"Apprehension": Main Events In Torrid Week Include Fed, GDP, Earnings And "Lots Of White House Risk"

"Apprehension" - that's how Citi describes trader sentiment as a new week begins, in which the bank points to various event risks over the coming five days. The one markets are focusing on over say, the FOMC on Wednesday, is the political noise coming from Washington. The investigation into Russia’s alleged meddling in the 2016 election is back in focus as President Trumps’ son-in-law testifies, along with Trump Jr and Paul Manafort later in the week. As such, risk sentiment seems apprehensive ahead of the inevitable headlines

Indeed, near term White House risk is substantial and is as follows: Jared Kushner appearing before Senate intelligence committee on Monday; the Senate healthcare vote is expected Tuesday; Donald Trump Jr. and former Trump campaign Chairman Paul Manafort are expected to appear on Wednesday before Senate committees investigating Russian meddling.

On the economic front, next week attention will be on the US FOMC rate decision, Q2 GDP data, consumer confidence, housing and durable goods orders. We also get GDP, composite PMI and CPI inflation releases across the Euro Area. GDP data in the UK. In Emerging Markets, there are monetary policy meetings in Colombia, Brazil, Turkey and Russia.

It is also the busiest week for Q2 earnings with dozens of marquee names reporting.

As Jim Reid summarizes, the highlight this week are today's flash PMI numbers and the FOMC meeting this Wednesday, although the latter will likely be a relatively mundane affair with the action perhaps being saved for a September balance sheet announcement. One also has to keep an eye on all things Washington related following Friday's announcement of Press Secretary Sean Spicer's resignation. Mr Trump now has new people at the helm of both his legal and communications teams after resignations towards the end of last week. Late on Friday Congressional negotiators agreed to advance a bill punishing Russia for its involvement in the 2016 election and also restricting Presidential powers to remove sanctions on Russia. It will now go to a vote and if it passes Trump could be in a difficult situation as he has publicly stated he wants improved relations with Russia but clearly if Congress has voted for the bill he'd be seen as siding with Putin if he didn't respond positively when it reached his desk. These matters are obviously important for many reasons not least as Trump does need Congress on his side if he has hopes of rescuing his legislative agenda. Elsewhere, today sees senior White House advisor Jared Kushner interviewed by the Senate Intelligence committee, with Donald Trump Jnr. and ex-Trump campaign Chairman Paul Manafort before Senate committees on Wednesday

US takes center-stage with GDP and Fed FOMC

Economists expect the BEA's annual revision of national accounts, including GDP, to be a non-event, leaving focus on the advance 2Q GDP estimate and the Fed. BofA expected 2Q GDP growth to accelerate to 2.1% q/q saar on the back of a rebound in consumption. Looking ahead to 2H, the bank anticipates further modest acceleration to 2.3% as residential investment and inventory build recover.

The FOMC is unlikely to significantly change their message at the upcoming meeting. With no Summary of Economic Projections or Press Conference, focus will be on the statement, where we expect the FOMC to tweak the language to emphasize the recent inflation weakness and to double down on balance sheet normalization.

Also watch for Eurozone inflation releases

On Friday, Spain, France and Germany release their preliminary estimates for July inflation: we are expecting prints of -0.4%, -1.5% and 0.1% m/m respectively. After June's upside surprise, our forecast for EZ inflation remains unchanged at 1.5% in 2017 and 1.0% in 2018, with a slow grinding uptrend for core. In our view, most of the surprise on headline and core inflation was driven by temporary one-offs that should go away as soon as in July, potentially complicating the ECB's task ahead. We retain our call for a very slow pace of tapering from January 2018 onward.

Here is DB's breakdown of the week's main highlights:

  • Monday starts with the July manufacturing, services and composite flash PMIs for Germany, Eurozone and the US. Existing home sales data in the US will also be released.
  • Tuesday, Germany will have the IFO July index for business climate and expectations, while France will report confidence indicators for July. In the US on Tuesday data includes consumer confidence, FHFA house price index, S&P/Case-Shiller house price index and Richmond Fed manufacturing index.
  • Turning to Wednesday, in the UK Q2 GDP is due, while the focus in the US will be the July FOMC rate decision. New home sales data will also be due.
  • For Thursday, the morning session looks quiet with only Euro area M3 money supply data due. Across the pond the US will update its durable and capital goods orders for June as well as the initial jobless claims, advance goods trade balance, wholesale inventories and Kansas City Fed’s manufacturing index.
  • Finally, on Friday, the early data is out of Japan where June CPI data is due, while in Europe we have Germany and France providing an update on CPI. Euro area confidence indicators are also due. It’s a bumper end to the week in the US with the advance Q2 GDP report, core PCE and the final University of Michigan consumer sentiment reading.

Onto other events. On Monday, the UK begins preliminary post-Brexit trade talks with the US, ECB’s Frank Smet’s will speak at Munich and OPEC and non-OPEC meet in Russia to discuss progress with production cuts. On Tuesday, the US secretary of Commerce will address the economic club of Washington. Onto Wednesday the Fed of Minneapolis President will be the first speaker post the FOMC decision. Finally, notable US companies due to report include: Alphabet, Amazon, AMD, AT&T, Twitter, Facebook, McDonalds, GM, Caterpillar, Ford, Boeing, Royal Dutch Shell, Chevron, Exxon, Merck and AbbVie.

Finally, here is Goldman's preview of the week's key events alongside consnesus estimates and commentary

The key economic releases this week are the Q2 GDP advance estimate and the Q2 employment cost index on Friday. The statement following the July FOMC meeting will be released on Wednesday.

Monday, July 24

  • 09:45 AM Markit Flash US manufacturing PMI, July preliminary (consensus 52.2, last 52.0)
  • 09:45 AM Markit Flash US services PMI, July preliminary (consensus 54.0, last 54.2)
  • 10:00 AM Existing home sales, June (GS -1.5%, consensus -0.9%, last +1.1%): We look for a 1.5% decline in June existing home sales, following a 1.1% increase in the prior month. Regional housing data released so far suggest a modest slowdown in closed homes sales. Existing home sales are an input into the brokers' commissions component of residential investment in the GDP report.
  • Tuesday, July 25
  • 09:00 AM FHFA house price index, May (consensus +0.5%, last +0.7%): Consensus expects the FHFA house price index to rise 0.5% (mom sa) in May on top of a 0.7% gain in April. The FHFA house price index has a wider geographic coverage than the S&P/Case-Shiller home price index, but is based only on properties financed with conforming mortgages. On a year-over-year basis, FHFA home prices rose 6.8% in April.
  • 09:00 AM S&P/Case-Shiller 20-city home price index, May (GS +0.2%, consensus +0.3%, last +0.3%): We expect the S&P/Case-Shiller 20-city home price index to increase 0.2% in May, following a 0.3% increase in the prior month. The measure still appears to be influenced by seasonal adjustment challenges, and we place more weight on the year-over-year increase, which rose 5.7% in April.
  • 10:00 AM Conference Board consumer confidence, July (GS 115.0, consensus 116.0, last 118.9): We estimate that the Conference Board consumer confidence index declined 3.9pt to 115.0 in July following a moderate increase in the month prior. The index remains close to post-crisis highs. Our forecast mostly reflects softer consumer surveys this month.
  • 10:00 AM Richmond Fed manufacturing index, July (consensus +7, last +7)

Wednesday, July 26

  • 10:00 AM New home sales, June (GS +1.5%, consensus +0.8%, last +2.9%): We estimate new home sales rose 1.5% in June, following a 2.9% increase in the prior month. Single-family building permits rebounded in June, and May new home sales looked abnormally low in the Midwest region, where we anticipate sequential improvement in Wednesday's report.
  • 02:00 PM FOMC statement, July 25-26 meeting: As discussed in our FOMC preview, we do not expect any policy changes next week and expect only limited changes to the post-meeting statement. The statement is likely to upgrade the description of job growth, but might also recognize that inflation has declined further. We also think it is more likely than not that the FOMC will include a nod toward an announcement of balance sheet normalization plans in September.

Thursday, July 27

  • 08:30 AM Durable goods orders, June preliminary (GS +5.3%, consensus +3.5%, last -0.8%):  Durable goods orders ex-transportation, June preliminary (GS +0.5%, consensus +0.4%, last +0.3%);Core capital goods orders, June preliminary (GS +0.5%, consensus +0.3%, last +0.2%); Core capital goods shipments, June preliminary (GS +0.3%, consensus +0.3%, last +0.1%): We expect durable goods orders rebounded 5.3% in the June report, driven by a sharp increase in commercial aircraft orders. Orders commentary from industrial companies remains encouraging, and we estimate durable goods orders ex-transportation rose by a solid 0.5%. We also estimate firmer core capital goods orders (+0.5%). However, manufacturing production growth was relatively modest in June, with a 0.1% gain in ex-auto manufacturing and a 0.2% increase in the capex-sensitive business equipment category. Accordingly, we look of a somewhat softer increase in core capital goods shipments (+0.3%).
  • 08:30 AM U.S. Census Bureau Advance Economic Indicators Report; Advance goods trade balance, June preliminary (GS -$65.5bn, consensus -$65.0bn, last -$66.3bn): We estimate the goods trade deficit narrowed $0.8bn to $65.5bn in June. Regional port statistics suggest that inbound container volumes pulled back in the month, suggestive of an improvement in the trade deficit.
  • 08:30 AM Wholesale inventories, June preliminary (consensus +0.3%, last +0.4%)
  • 08:30 AM Initial jobless claims, week ended July 22 (GS 250k, consensus 240k, last 233k); Continuing jobless claims, week ended July 15 (consensus 1,959k, last 1,977k): We estimate initial jobless claims rebounded 17k to 250k in the week ended July 15 following a sharp decline in the prior week. Initial claims can be particularly volatile around this time of year due to summer auto plant shutdowns, and we note the possibility that some of these factory closures shifted one week later (relative to previous years). Continuing claims – the number of persons receiving benefits through standard programs – have continued to trend higher recently following a sharp decline in the first four months of the year.
  • 11:00 AM Kansas City Fed manufacturing index, July (consensus +12, last +11).

Friday, July 28

  • 08:30 AM GDP, Q2 advance (GS +1.9%, consensus +2.5%, last +1.4%); Personal consumption, Q2 (GS +3.0%, consensus +2.8%, last +1.1%): We estimate a +1.9% increase in the first vintage of Q2 GDP (qoq saar), reflecting solid growth in personal consumption (+3.0%) and business fixed investment (+3.3%), but a drag from inventories (-0.4pp). Accordingly, our growth estimate for the domestic final sales component is firmer at +2.3%. We also expect a 4.0% decline in residential investment following a double-digit increase in Q1.
  • 08:30 AM Employment cost index, Q2 (GS +0.6%, consensus +0.6%, last +0.8%): Following a cycle-high increase in Q1 (+0.8%, qoq sa), we estimate that growth in the Employment Cost Index (ECI) decelerated to 0.6% in Q2, with the year-over-year pace remaining stable at +2.4%. While we continue to expect firming wage growth in an economy at full employment, we expect mean-reversion to weigh on the pace of growth in incentive-paid industries this quarter, particularly sales and related occupations. Minimum wage increases also likely boosted ECI wage growth in the first quarter, most notably in the leisure and hospitality industry. Finally, wage growth data has been somewhat disappointing in the second quarter, and our wage tracker—which distills signals from several wage measures—fell to 2.3% year-on-year in Q2 from 2.6% in Q1 and a recent peak of 2.8% in mid-2016.
  • 10:00 AM University of Michigan consumer sentiment, July final (GS 93.2, consensus 93.1, last 93.1): We expect the University of Michigan consumer sentiment index to edge up 0.1pt to 93.2 in the July final estimate. The preliminary report’s measure of 5- to 10-year ahead inflation expectations rose one-tenth to 2.6% in the preliminary reading – the top of its 12-month range – despite recent declines in gasoline prices that often appear to weigh on survey responses in this component.
  • 01:20 PM Minneapolis Fed President Kashkari (FOMC voter) speaks: Minneapolis Federal Reserve President Neel Kashkari will participate in a moderated Q&A at an event hosted by the St. Paul Chamber of Commerce in Oakdale, Minnesota. Audience Q&A is expected.

Source: BofA, DB, Goldman