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Macroeconomics: The Day Ahead for 3 August

  • Quiet day for statistics and events, digesting RBA policy meeting; Japan, South Korea and Turkey CPI, Spain Unemployment and Fed Waller ‘taper’ comments; awaiting US Auto Sales and Canada Manufacturing PMI; UK and Austria debt auctions; Alibaba and BP head another busy run of earnings; more China regulatory intervention threats

  • RBA ‘surprises’ by sticking with taper plan, but still extremely dovish

  • US Auto Sales: expected to steady after low inventory induced fall; risks point to scope further drop

  • US quarterly Treasury financing estimate reduction underline that even with a taper, Fed will be the elephant in the room

EVENTS PREVIEW

As is often the case on the second working day of the month, the data schedule is light, with Japan, South Korea (above forecast, and likely to underpin expectations of a BoK rate hike in the next few months) and Turkey CPI and Spanish Unemployment to digest ahead of US Auto Sales & Factory Orders and Canada’s Manufacturing PMI. There is the RBA’s policy meeting to digest, with Fed’s Bowman the only central bank speaker. Debt auctions take the shape of UK 30-yr and Austrian 4 & 10-yr. A busy run of corporate earnings features amongst others: Alibaba, BMW, BP Infineon, Societe Generale, Standard Chartered, Stellantis, while the US looks to Amgen, Conoco Phillips, Du Pont, Eli Lilly, Fidelity, KKR, Occidental Petroleum and Under Armour. Once again, China’s regulatory interventions are making headlines as state media described online gaming as “spiritual opium”, with Tencent this time falling in the cross hairs of the Maoist rollback. To be sure, many investors, who for the most part are underweight in allocations to Chinese assets will probably view this as another dip to buy, given China’s potential growth rate, and above all the all-pervasive financial repression in developed world markets. However it still adds a layer of risk to Chinese assets, and ultimately will be a serious impediment to China’s growth potential, leaving aside its renewed attempts to internationalize use of the CNY.

 

The RBA decision to stick to its QE tapering plans for September is perhaps a signal moment, with governor Lowe noting “The recent outbreaks of the virus are, however, interrupting the recovery and GDP is expected to decline in the September quarter. .. The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly”. For markets that have become inured to G10 central banks erring on the side of caution in the face of either adverse pandemic developments, or market sell-offs, this was a modest surprise. The fact remains that the RBA taper will be modest, and the RBA’s holdings of govt debt remain among the highest in proportion terms.

 

In that respect, the Treasury quarterly financing announcement which cut the estimate for Q3 sales of market by $148 Bln to $673 Bln was broadly in line with market estimates, but also underlines that the Fed remains the elephant in the room with its $80 bln/month of Treasury purchases, continuing to destroy the free-float. Even if it does taper, and notwithstanding the infrastructure spending bill (which will add little in terms of borrowing given the spread over 5 years), the reduction in Treasury net borrowing will largely offset much of the taper.

 

US Auto Sales are expected to steady at subdued levels, due to inventory shortages and increasingly adverse consumer perceptions of prices, the risk looks to be firmly to the downside of the estimate of 15.30 Mln SAAR, above all due to an unfavourable seasonal adjustment. 

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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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