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Macroeconomics: The Day Ahead for 2 September

  • Modest data and events schedule as markets focus in on US jobs; digesting South Korea CPI and final GDP, Australia Trade, Swizz GDP, more China regulatory interventions; awaiting US jobless claims, Trade and Factory Orders and Brazil Industrial Production; Fed & Riksbank speakers; France, Spain and Canada to auction debt
  • US Initial Claims seen dipping further, focus on fall in PUA/PEUC claims
  • US Trade deficit to narrow substantially, shrinking Services surplus a risk
  • Brazil Industrial Production expected to fall, utilities and mining may exacerbate fall as drought prompts power rationing
  • Charts: Asia Europe PMIs, PMI Supplier Delivery sub-indices
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EVENTS PREVIEW

After yesterday’s deluge of data, today’s schedule looks very modest, and unlikely to distract the market focus on tomorrow’s jobs data ahead of the long Labor Day weekend in the US. There are South Korea’s CPI, Australian Trade and Swiss CPI and Q2 GDP to digest, while ahead lie US and Canadian Trade, US Challenger Job Cuts, weekly jobless claims and Factory Orders and Brazilian Industrial Production, though it may well be the UN FAO Food Price Index, which may rebound after two months of easier though still very high prices, that garners the most attention. There are Fed speakers scheduled, but both Daly and Bostic’s views on the policy outlook are well known, and their speech topics are in any case not policy related. Govt bond supply takes the form of multi-tranche longer-dated sales in France and Spain, while Canada sells 10-yr.

** U.S.A. – Weekly Jobless Claims **

– A further modest dip is expected for Initial Claims to 345K from 353K, with a larger improvement seen for Continued Claims to 2.808 Mln form 2.862 Mln, as the end of extended / enhanced benefits in all US states looms. The latter is capture rather better by the sharp decline in the latter half of July in PUA/PEUC (Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation) claimants to 8.799 Mln in the first week of August, though it still remains very high, underlining the extent of labour market slack. The Trade Balance is unsurprisingly expected to echo the preliminary Goods Trade Balance to $71.0 Bln from June’s $75.7 Bln, though continued shrinkage in the Services surplus (last $17.4 Bln) imparts some risk of a slightly wider than expected deficit, but still suggesting a positive Net Exports contribution to Q3 GDP (the Atlanta Fed will also update its NowCast for Q3 GDP, last 5.3% SAAR).

** Brazil – July Industrial Production **

– Following on from yesterday’s miss on Brazil’s Q2 GDP (-0.1% q/q vs. exp. +0.2%), today sees Industrial Production, which is expected to drop 0.8% m/m, which would be the fourth drop in six months. While the impact of the worst drought in a century on its large agricultural sector has been well been well documented, rather less has been written about its impact on hydropower generation, with many hydroelectric reservoirs emptied and power having to be rationed, and thus heavily constraining the mining sector. The situation is even worse than most had assumed, with Mines & Energy Minister Albuquerque admitting on Tuesday that Brazil had lost power output equal to the energy consumed by the city of Rio de Janeiro in the past five months. The risks for today’s reading are therefore firmly skewed to the downside of the consensus estimate, despite the still reasonably solid pace of manufacturing activity implied by yesterday’s Manufacturing PMI (53.6 vs. July 56.7), which starts to look barely credible.

On a much broader basis, the latter point could also be made about Manufacturing PMIs in any countries with large scale Auto producers, given the anecdotal evidence pointing to massive impairment of auto output due to chip shortages. The latter above all reflected in another very sharp and much larger than expected fall in US Auto Sales yesterday to just 13.06 Mln vs. July’s 14.75 Mln. It is also worth reviewing the attached graphic showing all the PMI Supplier Deliveries sub-indices by country just to underline the scale and magnitude of supply chain bottlenecks.

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© 2021 ADM Investor Services International Limited.

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.

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