Macroeconomics: The Day Ahead for 16 July

A quieter day for data and events to end the week, with US Retail Sales as its focal point, as the expected BoJ no change policy decision and its updated forecasts are digested, along with the surge in NZ Q2 CPI and a sharp jump in Singapore Exports (above all to EU & USA), with final Eurozone CPI and preliminary US Michigan Sentiment the only other items on the agenda. After all the furore around the Global Corporate Minimum Tax agreement, yesterday’s admission by Yellen that it was not certain that Amazon.com will reach the profitability threshold for a new global tax deal that would allow more countries to tax large multinational firms, serves as a strong reminder that attention needs to be paid to detail, leaving aside the numerous doubts about either the EU or the US actually implementing the agreement. Next week’s data schedule is typically sparse for the third working week of the month, with G7 flash PMIs and various other surveys, US housing data, UK and Canadian Retail Sales, Japanese Trade and national CPI. The ECB meets and will be updating its guidance on the policy outlook in the wake of its strategy review, but as Lagarde admitted there is going to be a big scrap between hawks and doves, so what emerges may be as confused and sometimes contradictory as has been the case at the last three meetings. By contrast Russia’s Bank Rossi is expected to hike rates by at least 75 bps (to 6.25%) as it seeks to rein in stubbornly high inflation (headline 6.5%, core 6.6%. But is South Africa’s SARB which is faced with a major dilemma as social unrest in the wake of the sentencing of former president Zuma has upended what always appeared to be rather too much blue sky thinking about South Africa’s prospects, above all given the pressure that many other EM countries and currencies have been subjected to over the past year. As a reminder some thoughts on the commodity / EM FX risk equation from earlier this year: https://cfuat.admisi.com/video-commentary/em-currencies-commodities-equation-politics-10-yr-yields-commodity-prices/. The Q2 earnings season also picks up pace with more than 80 S&P500 from a broad array of sectors reporting results. Next week also has the week long Eid Al-Adha holiday in Islamic countries, which will reduce trading activity and liquidity.

** U.S.A. – June Retail Sales / July Michigan Sentiment **

– Retail Sales have been on a wild ride for most of the year, with Q2 seeing payback for the stimulus cheque bloated jumps in Q1. June Retail Sales are unsurprisingly seen falling -0.4% m/m in headline terms, dragged lower by very weak Auto Sales (even if higher prices will provide considerable offset relative to the 9.6% m/m fall in unit sales). But core measures are seen rising between 0.4% and 0.6%, which would hardly be stellar, but at least relatively solid after two months of weakness. Eminently, as the economy re-opens, there has been a swing away from goods to services spending, for which restaurant sales will have to serve as a proxy, with a more complete picture only emerging with the Q2 advance GDP estimate (July 29). Michigan Sentiment remains a long distance from its pre-pandemic levels (Feb 2020 101.0) in contrast to Consumer Confidence (127.3 vs. Feb 2020 132.6), in part a reflection of its general lack of sensitivity to asset price gains. It is expected to edge up 86.0 from 85.5, but remain below April’s pandemic high of 88.3, with the 1-yr Inflation Expectations measure seen unchanged at 4.2%, and below May’s peak of 4.6%, implying that consumers are implicitly buying into Powell’s transitory narrative.