Macroeconomics: The Week Ahead: 2 to 6 August 2021

A new month starts with the usual run of PMIs, US labour data and German Orders and Production, with BoE, RBA, BCB and RBI policy meetings in view, along with some Fed speak. However it is growth concerns related to the rapid spread of the Covid-19 delta variant in so many countries, which will remain front and centre, (even if heavily offset by central bank financial repression). This is above all the case Asia and Australia with strict lockdowns having to be imposed, but also with Europe and North America, even if those countries / regions with high vaccination rates appears to be faring better in terms of hospitalizations and fatalities, and by extension not (as yet) being forced into rolling back re-opening. Regulatory interventions in China show no sign of easing, and civil unrest is clearly on the rise in many countries, all of which continues to underpin risks to and uncertainty about the overall outlook, along with an array of supply chain disruptions, which also show little sign of easing. Beyond western tensions with China and Russia, the painfully slow passage of the US infrastructure spending bill, and the fact that the US debt ceiling is back in place after a 2-yr suspension expired on Sunday, with no clear signals on when it might be raised, or a further suspension agreed will likely be other focal points politically.

The govt debt auction schedule is relatively light this week with sales in UK, Germany, France, Spain, Austria and Japan, though the US quarterly refunding announcement will be closely watched to see what measures the Treasury takes (e.g. T-Bill issuance cuts) to mitigate the effects of the debt ceiling. Another very busy week for corporate earnings in the US, Europe and Asia again features a lot of reports from major energy and mining companies (Albermarle, BP, Canadian Natural Resources, Conoco Phlipps, Glencore, Occidental, Petrobras), Autos (BMW, GM, Honda, Toyota) as well as Alibaba, Bayer, Moderna, Softbank and Uber amongst others. Aside from the raft of earnings in the commodity space, China’s CNGOIC Soy and Corn monthly crop reports, developments in the pay negotiations at the Escondida copper mine (the world’s largest), and the annual Diggers and Dealers Mining conference will be in focus, along with weather developments in major agricultural regions in the Americas, Black Sea and China. The UN FAO Food Price Index will also be published on Thursday, and is likely to remain very elevated, even if the pace of food price increases has been levellling off.

Statistically, the week kicks off with PMI and ISM surveys, following on from a soft set of China NBS PMIs, with consensus estimates looking for continued strength in the Eurozone (above all Germany and Italy), and a slight uptick in both US ISM surveys, sustaining recent strength. The focus inevitably will be on Prices and Supplier Deliveries, with only very limited signs of pressures easing, and also on Employment with demand remaining high, but actual hiring continuing to be restrained by skills mismatches in a number of sectors. US Auto Sales are expected to steady at subdued levels, due to inventory shortages and increasingly adverse consumer perceptions of prices, the risk looks to be firmly to the downside of the estimate of 15.30 Mln SAAR. German Orders are expected to rebound 2.0% m/m from an unexpected 3.7% m/m drop in May after four months of solid gains, but 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 week ends with the US labour report, where the consensus looks for a 900K headline rise (likely boosted by unseasonal hiring patterns in education) and a 750K jump for Private Payrolls (vs. June 662K), which would be the best outturn since October 2020, 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 edging up to 0.1 ppt to 61.7%, and the Underemployment Rate (last 9.8%), both of which remain way off pre-pandemic levels of 63.5% and 7.0%, i.e. still some way off the Fed’s desired pace, with Brainard highlighting delta variant risks to hiring in her speech at the weekend. Otherwise, Japan’s Tokyo CPI, Retail Sales and Wages, Canada’s labour data, Turkish CPI and PPI and Saturday’s China Trade data will be among the other statistical highlights.

On the central bank front, the RBA and BoE meetings are expected to see some divergence. A fresh set of BoE forecasts are likely to revise near-term forecasts for CPI higher (peak perhaps to 3.5% vs. June estimate of 3.0%), may 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, 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. By contrast the lockdown and infection rate woes in Australia are expected to see the RBA reverse its July decision to taper its QE programme from September, and perhaps push back on the trajectory for its inflation and labour market forecasts, while maintaining its forecast of no rate hike before 2024. Elsewhere, Brazil’s BCB is expected to follow Russia’s Bank Rossi in hiking rates by 100 bps to 5.25% as inflation continues to accelerate, and will likely continue to sound hawkish. Some signs that inflation may be peaking in India, and some weakness in growth indicators due to the still high infection rate levels will allow the RBI to keep rates unchanged again. Czechia’s CNB is also expected to hike rates a further 25 bps to 0.75% and signal more to come, with inflation still running relatively high (last 2.8% y/y). Sharp downward revisions to Thai growth forecasts due to the rapid spread of the delta variant and resultant lockdowns, along with very subdued inflation are expected to see the BoT hold rates at 0.50%, and signal no chance of any tightening until 2022 at the earliest. Fed’s Clarida speech on “Outlooks, Outcomes, and Prospects for Monetary Policy” will be the other key highlight.

As noted above, it will again be a very busy week for corporate earnings, with Bloomberg News suggesting that the following will be among the headline makers: Activision Blizzard, Adidas, Alibaba, Allianz, Allstate, AIG, Amgen, Apollo Global Management, Bayer, BMW, BP, Caesars Entertainment, Canadian Natural Resources, Cigna, ConocoPhillips, Continental, Credit Agricole, Cummins, CVS, Daikin Industries, Datadog, Deutsche Post, Dominion Energy, DraftKings, Duke Energy, DuPont, Electronic Arts, Eli Lilly, Emerson Electric, Etsy, Exelon, Ferrari, GM, Glencore, Heineken, Honda Motor, HSBC, HubSpot, Illumina, Infineon, ING, Itau Unibanco, KKR, LSE, Lyft, Manulife, Marathon Petroleum, Marriott International, Match Group, Merck, MetLife, Microchip Technology, Mitsubishi Corp, Mitsui, Moderna, Motorola Solutions, Nintendo, NTT, Novo Nordisk, Occidental Petroleum, Petrobras, Prudential, Regeneron, Roku, Sampo, Saudi Telecom, SBA Communications, Sempra Energy, Shiseido, Siemens, Simon Property Group, Societe Generale, SoftBank, Sony Group, Square, Sun Life Financial, Swisscom, Thomson Reuters, Toyota Motor, Uber, ViacomCBS, Vonovia, Wayfair, Warner Music Group, Williams, Zillow Group and Zoetis.