Macroeconomics: The Week Ahead: 15 – 19 July

The Week Ahead – Preview: 

Saturday’s attempted assassination of US presidential candidate Trump brings politics straight back to front and centre, just as markets were clearly hoping that they could wheel back their focus to the rates, the economic outlook and Q2 earnings. It is also likely to reshape what was already a deeply partisan and bitterly divided campaign. Be that as it may, the new week has a raft of major US (Retail Sales, Industrial Production, NAHB, Housing Starts, Import Prices, Fed Beige Book), China (Q2 GDP, Retail Sales, Industrial Production, FAI and Property indicators) and UK (CPI, PPI, Unemployment, Average Weekly Earnings, Retail Sales and PSNB) data, with Canadian & New Zealand CPI, Japan Trade & National CPI and Australian labour data also due. In event terms, the ECB policy meeting with policy rates seen unchanged tops the schedule along with China’s Third Plenum and PBOC monthly MTLF operation, and expected no change rate decisions in Egypt, Indonesia and South Africa, with plenty of central bank speakers, while the US Q2 earnings season starting to pick up pace. The new EU parliament convenes for the first time to vote on the proposed reappointment of von der Leyen as European Commission President, with EU and Eurozone Finance Ministers holding their regular monthly meetings. In the commodities space, Q2 production and operational reviews from many of the world’s leading mining companies top the agenda, amongst others: Anglo American, BHP, Rio Tinto and Vale. A busier week for govt bond supply has US 20-yr & I-L 10-yr, UK 5 & 19-yr, EU 3 & 14-yr, and multi-maturity auctions in Germany, France and Spain.

– In China Q2 GDP and the usual raft of monthly activity and property sector indicators on Monday set the scene for the closed door Third Plenum of senior CCP officials, which will outline intended structural reforms and other policy initiatives to stimulate growth, with a communique expected on the final day on Thursday. The communique will doubtless double down on rhetoric denying the US and EU narrative that China’s industrial policies are both unfair and threaten the economic well-being of the rest of the world, instead arguing that it is down to its skills in science and technology, which as per Premier Li last month allow it to build “a broad stage for enterprises to pursue innovation and upgrade their products”. The elephant in China’s economic room however remains its woe begotten property sector that continues to drag heavily on growth, its financial sector and private sector wealth. For some, the latter is perhaps a tacit objective of President Xi, both to assert the authority of the CCP and squeeze the more speculative forces in the economy. Per se, measures that may be announced to resolve the challenges of the property sector could prove to be less impressive than many in financial markets are hoping for. Despite the lacklustre credit and aggregate financing data published last Friday, the PBoC is seen holding its key 1-yr MTLF rate steady at 2.50%, as it has done since August 2023, with the stability of the CNY still a key concern. Q2 GDP is forecast to slow quite sharply to 0.9% q/q from an outsized 1.6% q/q in Q1, which would see the y/y rate drop to 5.0% from 5.3%. The breakdown is likely to highlight sluggish domestic demand, outside of solid contributions from renewables and high-tech infrastructure, and a slower but still robust contribution from exports. Monthly data are expected to show a loss of momentum in both Industrial Production (5.0% y/y from 5.6%) and Retail Sales (a very weak 3.4% y/y from 3.7%), while public sector spending is likely to prop up Fixed Asset Investment (FAI), seen at 3.9% from 4.0% y/y y.t.d. Property data are anticipated to show the decline in Property Investment accelerating to -10.5% y/y from -10.1%, this despite favourable base effects, with Property Sales remaining deeply negative (last -30.5% y/y).

– Activity data dominates the US data run, as the Republican National Convention officially nominates Trump as its Presidential candidate. Retail Sales are forecast to fall -0.2% m/m headline, with falling gasoline prices and softer Auto Sales (in part due to a cyber-attack on dealerships) a drag, with core ex-Autos & Gas seen up 0.3% m/m and ‘Control Group’ up 0.2%, the latter following May’s -0.4%, and pointing to a sluggish Personal Consumption contribution to Q2 GDP. Import and Export Prices are both expected to edge lower, underlining that Friday’s PPI was quite heavily distorted by Trade Services, though headline Import Prices may prove to be higher than expected due to the rise in oil prices. Industrial Production flew in the face of a contraction in the Manufacturing ISM in May, posting a broad-based rise of 0.7% m/m, which is expected to have slowed to 0.3% m/m, boosted by Utilities thanks to above average temperatures, with Manufacturing Output seen slowing to just 0.1% m/m from 0.9%, much may depend on re-tooling closures. Both the NY and Philly Fed Manufacturing surveys are expected to be little changed at -7.2 and +2.0 respectively. Housing sector data are expected to see the NAHB Index edge up 1 pt to 44, and Housing Starts to post a dead cat bounce of 1.8% m/m to a sluggish 1.300 Mln SAAR pace. Wednesday’s Beige Book is likely to show growth continuing to expand a slight to modest pace, with Services posting better growth manufacturing, with the focus given the Fed’s shift in focus to a more equal risk weighting for inflation and employment to indications of labour demand and to corporate pricing power.

– In the UK, CPI is forecast to post a modest 0.1% m/m increase that would edge the y/y rate down 0.1 ppt to 1.9%, but both core CPI at an expected unchanged 3.5% y/y and Services down 0.1 ppt to a still very high 5.6% y/y are likely to reinforce the caution expressed by MPC speakers last week on cutting rates. PPI is seen barely changed in m/m terms on both Input and Output, underlining a continued lack of pipeline pressures in goods terms. Better news is expected from Thursday’s labour data on wages, with headline and ex-Bonus Average Weekly Earnings seen dropping to a still high 5.7% y/y (vs. prior 5.9% and 6.0%), though base effects will account for most of the drop, while HMRC Payrolls are forecast to drop -13K, and LFS Employment to edge up 20K, with the Unemployment Rate unchanged at 4.4%. Friday brings GfK Consumer Confidence, with a modest rise to -12 from -14 expected, i.e. reflecting little elation at the landslide Labour party election win. Retail Sales continue to be heavily affected by weather effects, with a drop of -0.6% m/m seen, part weather related and part mean reversion after May’s large 2.9% rebound, July data should get a boost from England reaching the final of Euro 2024.

– Ahead of the ECB meeting, final Eurozone CPI is expected to be unrevised at 2.5% y/y and will offer some much needed detail on the stubbornly high 4.1% y/y increase in Services. The latter is among those factors that are expected to see the ECB hold rates in July, with most expecting Lagarde to hint at the possibility of, but not commit to a September rate cut, with views on the governing council on how much further rates will fall this year rather divergent, judging by recent comments. Given the surge in the DAX over the past month, there are upside risks to the anticipated fall in ZEW Expectations to 41.0 from June’s 47.5, with the consensus clearly implying that political uncertainty will act as a more significant offset to sentiment.

– Elsewhere Japan’s Trade are expected to see Export growth to slow to 6.5% y/y, while Imports hold steady at 9.5% y/y, the former weighed down perhaps by a slowdown in auto exports, after a catch-up due to early year production halts. Of greater importance to the BoJ outlook will be Friday’s CPI, which is expected to see wage related pressures in Services push up headline 0.1 ppt to 2.9% y/y, ex-Fresh Food 0.2 ppt to 2.7% y/y, and core core to 2.2% from 2.1%, largely echoing the already published Tokyo data. In Australia, labour data are anticipated to show Employment posting a very average rise of 20K, while the Unemployment rate is seen up 0.1 ppt at 4.1%, the latter underlining that immigration continues to expand the size of the labour force, at the same time as the participation rate is also increasing. Last but not least, Canada looks to the generally very policy sensitive BoC Q2 Business Outlook survey, with the focus on whether budding Optimism evident in the Q1 survey has resulted in an improvement in demand, which had remained weak in Q1. After a sharp upside outlier in May (0.6% m/m 2.9% y/y), Canada’s June CPI is expected to moderate to just 0.1% m/m that would edge the y/y rate down 0.1 ppt to 2.8%, with similar declines expected for both core CPI measures to 2.7% and 2.8% y/y. As with the US, lower gasoline prices should weigh on headline, but the question if whether housing related measures ease in any way.

– There are 46 S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: ABB, Abbott Laboratories, America Movil, American Express, Asian Paints, ASML, Assa Abloy, Atlas Copco, Avenue Supermarts, Bajaj Auto, Bank of America, BlackRock, Blackstone, Charles Schwab, Cintas, Crown Castle, Danske Bank, Disco, Discover Financial Services, DR Horton, Elevance Health, EQT, Equifax, Goldman Sachs, Halliburton, Infosys, Interactive Brokers, Intuitive Surgical, Investor, Johnson & Johnson, JSW Steel, Kone, Marsh & McLennan, Morgan Stanley, Netflix, Nordea Bank, Novartis, PNC Financial Services, PPG Industries, Prologis, Publicis Groupe, Sandvik, Schindler, Schlumberger, SE Banken, Taiwan Semiconductor Manufacturing (TSMC), Travelers, UltraTech Cement, UnitedHealth, US Bancorp, Volvo, Wipro.