After a slow start in the week, there is a substantial pick up with announcements from the FOMC, ECB and BOE (as well as monetary policy updates from the RBI, RBA, Israel, and Czech Republic) with the possibility, if not probability, of a Fed update on tapering expectations. On Wednesday we get the much expected wholesale GDP revision which will boost "growth data" all the way back to 1929 and is expected to push current GDP as much as 3% higher, and on Friday is the "most important NFP payroll number" (at least since the last one, and before the next one), where the consensus expects a +183K print, and 7.5% unemployment. All this while earnings season comes to a close.
Monday 29 July.
- 10:00AM Pending home sales, June (consensus -1.0%, last +6.7%) The consensus expects a 1.0% decline in pending home sales, which were up 12.5% year-on-year in May. Pending home sales measure signed contracts for existing homes.
- Israel central bank meeting. Unchanged at 1.25%, in line with consensus expectations. The market is currently pricing a 30% probability of a rate cut next week and a 45% probability within roughly the next three months.
- Ukraine GDP (Q2). GS: -1.7% yoy. Bloomberg consensus: -1.1% yoy. Last: -1.1%yoy.
Tuesday 30 July
- 09:00AM S&P/Case-Shiller home price index, May (consensus 1.5%, last 1.72%)
- The S&P/Case-Shiller home price index was up 12% year-on-year in April after rising nearly 2% mom in both March and April. Home prices rose in all 20 of the index's cities in April, with most of the largest gains in California cities. The consensus expects a further 1.5% gain.
- 10:00AM Consumer confidence, July (GS 81.4, consensus 81.0, last 81.4)
- Other confidence measures were mixed this month: the University of Michigan's consumer sentiment index showed a further increase on Friday to a new post-recession high, but the daily Rasmussen index has dropped since its mid-June high. With the stock market roughly unchanged, the Conference Board's consumer confidence survey is expected to be unchanged in July, remaining at a post-recession high.
- Korea IP (June): GS: 1.0% mom. Bloomberg Consensus: +0.4% mom. Last: -0.4% mom.
- Korea Current Account Balance (June): The previous surplus was USD 8638.8mn.
- India Central Bank Meeting: GS: 7.25%. Bloomberg Consensus: 7.25%. Last: 7.25%.
- Japan IP (June): GS: 1.5% mom. Bloomberg Consensus: -1.5% mom. Last: +1.9% mom
- RBA Governor Stevens Speaks.
- Spain GDP (Q2): GS: -0.2% qoq. Bloomberg Consensus: -0.1% qoq. Last: -0.5% qoq.
- Sweden GDP (Q2): GS: +0.6% qoq. Bloomberg Consensus: 0.1% qoq. Last: +0.6% qoq.
- US Consumer Confidence (July): GS: 81.4. Bloomberg Consensus: 81.0. Last 81.4.
- Canada GDP tracker (May): The Bloomberg consensus expects a rise of 0.3% mom after 0.1% previously.
Wednesday 31 July
- 08:15AM ADP employment report, July (consensus +180k, last +188k)
08:30AM GDP, Q2 advance (GS 0.6%, consensus 1.0%, last 1.8%)
Consumption, Q2 advance (GS 1.2%, consensus 1.6%, last 2.6%)
Employment cost index, Q2 (consensus 0.4%, last 0.5%)
- Goldman lowered its Q2 GDP tracking estimate to 0.6% last week, considerably slower than Q1's 1.8% rate. Consumption likely rose about 1.2% during the quarter, a slowdown from 2.6% in Q2. The slow growth in private consumption might partly reflect a delayed impact of the 2013 tax hikes, which many had estimated in January were likely to have a gradual effect over the course of the year.
- 08:30AM Annual revisions to GDP
- The BEA will also release comprehensive revisions to the national accounts with the quarterly GDP release. The most notable change is the introduction of a new category of nonresidential fixed investment called intellectual property products, which will include the current software subcategory as well as two new subcategories, research and development and entertainment originals. Overall, the estimate is that the annual revision will boost the level of GDP by about 3% and could suggest a somewhat more robust growth rate.
- Taiwan GDP (Q2): Bloomberg Consensus: +2.2% yoy. Last: +1.7% yoy.
- Switzerland KoF (July): Bloomberg Consensus: 1.22. Last: 1.16.
- Germany Unemployment (change, July): Bloomberg Consensus: 0k. Last: -12k
- Czech central bank meeting. Unchanged, at 0.05%. The Board is not expected to announce the start of direct FX interventions, but rather reiterate its dovish rate guidance and its willingness to engage in large-scale FX purchases, if needed. This is also in line with consensus.
- US Chicago PMI (July): Bloomberg Consensus: 54.0. Last: 51.6.
- US FOMC decision: Goldman expects a modest downgrade in the committee’s assessment of the economy in light of the weak second quarter. It is less clear whether they will explicitly hint at QE tapering in September. If the committee decides to drop such a hint, it would probably offset the impact via a similarly subtle hint at a strengthening of the forward guidance. But it is also possible that they decide not to change any of the policy language at this point.
Thursday 1 August
- 08:30AM Initial jobless claims, week of July 27 (consensus 344k, last 343k); Continuing jobless claims, week of July 20 (consensus 3,000k, last 2,997k)
- Jobless claims were likely distorted by seasonal adjustment problems around summer auto plant shutdowns earlier this month, but have now returned to the range seen over the last couple of months. The consensus expects that claims were roughly flat at 344k, in line with the 4-week moving average of 345k.
- 08:58AM Markit PMI, July final (consensus 53.2, last 51.9)
- 10:00AM Construction spending, June (Consensus +0.4%, last +0.5%)
- An increase in construction employment and two consecutive months of strong improvements in the Home Builders' survey point to strong growth in construction spending in June. Over the last year, total construction spending is up 5.4%, with very strong residential construction (+22.7%yoy) more than offsetting weak nonresidential construction (-2.9%yoy).
- 10:00AM ISM manufacturing, July (Consensus 52.0, last 50.9)
- Goldman expects that the ISM manufacturing index improved again in July after rising 1.9pt to 50.9 in June. The regional Fed manufacturing surveys have been mixed, with the Philly Fed (+7.3pt to +19.8) and Empire (+1.7pt to +9.5) surveys rising but the Richmond Fed survey falling sharply (-18pt to -11). June's improvement in the ISM manufacturing index saw new orders (51.9) and production (53.4) return to expansionary territory (above 50), but the employment component remained weak (48.7).
- Global Business Surveys.
- China PMI (July): GS: 50. Bloomberg Consensus: 49.8. Last: 50.1.
- Euro Area PMI (July, F): The Euro area Manufacturing PMI rose from 48.8 to 50.1 in the flash estimate.
- Korea CPI (July): GS: +1.4% yoy. Bloomberg Consensus: +1.5% yoy. Last: +1.0% yoy.
- Korea Exports (July): GS: +7.0% yoy. Bloomberg Consensus: +1.5% yoy. Last: -1.0% yoy.
- UK Central Bank Meeting: No change, but there is there is quite a high likelihood (close to 50%, in our view) that the BoE may opt for a policy shift to accompany the introduction of state contingent threshold guidance.
- Euro Area ECB Meeting: No change; Goldman expects that the ECB will continue with verbal forward guidance. And Goldman should know.
Friday 2 August
- 08:30AM Nonfarm payroll employment, July (GS 200k, consensus 185k, last 195k); Unemployment rate, July (GS 7.5%, consensus 7.5%, last 7.6%); Average hourly earnings, July (consensus 0.2%, last 0.4%)
- Goldman expects a 200k gain in nonfarm payrolls in July, in line with the 3-, 6-, and 12-month moving averages. Although the four-week moving average of jobless claims going into the payroll week was roughly unchanged, June saw improvements in the employment components of regional Fed surveys and the ISM non-manufacturing index, the employment question in the consumer confidence index, and online job ads.
- The unemployment rate is currently 7.56% and expectations are that a payrolls report in the neighborhood of 200k will reduce it to 7.5%. The participation rate has risen on an unrounded basis for the last three months, but June's increase was small.
- 08:30AM Personal income, June (GS +0.5%, consensus +0.4%, last +0.5%)
- Personal spending, June (GS +0.6%, consensus +0.5%, last +0.3%)
- Core PCE price index, June (GS +0.19%, consensus +0.1%, last +0.10%)
- Annual revisions to personal income and spending
- Wage growth of about 0.5% should push up personal income by a similar amount. Personal spending probably rose by about 0.6% in June, driven by the month's strong auto sales numbers. The June CPI report points to core PCE inflation of +0.19%, a slightly faster rate than seen in the last few months that would leave the year-on-year rate roughly unchanged at 1.07%.
- The BEA will also release a set of comprehensive revisions to the personal income and spending data. The revisions will introduce a change in the treatment of defined benefit pension plans, which will now be calculated using accrual accounting instead of cash accounting. This will likely raise the personal saving rate by at least 1.5pp and possibly more.
- 10:00AM Factory orders, June (GS +2.5%, consensus +2.3%, last +2.1%)
- Durable goods orders, already released for June, grew 4.2% after growing 5.2% in May. June factory orders likely rose about 2.3% per the consensus. Factory orders were up 4.4% year-on-year in May and have slowed steadily over the last few years.
- Indonesia GDP (Q2): GS: 5.9% yoy. Bloomberg Consensus: 5.9% yoy. Last: 6.0% yoy.
Most of the above data in table format via SocGen
And also from SocGen, a recap of the key events and market issues for the coming week:
QE TAPER ON TRACK FOR SEPTEMBER
When it comes to QE taper, the employment report tops the charts of indicators to watch. Prior to the 17-18 September FOMC, two employment reports will hit the screens. This Friday’s report is expected to deliver a gain of 195K on payrolls, keeping our call for QE taper in
September on track. Also supporting this call is our expectation to see the ISM manufacturing hit 53 in July. Against the backdrop of the stronger data heading into Q3, we expect the weak Q2 report to quickly slip away from market attention, and this despite our call for just 0.4% qoq annualised.
MARKET ISSUES: Further evidence of a sustainable recovery will be good news for dollar bulls.
DRAGHI TO KEEP A DOVISH TONE
The next batch of PMI data from Italy and Spain should confirm the more upbeat picture from the euro aggregate last week. Now is no time for complacency, however, with several headwinds still blowing on the euro area economy as recently warned by the IMF. Last week’s credit data, moreover, offered a sobering reminder of the still challenging financial situation as loan production contracted further. We expect the ECB to keep its assessment of the economic outlook unchanged from the previous meeting and to stick to the forward guidance.
MARKET ISSUES: Looking ahead, we forecast a very gradual recovery only. This in turn, should open the window for further ECB action in Q4 with a 25bp rate cut and possibly another LTRO. This would also offer a welcome support as the ECB takes on its asset quality review in preparation for the Single Supervisory Mechanism (SSM).
WAITING FOR THE BOE INFLATION REPORT
The July minutes concluded “On 7 August, alongside the release of the Inflation Report at 10.30, the Committee will respond to the Chancellor’s request for its assessment of the use of thresholds and forward guidance, as well as its view of the trade of between growth and inflation. Any announcement regarding the implementation of thresholds and forward guidance will be made then, rather than immediately after the Committee’s next policy meeting on 1 August”. It thus seems likely that market will have to wait patiently for 7 August before the much awaitedforward guidance is unveiled.
MARKET ISSUES: Expectations are low for the August MPC and any earlier-than-expected announcement of forward guidance would come as a welcome surprise to risky assets.
MODERATING EMERGING ECONOMIES
The week ahead also sees July PMI data released for a number of emerging economies. China will be the most closely watched and we look for a reading at 49.8. In South Korea, the July export number is expected to clock in at 4.1% yoy, but much of this reflects a base effect from last year.
MARKET ISSUES: The loss of momentum in emerging economies has been a long held theme of our forecast, spearheaded by our call for China bumpy landing. Markets are absorbing this theme; what is less obvious at this stage is how the emerging economies slowdown is feeding back to advanced economies. This is notably an issue for those economies running on the single engine of exports.
Source: GS and SocGen