Written Commentary
US ratchets up economic sanctions threat on Iran; flash PMIs, Japan CPI, UK Consumer Confidence, Retail Sales and PSNB, French Business Confidence top heavily front-loaded data run, ECB Negotiated Wages also on tap.
- U.K.: Retail Sales setback mostly a correction, with Consumer Confidence and Services PMI offering an upbeat contrast; PSNB underlines hefty fiscal constraints for Burnham government.
- PMIs: Manufacturing continues to see solid boost from AI investment; hot weather restrains Eurozone Services, but strength evident elsewhere; US PMIs expected to continue to point to underlying strength.
EVENTS PREVIEW
The conflicts in the Persian Gulf and Black Sea remain a key focal point, even if both are at an impasse and/or stalemate with no immediate shift in underlying dynamics in view, even with the US now focussing its efforts on more economic measures to isolate Iran.
The week ends with a heavily front-loaded data schedule that features flash PMIs, Japan’s national CPI, UK Retail Sales, PSNB & Consumer Confidence, French Business Confidence, and Eurozone ECB Negotiated Wages and Consumer Inflation Expectations. Speeches by RBA’s Bullock and ECB’s Sleijpen are the only items on the events schedule. The Fed’s annual Jackson Hole conference, Nvidia’s Q2 earnings and inflation data from the US (PCE deflators), Australia and Japan, Germany’s Ifo and US Consumer Confidence are likely to be the scheduled highlights on next week’s calendar.
Yesterday’s sharp about turn in oil and asset prices after Wednesday’s relief rally on the Treasury buyback plan proved to be short lived, fits well within my August 11 observation that ‘perhaps the most underdiscussed topic of the moment is how the current US administration’s frequently unilateral actions at home and above all abroad, which are intended to assert its power, are in fact exposing the often quite acute limitations and other vulnerabilities on its ability to turn political bluster into action that achieves objectives.’
** G7 – August flash PMIs **
Thus far, the now long-standing trend of AI-related investment continuing to boost Manufacturing was evident in Japan and the Eurozone, with orders and employment remaining strong, while price pressures eased but remain high. While Japan saw a rebound in Services, the Eurozone held at 51.7, restrained by France and Germany, where the impact of hot weather dampened consumer activity. By contrast, the UK saw a modest and expected dip in Manufacturing, paced by a fall in Orders, but an unexpected rebound in Services to 52.8, boosted by a rise in New Business to its best level since February. US PMIs are anticipated to show continued strength, with Manufacturing unchanged at 53.9 (and perhaps some upside risks if the NY & Philly Fed surveys are any guide), and Services edging down to a still solid 53.9 from 54.6, though the focus will be primarily on price and employment sub-indices. Overall PMIs continue to underline a good deal of resilience in the face of high energy prices, though it remains to be seen whether that can be sustained going into Autumn, given the prospect of a long drawn-out conflict in the Persian Gulf.
** U.K. – August GfK Consumer Confidence, July Retail Sales and PSNB **
Retail Sales were weaker than expected, with the core ex-Auto Fuel measure down -0.9% m/m, and June revised somewhat lower to 0.9% from an originally reported 1.1%. But this is more a case of mean reversion largely predicated on summer sales discounting starting in June, rather than indicating a sharp slowdown. Indeed, the rise in August GfK Consumer Confidence to a two year high of -14, with optimism on the economic outlook, personal finances and the climate for major purchases all picking up on the month. The July PSNB budget data were worse than expected, posting a deficit of £1.8 Bln against an expectation of flat, with record tax revenues (July typically sees a major boost from corporate tax payments) unable to offset continued increases on social spending, per se underlining the major fiscal constraints on the new Burnham government.
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