Macroeconomics: The Day Ahead for 14 July

As much as the Bastille Day data schedule has plenty to ponder, it will be the array of central bank events that dominates the day’s proceedings. Statistically there are the gamut of UK inflation indicators, Singapore’s provisional Q2 GDP, South Korea’s labour data, Australia Westpac Consumer Confidence and India’s WPI to digest, while ahead lie Swedish CPI and US PPI. On the central bank front Powell’s first of two semi-annual testimonies on monetary policy to House and Senate committees gets top billing, but the Fed’s Beige Book, rate decisions in New Zealand, Turkey, Canada and Chile and various Fed, ECB, BOE and RBA speakers will certainly get attention. On the earnings front Bank of America, Citigroup, PNC Financial Services and Wells Fargo follow on from JPM and GS yesterday, while Delta Air Lines features in terms of non-financials. A more modest bond auction schedule has sales in Germany and Portugal.

U.K. – June CPI, RPI & PPI 

– Headline CPI (0.5% m/m 2.5% y/y vs. f’cast 0.2%/2.2) and Core (2.3% vs. f’cast 2.0%) were both well above forecast, as was RPI, but if PPI is anything to go by, then pipeline pressures are easing, with Input and Output prices dipping against expectations of a modest rise. In the detail, Transport (1.3% m/m 7.2% y/y) and Household (1.4% m/m 3.3%) were the most significant pressure points along with Vehicles (4.1% y/y vs. prior 2.9%), Clothing (0.8% m/m 3.0% y/y), Recreation (0.4% m/m 2.1% y/y) and Restaurants & Hotels (0.3% m/m 2.5%). While the data does send something of a warning shot across the bows of the BoE’s MPC, they would still be justified in suggesting that the pressures are likely to prove to be transitory and mostly supply side, and hardly indicative of any significant demand side pressures.

U.S.A. – June PPI 

– Following on from another upside surprise on CPI, still paced mostly by re-opening pressures, though with some upward creep in other areas, the focus turns to PPI, though this is unlikely to add much to the overall debate on how transitory inflation pressures are. The consensus has headline rising 0.6% m/m with energy prices adding some pressure, but thanks to base effects from last year’s oil price rebound only resulting in a slight pick up in y/y terms to 6.7% from 6.6%. Both core measures are projected to rise 0.5% m/m, pushing the ex-Food, Energy and Trade y/y up to 5.6% from 5.3%; an elevated pace, but ostensibly looking as though a peak or at least a plateau is near.

** U.S.A. – Powell Testimony / Beige Book **

– While there may be some hope that Powell offers a clearer timeline on the Fed talking the talk and walking the walk on tapering, the prepared testimony was agreed at the June FOMC meeting, and will stick to the narrative of it being appropriate to start talking about tapering, without offering anything concrete. The Q&A may offer some insights on perceived balance of risks to growth, inflation and employment, though Powell will doubtless emphasis that the metric of ‘substantial further progress’ on employment and inflation has not yet been met, and while progress has been made, there remains a great deal of uncertainty and numerous challenges. However as this is a piece of political theatre, the questions are likely to focus more on fiscal rather than monetary policy, and also feature some questions about this potential re-appointment as Fed Chair (a decision being likely sometime in the autumn). Powell has been more circumspect about the need for a further fiscal boost this year, after last year’s cheerleading, and will doubtless be cautious in endorsing outright the Biden administration’s additional fiscal plans, especially as much of it continues to be debated in Congress. The Beige Book will also be important, specifically in terms on outlook optimism, labour demand skills shortages and compensation plans, supply chain disruptions, and the degree of success that companies are having in passing on higher raw materials prices.

Central Bank policy meetings – New Zealand, Canada, Turkey and Chile

– As expected the RBNZ held rates at 0.25%, but unexpectedly ends its QE programme, which had already been sharply reduced from a peak pace of NZ$1.8 Bln to just NZ$200 mln per week. Given the sharp drop in Unemployment and an upward flip in inflation, as well as a rather frothy housing market, and some hints at a rate hike before year end by governor Orr back in May, the move was not really that surprising, and leaves markets pricing in a rate hike in August. Canada’s BoC is also expected to hold rates at 0.25%, and to continue to taper its QE purchases by a further C$1.0 bln to C$2.0 Bln per week. The Q2 BoC Business Conditions survey rose to a record high of 4.2, and perhaps most notably none of the businesses surveyed expected a deterioration in business activity in outlook terms, even if the BoC will underline that risks from pandemic variants remain. The sharper than expected 230K rebound in Employment as the economy re-opened, while perhaps not fully meeting the ‘broad based’ requirement that governor Macklem has emphasized, will nevertheless embolden it to reduce accommodation, even if the uptick in May core CPI (Median 2.4% y/y and Trimmed Mean 2.7% both from prior 2.3%) remains relatively contained, above all relative to the US. Turkey’s TCMB remains in no position to reduce rates from 19.0%, with the latest inflation expectations survey seeing both 1 yr (12.6% vs. 12.1%) and 2 yr rise (10.4% from 10.1%), with June CPI also jumping more than expected to 17.5% for both headline and core, leaving real rates at very low levels. Last but not least Chile’s BCC is the latest LatAm central bank expected to start a tightening cycle with a modest 25 bps hike to 0.75%, with the recovery gaining further traction in May (2.6% m/m 18.1% y/y), and CPI rising to 3.8% y/y (though below the forecast of 4.1%), and the govt ramping up spending plans with 50% increase ($9.0 Bln) in 2021 borrowing to support the economic recovery from the pandemic. All of these central bank moves serve as a reminder that for all understandable fixation on G-3 central bank policy outlooks, there is already very substantial divergence in Latin America, CEE and Russia.