Macroeconomics: The Day Ahead for 6 August

A busy looking calendar of data has rather fewer highlights upon closer inspection, with an array of large “misses” on Japan’s wages, Household Spending and German Industrial Production to digest, with US and Canadian Labour data ahead, while Saturday will see China’s Trade data. In event terms there are the RBA’s Statement on Monetary Policy (SOMP) and the as expected no change from India’s RBI to mull over, with BoE’s Broadbent hosting an online briefing for businesses following yesterday’s MPC meeting. The latter was in truth something of a non-event, despite the higher than expected near-term forecast for CPI to peak at 4.0%, with the re-calibration of its QE exit policy to start with non-reinvestment of Gilt redemptions once Base Rate reaches 0.50% couched in a number of market related caveats, so as to render it to little more than a ‘what if’. Much the same applies to the promise to act if inflation proves to be stronger than expected, given that this was counterbalanced by the mention that it would use negative rates if required.

Next week’s schedule is dominated by inflation data via way of US and China CPI and PPI, along with Eurozone (final), Scandinavia, Brazil and Mexico CPI, while the UK looks to preliminary Q2 GDP, the array of monthly business activity indicators (Production, Trade and Construction Output), BRC Retail Sales and RICS survey. The US also has JOLTS Jobs Openings and the NFIB and Michigan surveys, Germany has Trade and ZEW survey, while Japan has PPI and Economy Watchers survey. There are a good number of Fed speakers, though mostly regional Fed presidents, and rate decisions in Mexico and Turkey. The US heads a seasonally light run of govt bond auctions with its quarterly refunding (3, 10 & 30yr), and the Q2 corporate earnings season starts to wind down. In the commodity space, the focus will be on the US WASDE and Brazil CONAB crop reports, while the US EIA publishes its monthly Short Term Energy Outlook.

U.S.A. – July Labour  data

As previously noted the read across from the much weaker than expected ADP report to today’s official Private Payrolls apply, even if the ADP report did echo high frequency data from payrolls and time management companies (such as UKG and Homebase) for the 4 week period between the Payrolls surveys suggest hiring slowed relative to mid-June. The fact remains that the ADP report has been so wide of Private Payrolls over the past 18 months, though it does suggest greater market sensitivity to an as, or better than expected outcome. The termination of enhanced benefits and the large volume of vacancies (roughly 1:1 in ratio terms to the number of those seeking employment) does implies continued further strength, there are some downside risks. Firstly the anecdotal evidence suggests that contrary to some political narratives, fear of infection and lack of childcare facilities are much bigger hurdles than disincentives due to enhanced benefits (see attached chart on trends in those states which have terminated and those that have not). Per se the latest spike in infections could well act as a drag. Last but certainly not least skills mismatches continue to be cited as THE main reason cited for positions not being filled. Be that as it may, the consensus looks for an 870K headline rise (likely boosted by unseasonal hiring patterns in education) and a 715K jump for Private Payrolls (vs. June 662K), which would be the best since March’s 724K, though there have been considerable disappointments in recent months. In terms of the Fed’s “substantial further progress” metric, the focus will be on the labour force participation rate which is seen rising to 61.8 from 61.6%, and the Underemployment Rate (last 9.8%), both of which remain way off pre-pandemic levels of 63.5% and 7.0%.