Analysts at Nomura offered their outlook for the week ahead.
Key Quotes:
United States | Data preview
“We expect solid increases in July personal income and spending, highlighting steady momentum in Q3 economic activity.
Advance goods trade balance (Tuesday): We forecast a goods trade deficit of $69.1bn for July after registering $67.9bn in June. Incoming inbound and outbound container shipments data at US ports suggest both nominal imports and exports likely slowed in July. A strong increase in goods exports in May was at least in part driven by expedited shipments ahead of higher US tariffs and retaliatory duties by trading partners and goods exports will likely slow gradually in coming months as they return to a previous trend. Tit for tat escalation in trade tensions may lead to transitory fluctuations in data, but will likely lead to declines in both imports and exports with muted net effect on goods trade deficit.
Case-Shiller home price index (Tuesday): The Case Shiller 20-city composite index rose 6.5% y-o-y, slowing slightly from the 6.6% average growth pace in Q1. While home price appreciation eased slightly in April and May, growth remains well above the average paces in 2015-17. The inventory of existing single-family homes still remains low relative to consumer demand, which has been supported by the strong job market and steady income gains. Especially in low-tier markets, a supply-demand imbalance appears to be acute which can worsen home affordability further. Against this backdrop, we continue to expect firm gains in this home price index
Conference Board’s consumer confidence (Tuesday): We expect Conference Board’s consumer sentiment index to remain essentially unchanged at 127.0 in August. Consumer sentiment has remained resilient so far amid the solid pace of pace of job creation and low unemployment. Despite rising concerns over international trade disputes, the Conference Board’s consumer survey will likely reflect elevated consumer optimism driven by the strong labor market. As downside risk, many consumers continued to make negative reference to trade disputes in the preliminary University of Michigan survey for August and partly weighed on the current conditions index. Similarly, trade concerns could weigh on the Conference Board survey’s equivalent measure. In addition, the softening in the August Michigan Survey was partly driven by a sharp deterioration in consumers’ assessment of price-related buying conditions (particularly, for cars and durable goods) and could affect the Conference Board survey as well.
Q2 GDP, second estimate (Wednesday): Based on our past-quarter GDP tracking estimate, we forecast 4.0% q-o-q saar for the second estimate of Q2 real GDP growth (Consensus: 4.2%). Incoming data since the BEA’s advance estimate reaffirmed strong growth in Q2. Data on business equipment spending, changes in private inventories, and both imports and exports were slightly weaker than the BEA’s advance estimates, but advance Quarterly Services Survey suggest slightly better consumer spending on services and business investment in intellectual properties during the quarter. Altogether, the net impact on real GDP growth was likely a downward revision of 0.1pp to 4.0% from the BEA’s initial estimate.
Pending home sales (Wednesday): Pending home sales, down 4.0% y-o-y, may continue to show weakness in July. However, last month’s inventory increase on a y-o-y basis, the first in three years, could help alleviate some of the inventory shortage affecting housing markets. That said, given ongoing challenges in the market for existing homes, including supply shortages and rising mortgage rates, our outlook for residential investment as a whole remains somewhat pessimistic.
Initial jobless claims (Thursday): We continue to expect low unemployment claims. Initial and continuing claims have persistently trended lower in recent weeks. This latest estimates for the week that corresponds to the BLS survey for the August payroll numbers adds some evidence of a healthy gain in August nonfarm payroll employment.
Personal income and spending (Thursday): We expect a steady 0.3% m-o-m increase in personal income in July. Personal spending likely rose a stable 0.4% m-o-m. Retail sales rebounded solidly in July with broad-based gains across most product categories following soft readings for June. Incoming retail sales data appear consistent with our expectation for solid consumer spending in 2018 in light of personal tax cuts now fully in effect and firm consumer fundamentals. While we expect a steady gain in spending on services, weaker-than-expected residential utility production suggests soft spending on utility services.
PCE deflators: (Thursday): We expect a steady 0.2% (0.192%) m-o-m reading for core PCE inflation in July. If realized, the 12-month change for core PCE prices would inch up to 2.0% (1.998%) from 1.9% (1.900%), previously. The contribution from PPI data to core PCE price inflation will likely be small in July. PPI inflation for hospitals and physicians’ service prices remained muted in the month. In addition, PPI for financial service prices did not pick up strongly. Although rent inflation from the July CPI report increased strongly, the relative importance of rent for PCE prices is smaller than that for the CPI. Over the medium term, the pickup in core PCE inflation will likely be gradual given the stability of inflation expectations and only modest acceleration of wage inflation. Elsewhere, we expect a steady gain in PCE food prices but another decline in energy prices. Altogether, we forecast a 0.2% (0.160%) m-o-m increase in the headline PCE price index, which would be equivalent to 2.3% (2.325%) y-o-y.
Chicago PMI (Friday): We forecast a 2.0pp decline in Chicago PMI to 63.5 in August. With serious trade concerns, manufacturers appear mixed on their business outlook. While the Philly Fed survey general business conditions index deteriorated sharply in August, the Empire State survey index improved to the highest level in 2018. Despite sending conflicting signals, both surveys indicated that businesses expressed acute concerns over increased uncertainty from trade disputes. While the economic momentum continues to be strong, we expect elevated trade uncertainty to weigh on Chicago PMI.
University of Michigan consumer survey (Friday): The University of Michigan consumer sentiment index fell to 95.3 in August, below market expectations of 98.0, the lowest level since last September. The current economic conditions index deteriorated notably while consumer expectations remained about the same. The decline in the consumer sentiment measure appears to have been driven mostly by consumers’ assessment of buying conditions in addition to ongoing tariff concerns. The price component of consumer buying plan measures suggest that consumers see rising prices as increasingly negative factors for their purchase plans, in particular for vehicles and home. However, much of the decline was driven by a sharp drop in current sentiment by self-identified Democrats, a trend that could reverse over coming months. With incoming data pointing to continued strength in the labor market, we do not expect a material slowdown in consumer spending in H2 2018. One-year ahead inflation expectations remained at 2.9% and 5-10 year ahead inflation expectations ticked up 0.1pp to 2.5%.
Euro area | Data preview
The flash estimate of euro area HICP inflation for August and UK household borrowing data will be in focus next week.
Germany Ifo Business Climate, Aug (Monday): We expect the Ifo Business Climate Survey to rise to 102 in August because of improving current conditions and future expectations. Recent survey data for Germany (Sentix Index and ZEW survey) showed some recovery from the first half of the year. This was due, according to the survey’s compilers, to trade tensions between the US and EU cooling down. As the situation seems to have stabilised for now, we expect Germany’s economy to partly recover the confidence it lost in H1 2018.
UK Household borrowing, Jul (Thursday): Households were net borrowers for the first time since the late 1980s in the first quarter of the year, according to recently published ONS figures – helped by high levels of employment, past weak wage growth and low interest rates. Figures published by UK Finance on 24 August are typically a good indicator of how the official monthly BoE household borrowing data move.
Germany and Euro area flash HICP, Aug (Thursday – Friday): We forecast Germany August’s HICP inflation at 2.0% y-o-y, while we expect euro area aggregate HICP inflation to increase by 2.0% on a y-o-y basis, compared with 2.1% in July. At the euro area level, support from energy price increases should weaken from last month, while we expect price inflation of the core components of 1.1% y-o-y, unchanged compared with July.
Japan | Data preview
We forecast August Tokyo-area core inflation to remain at 0.8% y-o-y. Durable goods prices are likely to be weaker, but are unlikely to see core CPI inflation slow markedly.
August Tokyo-area core CPI (all items, less fresh food) (Friday): We forecast Tokyoarea core CPI inflation for August of +0.8% y-o-y, the same as in July. We think the BOJ’s version of core core CPI inflation, which excludes fresh food and energy prices, will come at +0.5%, also the same, as in July. The corporate goods price index (CGPI) data for July showed prices for consumer durable goods down 1.8% y-o-y, a sharper decline than in June (-1.3%), and although we think there is likely to be downward pressure on retail prices too, we do not think this will result in a notable slowdown in core CPI inflation for August. In August 2017, the y-o-y inflation rate for medical fees was boosted by revisions to the high-cost medical care benefit system. We highlight that second-stage revisions are taking place in August 2018. There are many uncertainties at present, and we do not know if the boost to core inflation from these revisions will be larger or smaller than the first-stage revisions in August 2017.
July industrial production (Friday): In the survey of manufacturers’ production forecasts carried out on 10 July, the production forecast for July adjusted for forecast error by the Ministry of Economy, Trade & Industry, was +0.2% m-o-m. The survey date of 10 July was a day in which some automakers’ plants had suspended production because of heavy rain in western Japan, and it is unclear how much this impact had on the survey result. The 7 August edition of the Nikkei reported that automobile production had declined by over 40,000 vehicles in the two weeks following the heavy rainfall in western Japan, equivalent to around 5% of monthly automobile production in Japan (around 800,000 vehicles). Production plans for the transport equipment sector in July, meanwhile, called for a fall of 1.1%. On the assumption that the impact of production being suspended, owing to heavy rains in western Japan, is not fully factored into the survey of manufacturing production forecasts, we think industrial production fell m-o-m in July.
Asia | Data preview
We expect China’s official PMI to dip further in August.
China: We expect the official PMI to tick down further to 51.1 in August from 51.2 July. Despite the historical average showing a 0.2 percentage point (pp) increase from July to August, high-frequency data have slowed: growth of coal consumption by six power plants was 2.9% y-o-y in August from 11.2% in July; growth of crude steel production fell to 4.2% from 5.6%, while the national blast furnace operation rate was 66.4% from 70.2%.”
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