Macroeconomics: The Day Ahead for 7 July

A much busier day awaits in terms of both data and events with German Industrial Production (missing forecasts at -0.3% m/m, but almost fully offset by a 0.7 ppt upward revision to April), Norway (at 1.8% m/m, double the forecast 0.9%) and Sweden monthly GDP and French Trade to digest ahead of Taiwan Trade, US JOLTS Job Openings and Russian CPI. The latter is expected to rise to 6.4% y/y headline and 6.3% y/y core, and anything higher than forecast would bake expectations of as much as a very aggressive 100 bps rate hike at this month’s Bank Rossi meeting into the cake. The events schedule has FOMC and MNB minutes, the EC’s latest forecast update which should see some upgrades, and the EIA’s Short Term Energy Outlook as oil markets try to fathom the implications of the OPEC+ impasse. There are also bond auctions in UK (30-yr I-L), Germany and Canada (both 5-yr). While there was some disappointment at the setback in the Services ISM yesterday, and a sharp correction in the oil price following the spike on the back of the OPEC+ impasse, the question is whether the drop in US Treasury yields was heavily exaggerated due to the lack of Treasury supply this week and last (as the Fed keeps up its weekly QE pace), prompting both short capitulation, and given that the drop in Reverse Repo volumes to $772 Bln after the quarter end spike to $992 Bln underlines the extent of the well documented collateral shortage. The fall also compresses spreads with Germany, Japan and China, the latter seemingly helping to give the CNY a leg higher vs. the USD, and likely to curb any further dollar strength.

** U.S.A. – May JOLTS Job Openings / June FOMC Minutes ** Following on from Friday’s better than expected Payrolls and other rather more mixed labour indicators, which the Fed will see as encouraging, but not meeting its “substantial further progress” goal, the focus will be on JOLTS Job Openings, which are forecast to edge up to a fresh record 9.313 Mln. Within the report, there will be particular focus on the ‘quit rate’. The Fed minutes are unlikely to do anything but underline a broad spectrum of opinions on the appropriate timing to start tapering, though it will be interesting to see how many saw upside risks to forecasts on inflation and employment, and if there was any discussion about how tapering might be communicated and enacted (i.e. pace, balance between Treasury and MBS, etc.), with a number of recent Fed speakers voicing concern that anything too complex might send a confused message to markets.