Macroeconomics: The Day Ahead for 5 August

A busy day for statistics, central bank meetings and earnings awaits, even if these end up impingeing little on the fluid and fickle to and fro of market sentiment, which swings between taking fright and then riding roughshod of infection rate news, as well as China’s endless regultory interventions, e-cigarette makers and fertilizer producers and distributors being the latest targets. There are Australia’s Trade Balance, Indonesian Q2 GDP, German Orders and French Industrial Production to digest, while ahead lie UK auto sales and Construction PMI, UN FAO Food Prices, US and Canadian Trade, US jobless claims, Challenger Job Cuts and Russian CPI. BoE and CNB policy meetings are accompanied by the ECB’s Economic Bulletin, while in the agricultural commodities space there are the CNGOIC monthly Soy and Corn crop reports. Govt bond supply comes via way of multi-tranche sales in France and Spain, with Canada selling 3-yr. Corporate earnings highlights include Adidas, Bayer, Beiersdorf, Evraz, Glencore, Norilsk Nickel, Pirelli, Rheinmetall and Rolls Royce in Europe (i.e. many companies that either produce or are big consumers of commodities, which should offer plenty of insights into inflation pressures), while across the pond Beyond Meat, Cardinal Health, Duke Energy, Kellogg, Moderna, Novavax, Square, Vimeo and Zillow are likely to feature.  Yesterday’s roller coaster on US Treasury yields, as the ADP disappointment was overrun by the ISM Services surge to a new record high and the not quite so dovish comments from Clarida underlines the heightened risk of volatility, in part seasonal, but above all as markets remain enslaved to even marginal shifts in central bank policy narratives. It is difficult not to avoid the conclusion that the surprise being expressed by both Powell and now Clarida as something that used to be termed a rate protest. There is a strong element of enlightened self-interest, given that the lower yields go, the greater the risk of a sharper rise that sparks greater instability across asset classes. That said, yesterday’s setback is best sorted under ‘microscopic’ in terms of net move in yields on the day. It is also worth noting this comment from the Chair of ISM Services yesterday: “You know the Federal Reserve has said that this looks to be transitory, as it relates to inflation right. Well, I can tell you these prices where they are now they’re not going away anytime soon”.

Germany – June Factory Orders 

– Factory Orders posted a much stronger than expected 4.1% m/m rebound (vs. f’cast 2.0%), with May revised to -3.2% from a provisional -3.7%; the strength was above all paced by a 9.6% m/m surge in Domestic Orders, above all for Capital Goods 14.8% m/m, which notably follows a 3.2% m/m gain in May. Given that this is the fifth m/m rise in the past 6 months, it underlines the scale of order backlogs, but tomorrow’s Production is forecast to post only a modest 0.6% m/m rise after falling in 4 of the prior 5 months, attesting to considerable ongoing supply chain disruptions. The latter was very evident in Monday’s quarterly Ifo survey, which saw a record 63.5% of companies reporting shortages of raw materials (above all semiconductors, plastics and industrial metals) vs. Q2’s previous record of 45%.

U.K. – BoE MPC meeting 

The consensus looks for no changes on Base Rate or QE, with the focus on the latest Monetary Policy Report (MPR). The fresh set of BoE MPR forecasts are likely to revise near-term forecasts for CPI higher (peak perhaps to 3.5% vs. June estimate of 3.0%), and will probably revise down the peak in Unemployment, but may also hint at growth peaking at a slightly slower than anticipated pace. While there may be some dissenting votes on QE (Ramsden, Saunders), and perhaps a reduction in the pace of its QE purchases, the MPC majority appear to be in no mood to terminate QE before the £875 Bln target has been exhausted.

Czechia – CNB Policy Meeting 

– Czechia’s CNB is expected to hike rates a further 25 bps to 0.75% and signal more to come, with some CNB board members (Nidetzky & Rusnok) hinting at a faster pace than the CNB’s indication in June that rates would end the year at 1.0-1.25%. While inflation is hardly running away (CPI last 2.8% y/y), today’s new forecasts are expected to see their 2021 GDP forecast bumped up to 3.0% from the prior estimate of 1.2%, and may see 2022’s estimate of 4.3% y/y shaded lower, and with Unemployment low (last 3.7%), the assumption is that inflation could pick up quite sharply, unless checked. It is however likely to caveat that a steeper rate trajectory will be subject to change, if infection rates start to climb sharply again.

U.S.A. – Initial Claims

– Initial Claims have chopped around in a 368K-424K range since early June, with unseasonal patterns to re-tooling closures and localized restrictions on movement due to jumps in infection rates blamed for the lack of a clear resumption of downtrends, despite the termination of enhanced benefits in many states. The consensus looks for a drop to 383K from 400K, with Continued Claims seen edging down to 3.255 Mln from 3.269 Mln, but the focus is inevitably on tomorrow’s monthly labour report, though another outlier would likely prompt some likely passing reaction. Given that the biggest infection rate rises have been seen in Arkansas, Florida, Louisiana & Missouri, there will a particular focus on the individual state data to see what impact the infection rate jumps are having.