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Good Morning: The Long & the Short of it and The Bigger Picture - 15 August 2019 - ADM ISI


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Ostwald, Marc
08:47 (3 minutes ago)

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- Digesting Australia labour data, China Home Prices, but mostly fixated by
US/UK 2/10 yr yield curve inversion and market volatility; UK Retail Sales
warms the plate for busy run of US data: Retail Sales, NY & Philly Fed,
Industrial production, Claims, NAHB, Biz Inventories; Walmart & JC Penney
in focus on US earnings schedule; US sells 1 & 2-mth Bills, 30-yr TIPs;
Politics, protests and trade still providing mood music

- Yield curve inversion underlines doom and gloom view, but volatility
across asset classes the more important aspect

- UK Retail Sales: payback for June 'strength' seen, CPI and BRC sales
impart some downside risks

- US Retail Sales: seen slowing after very strong Q2 as weaker Auto sales
weigh, core measures expected to remain solid

- US Industrial Production: manufacturing output seen contracting following
slide in weekly hours and weak ISM

- US NY & Philly Fed: seen retreating from July rebound, data collection
timing critical, and implies some downside risks

- US NAHB Housing Index: modest uptick expected as mortgage rates continue
to fall

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

- Charts: SU 30 yr yield; FX, Bond & index volatility; S&P500 vs. US HY
Bond avg spread; Survation UK polls

..........................................................................

********************
** EVENTS PREVIEW **
********************

The US rules the roost today as far as economic data goes, though there are some appetizers via way of the overnight Australian labour data and China house prices ahead of UK Retail Sales. But the US has Retail Sales, Industrial Production, NY & Philly Fed Manufacturing and NAHB Housing surveys, Q2 Productivity, weekly jobless claims, Business Inventories & TIC Portfolio Flows, even if any and all of these could be trampled all over in the event of a Trump tweet, or A N other headline related to US/China trade. It is a busier day for corporate earnings - Alibaba, Lenovo & Ping An Insurance in China; AP Moeller Maersk, Carlsberg & Lloyds Bank in Europe, while Walmart and JC Penney feature in the US. South of the US border, the consensus has been swinging against the previously expected and initial 25 bps rate cut from Banco de Mexico, above all due to the overall heightened level of volatility in any "risk" assets. and of course the collapse in the Argentine Peso and asset prices. US and UK Yield curve inversion will inevitably be the topic du jour for the chattering classes, though with so much QE in the world (>$14.0 trln), the lessons from yesteryear are perhaps tenuous. However the more pertinent issue is that with volatility tracking at higher levels - see JPY historic, VIX, V2X and MOVE charts - the question is rather whether all the QE is now achieving is ever more violent spikey swings in markets. As previously noted, keep a very close eye on the US HY Credit Spread (see chart comparing this spread to S&P500 index, and admire the correlation!).

** U.K. - July Retail Sales **
- Following on from the ironic juxtaposition of stronger than expected CPI (due to weaker summer sales discounts and upward pressure on hotel prices) and the swing into inversion in the 2/10yr
Gilt curve, we have Retail Sales, for which the pertinent aspect of CPI is that it imparts downside risks for Retail Sales given that these are a volume not a value measure. Be that as it may, after a very robust (though quirky in component terms) +1.0% m/m in June, which ran diametrically opposed to the BRC's 'weakest June sales on record', an epithet that the BRC also applied to its July report. The consensus looks for -0.2% m/m and another outlier seems quite probable for what is a very erratic and often heavily revised series.

** U.S.A. - July Retail Sales, Industrial Production; Aug NY/Philly Fed & NAHB surveys **
- The setback in Auto Sales will weigh on headline Retail Sales, even if rising gasoline prices should boost gasoline sales, but overall are still seen up 0.3% m/m after a run of 0.4% in each month of Q2, with core sales measures expected to remain solid (ex-Autos & Control Group 0.4% m/m). The anecdotal evidence has been mixed with a sharp rebound in Consumer Confidence standing in contrast to Redbook Retail Sales that were at their weakest in four months by month end. A sharp fall in Manufacturing Average Weekly Hours (-0.6% m/m), partly offset by a reasonable 16K rise in Manufacturing Payrolls, and a weak Manufacturing ISM predicate expectations of a 0.3% m/m drop in Manufacturing Output, with Auto Output also likely to have been a drag, while warm weather is expected to boost headline Industrial Production (exp. 0.1% m/m). In terms of the day's surveys, The NY & Philly Fed Manufacturing Indices are both expected to drop (NY 2.0 vs. 4.8, Philly 10.0 vs. 21.8), with much depending on the timing of responses (i.e. before or after the Trump Tweet on China tariffs), and the risks looking to be to the downside of consensus forecasts, given the meltdown narrative being touted in financial markets and parts of the media. Falling mortgage rates should allow an anticipated uptick in the NAHB Housing Market Index to 66 from 65, notably yesterday's weekly MBA rose 21.7% wk/wk, though very much paced by the refinancing index that jumped 36.9% wk/wk. TIC Portfolio Flows and Business Inventories round off today's busy run of data.


========================== ** THE DAY AHEAD ** ==========================
 
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