms (last 2.60 Mln).

Elsewhere Japan’s Q2 Tankan is forecast to show a big jump in Manufacturing readings, but Non-manufacturing is seen only edging marginally into positive territory in current terms, thanks to lockdown restrictions, but the outlook is expected to improve, though small company readings are expected to remain in negative territory, despite an anticipated overall improvement vs. Q1. Retail Sales are expected to fall modestly m/m, after taking a dive in in April due to lockdown measures, while Industrial Production is expected to show a reactive correction after April’s surge. Otherwise there are Production, Trade and CPI data in South Korea; final Q1 GDP and Current Account in UK along with Credit aggregates and BRC Shop Prices, Canadian monthly GDP and Australian Trade and Housing Finance.

On the central bank front, Sweden’s Riksbank is unlikely to signal any shift in policy, and another busy week for G7 central bank speakers is also likely to see the same spectrum of opinions being offered by Fed and ECB speakers, but offer no fresh insights. The Brussels Economic Forum and the Rencontres Economiques d’Aix-en-Provence will see numerous central bank and political leaders speaking. In the EM space, Colombia’s central bank is not expected to follow Brazil and Mexico in hiking rates, particularly with inflation being a good deal better behaved, above all core inflation at 2.0% remains well below its 3.0% target. Government bond supply is above all plentiful in Eurozone (France, Italy, Spain & Belgium, with syndicated from the EU and Austria also mooted) and Japan (2 & 10-yr). US bond markets close early on Friday ahead of next Monday’s Independence Day holiday.

It will be another very light week for corporate earnings, with Bloomberg News identifying the following as likely to be among the highlights: Canadian convenience store chain Alimentation Couche-Tard, Bed Bath & Beyond, U.S. alcoholic beverage firm Constellation Brands, General Mills, fashion retailer H&M, song rights investment fund Hipgnosis, cosmetic manufacturer L’Occitane, Micron Technology, Japanese furniture retail chain Nitori Holdings, Novagold Resources, Canadian telecommunications firm Shaw Communications and Walgreens Boots Alliance.