27 June, 2016
Main Macro Events This Week
United States: The narrative turns to the fallout from Brexit in terms of the markets, central banks, and global politics into the second half of the year. The importance of the June jobs has also significantly diminished, though nonfarm payrolls are expected to bounce 195k, making the weakness in the prior two months look like anomalies. The U.S. calendar this week is mercifully tame after all the pandemonium on Friday, starting with the advanced trade report (Monday), the deficit expected to widen to -$59.8 bln for May vs -$57.5 bln year-ago. The highlight will be Q1 GDP (Tuesday), the third edition seen revised up to 1.2% from 0.8% previously. S&P/Case-Shiller home prices are also on tap, along with consumer confidence, seen rising to 93.5 in June vs 92.6, and the Richmond Fed index. The MBA mortgage market indices (Wednesday) could show some sensitivity relative to the plunge in rates Friday. Personal income is expected to rise 0.3% in May vs 0.4%, while spending may be up 0.3% vs 1.0%; core PCE prices rising just 0.1%. Initial jobless claims should rebound 19k to 278k for the June 25 week (Thursday), after a similar plunge the week prior, while Chicago PMI is set to improve to 51.0 in June from 49.3. ISM may ease to 51.0 in June vs 51.3 in May as manufacturing remains sluggish (Friday), while May construction spending may rebound 0.7% from a -1.8% April deficit. Vehicle sales punctuate the week.
Fedspeak, Chair Yellen speaks on Wednesday from Portugal. Three other Fedspeakers are scheduled over the week, including centrist Fed governor Powell who speaks on Tuesday from Chicago. St. Louis Fed hawk-dove Bullard and Cleveland Fed hawk Mester speaks Friday from London.
Canada: All of the domestic action takes place on Thursday, when April GDP and May IPPI will be released. Markets are closed Friday for the Canada Day holiday. We expect April GDP to rise 0.1% m/m following the 0.2% drop in March. The widely anticipated plunge in May GDP looms over all the April reports. We see a 0.5% drop in May GDP, driven by the wildfire related shutdown in oil sands production. Real GDP is penciled in for a 1.0% drop in Q2, followed by a 4.0% gain in Q3. The IPPI is seen rising 0.3% m/m in May after the 0.5% drop in April. The RMPI is expected to jump 5.0% m/m in May as crude oil prices saw a strong gain, following the 0.7% increase in April. There is nothing from the Bank of Canada this week.
Europe: As markets start to come to terms with the immediate fallout of the U.K.’s decision to leave the EU, politicians and officials are trying to figure out a road-map for a divorce that will not only be costly for both sides, but also very difficult in practical terms. The longer the crisis drags on, the more likely further policy action from the ECB will be needed, especially as the Brexit vote also rekindled Eurozone break up fears and sparked a renewed sharp widening of spreads. What is clear is that forecasts for both growth and inflation will have to be rewritten now and that will mean data releases this week are already outdated. On the slate are preliminary June inflation reports from Germany, France and Spain, which are all expected to show a slight uptick in headline rates. The German HICP is
expected to rise to 0.2% y/y from 0.0% y/y in May. The French HICP rate is seen increasing to 0.3% y/y from 0.1% y/y and together these should lift the overall Eurozone rate to 0.0% y/y from -0.1% y/y and thus out of negative territory for the first time since January. Economic Confidence indicator will be outdated even before it is released; we are looking for an unchanged reading of 104.7.
UK: Four things to know: 1, the UK will remain a paid-up member of the EU for at least another couple of years; 2, there is a possibility that the UK will lose Scotland; 3, uncertainty will abound for the foreseeable; 4, the UK will more than likely lose its triple A credit rating.
Overall, this historical-watershed period will not good be for business and investment decision making. We look for sterling to remain pressured, seeing potential for 1.2000 versus the dollar and at least another 10% decline in trade-weighted terms. UK stocks are likely to be susceptible to periodic crashes in the weeks ahead, particularly those of the more domestically-focused businesses.
China: June PMIs headline at the end of the week. The Caixin/Markit index (Friday) is expected to dip to 49.0 after edging up to 49.2 in May from April’s 48.9. It’s been in contractionary over the past three months and will add to the worrisome tone if it falters deeper into negative territory. The official CFLP is seen slipping to 50.0 from 50.1 in April and May and has been on a decidedly slowing growth path since mid-2011. The non-manufacturing PMI report is also on tap.
Japan: May retail sales (Wednesday). The pace of contraction for large retailers is expected to slow to -0.5% y/y from -1.0%, while overall sales are seen worsening to -2.0% y/y from a revised -0.9% overall. May industrial production (Thursday) is seen rebounding 1.0% m/m from -3.3% previously, while May housing starts (Thursday) are penciled in with a 5.0% m/m increase after jumping 9.0% previously. May construction orders are also due (Thursday). The remainder of the calendar comes on Friday, beginning with CPI figures. June Tokyo overall CPI is seen steady at -0.5% y/y, and unchanged at -0.5% on a core basis. May national CPI is expected to tick down further to -0.4% y/y from -0.3% for both headline and core readings. May unemployment should be unchanged at 3.2%. The job offers/seekers ratio is penciled in at an unchanged 1.34. May personal income is expected to contract at a -0.5% y/y clip from the prior 1.0% gain, while May PCE is forecast to fall 2.0% y/y from -0.4% in April. The June Tankan report is predicted to slip to 5 from 6 for large manufacturers, and to 20 from 22 for large non-manufacturers. June consumer confidence is seen weakening to 40.5 from 40.9. June auto sales are also on deck.Data in line with our estimates would add to the general gloom and worries over growth, especially in the aftermath of Brexit.
Australia: The Reserve Bank of Australia schedule is empty of speakers or events. The next Bank event is the July 5th meeting, where we expect no change in the 1.75% setting for the cash rate. The RBA left its official cash rate unchanged at 1.75% in June, as had been widely anticipated. Recall that the central bank unexpectedly cut rates in May to 1.75% from 2.00% following an unanticipated drop in Q1 inflation. Economic data is in short supply this week, with just the May HIA new home price index (Wednesday) and May private sector credit (Thursday) on the docket.
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