From Goldman Sachs
Week in Review: US GDP tracking at 1.1%qoqann
US data was the focus of the past week, with a slew of key data releases. In terms of hard data, retail sales for June were much weaker than expected, IP was a touch stronger and CPI in line. The Philadelphia Fed survey was a touch weaker than consensus expectations at -12.9. We ended the week with US Q2 GDP tracking at 1.1%qoq.
The week also brought two key cross-border flow updates, the US TIC data and Euro area balance of payments, both for May. The US TIC data revealed a doubling of inflows to US$50.0bn, overwhelmingly driven by foreign buying of USTs. At the same time, net equity flows remained negative to the tune of $9.3bn. The Euroland balance of payments revealed a small BBoP surplus, reflecting FDI inflows and foreign buying of Euroland bonds. It remains the case that the Euroland external balance is stronger than that of the US. Typically this would be a key driver of EUR/USD, however the flow dynamics have been dominated by short positioning on the back of the European situation and relatively easier monetary policy from the ECB.
Away from the data, possibly the biggest focus of the week was the ongoing exponential rise in soft commodity prices, with the prices of wheat, corn and soybean racing to new all time highs. Brent also rose in price, but it remains well below historical highs, but rice prices, which are important for Asian inflation are basically flat on the week. As yet, there is little obvious spillover from rising agricultural prices into other asset classes. In principal the rise in soybean prices should be positive for the BRL, given that Brazil is one of the top soybean exporters, however the currency has not reacted. Given the rise in price of agricultural products reflects a severe drought in the US and other parts of the world and therefore represents a supply shock, they are likely to remain a focus of attention.
Week Ahead: How weak was Q2? How strong will Q3 be?
The week ahead brings a batch of Q2 GDP prints, which will provide guidance on the strength of activity in that quarter, as well as a bunch of business survey data which will offer insights into the strength of momentum at the start of Q3.
Starting with the GDP data, the main attraction is likely to be the print from the US. We expect a below trend print of 1.1%qoq, vs the consensus at 1.5%qoq. We and the consensus expect the Q2 print from the UK to be negative, we expect a print of -0.1%qoq vs the consensus at -0.2%qoq Korea, Q2 GDP is expected to be up only 2.4%yoy, well below trend, which would equate to a qoq print of 0.4%. In each case, the print is expected to be lower than Q1. While only a few Q2 prints have been published so far, only China has recorded a recovery on Q1.
The consensus expects soft prints for the business surveys out this week. The Euroland flash PMIs are expected to be unchanged, leaving them at levels consistent with a continued contraction in activity. The German IFO is expected to fall slightly, as is the Swiss KoF. There are no consensus expectations for the China flash PMI, however if it does not pick up from current levels around 48, questions over the extent/effectiveness of stimulus in China will remain. Relatedly, the Korea 20-day trade data showed that exports fell slightly on the same data for June 2011, however on a sequential basis, they revealed a pick up of 3%mom.
Finally, the week brings two central bank meetings. We expect the RBNZ and BoT to remain on hold.
Monday, July 23
- Singapore CPI (Jun): Consensus expects a rise of 5.2% yoy, we expect a print of 5.3% from the previous print of 5.0% yoy.
- Taiwan Industrial Production (Jun): Consensus expectations at 0.91% yoy growth, from a decline of 0.21% in May.
Tuesday, July 24
- China HSBC Flash PMI (Jul A): The previous print was 48.2.
- Euro area Flash PMIs (Jul A): The consensus expects at reading of 45.3 for the manufacturing PMI vs a reading of 45.1 previously. The
- consensus expects at reading of 47.3 for the services PMI vs a reading of 47.1 previously
Wednesday, July 25
- Japan Merchandise Trade Balance (Jun): The trade deficit for May was JPY910.4 bn.
- New Zealand Trade Balance (Jun): The trade balance recorded a surplus of NZD301mn in May. The consensus expects a print of NZD2mn in June.
- Philippines Trade Balance (May): The April trade balance came in at a deficit of US$135 mn.
- Australia Consumer Prices (2Q): We and the consensus expect a print of 0.6%qoq after 0.1%qoq in Q1.
- Thailand Central Bank Meeting: The policy rate was left unchanged at 3.00% in its previous meeting. We and the consensus expect unchanged rates again at this meeting.
- Germany IFO Business Climate (Jul): The consensus expects a reading of 104.5 after the June print of 105.3.
- United Kingdom GDP (2Q A): We expect a print of -0.1%qoq and the consensus expect a print of -0.2%qoq following the contraction of 0.3% in 1Q.
Thursday, July 26
- New Zealand Central Bank Meeting: We expect rates to remain unchanged at 2.50%.
- Korea GDP (2Q P): Consensus expects growth of 2.4% yoy, from 2.8% in 1Q.
- Singapore Industrial Production (Jun): Consensus expects a 3.00% yoy rise, from 6.6% yoy previously.
- Sweden Trade Balance (Jun): A surplus of SKr9.8 bn was recorded in May.
- United States Durable Goods Orders (Jun): Consensus is expecting a rise of 0.5%, however we expect a decline of -1.0%, from growth of 1.3% in May.
Friday, July 27
- Korea Current Account (Jun): The current account recorded a surplus of US$3611.8 mn in May.
- Japan National CPI (Jun): CPI inflation was at 0.2% yoy in May.
- Switzerland KoF Leading Indicator (Jul): The consensus expects a print of 1.10. Previously, the index came in at 1.16.
- Germany CPI (Jul P): The CPI came in at 1.7% yoy in June, the consensus expects the same print in July.
- United States GDP QoQ Annualized (2Q A): Consensus is expecting growth of 1.5%qoq ann, we expect a print of 1.1%qoq ann, from 1.9%qoq ann previously.
- United States University of Michigan Confidence (Jul F): Consensus expects the index to come in at 73, we expect a print of 74.0, from 72 in June.