Macroeconomics: The Day Ahead for 31 Aug 2023

It’s month end, and there is a deluge of data and a busy schedule of central bank speakers accompanies the publication of the account of the August ECB meeting, with a modest run of corporate earnings featuring CIBC, Dollar General and VMware. That run of statistics has Industrial Production from Japan and South Korea, Japan and German Retail Sales along with French HICP and Consumer Spending, UK Lloyds Business Barometer jump and Auto Output to digest. Ahead lie Eurozone and Italian CPI, Indian GDP/GVA, US weekly jobless Claims, Challenger Job Cuts and Chicago PMI, and Canada’s Q2 Current Account. Given that it is month end, and with the US looking ahead to the Labour Day holiday weekend, trading volumes may be quite thin. In terms of the overnight run of news, BoJ’s Nakamura’s comments that inflation is not on a sustained path to hitting the BoJ’s 2.0% CPI target, stand in sharp contrast to Tamura yesterday, and underline that as yet, there is no BoJ consensus on the outlook. Japan’s Retail Sales were a good deal stronger than expected, rebounding sharply (2.1% m/m) after dropping in June, but Industrial Production in both Japan and South Korea were worse than expected at -2.0% m/m. China’s NBS PMIs were mixed relative to forecasts (Mfg 49.7, Services 51.0), and while the former may imply that the Manufacturing downturn in China may be troughing, a significant rebound is not on the horizon given headwinds from external demand, and the lack of any meaningful measures to resolve the property sector crisis, where all eyes will be on the bondholder vote on Country Garden’s proposals for a repayment extension for an onshore bond.

** Eurozone – August CPI **

Given that German and Spanish HICP were slightly higher than expected and the upside miss from France due to the hike in electricity tariffs, the pan Eurozone reading is set to overshoot forecasts of 0.4% m/m 5.1% y/y headline and 5.3% on core CPI, though perhaps still edging down in y/y terms. Indisputably this would still be much too high, and hardly trending decisively lower, but given the array of negative survey signals on the economy, and the obvious need to assess the cumulative impact of their policy tightening to date, a pause should still be considered at the September meeting, though Schnabel’s comment this morning that ‘underlying price pressures remain stubbornly high’ suggests no mood for compromise from the hawks. The bigger challenge would be how to convey this is as a pause, given that it would in effect give primacy to growth over inflation dynamics, though the old Bundesbank ruse of using the contraction in monetary aggregates could always be dusted down for a fresh outing.

** India – Q2 GDP / GVA **

Amid the gloom on the global growth outlook, India stands out as a beacon of hope, with both GDP and GVA seen accelerating sharply to 7.8% y/y from 6.1% and 6.5% respectively in Q1. Double digit growth in both Manufacturing and Construction, along with some easing of inflation pressures (above all raw materials prices) in Q2 are likely to be the key drivers. while govt subsidies are very much a key element in the anticipated strength in Business CapEx, overall Govt Spending has been curbed, and stands to be something of a drag. It should also be noted that the central bank projection actually stands higher than the consensus at 8.1%, and suggests some upside risks relative to the consensus estimate.

** U.S.A. – July Personal Income / PCE **

Given the more significant loosening shift in the labour market signalled earlier this week, today’s PCE deflators have a perhaps higher degree of sensitivity, with the headline Personal Income and Expenditure readings seen up 0.3% m/m and 0.7% m/m respectively. Headline and core PCE deflators are seen up 0.2% m/m, thus ticking up to 3.3% and 4.2% y/y from 3.0% and 4.1% and echoing the CPI data, and per se suggesting that the labour market will need to loosen further to impinge more significantly on spending, incomes and prices.