Key Events: –
Monday: China GDP (Q2), Eurozone CPI (Jun, F), New Zealand CPI (Q2)
Tuesday: UK Inflation (Jun), RBA Meeting Minutes (Jul)
Thursday: ECB, BoJ, UK Retail Sales (Jun) Australian Labour Market Report (Jun)
North America: –
Focus in North America is likely to fall on Canadian CPI and retail sales data due for release on Friday. HSBC suggests that June CPI data could be pressured by a seasonal decline in clothing prices. Since January gasoline prices have been falling, whereas they increased over a similar period last year, which has weighed on the headline rate. Canada’s May retail sales data should see auto sales supporting the headline, while retailer discounting may weigh.
Fedspeak will be absent from the docket as move into the blackout period ahead of the next interest rate decision from the US.
Other releases of note during the week: Wednesday US Housing Starts & Building Permits (Jun) Canadian Manufacturing Sales (May) Thursday US Philadelphia Fed Manufacturing Index (Jul)
The European Central Bank (ECB) will issue its latest monetary policy decision on Thursday, with no change expected. The usual pre-meeting sources articles have done the rounds this week, with a WSJ piece suggesting that the ECB could announce its plan to wind down QE at its September meeting, just after we found out the ECB President Draghi is set to appear at the Fed’s Jackson Hole symposium in August. Since then a Reuters sources piece has suggested that that the central bank is reluctant to specify when QE asset purchases will fall to zero, and that it is likely that the ECB will have flexibility in eventual cuts to the QE programme. UBS expects “further tightening in ECB communication at the upcoming meeting, but expect the central bank to be very careful, in preparation for a tapering decision on 7 September. Specifically, UBS expects the ECB to stress the good data even more clearly than before; to weaken its QE easing bias somewhat; and to indicate that a reassessment of its policy stance is due in early September, based on new macro forecasts. However, in order to not upset the markets, Mr Draghi is likely to assure the markets that the ECB will move slowly towards normalisation and continue, for the foreseeable future, to offer a substantial degree of policy accommodation.” The ECB President’s address in late June spooked markets into fearing a swing to a hawkish policy stance, although executive board members and Draghi himself have done their upmost to curtail any expectations created by the speech. HSBC still expects that the ECB’s tapering will not end until Q4 next year and do not anticipate any policy rate rises this year or next, similar to views held by analysts at Goldman Sachs.
Monday sees the release of the final Eurozone CPI release for June, with analysts looking in line with flash readings of 1.3% Y/Y headline and 1.1% Y/Y core, after all of the Big 4 Eurozone nations’ flash estimates were confirmed in the final release,
Other releases of note during the week: Tuesday ECB Bank Lending Survey (Q2) German ZEW Survey (Jul)
June’s inflation data (due Tuesday) headlines the UK docket during the week. Analysts look for steady readings of 2.9% Y/Y for the headline CPI and 2.6% Y/Y for the core metric. HSBC notes that “a material portion of May’s increase reflected import-intensive components, consistent with our view that sterling effects are driving the inflation increase.” Negative real wage growth is a major worry for policymakers and UK consumers alike and HSBC expects “the CPI rate to top 3% later this year.” Hawkish murmurings out of the Bank of England have been louder in recent times, with the latest BoE decision yielding a 5-3 vote to leave monetary policy settings unchanged (note, Kristin Forbes has now left the MPC, and her departure takes a degree off hawkishness away from the vote splits).
June’s retail sales data is due Tuesday with analysts for a 0.3% M/M fall following last month’s 1.2% pullback. For the ex-auto measure analysts are looking for -0.5% M/M against last month’s 1.6% fall. The dataset was strong in April, but volumes fell back again in May. HSBC suggests that “for June, the signals have been mixed. On the one hand, the real wage squeeze continued, and consumer confidence fell sharply on the back of a series of bad news events and an uncertain result to the election. Although June was a warm month, which tends to be supportive and the British Retail Sales Consortium (BRC) numbers were quite strong.”
Other releases of note during the week: Friday Public Finances (Jun)
Regional focus will fall on Chinese Q2 GDP data on Monday (which will also be supplemented by retail sales, industrial production and FAI data for June). Analysts expect a slight moderation in the Y/Y growth rate, with consensus looking for 6.8% form 6.9% last time out. The previous two quarters have provided upside surprises, and gone a long way to alleviating fears of an economic hard landing in China. HSBC posits that “despite some moderation, we expect economic activity to have held up well over Q2. Furthermore, data indicates that the recovery has spread from construction to manufacturing, trade and services. The re-stocking cycle slowed, but both manufacturing and private investment, along with profitability, improved over the quarter. These positive developments should help offset the impact of a possible slowdown in property and infrastructure investment and should bode well for economic activity over the coming quarters.”
Thursday brings the latest Bank of Japan (BoJ) monetary policy decision. Analysts expect no change to the Bank’s monetary policy settings although its yield curve control methods may come under some scrutiny after the BoJ recently said it would buy an unlimited amount of 10Y paper at a given yield level, while it increased its capacity to buy bonds with a 3-5Y maturity. A recent BoJ sources piece run by the Nikkei suggested that the central bank will provide a modest upgrade to its growth forecasts and a modest downgrade to its inflation forecasts at the upcoming meeting.
On Tuesday the Reserve Bank of Australia’s (RBA) releases meeting minutes from its July meeting. The post-meeting statement disappointed analysts who were looking for some hawkish additions to the Bank’s glass half-full view. The statement was, more or less, a replica of the May and June statements. Looking ahead, and with an eye on the global landscape, analysts at ANZ do not believe that the Bank of Canada’s actions provide a signal about a likely shift in stance by the RBA: “We think the RBA’s July statement almost went out of its way to emphasise the Bank was on hold. The clear slowing in house price inflation since earlier this year lessens any pressure the Bank might feel to tighten for financial stability reasons (and we would also highlight the research we published last week that casts doubt on the benefits of doing so). What’s more, the Bank’s work on household resilience concluded that when “rates begin to rise, the higher debt levels are likely to make spending more responsive to interest rates than was the case in the past.”
Australia’s June’s labour market report will be released on Thursday, and analysts look for 15,000 roles to be added, following last month’s addition of 42,000; the unemployment rate is expected to tick up to 5.6% from 5.5% and the participation rate seen steady at 64.9%. TD Securities expects the release to be supported by “vacancy data, buoyant business surveys and a positive household sample rotation.” And Westpac notes that “through 2017 there has been a distinct uplift in employment” with its model pointing to a further uplift in jobs growth in the latter part of the year.
Late on Monday (London Time) we will get the Q2 CPI release from New Zealand. Analysts expect a moderation to 0.2% Q/Q and 1.9% Y/Y from 1.0% and 2.2% respectively in Q1. A softer outcome would go some way to justifying RBNZ Governor Wheeler remaining neutral at the RBNZ’s next decision in August (bearing in mind he retires in September). In terms of the release, Westpac notes that “a well-publicised spike in vegetable prices has been offset by a fall in fuel prices. We expect other seasonal influences to be a slight negative on balance.” The bank also notes that its “forecast is below the Reserve Bank’s estimate of a 0.3% Q/Q. However, the Reserve Bank was already expecting the recent pickup in inflation to recede over the coming year.”
Tuesday, meanwhile, brings the latest dairy auction, with the price index standing at USD 3,303 at the most recent auction, while whole milk powder stood at USD USD 3,111. Futures currently point to a flat print.
Other releases of note during the week: Thursday Japan Trade Balance (Jun)