Emerging Markets | Europe | FX | Rates | UK | US
Key Events: Fed Blackout, Biden Pullout?
- By Macro Hive
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Key Events
G10
In the US, there is…
- PCE price index, pers. income, spending – Friday. Consensus seems reasonable. The Fed watches the services component of PCE. We will examine median price PCE for indication of trend and see personal savings remaining around 4%.
- Q2 GDP – Thursday. Consensus is 1.9% vs the Atlanta Fed’s 2.9%. An upside surprise is possible as consensus likely underestimates consumption and capex.
- S&P PMIs – Wednesday. These are poor indicators of GDP, but the manufacturing survey tends to impact markets. We agree with consensus.
In the Eurozone and UK, the main events will be:
- Prelim. PMIs – Wednesday. EZ employment growth is turning down, but labour shedding has been minimal. This leaves productivity expectations to drive the ECB’s med.-term outlook.
Elsewhere in G10:
- Tokyo CPI – Friday. Consensus expects further slowing in supercore CPI to 1.6% YoY versus 1.8% prev. The BoJ will examine wages-services inflation passthrough.
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- Singapore inflation – Wednesday. MAS core to drop to 3% YoY, excluding one-off GST impact that puts core now at 2% (MAS comfort zone is 1%-2%).
- India Union Budget – Tuesday. Market expects a headline deficit of 4.9%-5.0% GDP thanks to windfall gain from RBI dividend. Rating agencies are also watching tax reforms for potential ratings upgrade.
- South Africa inflation to ease – Wednesday. June CPI is expected to ease in YoY terms but remain well above the target’s midpoint.
Central Banks in Action
- Fed pre-meeting blackout starts this weekend. We expect rates on hold at the 31 July meeting.
- ECB Lane speaks – Tuesday, Wednesday. After the (uncontroversial) pause last week, Lane could indicate how the ECB is reading data. We expect little of note.
- BoE surprise speakers? The pre-meeting window is closing, last-minute comments possible. We see a 60% chance of an August cut after inflation and labour market data.
- BoC to cut – Wednesday. Last week’s CPI and still-rising unemployment should enable another cut, though a dovish hold is possible. We see 60% chance of a hike vs market pricing of almost 90%.
- CBRT firmly on hold – Tuesday. Disinflation has commenced but at 71.6% CPI remains too far above target for any near-term rate cuts.
- NBH easing to continue – Tuesday. FX strength and lower-than-expected inflation have opened the door for a July rate cut.
- MAS to hold – Thursday. Expect band/slope/width unchanged. But with core inflation tracking MAS forecasts, October is live for reducing slope. A clue would be benign commentary on inflation momentum in the statement.
Markets to Watch
- USD may rally and US stocks extend their sell-off if President Biden pulls out of the race this weekend, as many pundits are speculating.
- GBP is set to peak. We turned short GBP/USD in our latest G10 FX Weekly, which sits alongside our bearish GBP/CAD position.
- AUD/USD has turned. However, we think prefer to wait to short AUD/NZD, eventually targeting a return to the 1.09/1.06 range
- UK 2Y is at YTD yield lows around 3.9%. We are dovish the BoE overall, but the distance this has gone means a retracement is possible.
- 10Y OAT/Bund spread wideners are starting to look attractive. We want a decline to 56bp before entering.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)