Written Commentary
- Politics and trade tensions still in the driving seat; UK and Australia jobs, and Japan Trade to digest, awaiting ECB council meeting, China Plenum communique, US jobless claims and Philly Fed Manufacturing; Netflix tops earnings run; France, Spain and US debt auctions
- UK: mixed signals on labour demand, as base effects push down wage growth, but still much too high for BoE comfort
- U.S.A.: jobless claims seen edging up, but remaining low; Philly Fed expected to tick higher; week’s run of better than expected activity data a further reminder that economy remains on solid if not spectacular growth trajectory
EVENTS PREVIEW
The ECB council meeting should in theory be the highlight of today’s schedule, but with the communique as China’s Third Plenum concludes (with a press conference scheduled for tomorrow), and Trump’s presidential nomination acceptance speech, politics will continue to cast a long shadow. Statistically, there are the UK and Australian labour data, and Japan’s Trade data to digest, with a light schedule ahead featuring US weekly jobless claims and the Philly Fed manufacturing survey. Outside of the ECB meeting, policy meetings in South Africa and Egypt are expected to see rates left unchanged, with Logan and Daly providing today’s Fed speak. US corporate earnings highlights are likely to include: Abbott Laboratories, Blackstone and Netflix, while there are multi-maturity auctions in France and Spain, while US auction 10-yr TIPS. The other talking point will be the rallying Japanese Yen, which broke out of the uptrend that has been in place since the start of the year.
** U.K. – May/June labour data **
– There were very few surprises in today’s labour data with headline and ex-Bonus Average Weekly Earnings dropping to a still high 5.7% y/y as expected (vs. prior 5.9% and 6.0%), though base effects accounted for most of the drop, Unemployment Rate unchanged at 4.4% aloo as forecast. While the less than reliable LFS Employment was broadly as forecasts at 19K, HMRC Payrolls suggest that labour demand has picked up, rising 16K on the month, and more notably with May revised up to 54K from an originally reported -3K. That said Vacancies continue to edge lower (889K, down 30K vs. Q1), and there has been a persistent increase in the Claimant Count (32.3K vs. May 51.9K). But the stubbornly high level of wage growth allied with yesterday’s Services CPI and last week’s solid monthly GDP all suggest that the BoE will stand pat on rates tomorrow, though leaving the door open to a rate cut in coming months firmly open. In simple terms and as with the Fed, there is no pressing need for a rate cut, and as previously noted tight fiscal policy is probably restraining the economy more than monetary policy.
** Eurozone – ECB council meeting **
– The stubborn level of Services CPI (4.1% y/y, paced above all by Restaurants, Accommodation and Package Holidays) is among the factors that are expected to see the ECB hold rates today, with most expecting Lagarde to hint at the possibility of, but not commit to a September rate cut, with views on the governing council on how much further rates will fall this year rather divergent, judging by recent comments. Tuesday’s Q2 Lending survey highlighting that credit conditions are longer tightening also bolsters the case for not embarking on a more aggressive rate cut cycle, as does the fact that wage growth is not decelerating at a pace that would make a stronger case for a further rate cut.
** U.S.A. – Jobless Claims, Philly Fed Manufacturing **
– Thus far this week’s run of us activity data have all surprised on the upside, and while there was a clear weather-related boost from Utilities (2.8% m/m) to yesterday’s Industrial Production, the 0.4% m/m following an upwardly revised 1.0% increase in Manufacturing Output gives the lie to soft Manufacturing surveys. Today’s Philly Fed Manufacturing survey is expected to edge up to 2.9 from 1.3, while initial claims are seen rebounding to 229K from last week’s six week low of 222K, and per se indicative of a still slow pace of loosening in labour demand.
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