Written Commentary
Persian Gulf negotiations still at an impasse, while Russia/Ukraine conflict raises risks to energy and grains prices; digesting UK GDP and activity indicators, Japan PPI and Norway rate hold; US PPI, weekly jobless claims and Fed speakers ahead.
- U.K.: quarterly GDP in line, but monthly data points to better momentum going into Q3, but unlikely to change rate outlook views on MPC.
- U.S.A.: PPI seen rebounding modestly m/m, but dropping back quite sharply y/y, strong rise in Portfolio Management Fees to boost headline and core and feed through to PCE deflators.
EVENTS PREVIEW
The impasse in US/Iran negotiations remains, while the Ukraine/Russia conflict continues to threaten meaningful disruptions to energy and grains supply, and by extension both pose upside risks to the inflation outlook. The day’s ‘regular’ agenda has a busier run of statistics, with UK GDP and monthly activity indicators, Japan’s PPI and an as expected Norges Bank hawkish rate hold to digest, while ahead lie US PPI and weekly jobless claims and some Fed speakers, accompanied by Brazil’s CONAB agri monthly S&D reports.
Media reports overnight also suggest the Japanese government is open to a faster pace of BoJ rate hikes were not that detailed, but probably largely a recognition that the recent joint JPY intervention will prove to be ineffective in reversing underlying JPY weakness unless the BoJ ups it game on rates.
** U.K. – Q2 and June GDP **
While Q2 GDP was in line with forecasts at a relatively solid 0.4% q/q, the monthly GDP paints a somewhat different picture of the economy thanks to a much stronger than expected 0.3% for June, offset partially by a downward revision to May to Flat m/m from 0.1%. Per se, the economy moved into Q3 with a lot more momentum than most had been expecting, but this looks to have been a function of the World Cup and the heatwave boosting Private Consumption, which still slowed to 0.3% q/q from Q1’s 0.6%, which will face headwinds in Q3 from the 13% rise in the Household Energy price cap.
Today’s data are unlikely to shift opinions on the BoE’s MPC, where the differing views centre around the risks on second round inflation risks and what remains weak labour demand and modest wage growth, despite some signs of stabilization in recent surveys. That said, and as with the most recent Eurozone GDP data, the economy has shown a great deal more resilience both to the energy supply disruptions and domestic and geopolitical instability than most had been expecting, though as previously observed, the edifice of resilience to energy price shocks will likely face a greater challenge in H2, given the primary risk has always been from the cumulative rather than the immediate impact of higher energy prices.
** U.S.A. – July PPI **
Yesterday’s CPI may have been in line with expectations, with core slipping to 2.5% y/y, but does little more than buy more time for the FOMC to assess inflation risks, rather than being forced to act pre-emptively.
Today’s PPI may prove to be more significant and is likely to see particular upward pressure from Portfolio Management Fees (which feed into the PCE deflators), as well as other Services components, even if gasoline, jet fuel and airfares provide an offset, with headline seen up 0.2% m/m and core 0.3% m/m, in turn driving y/y rates down 0.6 ppts to 4.9% and 4.1%, reducing rather than largely removing pipeline inflation risks.
To view the full report and to sign up for daily market commentary please email admisi@admisi.com
Disclaimer:
This material is provided for information purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. The views expressed reflect market conditions and publicly available information as of the date of writing and may change without notice. No representation or warranty is made as to the accuracy or completeness of the information. Past performance is not indicative of future results. Readers should consider their own circumstances and, where appropriate, seek independent financial advice.
This material is provided for information purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. The views expressed reflect market conditions and publicly available information as of the date of writing and may change without notice. No representation or warranty is made as to the accuracy or completeness of the information. Past performance is not indicative of future results. Readers should consider their own circumstances and, where appropriate, seek independent financial advice.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
