Macroeconomics: The Day Ahead for 4 August

Services PMIs dominate the day’s statistical schedule along with US ADP Private Employment, with New Zealand’s strong labour data (cementing expectations of a rate hike at the next RBNZ meeting) and Australian Retail Sales to digest, but it is the speech by Fed vice chair Clarida which likely ends up front and centre in market terms. There are also speeches by two of the Fed’s current hawks, Bullard and Kaplan, while Brazil’s BCB is expected to follow Russia’s Bank Rossi in hiking rates aggressively by 100 bps to 5.25% as inflation continues to accelerate, and it will likely continue to sound hawkish. Another busy day for corporate earnings features automakers GM, Honda and Toyota, along with Albemarle, Gerdau, Kraft Heinz, Legal & General, Marathon Oil and Petroleum, Petrobras, Uber and Western Digital. Govt bond supply comes via way of German 5-yr and Canadian 10-yr, while the US Treasury details next week’s quarterly refunding. In terms of yesterday’s about turn in risk assets, a couple of observations: a) it is scary just how often equity indices are almost mindlessly mirroring oil price moves, b) it is also testament to the fact that central banks’ financial repression and excessive liquidity largesse has almost completely eliminated markets’ reaction function, therefore anyone citing bond yield levels as a proxy for economic and rate expectations is being totally disingenuous.

U.S.A. – Clarida speech

– Fed’s Clarida speech on “Outlooks, Outcomes, and Prospects for Monetary Policy” will be key given that he along with Brainard are the key influencers in terms of Fed policy, and will carry the day as far as actual policy decisions go, even if the chorus of dissenters of those erring to a more hawkish stance is getting louder, with Waller joining the ranks of regional Fed presidents calling for tapering to start soon. If Brainard’s weekend comments are anything to go by, then Clarida will echo Powell in saying that there is still “substantial further progress” needed before the Fed can decide on tapering, while doubling down on the ‘transitory’ inflation narrative, and underlining risks to the outlook from the spread of the delta variant.

U.S.A. – July ADP Employment

– The usual caveats apply about the read across from the ADP report to Friday’s official Private Payrolls apply, with consenus looking for a steady reading of 683K vs. June’s 692K, as against an acceleration in the official reading from 662K to 720K. While re-opening and the termination of enhanced benefits and the large volume of vacancies (roughly 1:1 in ratio terms to the number of those seeking employment) implies continued further strength, there are some downside risks. Firstly the anecdotal evidence suggests that contrary to some political narratives, fear of infection and lack of childcare facilities are much bigger hurdles than disincentives due to enhanced benefits, per se the latest spike in infections could well act as a drag. Secondly high frequency data from payrolls and time management companies (such as UKG and Homebase) for the 4 week period between the Payrolls surveys suggest hiring slowed relative to mid-June. Last but certainly not least skills mismatches continue to be cited as THE main reason cited for positions not being filled.