Macroeconomics: The Day Ahead for 16 July

The UK with CPI & RPI (PPI release still suspended), and US PPI and Industrial Production top the statistical agenda for the day, while Bank of America, Goldman Sachs and Morgan Stanley accompany Alcoa and United Airlines as the likely highlights of today’s Q2 earnings reports. Numerous Fed speakers top the events schedule along with the Fed’s Beige Book. US trade tariffs remain in focus, with the Indonesia ‘deal’ of rather less consequence, given that exports to the US account for only 9% of Indonesian trade, as against 25% going to China. The focus is rather on US negotiations with EU, South Korea and India, while negotiations with Japan appear to have completely stalled, though could resume after this Sunday’s potentially pivotal Upper House elections in Japan.

** U.K. – June CPI **

– The run of poor news on the UK economy keeps on rolling, with an above forecast 0.3% m/m pushing up headline CPI to 3.6%, with Services CPI also above forecast at 4.7% y/y and core CPI at 3.7%. Less seasonal discounting in Clothing saw the y/y pivot higher to 0.4% from -0.4%, Food prices climbed further (5.0% vs. 4.7% y/y), though the main pressure came from rising petrol prices, which saw Fuel price deflation ease to -9.3% from -11.1% y/y, while auto insurance deflation eased to -8.4% from -10.1%, and Alcohol & Tobacco pushed upto 6.4% from 5.4% y/y. While non-discretionary price pressures are bad news for consumer spending, with the April utilities hikes continuing to account for much of the rise in inflation, the overall trend is not indicative of broad inflationary pressures. Tomorrow’s labour market indicators will be more material in terms of a still likely BoE rate cut in August and are likely to show a further drop in HMRC Payrolls (median -35K) and a further easing in the very overstated Private Average Weekly Earnings (median 4.8% y/y).

** U.S.A. – June PPI, Industrial Production **

– Yesterday’s CPI was a case of “more of the same” with upward pressure on energy prices (both auto fuel and utilities), some modest pressure in food, and continued upward pressures (> 1.0% m/m) in household furnishings, electrical appliances and a 1.8% m/m rise in Toys accounting for the uptick to 0.3% m/m in headline CPI. Meanwhile, core CPI undershot marginally at 0.2% m/m as a modest increase in Shelter, was accompanied by further m/m drops in new and used autos, and a much smaller fall in airfares. It suggests at the margin that inventories of pre-tariff goods continue to keep something of a lid on pass through effects from tariffs, and by implication that consumer goods spending is relatively subdued. Today’s PPI is expected to rise 0.2% m/m on headline and core, which would see y/y rates dip to 2.5% and 2.7% respectively. As with CPI higher energy prices will account for some of the move higher in headline, but expectations of a pick-up for headline and core are also predicated on higher Input Price indices in the Manufacturing and Services ISM surveys. Portfolio Management Fees, which are calculated with a lag (i.e. some risk of upward revisions to May and perhaps April), will also add some upward pressure, which will be closely monitored as this also feeds into the PCE deflators, published at the end of the month. Industrial Production is seen up a marginal 0.1% m/m thanks to higher utilities output on above seasonal trend temperatures, while Manufacturing Output is expected to be flat m/m, given the dip in manufacturing hours, though the ISM production index did edge back above 50.0.