Macroeconomics: The Day Ahead for 30 July

Ahead of the central bank bonanza kicking off tomorrow morning with the BoJ policy meeting, there is a bumper day for major statistics, dominated by CPI and Q2 GDP data in Europe, as well as a further barrage of corporate earnings, which will be headlined by the first of this week’s Mega Tech and Big Oil reports from Microsoft and BP. There are UK BRC Shop Prices, French, Spanish, Austrian, Czech and Hungarian Q2 GDP, Spanish CPI and Japan’s labour data to digest. Ahead LIE German, Italian, Eurozone and Mexican GDP; German, Belgian and Irish CPI; US Consumer Confidence and House Prices. The events schedule is bare, but outside of BP and Microsoft, there are Nomura and Sumitomo Mitsui Trust from Asia, Casino Guichard Perrachon, Covestor, Intesa Sanpaolo, L’Oreal, Rio Tinto and Standard Chartered and Q2 production report from Glencore in Europe. Across the pond, ADM, Mondelez, Pfizer, Phillips 66, Procter & Gamble, Starbucks and Xylem are among other highlights. Govt bond supply takes the form of UK 10-yr and the usual end of month 5 & 10-yr BTP sales in Italy.

** Eurozone – Q2 GDP and July CPI **

– French GDP proved to be a little better than expected at 0.3% q/q vs. forecast 0.2%, and an upward revision to Q1 to 0.3%. The details were less impressive, with Domestic demand contributing just 0.1 ppt, and Net Exports 0.2 ppt, but it does impart some upside risk to pan Eurozone GDP, as does a much stronger than expected and unchanged 0.8% q/q increase in Spanish GDP, but the rather unsurprising -0.1% q/q in Germany will provide a considerable offset, but overall 0.3% q/q vs. expected 0.2% looks likely. The ECB and others may continue to call this a recovery, which in technical terms it is, but certainly one that lacks momentum, with risks clearly, even if moderately, skewed to the downside, and the ongoing weakness in Germany a big concern. Spanish HICP (way below forecasts at -0.7% m/m) imparts some downside risks to Eurozone CPI which is expected to fall 0.1% m/m, but remain unchanged at 2.5% y/y, though core CPI is anticipated to ease 0.1 ppt to 2.8% y/y, with Services CPI also seen edging down to a still uncomfortably high 4.0%, though base effects in energy and services prices should ensure a more meaningful drop in August.

** U.S.A. – July Consumer Confidence, June JOLTS Job Openings **

– JOLTS Job Openings are expected to reverse much of May’s rebound to 8.140 Mln, with a drop to 8.00 Mln, but remain above April’s cyclical low of 7.919 Mln, revisions will as ever be important, but overall signalling cooler labour demand, though hardly weak. Consumer Confidence is expected to dip to 99.5 from 100.4, predicated largely on the setback in Michigan Sentiment, and presumably the drama of the Presidential election, with eyes also on the Labour Differential (Jobs Plentiful minus Hard to Get, last 24.0) that has trended broadly sideways over the past couple of months.

** Japan – BoJ policy meeting, Industrial Production **

– Japan: Given the ostensible short-term success of Japan’s recent GFX intervention, there is quite a lot riding on this week’s BoJ policy meeting. The run of data ahead of that will not weigh very heavily in that decision, with the expected steep -4.5% m/m fall in Industrial Production once again due to regulators shuttering output at another automaker due to the data falsification scandal, while Retail Sales are expected to lose some momentum posting a modest 0.2% m/m rise, but picking up to 3.2% y/y from May’s 2.8%, but still heavily boosted by tourism, rather than the desultory picture presented by Household Spending (that has fallen for four consecutive quarters).  The consensus looks for the BoJ to hold the Call Rate target at 0.0-0.1%, though there is a sizeable minority looking for a 15 bps hike to 0.15-0.25%, arguing that with CPI in line with BoJ forecasts, and with wage settlements also picking up sharply, the BoJ will want to tighten policy further. Many of those expecting the BoJ to hold at this meeting, still expect a rate hike in September, and for the BoJ to send a hawkish message by scaling back its monthly JGB purchases by up to 50% from the current Y6.0 Trln, (those expecting a hike look for a reduction to around Y4.5 Trln). Given the breadth of expectations, considerable JPY volatility seems highly probable, particularly after the sharp unwind of carry trade positions over the past 10 days.