US CPI met expectations. July MoM headline and core CPI came in at 0.2%, in line with expectations and unchanged from June. Core goods deflation deepened, while OER was roughly unchanged from July.
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We standardise WoW price changes across different markets to allow for cross-market comparisons.
Last Week’s Highlights
US CPI met expectations. July MoM headline and core CPI came in at 0.2%, in line with expectations and unchanged from June. Core goods deflation deepened, while OER was roughly unchanged from July. Over the longer run, core services inflation tracks wages closely. The stabilisation of the Atlanta Fed median wage to 5.7% in July from 5.6% in June suggests that the downside to core services inflation could be limited. In reality, last week’s CPI data did little to move markets, which continued to see higher bond yields on the longer end and rate-sensitive equities such as tech struggling (Charts 3 and 4).
Dutch TTF prices rose almost 40%. Following threats of a worker strike at Australia’s Wheatstone and Gorgon liquefied natural gas (LNG) facilities, which contribute almost 10% to global LNG supply, global natural gas prices spiked. Any hit will tighten markets considerably as we approach the winter months when demand tends to rise seasonally. Given the importance of the facilities, we think prolonged strikes are unlikely. However, we expect further volatility until the issue is resolved – our bias remains for Dutch TTF to trade lower (Chart 5).
Chinese credit data disappointed. Chinese banks extended 345.9bn yuan ($47.80bn) of new yuan loans in July, tumbling 89% from June to the lowest since late 2009. This comes after several smaller rate cuts by China’s PBOC in an effort to stabilise the economy, particularly its property sector. The weaker-than-expected credit data helped weaken the Chinese yuan as markets increase their expectations for further stimulus going forward (Chart 2).
What to Watch
Expect US retail spending to remain strong. This Tuesday we get US retail sales where consensus expects an increase of 0.4% MoM. That translates to a real-terms increase of 0.2%. While the headline figure is interesting, Dominique will watch for a 0.5% MoM increase in the ‘control group’ metric as it feeds into the GDP calculations.
Will the FOMC minutes point to a further hike? The Fed’s FOMC minutes are due Wednesday. Dominique expects them to confirm that the Fed is still on track for another hike this year, which she thinks will occur in November.
Is UK’s labour market still loosening? On Tuesday, we get UK labour market data, which showed a gradual loosening last month. This will be a crucial data point for the BoE. It estimates a very shallow rise in unemployment to the end of the year. Henry thinks the risks are to the upside relative to BoE forecasts over the next few months.
High risk of surprises in UK CPI. UK CPI (Wednesday) will be the most important release of the week. Consensus is looking for a drop in both headline and core to 6.8% YoY. There are strong risks of surprises in the outturns. July data will see not only the new, lower household energy prices feed into the indices (likely to suppress headline) but a range of other quarterly repricing effects.
The Week Ahead: Watch Dominique and Andrew as the pair reflect on last week’s CPI data. Dominique also discusses NY Fed President John Williams’ NYT interview, which she believes was misinterpreted and contributed to moving markets.