- Digesting very strong Europe Q2 GDP readings, tepid Oz wage growth ahead
of UK labour data, US Housing Starts and July FOMC minutes; oil looking
to EIA inventories
- Europe GDP: CEE and Dutch readings "punching out the lights" - strong
counter to turn of year expectations
- UK labour data: expected to confirm labour demand remains solid, but
wage growth tepid
- US Housing Starts: sideways trend emerging, some downside risks due to
structural headwinds, rather than softer demand
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** EVENTS PREVIEW **
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Today's schedule is primarily about the UK and continental Europe in terms of the data calendar, with a raft of provisional Q2 GDP readings from across the EU and a first revision to the Eurozone estimate, while the UK has its labour market data and the US has Housing Starts, after another run of upside surprises yesterday from Retail Sales, through the NY Fed Manufacturing and NAHB Housing surveys to Business Inventories. On the G7 central bank front, there are the July FOMC minutes, where there will be particular attention paid to the discussions about the inflation outlook, as markets question whether the Fed will really hike rates in December. There will also be some interest in the Fed's discussion about the timing of initiating balance sheet reduction, given the statement's nuanced change to indicating that this will start 'soon'.
NAFTA talks kick off, with Canada now threatening to walk if a formal dispute resolution mechanism is not agreed upon, eminently a response to the random walk (elephant in a china shop? Ed.) of Trump's 'policy making'. Rates are expected to be kept on hold in Namibia and Thailand.
** Europe - Q2 prov. GDP **
- Following on from Germany yesterday, today sees Netherlands, Italy and many CEE countries in the Q2 GDP spotlight, and while Italy is set to post the weakest reading 0.4% q/q, that would match Q1, which was the best q/q reading since Q4 2010, which would see the y/y rate pick up to 1.4%, the best since Q2 2011. Given the run of recent Italian data has mostly surprised on the upside, there is an outside chance of a stronger than expected outturn. The CEE readings have indeed 'punched out the lights', with
the Czech Republic leading the way with 2.3% q/q 4.5% y/y, which follows Q1's 1.5% q/q, while Romania posted 1.6% q/q 5.9% y/y, with strong readings also in Hungary 0.9% q/q 3.2% y/y and Slovakia 0.8% q/q 3.3% y/y, with Poland also expected to post a very solid 0.8% q/q after 1.0% q/q. It is little surprise that the Czech National Bank hiked rates and may well need to hike again before year end, and central banks in Poland and Romania are also likely to come under some pressure to reconsider near-term neutral policy outlooks. Be that as it may, with Eurozone Q2 GDP seen confirmed at 0.6%, these reports are set to confirm that counter to the market narrative at the start of the year, economic activity levels in continental Europe are the best that they have been for the past decade, even if countries such as Italy still have a long way to go before 2007/08 levels are re-attained, let alone surpassed.
** U.K. - June/July Labour data **
- Following on from the rather deceptive CPI data yesterday - deceptive in so far as the slightly lower than forecast CPI was primarily a function of falls in petrol prices and mobile phone charges, which masked upward pressures in Food, Clothing, Household Goods and Utilities, and indeed ignored upside surprises on RPI - attention turns to the labour market. This is expected to reprise the trends evident for most of 2017, namely that labour demand remains robust, even if the Q2 FLS Employment measure is expected to slow to +97K from the March-May reading of +175K, but wage growth remains tepid in nominal terms, and negative in real terms, with headline and ex-Bonus earnings forecast to be unchanged at 1.8% and 2.0% y/y respectively.
** U.S.A. - July Housing Starts **
- Following on from the smart bounce in the NAHB Housing Market Index (68 vs. June/expected 64), today's Housing Starts and Building Permits are projected to continue what has been a sideways trend for much of this year, notwithstanding the inherent volatility of month on month changes. While demand remains robust in many areas, developers continue to bemoan the lack of suitable plots in high demand areas, as well as a shortage of stuiabely skilled labour, and of late rising raw materials costs. The latter imparts some downside risks relative to a forecast of a 1.22 Mln SAAR pace (+0.4% m/m), but in that context, this should not be construed as signalling slower demand.
from Marc Ostwald
