Macroeconomics: The Day Ahead for 7 September

While optically a lot busier than Monday, today’s schedule essentially boils down to digesting overnight data and events: China’s Trade, UJ BRC Retail Sales, Japan’s Wages & Household Spending, German Production and the RBA policy meeting, while ahead lie Germany’s ZEW survey, Eurozone final Q2 GDP and South Africa’s Q2 GDP. Aside from the RBA decision, the events schedule has two MPC speakers (Mann and Saunders), while there are govt bond auctions in UK (4 & 50-yr), Germany (I-L), Austria (10 & 16-yr) and the US (3-yr). The RBA managed to pull off what many will call a ‘dovish taper’, sticking to its taper plan (cutting weekly purchases by A$1.0 Bln) to A$4.0 Bln, but effectively offsetting it by extending the tapered QE timeline to mid-February. For all that markets appear to be riding high on expectations of a deferred Fed taper, and talk of further ‘stimulus’ in China (another RR cu), the fact that China’s largest property developer Evergrande is staring into a default abyss serves as a reminder that central bank liquidity is not a salve for solvency. 

China’s Trade data were considerably better than expected, even if some of the commodity imports data were less encouraging. The pick-up on both sides of the trade equation was broad based, with exports of consumer goods (electronics, furniture, recreation) getting a boost from Christmas related demand. But some easing of port bottlenecks appears to account for much of the acceleration, particularly evident in iron ore imports, which were also boosted by higher Brazilian export run rates, though this is also resulting in a sharp build-up of port iron ore inventories, due to govt steel output curbs. By contrast, Copper Imports continue to suffer a major seizure, down 40.1% y/y, with Chinese buyers clearly baulking at current prices, and suggesting that local authorities will have to continue selling down reserve inventories, given that underlying demand is certainly not as weak as the also base effected y/y data suggests. 

German Industrial Production finally rebounded 1.0% m/m in line with expectations, as a pick-up in Auto output saw Capital Goods output jump 3.2% m/m, though this was partly offset by another 3.2% m/m drop in Energy output. Given continued supply chain disruptions, the July rebound may prove to be less enduring, even if yesterday’s Orders data underline a very robust backlog of orders to support output going forward.