Key Events: –
Monday: Chinese Inflation Data (Jun)
Wednesday: Fed Chair Yellen testifies to the US House Financial Services Committee, Bank of Canada Monetary Policy Decision, UK Labour Market Data (May/Jun)
Thursday: Chinese Trade Balance (Jun)
Friday: US CPI (Jun), US Retail Sales (Jun)
North America: –
The major US economic releases will come on Friday. Headline CPI data for June is expected to moderate to 1.7% Y/Y from 1.9%, while the core metric is expected to tick up to 1.8% Y/Y from 1.7%. Commerzbank believe that “the Fed has a problem. Oil and food prices often mask the underlying inflation trend, the Fed watches the core rates, which are adjusted for these volatile components. Since the end of the recession in mid-2009, the core rate of the private consumption expenditure deflator rarely rose above 2%. Even core consumer price inflation, which usually comes in somewhat higher, was below target for most of the time. In recent months, however, even the slight uptrend came to a standstill, led by a price war by cellular phone providers.” Commerz suggest that “against this backdrop, it does not come as a surprise that the Federal Reserve is no longer referring to inflation to justify the normalisation of its monetary stance, but to the labour market and – recently – above all to the risks that a sustained expansionary course would have on financial market stability.” US Retail Sales data also hits on Friday. The headline is expected to rise by 0.1% M/M, following last month’s 0.3% fall, while the ex-autos measure is expected to rise by 0.2% M/M following last month’s 0.3% fall. May’s release represented the weakest outcome for retail sales since January 2016, as gasoline and auto sales both subtracted from total sales growth in the month, but even core sales were weak. Westpac believe that “the weak underlying trend is not expected to reverse in the near future. Rather, growth is set to persist at or near current levels.”
After the minutes from the latest FOMC meeting held no surprises, focus will fall on Fedspeak, with particular onus on any language surrounding balance sheet reduction. The focal point will be the questions following Fed Chair Yellen’s appearance before the US House Financial Services Committee, after the text release held no notable headlines. On the voter front we will hear from Brainard, Kaplan and Evans during the week, while non-voters George and Williams will also make public addresses.
The focal point in the Canadian docket comes on Wednesday, as the Bank of Canada issues its latest monetary policy decision and quarterly Monetary Policy Report (April MPR Canadian economic projections are available below).
The majority of analysts are looking for the for the BoC to stand pat, and leave its key rate unchanged at 0.5%, although the swaps market prices in a circa 87% chance of a 25bps hike. Rhetoric from BoC governor Poloz and Senior Deputy Governor Wilkins has swung to the hawkish side in recent weeks. Wilkins was the first to shift her stance, noting that the “the Bank will assess whether all of the considerable policy stimulus presently in place is still required.” Poloz followed this up by suggesting “the rate cuts in the wake of the drop in oil prices in mid-2014 had largely done their job,” while he has backed this up with further hawkish rhetoric in subsequent speeches. On the domestic data front GDP growth has averaged 3.5% per quarter over the past three quarters, with Poloz noting that he expects inflation to be “well into an uptrend” as the output gap closes in the first half of 2018. The domestic labour market experienced its best quarter since 2010 during Q2 it is also worth noting that BoC’s Summer 2017 Business Outlook Survey (BOS) showed that businesses were very confident about future sales growth, employment, and investment. In particular, a record 66% of firms plan to increase employment over the next 12 months. Scotiabank now expects the Bank of Canada “to start raising interest rates in the second half of this year (two increases in 2017) and to raise interest rates once more in 2018.”
It is also worth noting that US earnings season gets underway with the likes of JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), PepsiCo (PEP) and Delta Airlines (DAL) all reporting their quarterly results.
Other releases of note during the week: Tuesday US Wholesale Inventories (May) Thursday US PPI (Jun) Friday US Industrial & Manufacturing Production (Jun) US University Of Michigan Sentiment (Jul, P)
The European slate is bereft of any major releases with German trade data for May (due Monday) and final June CPI reading (due Thursday) arguably being the 2 major releases. Wednesday will bring Eurozone industrial production data for May, while Friday sees the release of the single currency zone’s trade data for May.
The major UK release will be the labour market report, due on Wednesday. The ILO unemployment rate is expected to hold steady at 4.6% while average earnings are expected to moderate to 1.8% on a 3 month Y/Y basis from 2.1% last time out. Survey measures of employment intentions have held up well and continue to point to annual growth in employment remaining around 1%. The real economic worry is negative real wage growth, which could curtail the hawkish rhetoric emanating from the Bank of England in recent weeks. Capital Economics remain “optimistic that the tightening in the labour market should deliver at least some pick-up in wage growth. Meanwhile, inflation is likely to fade quickly next year as the impact of the drop in the pound dwindles. As a result, the squeeze on earnings is likely to be neither as severe nor as prolonged as that seen after the financial crisis.”
Chinese inflation data will be released on Monday. Analysts expect CPI to come in at 1.6% Y/Y against a prior 1.5%, while PPI is seen steady at 5.5% Y/Y. The foreseen marginal uptick in CPI is expected to be driven by food prices, while oil is expected to keep a lid on PPI. Thursday brings the release of Chinese trade data for June. Consensus looks for the trade surplus to widen to USD 43bln from the USD 40.8bln seen in May. Analysts seem to be relatively bullish on Chinese trade prospects for the remainder of 2017. Eyes will also fall on Chinese credit data for June, although the dataset has no fixed release date. Although fears of a hard-economic landing in China have subsided in recent months, the nation’s credit binge remains a worry. The latter part of the week will also see the Chinese government hold a behind closed doors, high-level policy meeting in Beijing concerning the financial sector. No doubt the meeting will bring discussion around the liberalisation of the financial markets and framework of the changes in the financial regulatory system (which could see a unification of the regulatory agencies). President Xi Jinping is expected to participate in the meeting and Nordea believe suggest that “a new PBoC governor could be announced, as the term of the current one runs out early next year.”
The main release from Japan comes on Friday and takes the form of Industrial Production for May.
The Antipodean docket is filled with second tier data releases. Focus in Australia will fall on business confidence data, while we will get home sales and card spending data from New Zealand.