Macroeconomics: The Day Ahead for 31 August

As is typical for month end, there is a very busy schedule of data to get through, even if a good deal of it gets little more than lip service, with markets continuing to embrace a Fed ‘dovish taper’ view, which ironically only reinforces the point that Fed and other G7 central banks are genuinely not serving any other ‘purpose’ than to fuel further asset price inflation, with no tangible benefits for their economies. There are China’s NBS PMIs (Services falling sharply on lockdown measures), Japan and South Korea’s Industrial Production, Japanese labour data, Australia’s Q2 Current Account & Govt Spending (the latter set to give a bigger than expected boost to tomorrow’s Q2 GDP), French HICP & revised Q2 GDP along with UK Lloyds Business Barometer to digest. While ahead lie Eurozone CPI, UK Consumer Credit and Mortgage Lending, various EU national GDP readings, Polish CPI, Canada and India Q2 GDP, and in the US House Prices and Consumer Confidence. On the events schedule, ECB’s Holzmann and Knot speak at the first of this week’s busy run of conferences in the Eurozone, while Banco de Mexico publishes its quarterly inflation report, and Chile’s BCC is expected to follow Brazil and Mexico in starting to tighten policy, with an initial relatively aggressive 50 bps rate hike to 1.25%, and is likely to signal that there will be more hikes in coming months, especially after July CPI surged more than expected to 4.5% y/y from 3.8%. In the commodity space, the trail of destruction left by Hurricane Ida will remain front and centre, with the EIA’s 914 Oil production and USDA’s Agricultural Paid and Received reports also in view. Govt bond supply takes the form of Dutch 4-yr and Italian 5 & 10-yr.

** Eurozone – August CPI / Germany – Aug Unemployment ** 

Eurozone CPI is forecast to post a sharp rise in y/y terms to 2.7% from 2.2%, with core also expected to jump to 1.5% from 0.7%, with base effects from last year’s German sales tax cut, the unwinding of early summer sales effects in France and Italy, and the reweighting of holiday/travel prices all contributing to the jump, despite a forecast of just 0.2% in m/m terms. While German HICP was bang in line with forecasts, both France (2.4% y/y vs. exp. 2.1%) and Spain (3.3% y/y vs. exp. 2.9%) were much higher than forecasts, skewing risks very firmly to the upside of the consensus for the Eurozone as a whole. After a much steeper than expected 91K fall in July, German Unemployment is expected to drop a further 40K, and the Unemployment Rate to dip to 5.5& from 5.7%, but the key question as ever will be the level of short-time workers (last ca. 1.5 Mln), which remains high, though well down on the pandemic peak of 6.0 Mln in April 2020, and December’s 2.39 Mln.

** U.S.A. – Jun House Prices / Aug Consumer Confidence  **

– Both the FHFA and CoreLogic House price measure are seen posting further sharp rises (1.9% and 1.8% m/m), which would see the CS Corelogic measure jump again to an annual pace of 18.6% vs. May’s 16.99%, underlining the point that while demand remains strong, thanks to low mortgage rates, affordability is an increasing headwind, even if would appear that it is also enabling a modest improvement in inventories. After unexpectedly edging up to a pandemic high of 129.1 in July, Consumer Confidence is projected to drop back to a still very strong 123.0, and continuing to contrast sharply with the depressed level of Michigan Sentiment, buoyed mostly by the strength of labour demand, likely to be reflected in another strong labour differential), though the spread of the delta variant does impart some downside risks.