Goldman performs the now traditional compilation of key global events and catalysts in the week ahead although there is really just one day that everyone is focusing on: Thursday: "House takes up Senate package, and potentially alters it. Under its rules, the House normally requires a bill to be publicly available for three days before voting on it, but might be able to bend the rules given the deadline. If support is lacking for the McConnell-Reid plan, as appears possible, the House may vote on an alternative package that pairs $300-$500bn in spending cuts with a debt limit increase of the same size. If it becomes clear during the Senate debate early next week that the Senate approach will not gain adequate Republican support in the House, House Republican leaders might move preemptively to pass a shorter extension rather than waiting to receive the Senate bill." Today the market did not crash, which foiled Obama's shock and awe plans (thank you Bernanke Put). However, if there is nothing by Thursday, then even the meanreversionbots will be powerless to just sit back and observe the massive carnage.
From Goldman Sachs
Week in Review
Last week was capped by a substantial package from the European Council, ending weeks of uncertainty about how to provide further assistance to Greece and prevent broader contagion. Overall the package was larger and more comprehensive that expected, as Francesco Garzarelli describes and helped to reduce the fiscal premium in European assets – including the narrowing of peripheral spreads and a stronger Euro.
The data ledger last week was a mixed bag. The latest trade data from Japan and Korea were stronger-than-expected as was the Philadelphia Fed survey. However the flash PMIs from China and Euroland were disappointing. The advanced reading of our GLI for July showed a slight pick up in momentum, however the year-on-year reading continued to decline.
With progress made on the European debt situation, focus now turns to the US debt negotiations, which failed to make any headway over the weekend. This week contains some key political events as we move towards the August 2 deadline. This debate is likely to weigh on the Dollar due to both near-term uncertainty and the longer-term effects of prolonged fiscal consolidation on growth. Although the likelihood of reaching a deal prior to the time that the Treasury exhausts its financing capacity seems to have increased over the last week or so, there is still a great deal of uncertainty about how events will unfold over the next two weeks and there is clearly still a risk that the deadline could be missed.
On the data front this week, we will continue to follow the statistics that provide signals on the global outlook, in particular we will focus on the IP data from Korea, Singapore and Japan as well as the Chicago PMI. We also get a batch of preliminary Q2 GDP readings from US, Sweden, Taiwan, Korea and UK.
Monday 25 July
Singapore CPI (Jun): Singapore CPI has been released. It rose to 5.2%yoy from 4.5%, in line with consensus. Housing was a strong contributor to the rise, as was transport. The rise was partly driven by base effects but more broadly by the high level of resource utilization, the tight labor market and loose financial conditions.
US Debt Negotiations: Senate votes to move forward with debate on McConnell-Reid debt limit bill. Two days after leaders have moved to end debate, the Senate will vote, with 60 votes needed. If it receives 60 votes, as seems likely, 30 hours of debate would ensue
Tuesday 26 July
New Zealand Trade balance (Jun): We expect the data to show another solid monthly trade surplus of $400mn, lifting the annual trade balance to $1.25bn. Our forecast is in line with consensus.
Singapore IP (Jun): Consensus expects a rise of 8.8%yoy following a decline of 17.5%yoy in May.
RBI meeting: We expect a 25bp rate hike. While the central bank will likely consider and remark on lower-than-expected industrial production data and weaker inflation releases, along with global growth concerns, we think the level of inflation and expectations still remain sufficiently elevated for the central bank to not pause at this stage in its fight against inflation.
UK GDP (Q2): Consensus expects a rise of 0.2%qoq as do we, down from 0.5%qoq in Q1 and lower than the MPC’s forecast of 0.3-0.4%.
Hungary Monetary Policy meeting: We expect rates to remain unchanged at 6%.
US Consumer Confidence (Jul): Consensus expects a softening to 56.0 from 58.5. We expect a larger decline to 54.5.
US New Home sales (Jun): We expect a decline of -2.0%mom, consensus expects a rise of 0.8%.
Also of note: RBA’s Steven’s speaks, Philippines trade balance (May), Richmond Fed index, 2-yr UST auction.
Wednesday 27 July
Korea GDP (Q2): Consensus expects a rise of 0.8%qoq after 1.3% in Q1.
Australia CPI (Q2): Consensus expects a rise of 0.7%qoq, we expect a rise of 0.9%qoq after 1.6%qoq in Q1. The trimmed measures of inflation are key to watch as well.
German CPI (Jul): Consensus expects a rise of 2.3%yoy same as last month.
US Durable Goods orders (Jun): Consensus expects a rise of 0.3% on the headline reading. We are more pessimistic and expect a decline of 1%mom.
US Debt Negotiations: Final Senate vote on McConnell-Reid debt limit bill. Following 30 hours of debate and any other procedural complications, the Senate would pass the debt limit increase. While this could happen as early as July 27, if bogged down in procedural delays it could occur as late as July 29.
US Debt Negotiations: House takes up Senate package, and potentially alters it. Under its rules, the House normally requires a bill to be publicly available for three days before voting on it, but might be able to bend the rules given the deadline. If support is lacking for the McConnell-Reid plan, as appears possible, the House may vote on an alternative package that pairs $300-$500bn in spending cuts with a debt limit increase of the same size. If it becomes clear during the Senate debate early next week that the Senate approach will not gain adequate Republican support in the House, House Republican leaders might move preemptively to pass a shorter extension rather than waiting to receive the Senate bill.
Also of note: 5-yr UST auction.
Thursday 28 July
RBNZ meeting: We and consensus expect rates to remain unchanged at 2.5%. While the domestic dataflow certainly provides a justification for the earlier removal of monetary policy stimulus, the high NZ$ presents a headache. We feel the RBNZ faces a challenging communication exercise.
BSP meeting: We and consensus expect rates to remain unchanged at 4.5%.
Also of note: Korean BoP (Jun), Japan retail trade (Jun), US Claims, German retail sales (Jun), 7-yr UST auction.
Friday 29 July
Korea IP (Jun): Consensus expects IP to rise by 0.6%mom after 1.7% previously. This will translate into a yoy reading of 6.6% from 8.3% previously.
Japan CPI (Jun/Jul): We expect the National CPI for June to rise by 0.6%yoy, above the consensus forecast of 0.2%. Tokyo CPI for July is expected to be flat yoy from -0.2% previously going by the consensus.
Japan IP (Jun): We expect IP to rise by 4.5%mom, in line with consensus expectations. This will translate into decline of only -1.2%yoy. The details of the data will provide further guidance on the recovery of production from the earthquake in March.
Taiwan GDP (Q2): We expect GDP growth to moderate to 4.5%yoy in 2Q2011 from 6.5%yoy in 1Q2011. Consensus expects a reading of 4.4%.
Euroland Flash CPI (Jul): Our forecast is for an unchanged reading of 2.7%yoy, in line with consensus.
Sweden GDP (Q2): Consensus expects a rise of 0.6%qoq. We expect a rise of 0.8-0.9%qoq.
US GDP (Q2): we expect a rise of 1.5%qoq, consensus expects a rise of 1.8% after 1.9% in Q1. The data is accompanied by the usual annual revisions which will provide more clarity on the extent of the weakness in the US economy through the global financial crisis and the pace of recovery.
US Chicago PMI (Jul): Consensus expects a small decline to 60.0 from 61.1 previously. We anticipate a larger decline to 58.5.
Also of note: Australia private credit and house prices, US Uni. Mich confidence final reading.