Macroeconomics: The Day Ahead for 01 August

The BoE policy meeting and quarterly Monetary Policy Report rounds off this week’s G7 central bank meetings, and is accompanied by the usual start of month run of Manufacturing PMIs/SIM, Eurozone Unemployment, South Korea Trade and US Construction Spending and Auto Sales, while Czechia’s CNB is expected to cut rates a further 25 bps. Another bumper day for corporate earnings has Apple in the spotlight, with Asia watching Marubeni, Mitsubishi Corp, Tata Motors and Toyota Motor. Europe looks to Anheuser-Busch InBev, Arcelor Mittal, BAE Systems, Barclays, BMW, Credit Agricole, ING, Pirelli, Shell, Societe Genrale and Volkswagen, while across the pond there are also Biogen, Cigna, ConocoPhillips, Hershey, Moderna and Thomson Reuters. France and Spain hold muti-maturity debt auctions, while Canada sells 2-yr. The sharp turnaround in tech stocks yesterday, again underlined the lack of market liquidity, but probably owed as much to end of month, as it did to the Fed messaging and an analyst upgrade for Nvidia.

** World – July Manufacturing PMIs **

– The sharp reversal in China’s Caixin PMI to 49.8, after hitting a 3-yr high in June echoed the NBS reading, and with Japan’s PMI fall confirmed, and many other Asian readings easing from June, or in contraction, there was little comfort to take from Asian readings, outside of the continued strength in India. No revisions are expected to Eurozone or UK flash readings, and with Spain slowing more than expected, readings in Sweden, CEE and Turkey all in contraction, the tentative recovery in the manufacturing sector in Q2 appears to have hit a brick wall.

** UK – BoE rate decision **

– The consensus looks for an initial 25 bp BoE rate cut, but opinions remain divided, and none held with any great conviction either, with markets pricing in a 64/36 chance, having been at 50/50 at the end of last week. Both Services and core CPI, and Average Weekly Earnings have fallen more slowly than the BoE had been expecting, and the limited volume of BoE speakers have erred to the side of caution on rate cuts, even if most of those are in the more hawkish camp of the BoE. The voting is likely to be tight (5-4 or 6-3). The accompanying Monetary Policy Report will likely see GDP forecasts upgraded modestly, and CPI in 2 years perhaps shaded marginally lower from May’s 1.9%, though held 1.6% in 3 years’ time, per se offering support for a rate cut. It will be interesting to note how (if at all) it evaluates improved business views on the economic outlook and investment environment since the election, against the array of fiscal announcements from the new Labour govt, which will be largely contractionary, with the exception of its likely inflationary minimum wage and public sector pay proposals. Given those headwinds, and the likelihood that despite some less benign CPI base effects start to get traction in H2, the risk is that after the summer holiday period, inflation falls faster than expected, per se the BoE should start cutting rates today, without committing itself to a specific pace or rate trajectory, the latter reflecting a myriad of uncertainties domestically and internationally.

** U.S.A. – July Manufacturing ISM, Auto Sales **

– There will be particular interest in US Manufacturing ISM (median 48.8 vs. June 48.5), after a steep fall in the equivalent flash PMI (49.5 vs. 51.6). The latter was doubtless partly related to increased trade tensions, and it has to be noted that official activity data for the sector has proven to be a lot more resilient than surveys have suggested for much of this year. Auto Sales are expected to rebound sharply to 16.20 Mln from the cyber-attack drop to 15.29 Mln in June, and remain well below pre-pandemic levels, thanks in the main to financing costs. There were no surprises from the Fed, with the statement barely changed, while Powell sounded a typically more dovish note by opening the door to a September rate cut.