Macroeconomics: The Day Ahead for 8 June

A very busy day for statistics which may in truth offer plenty of headlines but little in the way of market reaction, above all given the focus on the US and China inflation data over the next two days. There are UK BRC Retail Sales (strong gain compared with May 2019), Japan’s final Q1 GDP, Wages, Bank Lending and Economy Watchers (services) survey, German Industrial Production and French Trade to digest, with South Africa’s Q1 GDP, Brazilian Retail Sales and in the US: NFIB Small Business Optimism, Trade Balance and JOLTS Job Openings. On the events side of the equation, there are a couple of central bank speakers (BoE’s Haldane and ECB’s de Cos), an expected no change rate decision in Chile (though likely hinting that a hike is not far off) and the first of this weeks’ numerous grain and energy S&D reports via way of the ABARES quarterly Australian crop report and US monthly EIA Short-term Energy Outlook. From the overnight run of data, the revision to Japan’s Q1 GDP was relatively modest, with the jump in Real Earnings to an 11-yr high of 2.1% on the back of a 6.4% y/y increase in overtime pay (base effect flattered), and a much smaller than expected fall in both the Current (38.1 vs. f’cast 34.0) and Outlook (47.6 vs. f’cast 38.0) measures of the Economy Watchers survey being of greater significance, pointing to better prospects for private consumption and a much smaller hit to services from the current lockdown measures, a phenomenon witnessed in many other countries. As for German Industrial Production, the drop of -1.0% m/m serves as yet another reminder that survey optimism is not being matched by hard data, though as the attached chart comparing orders to output highlights the widely reported supply chain disruptions are clearly acting as a drag, above all in Construction (-4.3% m/m) and Consumer Goods, i.e. Autos, that fell 3.3% m/m.

** U.S.A. – May NFIB Small Business Optimism **

– A further modest gain is expected to 101.0, leaving the index only marginally below average levels in 2019, though still a fair distance below the record 108.8 high in August 2018. In more normal times, the strength that has been persistently reported in terms of the survey’s Employment metrics would suggest a higher than expected reading for May. The already published May employment measures showed a record 48% of companies had unfilled positions, and 34% planned to raise pay, with an even more remarkable 93% of companies surveyed reporting few or no qualified applications for open positions. But as the attached chart highlights, the optimism and strength of demand that this implies finds no echo in the numbers of those expecting the economy to improve, which slid sharply back to -15% from -8% in April, which can only be partly explained by the threat of higher taxes, and is the element that needs to improve quite sharply if the index is to make significant further progress. JOLTS Job Openings are expected to post yet another record, rising to 8.190 Mln after soaring by 597K to 8.123 Mln in March; the bigger question is what is the driver behind the inability to fill positions, is it an inability to go back to work due to health safety concerns, child care facilities and schools being unavailable (if affordable), is it as many Republicans have argued a disincentive due to enhanced/extended Unemployment benefits, a change in attitudes to working and working conditions, or is it signalling a genuine labour skills shortage paced by a shift in the form of labour demand? Doubtless all of these are playing some rule, but the latter two would have more profound implications, above all in terms of barriers to the recovery gaining traction.