Macroeconomics: The Day Ahead for 12 July

A busy day for statistics, the official kick-off for the Q2 earnings season, but a very quiet day in terms of other events to end the week. There are China Trade, provisional Q1 GDP from Singapore, Swedish CPI and final French and Spanish HICP to digest, while ahead lie Indian CPI and Industrial Production, US PPI and Michigan Snetiment, and agricultural commodity markets will focus on the USDA’s monthly World Agricultural Supply & Demand Estimates (WASDE). The US Q2 corporate earnings season is going to be a pivotal key for equity sentiment for the remainder of the year. Q1 saw the ‘Magnificent 7’ post earnings growth of 51.8% y/y, as compared with a negligible 1.3% y/y increase for the rest of the index, and it should be noted that year to date only 24 companies have outperformed the S&P 500 index, making for a rather fragile and lopsided performance profile. For Q2 the consensus looks for an increase of 10.1% y/y, the highest since Q1 2022, with some narrowing in the performance for the magnificent 7 and the rest, while revenue growth is seen at just 4.1% y/y. Profit margins will thus be one of the main focal points. Next week has a raft of major US (Retail Sales, Industrial Production, NAHB, Housing Starts, Import Prices, Fed Beige Book), China (Q2 GDP, Retail Sales, Industrial Production, FAI and Property indicators) and UK (CPI, PPI, Unemployment, Average Weekly Earnings, Retail Sales and PSNB) data. In event terms, the ECB policy meeting with policy rates seen unchanged tops the event schedule along with China’s Thurd Plenum, with plenty of central bank speakers and the US Q2 earnings season starting to pick up pace. The other talking points for today will be whether Japan’s MoF tactically intervened on USD/JPY after the US CPI triggered slide in USD/JPY, the huge rotation trade in US equities out of the Magnificent 7, with small caps above all making large gains, and the ongoing speculation about Biden’s presidential candidacy, with the President due to hold another press conference today, following a gaffe prone end of Nato Summit press conference yesterday.

** China – June Trade Balance **

– The focus is already shifting to next week’s Third Plenum which will outline key policy initiatives to revitalize confidence both in consumer and business terms, as well as address the continued large drag from the property sector. Today’s Trade data saw Exports up 8.6% y/y, but very much flattered by base effects, and masking a slowdown in foreign demand. The 2.4% y/y fall in Imports against expectations of a rise of 2.5% underlines the weakness of domestic demand, given also favourable base effects, outside of the rise in Soybean Imports, which many have interpreted as a case of stockpiling ahead of a potenital Trump presidency, crude and metals imports dropped, with copper imports aslo restrained by high levels of inventories. As previously noted tweaking monetary policy will do nothing to improve the outlook, this is about confidence, which once decimated as it has been in both consumer and business terms is notoriously difficult to restore, and will require credible fiscal and legislative measures.

** India – June CPI, May Industrial Production **

– The median forecast for CPI is for little change at 4.8% y/y (vs. prior 4.76%), but this disguises a very wide range of forecasts (4.3% to 5.2%). Much will as ever depend on Food prices that have been decelerating, as have key logistics costs. A lower than expected outturn would raise market expectations of a rate cut later in the year, perhaps even as early as August, and this is likely to be reinforced if core CPI remains at or perhaps even below its historic low. Industrial Production is seen little changed at a very solid 4.9% y/y, reflecting a broadly steady PMI, though the very sharp acceleration in May Exports, above all in seasonal terms, to 10.5% m/m imparts some upside risks to the consensus.

** U.S.A. – June PPI, July Michigan Sentiment **

– PPI is forecast to post a gain of 0.1% m/m headline and 0.2% m/m core, but base effects will edge up y/y rates to 2.3% and 2.5% respectively if forecasts are correct. The sharp downward pull from energy evident in yesterday’s CPI imparts downside risk on headline, but core will depend on a broader array of factors than those that weighed on core CPI. Peliminary Michigan Sentiment is expected to be marginally improved at a lowly 68.5, as softer labour demand, and high for longer rates (reflected in rising credit card delinquencies) and housing affordability continue to weigh.