Macroeconomics: The Day Ahead for 6 August

There is a relatively busy calendar of data, events and corporate earnings on hand today, but with yesterday’s renewed meltdown in equities and blistering spike in volatility metrics, and today’s bounce in Asia, a critical eye will need to be applied to some of the hyperbole strewn analyses of data and indeed earnings that are likely to get plenty of airtime on social and news media. The latter may above all focus on the likes of Bayer, Caterpillar and Schaeffler in terms of manufacturing trends, the likes of Air BnB, Fraport, Intercontinental Hotels, Uber, Yum! Brands in consumer terms, while tech sector afficionados will scrutinise Globalfoundries (but do bear in mind that even after the sell-off the latter is still on a P/E ratio of 26.2x!). Markets have a nasty habit retro-fitting macro and micro data to current sentiment, generally with the conclusion that ‘rate cuts’ or more broadly ‘stimulus’ is needed. But this sell-off is a) still well short of any big bear market signals, b) owes everything to poor risk management, above all in terms of carry trades and leverage, as well as ignoring the basic principles of eschewing concentration risks and portfolio imbalances, and c) to ‘Emperor’s New Clothes’ euphoria and exuberance about AI. While there have been some murmurings from central banks about these risks, it has hardly been forceful, above all by comparison to the dogmatic jibber-jabber about inflation risks; hopefully the usual central bank ‘put’ reaction function of hitting the ‘red button’ on rates and QE will not be wheeled back into view – particularly as the excess liquidity provided by central bank QE must take a considerable volume of the blame for the euphoria and the sell-off.

Be that as it may, there are the as expected no change rate decision from a still hawkish RBA and the accompanying Statement on Monetary Policy (SOMP), Japan Household Spending and Labour Cash Earnings, German Factory Orders and UK BRC Retail Sales to digest. Ahead lie the likely less influential UK Construction PMI, US and Canadian Trade, and the NY Fed report on Q2 Household Debt and Credit. Outside of the aforementioned earnings, Saudi Aramco gets top billing, with Abrdn, Banca Monte dei Paschi di Sienna, Marathon Petroleum and Softbank also reporting. A busier day for govt debt supply sees Austria 10 & 16-yr, German 5-yr, UK 19-yr and US 3-yr, which may need some concession building to see solid demand, even if ‘Street’ shorts after the bruising rally in government bonds may be eager to use the liquidity offered by the auctions to restore some order to trading books.

** Japan – June Labour Cash Earnings, Household Spending **
– BoJ governor Ueda has come under criticism for last week’s rate hike, and the ensuing carnage in Japanese equities and worldwide, today’s much stronger than expected surge in Labour Cash Earnings (4.5% y/y vs. expected 2.4%) offer Ueda a good deal of support, even though the larger than expected -1.8% y/y Household Spending does beg a big question about whether higher wages will prompt an improvement in private consumption. Critics of the BoJ may well point to the fact that inflation adjusted wages have merely returned to the pre-pandemic trend range, and it is worth noting by contrast that Basic Pay as measured by the old series was unchanged on the month at its recent long term cyclical high at 2.7% y/y.

** Germany – June Factory Orders **
– The stronger than expected 3.9% m/m rebound in Factory Orders offers some relief to the beleaguered industrial sector, but Orders still fell 1.3% q/q in Q2, after falling 4.4% in Q1. The rebound was unsurprisingly led by Capital Goods up 9.2% m/m, but still down -2.2% q/q in Q2 following a drop of -4.7% q/q. By contrast Consumer Goods slid -7.1% m/m, more than reversing the 5.1% m/m bounce in May, but at least up 4.1% q/q. While this may signal a trough is near, Order backlogs are depleting rapidly, suggesting any near-term recovery in Production will be at best tentative.