Written Commentary
Busy run of data to accompany month end; digesting Japan Tokyo CPI and activity data, French CPI and final Q2 GDP, UK House Price and Lloyds Business Barometer; Eurozone CPI and Unemployment, US Personal Income & PCE, India and Canada Q2 GDP ahead; ECB speakers; US and Canada closed on Monday for Labour Day
Japan: above forecast Tokyo CPI to reinforce BoJ resolve to gradually tighten policy further, activity data a tad below forecasts, but not a major concern for BoJ
Eurozone CPI: headline to fall close to target, downside risks relative to forecasts after lower than expected German and Spanish readings; core CPI set for modest setback
India: Q2 GDP expected to fall quite sharply on government spending restraint, but likely to rebound in Q3, GVA offers better idea of trend
US Personal Income/PCE: deflators seen posting very average m/m rise, y/y rates to edge higher, but labour market trends in the driving seat for Fed
Canada: Q2 GDP set to accelerate modestly, but June GDP set to echo BoC’s concerns about outlook
EVENTS PREVIEW
It’s month end and a busy run of statistics awaits, there are Japanese and South Korea Industrial Production, along with Japan’s Tokyo CPI and Retail Sales, French CPI, UK Lloyds Business Barometer and Nationwide House Prices to digest. Ahead lie UK Consumer Credit and Mortgage Lending, Eurozone CPI and Unemployment, Indian and Canadian GDP, and US Personal Income and PCE, Chicago PMI and final Michigan Sentiment. ECB speakers are plentiful at the Estonian central bank’s conference on Eurozone inflation and monetary policy. Month end and the fact that the US is closed for Labour Day on Monday may temper reaction to today’s data and events. Next week brings the very familiar start of month data schedule, with PMIs (including China’s official NBS PMIS tomorrow) and the array of US labour market indicators from JOLTS Job Openings to Friday’s monthly Payrolls, Unemployment & Wages, accompanied by Japan’s Q2 CapEx, Australian and South Korea Q2 GDP; US Auto Sales, Construction Spending and Fed Beige Book; German Orders, Production and Trade, final Eurozone Q2 GDP and UK BRC Retail Sales. The Bank of Canada is expected to cut rates by a further 25 bps to 4.25%, and there are a good number of ECB, Fed and BoE speakers.
** Japan – August Tokyo CPI **
– It can be safely observed now that with each piece of data that comes in, the case for the July rate hike, and more to come becomes ever stronger, and Tokyo CPI only ‘double downed‘ on this, with all measures above forecasts and rising on the month in y/y terms. Activity data were marginally lower than expectations, but the fall in Retail Sales in y/y terms was largely a function of base effects, while Industrial Production has been very volatile all year due to the intermittent factory stoppages in the auto sector due to the emissions scandal.
** Eurozone – August CPI **
– Yesterday’s downside misses for both German and Spanish HICP, despite the slightly higher than expected French reading, effectively mean that the pan Eurozone reading will be below the expected 0.2% m/m 2.2% y/y (vs. July’s 2.6% y/y), restrained by falling petrol prices (above all in Germany) and base effects above all in package holidays, and could even hit the ECB’s 2.0% target. Core CPI is only expected to dip 0.1 ppt to 2.8% y/y, though there are some downside risks from hotels, restaurants as well as the aforementioned package holidays, which should help to push Services CPI lower. German Unemployment is forecast to post another rise (+16K), though not enough to push the Unemployment Rate up from 6.0%
** India – Q2 GDP / GVA **
– Q2 GDP is likely to highlight the extent to which growth has been somewhat flattered by tax receipts and subsidies, with GDP seen slowing to 6.9% y/y from 7.8% (lower than the RBI estimate of 7.1%), and some downside risks, though the GVA measure (which strips out the distortion of taxes net of subsidies) is seen unchanged at a solid 6.3% y/y. The general election did see result in some constraints in government spending, which will serve to dampen GDP, but a rebound in spending should see this reversed in Q3, though the RBI’s continued restrictive stance is proving to be something of a headwind to growth prospects.
** U.S.A. – July Personal Income & PCE **
– Markets have been accustomed to focussing on US inflation data, but it was clear from Powell’s Jackson Hole speech that the pace of rate cuts will be heavily influenced by labour market trends, per se elevating next Friday’s Payrolls above today’s report in importance. Be that as it may headline and core PCE deflators are seen up a very average 0.2% m/m, which would edge up y/y rates by 0.1 ppt to 2.6% and 2.7% respectively, with housing and financial services the main drivers of higher prices (as per CPI and PPI), while autos drag.
** Canada – Q2 GDP **
– GDP is forecast to accelerate modestly to 1.9% SAAR q/q and 1.4% y/y, though June monthly GDP is expected to slow to just 0.1% m/m, and with the BoC’s concerns about slower growth imparts some very modest downside risks, and by extension reinforcing expectations that the BoC will cut rates again next week.
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