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Dentalfloss · Jul 15, 2019

Dentalfloss · Jul 15, 2019

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Dentalfloss · Jul 15, 2019

Dentalfloss · Jul 15, 2019

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Dentalfloss · Jul 15, 2019

SDollar in support

Dentalfloss · Jul 15, 2019

Good Morning: The Long & the Short of it and The Bigger Picture - xx July 2019 - ADM ISI

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Ostwald, Marc

08:33 (22 minutes ago)

to Marc

- Busy looking data schedule largely a case of digesting China Q2 GDP and
monthly activity data, awaiting India Trade and US NY Fed Manufacturing;
Citi tops modest US earnings run; NY Fed's Williams speaks

- China: Glass half empty or half full? Q2 GDP at 27-yr low as expected,
but Retail Sales and Production vault higher .....

- US NY Fed Manufacturing: rebound from May collapse expected... predicated
on US / China trade truce?

- Audio preview:
https://www.mixcloud.com/MOstwaldADM/adm-isi-morning-call-15-july-2019/

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** EVENTS PREVIEW **
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For all that today's data schedule looks busy, it is primarily all about digesting the overnight run of China Q2 GDP and accompanying monthly activity indicators, with little else other than the US NY Fed Manufacturing survey (see Week Ahead comments below) ahead, along with the generally not very market sensitive Indian trade data. The US Q2 earnings run gradually cranks into gear with Citigroup topping today's modest run of reports. There is some Fed speak from NY Fed's Williams, but his topic is the transition away from LIBOR, and barring the potential Q&A questions, will likely not touch on monetary policy. On the political front, the continued escalation of the Japan/South Korea trade feud serves as a reminder that 'trade wars' do not exclusively revolve around China and/or the USA.

In terms of the China data run, this was a classic example of whether one wants to see the glass as 'half empty' or 'half full'. On the one hand the fact is that Q2 GDP did slow to a 27-year low of 6.2% y/y (Q1 6.4%), which given the run of monthly indicators prior to June should come as a surprise to nobody. On the other hand, though very much in the category 'one swallow does not a summer make', the June data on Retail Sales, Industrial Production and FAI suggest the economy ended the quarter with solid upward momentum, which should bode well for Q2, and implies that the stimulus measures enacted in H1 appear to be getting some traction, even if the uptick in the surveyed Unemployment Rate to 5.1% from 5.0% should not be ignored.

RECAP - The Week Ahead - Preview:

The coming week offers a typical week 3 of the month bumper crop of major US, China and UK data, including China Q2 GDP, US & China Retail Sales & Industrial Production, US NAHB, NY & Philly Fed surveys, Housing Starts & Fed Beige Book; UK labour, inflation & budget data along with Retail Sales, with Australia looking to labour data and Canadian awaiting CPI & Retail Sales. There are no major central bank rate decisions, but the Fed will be publishing its Beige Book and there will be a goodly volume of G10 central bank speakers. The Euro area leads the way in terms of govt bond auctions, with a typically small (EUR 1 Bln) 30 yr sale in Germany accompanied by multi-maturity sales in France (EUR 8.75 Bln) and Spain (EUR 4.0 bln estimate), with a syndicated sale also expected for Greece, while the UK sells 2037 Gilt (£2.25 Bln) and the US 10-yr TIPS ($14 Bln).

But perhaps the main focus will be on the US Q2 earnings season as it kicks off with the usual run of major bank earnings. If forecasters are correct in their consensus estimate that overall earnings will decline by 2.6% y/y, which would be the first consecutive two quarter fall in of year-over-year in earnings since Q1 / Q2 2016. As per Factset: "During Q2, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the median EPS estimates of all the companies in the index for Q2) dropped by 2.6% (to $40.42 from $41.46) during this period. How significant is a 2.6% decline in the bottom-up EPS estimate during a quarter? How does this decrease compare to recent quarters? During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.3%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.1%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.2%. Thus, the decline in the bottom-up EPS estimate recorded during Q2 was smaller than the 5-year average, the 10-year average, and the 15-year average."

- Retail Sales tops a busy run of activity data in the USA, with the consensus looking for 0.2% m/m, which would imply a very respectable 3-mth annualized pace of 4.0% (assuming no revisions), and by extension a solid contribution from Personal Consumption to Q2 GDP; core measures are also expected to remain buoyant - ex-autos & gas 0.4% m/m and 'control group' 0.3% m/m. The industrial sector profile is unsurprisingly expected to be at best muted, with Industrial Production forecast to rise 0.2% m/m, with Manufacturing Output projected to rise 0.4% m/m following prior readings of 0.2% and -0.5%. Last month's regional Fed manufacturing surveys made for grim reading, even if the national ISM measure was less downbeat, and the presumption is that the resumption of US/China trade talks should allow a recovery in both the NY Fed measure (1.5 vs. May -8.6) and Philly Fed (5.0 vs 0.3). In the housing sector, the NAHB survey is forecast to be unchanged at 64, with perhaps some upside risk given the fall in mortgage rates, while Housing Starts are seen edging down 0.7% to a 1.26 Mln SAAR pace, though Building Permits are expected to be slightly more buoyant at 1.30 Mln SAAR. Business Inventories, TIC Portfolio Flows and Michigan Sentiment are also due The Fed's Beige Book will above all be scanned for indications on how much trade tensions are weighing on business sentiment in terms of the overall outlook, investment and indeed labour demand; with the agricultural sector likely to remain under a large cloud due to trade tensions and enormous weather disruptions. Price pressures are likely to be seen as well contained, and wages pressures also modest outside of those sectors with skills shortages.

- China's GDP data are unsurprisingly always greeted with a good deal of scepticism. Be that as it may, Q2 GDP is forecast to edge up to 1.5% q/q from 1.4%, but drop to 6.2% y/y from 6.4%, with H1 GDP seen at 6.3% y.t.d. Monthly activity data are seen little changed - Fixed Asset Investment 5.6% y/y, Industrial Production 5.2% from 5.0% and Retail Sales 8.5% y/y from 8.6%. The surveyed Unemployment Rate has steadied at 5.0% after spiking from 4.8% in November to 5.3% in February, with some interest also in whether the cooling measures being taken in some cities serves to rein in Property Investment (last 11.2%) and/or New Home Prices (last 0.71% m/m). But overall, the data seem unlikely to dispel the idea that the Chinese economy continues to lose momentum, despite measures to boost infrastructure spending (most clearly evident in the strength of Aggregate Social Financing at CNY 2.26 Trln, heavily outpacing New Yuan Loans CNY 1.66 Trln, thanks to hefty municipal bond issuance.

- Notwithstanding the sharp rebound in the RICS Housing survey, there is little doubt that the UK economy has slowed quite sharply in Q2, with protracted Brexit uncertainty and payback for Q1 stockpiling taking its toll. This week kicks off with labour data, with Employment seen growing at a modest 45K (prior 32K), with the Unemployment seen holding at its five decade low of 3.8%, while headline Average Weekly Earnings are seen unchanged at 3.1%, though the ex-Bonus measure is forecast to pick up to 3.5% from 3.4%, despite labour surveys suggesting some weakness in labour demand. The gamut of inflation indicators are likely to affirm that CPI is trending sideways - CPI flat m/m for an unchanged at 2.0% y/y, core edging up to 1.8% y/y from 1.7%, with the fall in oil prices likely to drag PPI Input down by 0.8% m/m that would see the y/y rate plunge to Flat y/y from 1.3%, while Output PPI is forecast to rise a modest 0.1% m/m 1.7% y/y (vs. May 1.8% y/y). While Retail Sales impressed in the first four months of the year, there has been a sharp loss of momentum as Q2 progressed, which is expected to be confirmed by a -0.2% m/m following May's -0.3%, while base effects give a boost to the y/y rate to 2.7% from 2.2%. PSNB budget data, the Bank of England's Credit Conditions and Bank Liabilities surveys and Rightmove & ONS House Prices are also due.

- Elsewhere, Japan's Trade data are expected to be as sombre as those in the highly developed economies of Asia thanks to the China contagion effect, and trade tensions, with Exports seen down 5.4% y/y after May's -7.8%, while Imports are seen down 0.2% y/y vs. May -1.5%. National CPI is projected to echo Tokyo CPI in confirming a lack of any upside momentum in inflation, headline and 'core core' unchanged at 0.7% and 0.5% y/y respectively. Australia's labour data are projected to see the Unemployment Rate unchanged at 5.2%, with Employment growth relatively tepid at 9.0K, after a largely part-time jobs paced increase of 42.3K in May, and per se still not signalling the sort of labour demand that might prompt any significant increase in still subdued wage growth. Last but not least, Canadian CPI is expected to see the unexpected spike in May largely reversed with a drop of 0.3% m/m expected to push the y/y back down to 1.9%, with core measures seen remaining a little divergent - median 2.1% y/y and common 1.8% (both u/c), with the trimmed measure slipping to 2.2% y/y from 2.3%.

- In central bank terms, a number of rate cuts are expected, with markets divided on whether the Bank of Korea will reverse its Q4 25 bps rate hike (with the BoK notorious for surprising markets with a hike/cut, or not delivering when expected to). In the EM space, Indonesia's BI is expected to cut 25 bps to 5.75%, as is South Africa to 6.50%, while Ukraine's NBU is forecast to cut 50 bps to 17.0%. Rates are likely to be held in Chile, Kazakhstan and Pakistan.