Macroeconomics: The Week Ahead: 17 to 21 July 2023

The Week Ahead – Preview:

The new week sees a busy run of major statistics from the US, China and the UK, rather less in the way of central speakers (the Fed will be in purdah ahead of the July 26 FOMC rate decision), the ECB holds its annual CESEE conference, with rate hikes expected in Turkey (300 bps to 18.0%), South Africa (+25 bps to 8.50%) and Russia (+50 bps to 8.0%), while both China’s 1-yr MTLF and 1 & 5-yr Loan Prime Rates (LPR) are expected to be unchanged. The US has Retail Sales. Industrial Production, NY & Philly Fed Manufacturing, NAHB Housing Index, Housing Starts and Existing Home Sales. China has Q2 GDP, Retail Sales. Industrial Production, Fixed Asset Investment, Unemployment and Property Investment and Sales. The UK looks to CPI, RPI and PPI, ONS House Prices, PSNB, CBI Industrial Trends, Retailing and GfK Consumer Confidence surveys. Elsewhere there are Japan’s National CPI and Trade, Australia has Unemployment and July RBA minutes, Canada looks to CPI and Retail Sales, while the Eurozone sees final June HICP, German PPI and French Business Confidence. In the commodity space, Q2 production reports from miners BHP, Glencore and Rio Tinto amongst others, and oil services earnings from the likes of Halliburton and Schlumberger (aka SLB) top the agenda, along with the monthly IGC Grain report, and monthly USDA reports for the livestock sector. The US Q2 earnings season kicks into full swing, with more financials (Bank of America, Goldman Sachs & Morgan Stanley inter alia), and it will be a busy week for tech sector earnings worldwide (ASML, IBM, Infosys, Netflix, Tesla and TSMC). Govt bond supply is relatively plentiful, with multiple maturity sales in US, UK, France, Germany and Spain. Politically, the EU parliament votes on electricity market reforms, while both Japanese PM Kishida and Turkish President Erdogan will be visiting various GCC countries.

China’s array of Q2 GDP and June monthly activity indicators will get the week underway and are likely to send rather dissonant signals due to divergent base effects. Q2 GDP is expected to post a rather tepid 0.8% q/q (or 3.2% annualized), but thanks to low base effects (Shanghai lockdown in 2022) see y/y jump to 7.1% from 4.5%. By contrast, June Retail Sales are expected to drop to 5.0% from 12.7% y/y, Industrial Production to slip to 3.0% from 3.5%, and Fixed Asset Investment to 3.7% from 4.0% y/y, thanks to adverse base effects from the June 2022 Shanghai re-opening; both Industrial Production and FAI are also likely to be negatively impacted by the hot weather. On balance, the data will underline that the economy lacks momentum, businesses and consumers lack confidence, and the drag from the property sector remains all too real. The problematic with the current drip feed of stimulus measures is that it lacks a ‘shock and awe impact’, even if it is also patently true that with an already large mountain of debt, above all at local govt level, the risk of falling into something like a ‘Truss trap’ cannot be ruled out.

In the US, it is Tuesday which brings Retail Sales and Industrial Production, as the NAHB survey kicks off a slew of housing indicators. US Retail Sales have been notably stronger than many had anticipated, even if not particularly robust, forecasts looks for a boost from a jump in Auto Sales thanks to discounts, with a rise of 0.5% m/m, with the core ‘Control Group’ measure seen up a more modest 0.3% m/m. Industrial Production and Manufacturing Output are both seen flat m/m, echoing the persistent weakness in Manufacturing PMIs and surveys, and also seeing a drag from the extractive sectors as rig counts fell. The July NY and Philly Fed Manufacturing surveys are likely to diverge once again, with the super volatile NY Fed survey seen down to -3.5 from 6.6, and the Philly Fed at -10.0 from -13.7. Housing sector data are seen mixed, with the NAHB index seen recovering a little further to 56, Housing Starts forecast to see a reactive correction of -9.6% m/m surging 21.2% m/m in May, and Existing Home Sales expected to drop 2.2% m/m as low inventories continue to present headwinds, along with high mortgage rates. There would have to be an unlikely uniform downside miss across these indicators for markets to push back on the expected 25 bps rate hike at next week’s FOMC meeting, and the FOMC will likely be none too happy with the forward curve, which sees an initial rate cut in January 2024, and a further 125 bps of rate cuts by January 2025.

In the UK all eyes will be on Wednesday’s inflation data, and perhaps more attention should be given to the m/m data than the y/y, given that base effects will continue to play a significant role in the latter. Headline CPI is seen up 0.4% m/m, the weakest monthly increase since the seasonal drop of -0.6% m/m drop in January, which would bring the 3-mth annualized rate down to a still very high 10.0%, but well down on April’s 12.4%. In y/y terms headline is forecast to fall to 8.2% from 8.7%, but core is seen unchanged at its cyclical record high of 7.1%. By contrast, PPI should confirm the lack of pipeline pressures, with Input and Output prices seen down in m/m terms to push y/y rates down to -1.6% and 0.5% respectively. Retail Sales are forecast to rise 0.2% m/m, but remain negative at -1.6% in y/y terms, while GfK Consumer Confidence is seen breaking a run of improvements since January’s -45, slipping to -26 from what was a still very weak -24. PSNB Budget data and the CBI’s Industrial Trends survey are also due. The CPI data will have to be a lot weaker than expected, above all in core terms, to prompt markets to price out a 50 bps hike in August.

Elsewhere, Eurozone final HICP is expected to be unrevised, with headline falling to 5.5% from 6.1% y/y, but core edging up 0.1 ppt to 5.4% y/y, but it will be the details on so-called super core (last 6.8% y/y) and low volatility inflation (last 5.3% y/y), which will be key in terms of market expectations on ECB rates. Japan’s National CPI is forecast at an unchanged 3.2% y/y, with the core core ex-Food & Energy edging down to 4.2% from 4.3% y/y. If correct, then the BoJ will likely keep policy on hold at its 27/28 July policy meeting, when all eyes will be on its updated forecasts, and any resulting policy tweaks. Australian Employment growth is expected to moderate to a very average 15K after unexpectedly surging 75.9K in May, with the Unemployment Rate seen unchanged at 3.6%. Canada’s CPI is forecast to show headline up a modest 0.3% m/m, with bases effects helping to bring the y/y rate down from 3.4% to just 3.0%, and more importantly core CPI measures to drop 0.2 ppts to 3.6% and 3.7% y/y respectively, and affirming market expectations that the recent 25 bps hike to 5.0% will likely be the final one in the current rate hike cycle, even if the BoC will probably retain a tightening bias until year end.

As noted, it will be a busy week for corporate earnings, with 68 S&P 500 companies reporting. Highlights for the week according to Bloomberg News are likely to include: ABB, Abbott Laboratories, American Express, ASML Holding, Assa Abloy, Atlas Copco, Avenue Supermarts, Baker Hughes, Bank of America, Bank of New York Mellon, Blackstone, Capital One Financial, Charles Schwab, Crown Castle, CSX, Discover Financial Services, DR Horton, Elevance Health, Equifax, Evolution, Freeport-McMoRan, Givaudan, Goldman Sachs, Halliburton, Hindustan Unilever, Infosys, Interactive Brokers, IBM, Intuitive Surgical, Investor, Johnson & Johnson, Kenvue, Kone, Lockheed Martin, Lonza, Marsh & McLennan, Morgan Stanley, Netflix, Newmont, Nidec, Nordea Bank, Novartis, Philip Morris International, PNC Financial Services, PPG Industries, Prologis, Roper Technologies, SAP, Schlumberger, Taiwan Semiconductor Manufacturing (TSMC), Tesla, Thales, Travelers, Truist Financial, UltraTech Cement, US Bancorp, Volvo, WEG.