Macroeconomics: The Day Ahead for 24 June

A much busier day for data and events awaits, with Thai Trade and French Business Confidence to digest ahead of Germany’s Ifo and Canada’s CFIB surveys, and a rush of US statistics, including Durable Goods, advance Goods Trade Balance, weekly jobless claims, final Q1 GDP, Wholesale and Retail Inventories and final Q1 GDP. The BoE heads the run of central bank policy meetings, with rates and other policy measures also seen on hold in the Philippines and Mexico, the ECB publishes its Economic Bulletin, the Fed releases the results of its 2021 Bank stress tests, and there is another busy run of Fed and ECB speakers, with the likes of Bowman and Bostic signalling a shift away from their typically dovish stance, along with the typically more hawkish stance from Kaplan and Rosengren. The perceived shift in the Fed’s policy stance, an even more hawkish Brazil central bank leaves Banco de Mexico under some pressure to hike rates, and it will doubtless be hoping that today’s mid-month CPI edges lower as expected (still well above target), and it may hint at a rate hike in the not too distant future. A lighter day for govt bond supply has 20 yr in Japan and 7-yr in the US, while Darden Restaurants, FedEx and Nike feature in terms of corporate earnings. On the political front, the main focus will be the start of another two day EU leaders’ meeting, which is set to discuss migration, the pandemic, economic recovery and foreign relations (above all Russia and Turkey) – easing of travel restrictions for those that have vaccination ‘passports’ will probably grab the headlines. But there are an array of quite sharp divisions on migration, EU recovery fund deployment, “rule of law” in Hungary and Poland, which could easily break out into a more serious confrontation.

Germany – June Ifo Business Climate 

Following on from yesterday’s better than expected flash PMI readings, the more reliable Ifo survey is seen rising modestly to 100.7 from 99.2, paced above all by a rise in the Current Assessment to 97.9 from 95.7, though Expectations are also seen gaining ground to 103.6 from 102.9. Much may hinge up on whether supply bottlenecks in Manufacturing and Construction serve to restrain current and future assessments, though the re-opening of the Services sector should again offer a considerable offset. As can be seen from the attached charts, the headline index is above pre-pandemic levels, but still some way off the peaks of 2017 and 2018, though Export expectations are matching their 2017 high.

U.K. – BoE rate decision 

Today’s policy meeting is expected to see rates and QE monthly purchase pace left unchanged, though departing chief economist Haldane will doubtless vote again for some QE rollback given his strongly worded concerns that the BoE MPC is underestimating potential inflationary pressures due to the strength of the recovery. But it will be how the statement pitches the balance of risks, mostly likely as two sided, given the latest spike in infection rates, while underlining on the other hand that survey data remains very robust, labour demand appears to be strong, though the end of the furlough scheme in September remains critical to how labour demand evolves in H2 2021. While CPI is running a little ahead of BoE forecasts, the breakdown of the May data highlighted that it was almost exclusively due to re-opening pressures, per se the MPC majority is unlikely to be concerned, particularly as it stands close to target.

U.S.A. – Jobless Claims, Durable Goods and Goods Trade Balance 

After an unexpected rise in claims last week, Initial Claims are forecast to resume their downward trend, with a drop to 380K from 412K, while Continued Claims are seen at 3.46 Mln vs. prior 3.518 Mln. While pandemic related augmented benefits have been terminated in many states, the end dates are staggered, with four states terminating for the current reporting week, and a further 12 in next week’s report, which should see result in a more pronounced drop in continued claims in coming weeks. Manufacturing surveys continue to point to buoyant order levels, with strength in aircraft orders, along with strong demand for commercial and passenger vehicles expected to pace an expected 2.8% m/m rebound (from April -1.3% m/m) in headline Orders, while core orders are expected to rise 0.7% m/m ex-Transport and 0.6% Non-defence Capital Goods ex-Aircraft, easing backed from very robust April readings of 1.0% and 2.2%. As the economy re-opens there will inevitably some easing in areas such as medical equipment, computers and electronics and other areas that benefitted from the pandemic, but re-tooling demand and anything related to ‘green’ projects should more than offset this. The final reading on Q1 GDP is not expected to see any revision from 6.4%, but is now very much rear view mirror, with the Goods Trade Balance of greater significance, above all in terms of how trade will impact Q2 GDP. A modest widening to $-87.5 Bln from a much lower than expected $-85.7 Bln is expected, which would imply an improvement on Q1, assuming the June deficit narrows from May as it typically does, but still be a lot wider than any quarter in 2019 or 2020 (so much for the benefits of Trump’s trade wars, Ed.). However, outside of jobless claims, many will view today’s run of data as being largely immaterial to the immediate Fed policy outlook.