Macroeconomics: The Day Ahead for 01 July

A very busy day in statistical terms will be dominated by digesting the French first round election results, which leaves a lot of questions given that the second round votes will have many constituencies with 3 candidates rather the generally more common 2 way run-off. Manufacturing PMIs/ISM and German CPI top the statistical schedule, which also sees UK Consumer Credit & Mortgage Lending, and US Construction Spending. A light day for events has this evening’s opening speech by Lagarde at the ECB’s annual Sintra Forum on Central Banking.

** U.K. – May Consumer Credit, Mortgage Lending **

– Following on from the unexpected though modest rise in Nationwide House Price, Consumer Credit is expected to maintain its very steady trend at £1.5 Bln, the question is the extent to which Mortgage Lending reverses from a by recent standards outsized jump of £2.4 Bln in April, with a reading of £1.5 Bln seen, though Approvals are only expected to ease marginally to 60.5K.

** World – June Manufacturing PMIs/ISM **

– China’s weekend NBS PMIs were in a nutshell weak, with Manufacturing unchanged at 49.5, and Services slipping more than expected to 50.5 vs. prior 51.1. By contrast, the majority of other Asian Manufacturing PMIs, above all in SE Asia and Taiwan accelerated. The unexpected downturn in flash Eurozone PMIs is likely to be confirmed, with Manufacturing readings all deep in contraction with the exception of Spain. In the UK The Manufacturing PMIs is expected to be confirmed at a 2-yr high of 51.4, while the US Manufacturing ISM is forecast to eke out a small rebound to 49.1, paced by a bounce in Orders to 49.0 after May’s slump to 45.4. The overall manufacturing profile worldwide remains very mixed, though a modest sector recovery outside of the Eurozone does appear to be getting some traction.

RECAP: The Week Ahead – Preview: 

The French and UK general elections give the week a strongly political flavour, as speculation around Biden’s candidature at the US election continues to swirl as the new quarter gets underway. Statistically, the week has the usual start of month highlights, kicking off with Manufacturing and Services PMIs around the world, along with German and Eurozone CPI, while a busy schedule in the US features the gamut of labour market indicators: JOLTS Job Openings, ADP Employment & Challenger Job Cuts ahead of Friday’s Non-farm Payrolls, which are accompanied by Auto Sales, Construction Spending, Factory Orders and Trade Balance. Aside from the election, the UK looks to the BoE’s Q2 Credit Conditions & Bank Liabilities surveys, Consumer Credit & Mortgage Lending, BRC Shop Prices Index and Construction PMI. German Orders, French, German & Spanish Industrial Production, and the less timely Unemployment and Retail Sales are the other headline times in the Eurozone. Japan has the BoJ’s Q2 Tankan survey and quite sensitively given BoJ hopes for an upturn Household Spending, while Canada looks to labour data and Australia to Retail Sales. The ECB’s annual Sintra Forum on Central Banking has both Lagarde and Powell and many other ECB speakers, while the Fed, ECB and RBA all publish minutes of their June policy meetings. While all eyes will be on the elections in Europe, an eye will need to be kept on the Shanghai Cooperation Organization (SCO) annual meeting, even if Putin’s attendance is unsure. A lighter week for commodity market events has the UN FAO World Food Price Index, while China’s Nonferrous Metals Industry Association hosts an Expanding Aluminium Application Forum. There are very few corporate earnings, as is seasonally typical, with Constellation Brands and Samsung Electronics the highlights, along with a Q2 trading update from energy behemoth Shell. With the US shutting up shop on Thursday for Independence Day, there is no Treasury coupon supply, while the UK sells 3 -yr, Germany 10, 12 & 26-yr, France 9, 10, 29 & 42-yr and Spain 3, 8 & 11-yr and I-L 9-yr, and Japan auctions 10 & 30-yr.

– PMIs/ISM: China’s weekend NBS PMIs were in a nutshell weak, with Manufacturing unchanged at 49.5, and Services slipping more than expected to 50.5 vs. prior 51.1. The unexpected downturn in flash Eurozone PMIs is likely to be confirmed, with Manufacturing readings all deep in contraction with the exception of Spain, while Services expand at a slower pace, excepting a contraction in France, while the UK PMIs are expected to be confirmed as expanding, but at a slower pace than May. US Manufacturing ISM is forecast to eke out a small rebound to 49.1, paced by a bounce in Orders to 49.0 after May’s slump to 45.4, while the Services ISM is seen slowing to 52.5 from 53.8. On balance, these would largely affirm what has been well established, the Eurozone recovery has at best tepid momentum, the UK’s strong Q1 GDP will likely slow to a very modest pace in Q2, while the US economy has lost momentum, but as yet continues to defy recession forecasts.

– USA: Tuesday’s JOLTS Job Openings are expected to post a further relatively sharp fall to 7.864 Mln vs. April’s 8.059 Mln, and per se falling into the top of the pre-pandemic range, with particular focus on the ‘quit rate’ as labour demand eases. Friday’s Payrolls are also expected to ease quite sharply to 190K (vs. 272K) with Private Payrolls seen at 163K (vs. 229K). The household data requires particular attention, given that it has for some months signalled a much more sluggish Employment picture than the establishment Payrolls, though the Unemployment Rate is seen steady, having risen to 4.0% in June. Average Hourly Earnings have been quite volatile in m/m terms this year (0.5%, 0.1%, 0.4%, 0.2% and May 0.4%), often distorted by minimum wage increases, with a 0.3% m/m expected, edging the y/y rate down 0.1 ppt to 3.9%. If JOLTS do decelerate as expected, and if the Unemployment Rate ticked up to 4.1%, then one could reasonably expect Fed speakers to put greater emphasis on high for longer rates slowing labour demand. Otherwise, Auto Sales are seen marginally lower at 15.80 Mln, with some scope for a downside outlier due to the cyber-attack on auto dealerships CRM systems. Wednesday’s FOMC minutes will reveal the rationale for the reduction in 2024 rate cut expectations, and the discussion around whether rates are genuinely ‘sufficiently restrictive’, and the extent to which some argue that there is simply a greater time lag in rates hikes having an impact. Of note will be the evaluation of the labour market, and how much further labour demand would need to loosen before it starts to balance out lingering inflation concerns.

– UK: While all eyes will be on the election results as they start to come through late Thursday into early Friday, and the extent of the labour majority (if opinion polls are correct), there are a couple of other items of note. Consumer Credit is expected to maintain its very steady trend at £1.5 Bln, the question is the extent to which Mortgage Lending reverses from a by recent standards outsized jump of £2.4 Bln in April, with a reading of £1.5 Bln seen, though Approvals are only expected to ease marginally to 60.5K. The BRC’s Shop Price Index is forecast to remain very low at 0.5% y/y, per se confirming that outside of the fall in Utility prices, food and other goods disinflation continues to offset the persistent upward pressure on Services prices. While the Labour party’s energy policies were given a lot less prominence in its manifesto, and all eyes will be on how it outlines its overall fiscal and legislative agenda initially (assuming it does actually win the election), its energy transition agenda will bear a lot of scrutiny. Please join myself and a very distinguished panel this Friday at 14:00 BST for ‘The Power Switch: A First Look at the Outcome of the UK Elections and Its Potential Impact on Energy Markets” Commodities People webinar, to register, click here. 

– Eurozone: The results of the first round of the French election will be the focal point, with initial exit poll projections suggesting Le Pen’s RN may yet achieve an outright majority, though the estimates are very wide in seat terms 240-310, with the left wing New Popular Front seen on 76-200 and Macron’s Centrist alliance on 60-138. Monday is expected to see German HICP slow to 2.5% y/y, echoing lower readings in France and Spain, while Tuesday’s Eurozone is forecast to rise 0.2% m/m to edge the headline y/y rate down 0.1 ppt to 2.5%, with core seen down by a similar margin to 2.8%. German Factory Orders are anticipated to rebound very modestly in m/m terms (0.5%), but very adverse base effects would see the y/y rate crash to -6.1% from -1.6%, while Industrial Production is seen barely change at 0.1% m/m, underlining that Deutschland AG continues to face substantial headwinds.

– Japan: if forecasts of almost no change on any of the Q2 Tankan DIs either for large or small manufacturers or services companies, then this will likely weigh little in the BoJ’s policy deliberations in July. Friday’s Household Spending will however be of some importance, with a setback to a tepid 0.2% y/y from 0.5% expected, underlining that the strength seen in Retail Sales has been largely due to record levels of tourist arrivals, in no small part due to the weakness of the JPY, and domestic demand yet to see any benefit from higher wage settlements.