Macroeconomics: The Week Ahead: 30 Aug to 3 Sep 2021

The new week brings month end, and the usual run of PMIs, Eurozone inflation and US labour data to kick off September, with the overarching themes remaining the same: the spread of the Covid-19 delta variant and its impact on the global economic recovery, the timing and pace of the Fed taper, an array of geopolitical tensions (above all the US/NATO’s ignominious exit from Afghanistan), and China’s wide ranging regulatory clampdowns. In event terms, Europe dominates the schedule with the ECB’s annual Research Conference, a Bundesbank symposium, the Alpbach and European House-Ambrosetti annual forums, though the focus will clearly be more on a modest run of Fed speakers, and whether China’s PBOC opts to add any further liquidity beyond efforts to smooth month end pressures along with the OPEC+ production meeting. There is also the threat of major disruption and destruction from Hurricane Ida as it makes landfall in Louisiana late on Sunday. The commodity space will also be looking to the USDA’s Agricultural Paid and Received Report, the UN FAO World Food Price Index, which may rebound after two months of easier though still very high prices, and the EIA’s 914 Oil production report will be watched closely, as will China’s August Steel PMI which collapsed in 7.6 pts in July to 43.1, along with the latest Brazil iron ore exports data. Industrial Metals markets are also waiting on Chile’s Senate Mining Committee decision on the royalty tax on copper, which will impose one of the heftiest tax burdens in its current form, though there may be some measures to soften the impact of the bill passed in the lower house. The Eurozone sees a much busier run of govt bond auctions after a summer lull, with sales in Germany, France, Italy, Netherlands and Spain, while the UK has a 5-yr sale, and Japan 2 and 10-yr, but there will be no coupon supply in the US. Corporate earnings will again be relatively light, outside of a burst of results from China to end the month.

– Statistically, the focus in terms of PMIs will be on any revisions to what were somewhat disappointing drops in a number of G7 flash PMIs, with Asian PMIs likely to be depressed by the various lockdown measures, which are expected to see China’s NBS and Markit Services PMIs drop back quite sharply from July levels, while Italy and Spain should see the strength of recent months sustained. Aside from the week ending labour market report, the US has a relatively busy run of statistics, kicking off with an expected modest rebound in Pending Home Sales after a 1.9% fall in June, while both FHFA and CoreLogic House prices are seen posting further sharp rises (1.9% and 1.8% m/m). After unexpectedly edging up to a pandemic high of 129.1 in July, Consumer Confidence is projected to drop back to a still very strong 123.0, and continuing to contrast sharply with the depressed level of Michigan Sentiment, buoyed mostly by the strength of labour demand, though the spread of the delta variant imparts some downside risks. The well documented supply chain problems and resultant low inventories are expected to push US Auto Sales down for a fourth month to a SAAR pace of 14.50 Mln vs. July’s 14.75 Mln, with risks skewed to the downside, even though actual demand remains high; Construction Spending, Factory Orders and Trade Balance are also due. Friday’s labour data are anticipated to see another solid 750K rise in headline Payrolls, with less of a skew from public sector education hiring (July +231K), while Private Payrolls are seen little changed at 700K vs. July’s 703K, while the Unemployment Rate is forecast to drop to a new pandemic low of 5.2% from 5.4%. There will continue to be plenty of attention paid to the Underemployment Rate, which mirrored the headline with a sharp drop to 9.2% in July from 9.8%, while the Participation Rate is seen edging up marginally to 61.8%; however both of these remain a lot weaker that pre-pandemic readings of 7.0% and 63.5% respectively. Average Earnings will also be getting closer attention, given the well documented labour shortages, but are forecast to ease to 0.3% m/m vs. June and July’s 0.4%.

  Elsewhere Eurozone CPI is forecast to post a sharp rise in y/y terms to 2.7% from 2.2%, with core also expected to jump to 1.5% from 0.7%, with base effects from last year’s German sales tax cut, the unwinding of early summer sales effects in France and Italy, and the reweighting of holiday/travel prices all contributing to the jump, despite a forecast of just 0.2% m/m. After a much steeper than expected 91K fall in July, German Unemployment is expected to drop a further 40K, and the Unemployment Rate to dip to 5.5& from 5.7%, but the key question as ever will be the level of short-time workers (last ca. 1.5 Mln), which remains high, though well down on the pandemic peak of 6.0 Mln in April 2020, and December’s 2.39 Mln. Otherwise there are the EC’s Confidence surveys, German Retail Sales and French Consumer Spending, with the UK looking to Nationwide House Prices, Consumer Credit, Mortgage Lending and BRC Shop Prices. Japan has its usual end of month run of Unemployment, Production and Retail Sales, and there are Q2 GDP data from Australia, Brazil, Canada, India and Turkey, though the latter will focus more on the latest CPI and PPI readings.

– There are no major central bank meetings this week, though Chile’s BCC is expected to follow Brazil and Mexico in starting to tighten policy, with an initial relatively aggressive 50 bps rate hike to 1.25%, and is likely to signal that there will be more hikes in coming months, especially after July CPI surged more than expected to 4.5% y/y from 3.8%. As for the OPEC+ production meeting, the expectation is that the group will stick with the very hard won agreement to increase output by 400K bbls per month, after what has been a fairly wild ride for oil prices in recent weeks, culminating in last week’s rebound.

– On the political front, Germany’s federal elections are now less than a month, with a near imponderable array of possible coalitions, and any of the three major parties could win, though for the time being the SPD is seeing a sharp revival its fortunes, mostly thanks to the relatively assured performance of its leader Finance Minister Scholz, by comparison with the gaffe prone and dull CDU leader Laschet, and the very naive Green leader Baerbock. I will be writing a longer piece on the elections later this week, but one key observation is that the attached table of voter evaluations of all the possible coalitions highlights that not one of them is evaluated positively on balance, and voters clearly have no appetite for a CDU or Green led coalition. This would however look different if there were a seemingly unlikely last minute switch from Laschet to Bavarian PM & CSU leader Soeder. On a separate note, with some potential implications for future OPEC tensions, it is worth keeping an eye on an emergent alliance in the Middle East, as the UAE shifts further away from Saudi Arabia, and forges stronger links with long-time allies Turkey and Qatar. Last but not least on the subject of how and why China might step into the void in Afghanistan, this article “Will China get embroiled in the graveyard of empires?” by AIES think tank director Velina Tchakarova is well worth a read: https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.orfonline.org%2Fexpert-speak%2Fwill-china-get-embroiled-in-the-graveyard-of-empires&data=04%7C01%7CSimrat.Sounthe%40admisi.com%7C74fb9b3ebf1a48d0e5d008d96b13ba1d%7C2f55bf3242d444b3a8c2930ac8b182b2%7C0%7C0%7C637658554757272402%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=0VZNqPWGNDqjULApv%2Fne9sbbYmmgnZ4tYlEV%2BhyURMk%3D&reserved=0 .

As noted, the corporate earnings schedule is quite light, with Bloomberg News suggesting that the following are likely to be among those making headlines: Alimentation Couche-Tard, Aeroflot, Bank of China, BOC Hong Kong, BOE Technology Group, BNP Paribas Fortis, Broadcom, Brown-Forman, Campbell Soup, Chewy, Ciena, Cooper Companies, Crowdstrike, Discovery Ltd., DocuSign, EMS-Chemie Holding, Five Below, Fortescue Metals Group, Ganfeng Lithium, Haier Smart Home, Hewlett Packard Enterprise, Hormel Foods, Meituan, Midea Group, NetEase, Okta, Old Mutual, Pernod Ricard, Smith & Wesson, Toro and Zoom Video.