Macroeconomics: The Day Ahead for 16 August

The data and events schedule is not overwhelming, but has some market moving potential, with the August RBA minutes, UK labour and wages data and BHP results to digest ahead of Germany’s ZEW survey, Canadian CPI and US Housing Starts and Industrial Production. The first of this week’s run of US retailer corporate earnings has Home Depot and Walmart reporting, with Agilent Technologies also likely to attract attention. Govt bond supply takes the form of UK 7-yr and German 5-yr. Extreme weather disruption continues with China’s Sichuan province cutting power supply to industry due to the heatwave, with crops under threat from low water levels on the Yangtze river, and the Rhine now unpassable for barge transport in a number of key sections, while low levels on French rivers curb nuclear power output. Yesterday served as a reminder that ‘goldilocks’ thinking on central bank policy outlooks are all too easily holed by incoming data, as plunge in the very volatile NY Fed Manufacturing survey added insult to the injury from the weak data out of China, above all for crude and oil product markets.

** U.K. – June/July labour data **

Somewhat stronger than expected July HMRC Payrolls at +73K (vs. forecast +25K), but weaker than Expected Q2 LFS Employment growth at 160K still point to robust labour demand, even if there was a marginal drop of 19.8K in Vacancies, the first since August 2020. But it will be the higher than expected Average Weekly Earnings which gets all the attention with headline falling less than expected to 5.1% (the fall being due to base effects), while basic pay (ex-Bonus) rose 4.7% y/y vs. expected 4.5% and prior 4.3%. Eminently the latter still implies a fall of -5.1% y/y in real terms, if forecasts of a headline 9.8% y/y for tomorrow’s CPI are correct. This certainly adds to the pressure on the BoE, above all the acceleration in basic pay, which was most notable in Restaurants/Hotels, Manufacturing and Services. That said given that Vacancies are some 50% higher than pre-pandemic levels, and with inflation raging, the upward pressure on pay is relatively modest.

** Germany – August ZEW survey **

The ZEW Expectations survey should see a more marked improvement than the expected marginal gain from -53.8 to -52.7, given that the Dax has had a strong rally since early July, while the Current Situation is seen dropping further to a new low of -48.0 from -45.8, hardly surprising given the array of energy crisis inputs and chaos in Rhine transport due to low water levels.

** Canada – July CPI **

Canada’s headline CPI is expected to echo the US and fall to 7.6% from 8.1% thanks to falling gasoline prices, core measures are however seen little changed at an average 5.0% y/y. This would imply that while the BoC may not opt for quite such an aggressive hike in September, it will remain hawkish (the consensus looks for a 75 bps hike to 3.25%). That said this week’s Teranet House Prices will likely underline the very negative impact those aggressive rates are having, as was evident in yesterday’s CREA Existing Home Sales (-5.3% m/m, following prior falls of -5.6%, -8.6%, -12.6% and 5.4%) and Prices data (-1.7% m/m, though it would take a total of 40% to take prices back to pre-pandemic levels).

** U.S.A. – July Housing Starts / Industrial Production **

Unsurprisingly yesterday’s NAHB Housing Index (49 vs. expected 54, prior 55) proved to be weaker than expected, falling for an eighth consecutive month, and is now down at levels not seen since 2014, if one excludes the very short-lived Q2 2020 pandemic collapse and recovery. It is therefore no surprise that further falls are projected for today’s Housing Starts (-1.9% m/m) and Permits (-2.7% m/m), even if the SAAR pace of both remain at levels that are a little above the 30-yr average. That said Starts are a lagging indicator, and the rapid build-up of New Home inventories as measured by months of supply implies that a goodly number of permits may not become starts as the year progresses. After a weak June print (-0.2% m/m), Industrial Production is expected to recover modestly by 0.3% m/m, though the risks look to be firmly skewed to the upside, given a combination of higher utilities output due to hot weather, a beneficial seasonal adjustment for auto output due to retooling being less of a pronounced drag, and a strong contribution from mining (above all oil output).