A Look At Global Economic Events In The Upcoming Week
From Goldman's Thomas Stolper
Week in Review
There was renewed focus on European sovereign worries the past week as markets returned from the post summer lull to be confronted by news headlines raising some doubt over the European stress tests results, Irish banking worries and large strikes in France. EUR/$ was further weighed upon by the moderation in Eurozone activity (German IP, manufacturing orders). Elsewhere, markets traded on a slightly firmer footing, buoyed by recent positive surprises in the US data (the previous week’s ISM and payrolls and the latest jobless claims data etc). In FX, we saw most crosses trade in a tight range, with NJA currencies outperforming slightly.
We opened a new short EUR/AUD trade last week, predicated on our more hawkish views on the Australian rate hike cycle (our Australia economists expect a hike in October where little is priced still). Meanwhile we could still see further near term downside in the EUR/$ (reflected in our 3-month forecast at 1.22) given renewed focus on the European sovereign and political issues. We also saw interesting moves in the CNY as it fixed at its strongest level on Friday since its ‘depeg’ in June. We continue to be positioned for further moves over the next 9 months (through our recommendation to be short $/CNY via longer-dated NDFs). We expect political pressure to be sustained, especially heading into key political events over the next few months, including the US mid term elections and the G20 Summit in November.
The China data released over the weekend showed stronger than expected rebound in activity (IP, retail sales and FAI) as well as in broad money growth. This rebound was likely driven by a ‘stealth’ policy loosening since July, including the areas of administrative and fiscal policy as well as credit controls. CPI printed higher at 3.5% yoy, in-line with consensus, but we do expect moderation ahead as food prices normalize going forward. Overall, this set of numbers should soothe fears of a sharper slowdown and likely support sentiment into the start of trading next week.
Also to come later today, details of the Basel III regulations on European bank capital requirements will be released. Depending on the details, this will also likely influence sentiment and EUR/$ as we head into the new week.
Latest read on the US slowdown The key datapoints this week include retail sales, IP, Philly Fed as well as the usual weekly jobless claims. Retail sales appear to have picked-up in August, judging from retailers reports. We are above consensus on both headline retail sales and ex-autos. We might also see slightly firmer industrial activity reports (we are above consensus for IP and Philly Fed). The guts of the reports including the new orders/inventories component will be of interest. Overall, we do expect the track of activity to be weak going forward, reflected in our still more cautious than consensus US outlook. We also get CPI and PPI data this week where we expect a modest +0.1% gain on the core readings for both.
US BBoP The latest US BBoP for Q2 can be calculated based on the release of the Q2 current account and balance of payments statistics on Thursday. It is likely to show that the BBoP picture is still one that is consistent with broad Dollar weakness, a theme that we discussed in detail in our FX Monthly publication last week. We also get the July TICs data shortly after on the same day, providing a read on the state of capital inflows into Q3.
DPJ elections and the Yen The DPJ president elections on Sep 14 could lead to the appointment of a new prime minister if candidate Ozawa wins. As our Japan economists have highlighted, Ozawa still seems to hold a small lead although the political situation is difficult to read. The market appears to associate Ozawa with increased fiscal spending and JGB issuance but we think major increases would be difficult in practice. The Yen will be in focus as well given Ozawa’s voiced concerns over the strength of the currency, although recently, he has also described it as an opportunity to invest in resources abroad. This comes at a time when positioning remains in Yen bullish territory as indicated by the latest readings on our Sentiment index.
Central bank meetings Thursday We get central bank meetings in New Zealand, India, Switzerland, Turkey and Chile all on Thursday. We expect a 25bps hike in the repo and reverse repo rates by the RBI. For Chile, we see a further 50bps hike, in-line with consensus. We expect rates to be left unchanged by the rest of the central banks this week.
Euroland IP(Jul) We are expecting improvement to +0.1% mom after -0.1% previously.
Australia NAB Business confidence (Aug)
India WPI inflation (Aug) We expect it to remain elevated at 9.4%.
DPJ president election The election for the DPJ’s president could lead to the appointment of a new prime minister and cabinet within a few days if candidate Ozawa wins.
UK CPI (Aug) Consensus expects a rebound to +0.3% mom following -0.2% previously.
US retail sales (Aug) Retail sales appear to have picked up in August, judging from retailers’ reports. We expect a gain of +0.6% on headline and +0.7% ex-autos vs consensus at +0.3% for both.
Euroland CPI (Aug) Headline inflation in the Euro-zone receded from 1.7%yoy to 1.6% in August according to the flash estimate released a few weeks ago, largely on the back of a base effect in the energy component. Judging from the country data, core inflation should have remained broadly stable at around 1.0%, reflecting the fact that it has already hit its trough.
Euroland employment (Q2) Employment in the Euro-zone was flat in Q1, and since then, we have seen further stabilisation in labour markets, and, in the case of Germany, several months of meaningful job growth. In the aggregate, however, we expect employment growth to have again remained flat in Q2, with the first gains not expected to come until Q3.
US Empire manufacturing survey (Sep) Consensus expects further improvement to +8 from +7.1.
US IP (Aug) We are expecting a +0.3% gain, slightly above consensus at +0.2%.
New Zealand central bank meeting We expect no change to the Official Cash Rate (at 3.00%). However we will be watching the tone of the statement and accompanying comments - we expect the Governor to leave his options fairly open. We expects rates to remain on hold until the end of the year.
India central bank meeting We continue to expect the Reserve Bank of India to hike both the reverse repo and repo rates by 25 bp. After this potential September hike, we expect one more 25-bp hike for the remainder of 2010.
Chile central bank meeting We expect another 50bps hike to 2.5%, in-line with consensus. We expect to continued rate normalization to around 3.5% by year end.
Switzerland central bank meeting No change to rates expected. Any comment on the impact of the record strong CHF will be interesting.
Turkey central bank meeting We expect rates to remain on hold at 7%
US jobless claims Consensus expects a slight increase in initial claims to +458k from +451k previously.
US PPI (Aug) We forecast a +0.5% gain for headline but a more modest +0.1% on core.
US Q2 Current account balance and Balance of Payments We expect a widening out in the current account deficit to -$122bn from -$109bn in Q1. We will be calculating the Q2 BBoP based on this data.
US TIC data (Jul) Alongside the Q2 BOP data released earlier, we’ll be able to get an updated picture of the BBoP picture in the US. We’ll be especially focused on the extent of recovery in the different components of the TICs data, which so far seems to be concentrated mainly in USTs and agency bonds.
Philly Fed (Sep) We expect a rebound to +3 from -7.7 previously. Consensus is at flat.
US CPI (Aug) We forecast a gain of +0.17 for headline (consensus at +0.3%) and +0.1% on core (in-line with consensus).
US Michigan sentiment (Sep provisional) Consensus expects an improvement to 70 from 68.9 previously.