Macroeconomics: The Week Ahead: 5 – 9 August

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The new week’s schedule is relatively light, dominated by Services PMIs/ISM and a raft of trade data from China, Germany, US and Canada, with China also seeing CPI & PPI and possibly Monetary & Credit aggregates, the US Fed’s Q3 Senior Loan Officer survey, Japan Wages and Household Spending, German Orders and Production, Canada Unemployment, UK BRC Retail Sales and RICS survey, Brazilian and Mexican inflation. The RBA and RBI are expected to hold rates at their policy meetings, there is a light run of central bank speakers, and a slew of July policy meeting minutes in Canada, Japan and Brazil amongst others. Corporate earnings will again be plentiful, with highlights likely to include: Allianz, Bayer, Bharti Airtel, Caterpillar, Eli Lilly, Glencore, Honda Motor, Infineon, Japan Post, Novo Nordisk, NT&T, Petrobras, Saudi Aramco, Siemens, SMIC, Sony, Tokyo Electron, Tokio Marine, Uber, Walt Disney, Yum! Brands and Zurich Insurance. Given this relatively schedule, markets will be in for a spot of navel gazing after the US labour data induced renewed equity market sell-off, which was broad based, rather than the rotation trades evident in the initial stages of this sell-off.

– Services PMIs: following on from the broad weakness in Manufacturing PMIs/ISM surveys, the US Services ISM will garner particular attention, above all with markets now pushing for a 50 bps Fed rate cut in September, which at this juncture appears very unlikely, above all as it would a) imply the wheels have fallen off the US economy (they have not), and b) that the Fed is way ‘behind the curve’ (perhaps at the margin, but not in such a way as to justify what would be a panic signal). But the final Services PMI is expected to be confirmed at a very robust 56.0, while the Services ISM is expected to bounce to 51.0, after a very choppy run over the past 4 months – March 51.4, April 49.4, May 53.8 and June 48.8. The latter is indicative of indecision and uncertainty, though the New Orders Index has offered a clearer signal of loss of moment, falling in 3 of the past 4 months from February’s 56.1 to June’s 47.8. Elsewhere China’s Services PMI is seen fractionally higher at 51.5, Japan’s Service PMI should be confirmed at buoyant 53.9, India to expand at a very strong 61.1, U.K. holding at 52.4, while Eurozone continues to expand at 51.9. Per se none of this would indicate a sharp sector downturn, and certainly not make the case for the Fed or other major central banks to tap on the rate cut accelerator pedal.

– China: Wednesday’s Trade data are forecast to show Exports picking up to 10.0%, and Imports to swing back to an increase of 3.3%, after unexpectedly falling 2.3% in June, but both will be flattered by benign base effects, above all Imports, and per se indicate that export demand is holding up relatively well despite headwinds, while weak domestic demand continues to dampen Imports. Friday’s inflation data are likely to confirm that demand weakness with the benefit of last year’s July fall in CPI to -0.3% from June’s Flat y/y only anticipated to inch up headline CPI 0.1 ppt to 0.3%, retailer discounting (per se compressing margins) will continue to weigh. PPI by contrast moves from benign Q2 to slightly adverse Q3 base effects, predicating expectations of a 0.1 ppt slip to -0.9% y/y. Credit aggregates may also ve released, though at the earliest on Friday, with the consensus looking for a paltry CNY 438 Mln increase in New Yuan Loans, while overall Aggregate Financing is seen up CNY 1.2 Trln, the former would be well below typical seasonal patterns, though the latter would be modestly above. Once again, none of these data points will serve to allay deep seated concerns about China’s economic outlook.

– Japan: This week’s Wages and Spending data will be of particular significance given the BoJ’s continued caution about whether inflation will actually hold around target. Labour Cash Earnings are seen accelerating to 2.4% from 2.0%, as the already agreed wage settlements filter through, while Household Spending is expected to rebound to -0.8% y/y from -1.8%, and rise quite substantially in m/m terms, per se offering backward justification for last week’s BoJ move.

– U.S.A. – Monday’s Fed Senior Loan Officers survey will be closely watched, above all in terms of Fed rate expectations. Given that banks reporting Q2 earnings have generally seen higher loan loss provisioning than analysts had been anticipating, it seems likely that the Fed’s report will show a general tightening of lending standards, which would also fit with rising trends in delinquencies and defaults.

– Germany: May’s run of activity data was to say the least desultory, and last week’s modest -0.1% drop in Q2 GDP only confirmed a very weak picture. The consensus looks for modest rebounds this week, with Factory Orders expected to rise 0.5% m/m after falling -1.6% in May, and Industrial Production to rise 1.0% m/m after dropping -2.5% m/m in May. Trade data are however expected to remain depressed, with Exports forecast to fall a further -1.5% m/m, after -3.6% in May, with Imports seen posting a dead cat bounce of 2.0% m/m after sliding 7.0% m/m previously.

– Australia: The RBA is expected to hold rates at 4.35%, and probably still sound relatively hawkish, given that the lower than expected core CPI readings were only in line with its May forecasts, which will be updated in the accompanying Statement on Monetary Policy (aka SOMP). Its May forecasts implied a small risk of a further rate hike by the end of 2024, and a first rate cut in H2 2025, predicated on a very gradual drop in CPI back into its 2.0-3.0% target range, markets by contrast expect an initial rate cut by year end. Its CPI and GDP forecasts are likely to be little changed, though it may tweak its Unemployment Rate forecasts slightly higher, given recent labour data.

– India: The RBI is also expected to hold its Repo Rate at 6.50%, but the question is whether it waters down or indeed relents on its hawkish policy bias. Core CPI is now at a record low, and with the budget lowering the fiscal deficit target to 4.9% (from 5.1% earlier in the year), the case for toning down its rhetoric is relatively strong. But the RBI under governor Das has typically eschewed pre-emptive moves, generally waiting for headline inflation to reach target before making any policy adjustments, per see the risk is that it maintains its hawkish stance.

– There are 78 S&P 500 companies reporting this week, with worldwide highlights as compiled by Bloomberg News likely to include: Acwa Power, Adnoc Gas, Ahold Delhaize, Airbnb, Allianz, Amgen, AppLovin, Banco do Brasil, Bayer, Beiersdorf, Bharti Airtel, Bridgestone, Broadridge Financial Solutions, Brookfield, Caterpillar, Cheniere Energy, China Mobile, Coca-Cola Europacific Partners, Constellation Energy, Constellation Software/Canada, Coupang, CRH, CSX, CVS Health, Dai-ichi Life, Daikin Industries, Datadog, DBS Group, Deutsche Telekom, Devon Energy, Diamondback Energy, Duke Energy, Eli Lilly, Emerson Electric, Energy Transfer, Equinix, Fidelity National Information Services, Fortinet, Fujifilm, Generali, Gilead Sciences, Glencore, Global Payments, Globalfoundries, Great-West Lifeco, Hilton Worldwide, Honda Motor, HubSpot, Idexx Laboratories, Infineon Technologies, International Flavors & Fragrances, Itau Unibanco Holding, Itochu, Japan Post, Japan Post Bank, KBC Group, Kenvue, Kweichow Moutai, Life Insurance Corp. of India, Manulife Financial, Marathon Petroleum, Martin Marietta Materials, McKesson, Mitsubishi Heavy, MPLX, MS&AD Insurance, Munich Re, Nippon Telegraph & Telephone, Novo Nordisk, Nutrien, Occidental Petroleum, Oil & Natural Gas, Oneok, Orix, Palantir Technologies, Parker-Hannifin, Petroleo Brasileiro, PTT, Realty Income, Recruit, Restaurant Brands International, RockwellAutomation, Saudi Aramco, Semiconductor Manufacturing International (SMIC), Sempra, Shopify, Siemens, Simon Property Group, SMC, SoftBank, SoftBank Group, Sony Group, State Bank of India, Suncor Energy, Super Micro Computer, Take-Two Interactive Software, Terumo, Tokio Marine, Tokyo Electron, Trade Desk, Transurban Group, Uber Technologies, Vulcan Materials, WaltDisney, Wheaton Precious Metals, Williams, Yum! Brands, Zoetis and Zurich Insurance.