Written Commentary
- Modest run of statistics to end the week, digesting UK Retail Sales and Consumer Confidence, Japan CPI and Malaysia Q2 GDP, awaiting Canada Retail Sales, smattering of Fed speak and corporate earnings, all eyes on Biden
- UK Retail Sales underline flat underlying trend, and spending caution echoed by Consumer Confidence, not a game changer for BoE MPC
EVENTS PREVIEW
The week ends on something of a subdued note, with UK Retail Sales, GfK Consumer Confidence and PSNB Budget data along with Japan’s national CPI to peruse, and only Canada’s Retail Sales ahead. There are some Fed speakers, while Amex, Comerica, Halliburton, Schlumberger and Travelers top the US earnings run. Next week’s data schedule has a raft of surveys, including G7 & India ‘flash’ PMIs, German Ifo and GfK, French Business Confidence and UK CBI Industrial Trends, US Q2 preliminary GDP, Personal Income & PCE, Durable Goods Orders, New & Existing Home Sales and Goods Trade Balance along with Japan’s Tokyo CPI. In central bank terms, China has its monthly Loan Prime Rate fixing, while Canada’s BoC is expected to hold rates at 4.75%, but signal that there will be room to cut rates further, and there are a few Fed and ECB speakers. The US corporate earnings season picks up pace, with Alphabet and Tesla the big headliners, but with many other major companies reporting including: Cleveland Cliffs, Coca Cola, Colgate-Palmolive, Ford, Freeport McMoRan, General Motors, IBM, Kimberley Clark, Newmont, UPS, Verizon and Visa. Given the relatively muted end to the week, it is worth making an observation in passing. This is a world in transition, both in technology terms and geopolitically, generating a lot of uncertainty about the medium-term outlook, it is a world labouring under a mountain of debt and underinvestment in infrastructure for many a decade, which now needs a major upgrade and expansion, above all power networks. But what are being proposed as the key drivers of this transition, i.e. AI and renewable energy, are in operating cost terms more expensive than what is currently deployed, and per se inflationary. If we are to go down the route of escalating trade tensions via increasing tariffs, the world is likely to face a very nasty inflationary spiral.
** U.K. June Retail Sales, July GfK Consumer Confidence **
– Retail Sales remain very volatile in m/m terms, with June’s -1.2% m/m following a jump of 2.9% m/m, but overall leaving Q2 Retail Sales down 0.1% q/q, which is a better reflection of the underlying trend. June weakness was broad based, though the weakness in Clothing & Footwear (-1.6% m/m) and Household Goods (-2.1% m/m) do suggest a poor weather effect, even though Non-store Retailing was also down 1.1% m/m, though the latter follows a big 6.7% jump in May, and as such looks to be more of a mean reversion. Taken in conjunction with a marginal increase in GfK Consumer Confidence (-13 vs. prior -14), which also saw a rather paradoxical jump in both Savings Inventions (27 vs 22) and Climate for Major Purchases (-16 vs. -23), but little change to expectations for the economic outlook, underlining a lack of any election outcome related ‘feel good’ factor. It does not really change the equation for the August 1 MPC meeting, where the BoE will likely err on the side of caution and keep rates unchanged at 5.25%, above all given stubborn Services CPI and still very lofty wage settlements.
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