Macroeconomics: The Day Ahead for 30 July

It’s month end, which may well serve to dampen reaction to a deluge of economic data, with advance Q2 GDP and CPI readings in the Eurozone and US monthly PCE deflators getting top billing. But there are also the overnight run of Japan and South Korea Industrial Production, along with Japan Unemployment and Retail Sales to digest, while Hong Kong and Taiwan also have Q2 GDP, Canada awaits monthly GDP and the US Q2 ECI, Chicago PMI and final Michigan Sentiment. China’s NBS PMIs will also be published tomorrow, and are seen little changed after an unexpected drop in Services in June. The events schedule has the currently hawkishly inclined Bullard as the first of the post FOMC meeting speakers and after the close the generally dovish Brainard, with various EIA and USDA reports also due. Another busy day for corporate earnings has a raft of Japanese and European financials reporting, along with Linde, Renault and a production report from Glencore, while Caterpillar, Exxon Mobil and Procter & Gamble feature amongst others in the US. Next week sees the usual start of month run of PMIs, US labour data and German Orders and Production, with BoE and RBA policy meetings in view. A fresh set of BoE forecasts are likely to revise near-term forecasts for CPI higher (peak perhaps to 3.5% vs. June estimate of 3.0%), and perhaps reduced the pace of its QE purchases). By contrast the lockdown and infection rate woes in Australia are expected to see the RBA reverse its July decision to taper its QE programme from September.

Eurozone – Q2 GDP / July CPI

– Following on from the US GDP that was a good deal more robust in its detail than the headline ‘miss’, and robust Belgium Q2 GDP (1.4% q/q 14.5% y/y) and slightly better than expected French (0.9% q/q 18.7% y/y) and much better Spanish (2.8% q/q) GDP, the focus turns to the Eurozone, with the risks very firmly to the upside of the projected 1.5% q/q, above all thanks to private consumption, and while inventory headwinds due to supply chain disruptions will likely drag, there will be considerable offset from a strong contribution from Net Exports (as per France -2.1 ppts inventories, Net Exports +0.7 ppt), above all for Germany and Italy. The slightly higher than expected 0.5% m/m 3.1% y/y for German HICP and 0.1% m/m 1.6% y/y imparts clear upside risks to expected Eurozone readings of 2.0% y/y headline and 0.7% y/y core, but as noted previously, the divergent trends in Germany & Spain as against France & Italy due to compositional, timing and base effects will still result in little overall change, but August and September will offer rather more interesting perspectives into underlying trends.

U.S.A. – June Personal Income / PCE

– While the PCE data have been largely pre-empted by yesterday’s Q2 GDP data, it is likely to be higher than the consensus of 0.7% m/m given the strength in the quarterly reading (though there may be upward revisions to May). The quarterly PCE data were in line with forecasts, implying that the June PCE Deflators be in line with forecasts of a headline rise to 4.0% y/y from 3.9%, with core at 3.7% from 3.4%. Given the Fed’s narrative has inflation as being largely transitory the Dallas Fed’s Trimmed Mean PCE (last 2.8% y/y) will also be in focus. Also on tap will be the Q1 Employment Cost Index, which is seen up maintaining its Q1 pace 0.9% q/q, with the focus on the balance between Wages & Salaries (Q1 1.0% q/q) and Benefits (Q1 0.6% q/q), along with the July Chicago PMI which is forecast to dip to a still very robust 64.1 from June’s 66.1.