Macroeconomics: The Day Ahead for 2 September

After yesterday’s deluge of data, today’s schedule looks very modest, and unlikely to distract the market focus on tomorrow’s jobs data ahead of the long Labor Day weekend in the US. There are South Korea’s CPI, Australian Trade and Swiss CPI and Q2 GDP to digest, while ahead lie US and Canadian Trade, US Challenger Job Cuts, weekly jobless claims and Factory Orders and Brazilian Industrial Production, though it may well be the UN FAO Food Price Index, which may rebound after two months of easier though still very high prices, that garners the most attention. There are Fed speakers scheduled, but both Daly and Bostic’s views on the policy outlook are well known, and their speech topics are in any case not policy related. Govt bond supply takes the form of multi-tranche longer-dated sales in France and Spain, while Canada sells 10-yr.

** U.S.A. – Weekly Jobless Claims **

– A further modest dip is expected for Initial Claims to 345K from 353K, with a larger improvement seen for Continued Claims to 2.808 Mln form 2.862 Mln, as the end of extended / enhanced benefits in all US states looms. The latter is capture rather better by the sharp decline in the latter half of July in PUA/PEUC (Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation) claimants to 8.799 Mln in the first week of August, though it still remains very high, underlining the extent of labour market slack. The Trade Balance is unsurprisingly expected to echo the preliminary Goods Trade Balance to $71.0 Bln from June’s $75.7 Bln, though continued shrinkage in the Services surplus (last $17.4 Bln) imparts some risk of a slightly wider than expected deficit, but still suggesting a positive Net Exports contribution to Q3 GDP (the Atlanta Fed will also update its NowCast for Q3 GDP, last 5.3% SAAR).

** Brazil – July Industrial Production **

– Following on from yesterday’s miss on Brazil’s Q2 GDP (-0.1% q/q vs. exp. +0.2%), today sees Industrial Production, which is expected to drop 0.8% m/m, which would be the fourth drop in six months. While the impact of the worst drought in a century on its large agricultural sector has been well been well documented, rather less has been written about its impact on hydropower generation, with many hydroelectric reservoirs emptied and power having to be rationed, and thus heavily constraining the mining sector. The situation is even worse than most had assumed, with Mines & Energy Minister Albuquerque admitting on Tuesday that Brazil had lost power output equal to the energy consumed by the city of Rio de Janeiro in the past five months. The risks for today’s reading are therefore firmly skewed to the downside of the consensus estimate, despite the still reasonably solid pace of manufacturing activity implied by yesterday’s Manufacturing PMI (53.6 vs. July 56.7), which starts to look barely credible.

On a much broader basis, the latter point could also be made about Manufacturing PMIs in any countries with large scale Auto producers, given the anecdotal evidence pointing to massive impairment of auto output due to chip shortages. The latter above all reflected in another very sharp and much larger than expected fall in US Auto Sales yesterday to just 13.06 Mln vs. July’s 14.75 Mln. It is also worth reviewing the attached graphic showing all the PMI Supplier Deliveries sub-indices by country just to underline the scale and magnitude of supply chain bottlenecks.