Main Macro Events This Week
Markets have had plenty to chew on over the past week or so and President Trump has been right at the sharp end of the action as his whirlwind tour took him through Brussels, London and finally Helsinki. In the process, he left friend and foe alike on notice over perceived inequities on military spending, trade alliances and post-cold war standing. The themes weren’t new, but the force and timing of the mixed political messages caused alarm overseas. A plethora of corporate earnings will dominate in the week ahead, along with any volatility arising from the ratcheting up of trade rhetoric.
United States: The economic data calendar in the week of July 23 will be dominated by Q2 GDP growth, though we will have to wait until Friday for the release. A robust 4.1% pace is expected, with positive contributions from consumer spending, net exports and inventories. Also on tap will be existing home sales, which are estimated to rise, and new home sales, which are projected to fall, partially reversing a June surge. Durable orders should rebound from weakness in the prior two months while the advance trade numbers should reveal a deterioration. Finally, the final July reading of the Michigan Sentiment should be little-changed from a lower but still-strong early-July reading.
Fedspeak: In theory, Fedspeak will go into hibernation ahead of the next Fed meeting set for July 31 – August 1, which is expected to result in a pause. Of course, more Trump frontal attacks on the Fed will heighten market interest in what should be an uneventful policy meeting, though the Committee itself will be unaffected. St. Louis Fed’s Bullard said last week in post-speech comments Fed will continue to take the best actions to achieve its dual mandate.
Canada: The May Wholesale report (Monday) is expected to reveal a 0.7% gain in shipment values after the 0.1% increase in April. An as-expected result would be supportive of the projection for a 0.3% gain in May GDP (m/m, sa) following the 0.1% rise in April. Moreover, a firm May result would put Q2 GDP on track for a 2.8% gain (q/q, saar) that would match BoC’s estimate for the separate quarterly real GDP measure. Average weekly earnings for May (Thursday) are projected to gain 0.1% (m/m, sa) after the 0.3% drop in April. There is nothing scheduled from BoC this week, or until the September 5 announcement.
Europe: The spotlight also will be on Draghi this week, although no major changes are expected to the ECB’s central message from June. Net Asset Purchases remain on course to be phased out by the end of the year, but Draghi may be under pressure to clarify the commitment to keep rates steady “through the summer” of 2019. The question is whether that excludes a move at the September 2019 meeting, as one ECB member seemed to imply, prompting a number of “source stories” suggesting that not everyone at the council would be happy to wait too long for the first move. Indeed, with the deposit rate still firmly in negative territory and underlying inflation on the way higher, the central bank may have to hike rates earlier than some expect, even if uncertainty about the global trade and growth outlook mean ECB is right to keep its options open.
Data releases include the first reading of Q2 GDP from a major Eurozone country as well as first confidence data for the third quarter in the form of preliminary July PMI readings and July German Ifo confidence numbers. Growth indicators for the second quarter initially looked very shaky, but on the whole we still expect a rebound in quarterly growth and to see an acceleration in French Q2 GDP growth to 0.4% q/q from 0.2% q/q in Q2.
UK: The focus will remain on Brexit negotiations, which haven’t exactly been going swimmingly. Last week, Prime Minister May’s fragile government only just managed to push through several bills on modifications to the newly-formed Brexit policy document, which will form the basis for negotiating with the EU. The European Commission stated last week that “everyone must now step up plans for all scenarios” ahead of March 29 next year, especially in the event of a no-deal exit. The Pound is trading about 13-14% lower in trade-weighted terms since the vote to leave the EU back in June 2016, much of which represents the Brexit discount that market participants are demanding. This discount is expected to persist.
The calendar this week is relatively quiet, with the only highlights being provided by the July releases of the CBI industrial trends and distributive sales surveys (due Tuesday and Thursday, respectively). The Total Orders headline of the industrial trends survey expected to dip to a reading of 8, down from 13 in the previous month, and the realized sales headline of the retail survey to fall to a reading of 16 after 32 in the month prior. The CBI surveys don’t tend to cast much impact in markets due both the amount and breadth of participants, and the relatively small survey period.
Japan: The calendar is quiet until Thursday, when June services PPI is due. The prices are expected to slow to a 0.1% y/y pace versus the prior 1.0% increase. July Tokyo CPI (Friday) is seen at an unchanged 0.6% y/y overall, and a steady 0.7% y/y clip on a core basis.
Australia: The CPI (Wednesday) is expected to grow 0.5% in Q2 (q/q, sa) after the 0.4% rise in Q1. The Trade Price report (Thursday) is seen showing a 1.0% rise in Q2 import prices (q/q, sa) after the 2.1% bounce in Q1. A 2.0% drop in Q2 exports prices is projected after the 4.9% gain in Q1. The Q2 PPI is scheduled for release on Friday. The RBA is uncharacteristically silent until the August 7 meeting, where no change to the current 1.50% setting for the cash rate is expected.
New Zealand: The trade report (Wednesday) is expected to show a narrowing in the surplus to NZ$200 mln in June from NZ$294 mln in May. There is nothing from the RBNZ this week. To review the June meeting, the RBNZ held rates at 1.75% and opened the door to a rate cut if necessary. The next move is anticipated to be a rate increase — but the expectation is for steady policy well into next year. The next meeting is on August 9.
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Andria Pichidi
Market Analyst
HotForex
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