Analysts at Nomura offered their outlook for this week’s key scheduled events.
Key Quotes:
United States | Data preview
We expect a solid 0.3% m-o-m gain for August core CPI inflation, while its underlying pace should remain consistent with core inflation running slightly above 2% y-o-y.
New York Fed Survey of Consumer Expectations (Monday): Inflation expectations in the New York Fed’s consumer survey remained within a steady range in August. However, consumers’ outlook for earnings growth and stock prices deteriorated somewhat. While consumer confidence remains in healthy territory, the recent discrepancy between the University of Michigan and Conference Board surveys, possibly driven by questions on real versus nominal income, could put increased importance on the New York Fed’s consumer survey.
Consumer credit (Monday): Consumer credit increased a modest $10.2bn in June with a downward revision to the previous month’s gain. However, non-revolving debt which includes auto and education loans continued to expand at a solid pace in line with healthy consumer fundamentals. With steady income growth and a low unemployment rate, we expect consumer credit to continue to grow at a steady pace.
JOLTS job openings (Tuesday): Job openings remained elevated in June with the ratio of vacancy postings to unemployed workers at 1.01, indicating continued labor market tightness. In addition, the quits rate remains elevated at 2.3%, matching its pre-recession high. While labor market turnover remains subdued, continued tightening in the labor market should put modest upward pressure on wage growth.
Wholesale inventories (Tuesday): Advance data released by the Census Bureau suggest that wholesale inventories increased strongly by 0.7% m-o-m with solid gains in durable goods inventories. The final estimate of wholesale inventories should reaffirm strong inventory build-up by wholesalers. Based on incoming data, we expect solid contribution from inventory accumulation to real GDP growth in Q3.
PPI (Wednesday): Excluding volatile food, energy and trade services, core PPI continued to rise relatively strongly by 0.3% m-o-m in July. For August, we expect continued modest acceleration in prices for goods and services provided by domestic businesses. Note that our forecasts for the August CPI report can be revised based on relevant components of the PPI report.
Fed Beige Book (Wednesday): Consistent with solid underlying economic momentum in recent months, we expect the September Beige Book to report continued “modest to moderate” growth across the majority of Federal Reserve districts. However, the report is likely to highlight continued uncertainty from local businesses regarding US trade policy. The July Beige Book noted that “manufacturers in all Districts expressed concern about tariffs and in many Districts reported higher prices and supply disruptions that they attributed to the new trade policies.” With another tranche of China tariffs taking effect 23 August (25% on $16bn) and another $200bn currently under review, local business concern regarding the impact of protectionism may remain acute.
Initial jobless claims (Thursday): Low levels of initial jobless claims remain consistent with a healthy labor market. However, the Labor Day holiday and pickup in hurricane activity could add some volatility to initial jobless claim readings over the near term.
CPI (Thursday): We expect a solid 0.3% (0.256%) m-o-m increase in core CPI for August following a 0.243% gain in July. On a 12-month change basis, core CPI inflation should remain steady at 2.4% (2.367%) compared to 2.354%, previously. We expect rent-related items (regular rent and homeowners’ equivalent rent) to continue to support core CPI inflation. Core goods price inflation, however, was soft in July partly due to idiosyncratic declines in some components. In particular, apparel and prescription drug prices surprised to the downside, partly due to technical and/or policy factors We think it is more likely than not for apparel and drug prices to rebound in August. Moreover, new and used vehicle prices, which tend to be less volatile, likely increased steadily in August. Manheim’s used vehicle price index has been elevated in recent months and points to continued increases in CPI used vehicle prices. Together with the reversal of previous month’s idiosyncratic declines of some volatile prices, persistent components will support a solid reading of core CPI in August. Beyond the August report, we maintain our medium-term view that core CPI inflation should remain slightly above the FOMC’s 2% target. Among non-core components, energy prices likely picked up in August after softening in July. Food prices likely rose at a pace consistent with the recent trend. Altogether, we forecast a 0.4% (0.357%) m-o-m increase for August headline CPI, which would be equivalent to 2.8% (2.826%) y-o-y. Our forecast for CPI NSA is 252.457.
US budget (Thursday): The US budget statement for August will provide further information on how quickly government spending has ramped up following the budget deal from earlier this year. In addition, the fiscal-year-to-date budget deficit – currently at $684bn, $118bn wider than this time last year – is likely to widen further in August given the monthly pattern of outlays and receipts from recent years.
Import prices (Friday): Despite ongoing trade tensions, import price inflation will likely remain steady in the near term, and we expect steady readings for August import prices. While the US dollar has appreciated against major currencies recently, it will take some time to observe any effects on import prices and such effects are unlikely to be material at the moment. Although aggregate import prices were soft in July with ex-fuel import prices declining for two consecutive months, imported ex-auto consumer goods prices were up 0.3% m-o-m in July after a decline in June. On a y-o-y basis, inflation of imported ex-auto consumer goods prices remained steady in July, up 0.6% y-o-y. Moreover, the first round of tariffs on Chinese goods took effect on 6 July, but import prices for machinery and equipment from China, the main targets of the US tariffs, declined in July. Import price indices exclude import duties. Thus, lower import prices of goods from China could indicate that Chinese exporters tried to absorb higher costs associated with tariffs to keep the final sales prices at competitive levels.
Retail sales (Friday): We expect a steady 0.4% m-o-m increase in core (“control”) retail sales in August following a 0.5% gain in July. The ISM non-manufacturing survey indicated healthy activity in the retail sector in August. Moreover, the strong labor market and steady income gains likely remained supportive for retail sales in August. Elsewhere, we expect a rebound in building material sales in August which remained flat in the previous month. Receipts at food services venues likely remained strong following the recent trend. However, WardsAuto’s total light vehicle sales estimates indicated slower sales in August and point to weaker receipts at auto and parts dealers. Excluding autos, we expect a solid 0.5% m-o-m gain in retail sales. We forecast 0.4% m-o-m increase in aggregate retail sales.
Industrial production (Friday): We forecast a 0.4% m-o-m gain in aggregate industrial production. The manufacturing sector activity has been improving resiliently over the past year and a half. While there have been increased signs of slowing external growth, strong domestic demand will likely remain supportive for industrial activity expansion. Against this backdrop, we expect a steady 0.3% gain in ex-auto manufacturing output. Moreover, based on industry forecasts, auto assemblies likely picked up sharply in August after a transitory slowdown in July and should contribute to aggregate industrial output. For the mining sector, we expect a rebound in output considering firm increases in crude oil and gas extraction. However, considering active oil rig counts that plateaued in August, the contribution from mining support activity would be muted.
Business inventories (Friday): Incoming data on inventory spending point to a healthy gain in aggregate business inventories in July. The buildup of inventories was especially strong in the manufacturing and wholesale sectors. Retail inventories also increased at a healthy pace, driven by a decent gain in retail auto inventories. Altogether, we expect a solid contribution from private inventory accumulation to real GDP growth in Q3.
University of Michigan consumer sentiment (Friday): Consumer sentiment in the University of Michigan August survey has declined 5.2pp from its recent peak of 101.4 reached in March, in contrast to the Conference Board’s survey which has showed continued improvement. The University of Michigan survey asks respondents whether they are (and will likely be) “financially better or worse off” than in the past five years. As inflation expectations have risen this year, it is possible that respondents in the Michigan survey have discounted recent income growth in real terms, in contrast with the Conference Board’s questions which focus on nominal income growth expectations and labor markets, indicating perhaps more modest consumer spending growth than what the Conference Board survey would suggest. Inflation expectations at the one-year horizon increased 0.1pp to 3.0% while longer-term inflation expectations remained within a steady range, increasing 0.2pp to 2.6% in August.
Europe | Data preview
ECB and BoE policy decision will be in focus next week.
UK Trade, Jul (Mon 10 Sep): The goods trade deficit improved by just over £1bn between May and June thanks to a combination of an improving underlying deficit and a larger erratics surplus, only partly offset by a fall in oil exports. There is a risk of a wider deficit in July if the 6.4% rise in exports over the past two months reverses.
UK Monthly GDP, Jul (Monday): Because of the strong start to the May-Jul quarter (which was generated by growth in the single month of May of 0.3% m-o-m) it means that it is quite easy to see a 0.5% print on the non-overlapping quarterly growth rate (that is, growth of 0.5% in the May-Jul period relative to Feb-Apr). All we would need for that is for GDP not to decline by more than 0.1% during the month. And should GDP rise by 0.2% then that would be enough to push the quarterly rate of growth to 0.6%.
UK Industrial production, Jul (Monday): These figures have, in their own right, become a little less interesting to the markets of late because the new monthly GDP figures are published on the same day. While the surveys remain consistent with a small increase in manufacturing output in July, there is a risk of a negative print after the past two months of growth (a rise of more than 1% over that period).
Germany ZEW economic expectations, Sep (Tuesday): After the improvement in German survey data in August (ZEW, Sentix and Ifo survey), owing to easing trade tensions and an improving outlook for the German economy, we see this trend continuing in September and we forecast the ZEW survey expectations component at -10 from -13.7 in August.
UK Labour market report, Jul/Aug (Tuesday): Last month’s report was a mixed bag. On the positive side the unemployment rate fell from 4.2% to 4.0%, marking another fresh low since the mid-1970s. While employment grew less quickly than previously (just 42k during Q2), which was the smallest rise since last autumn, there was a more than 100k rise in full-time employment at the expense of falling part-time. Our favoured measure of wage growth (3m annualised rate of private sector regular pay) slowed in the latest report, but we have now seen monthly rises of 0.4% and 0.2% in the previous two months – as a result, another fairly normal 0.2% monthly increase would shift the annualised rate back up again to a decent rate of 3.5%.
Euro area Industrial production, Jul (Wednesday): German July factory orders and industrial production data disappointed the consensus and showed a slowdown in manufacturing activity in the month. The slowdown seems to have been mainly driven by a decrease in foreign orders (-3.4% m-o-m), while domestic orders were solid in the month. Trade fears were still strongly affecting the euro area economy in July, in particular before the Junker-Trump meeting, which took place on 25 July. As a consequence, we forecast euro area industrial production will fall by 0.5% m-o-m in July.
Euro area ECB policy decision, Sep (Thursday): At next week’s ECB meeting we do not expect any policy changes, but the focus will be on the ECB’s new macroeconomic projections – released together with the policy rate decision on Thursday. We expect a modest downward revision for 2018 and 2019 GDP growth forecasts, while the inflation outlook should remain unchanged. President Draghi will have the opportunity to address many more issues in the Q&A. It seems likely to us that the ECB’s language on the economic outlook will remain relatively upbeat – as it was in July. In short, the ECB will most likely remain confident that inflation is on a path towards its primary objective and that growth will remain solid and broad-based over the medium term. We expect the next move by the ECB to be to raise the depo rate in September 2019.
UK BoE policy decision, Sep (Thursday): The Bank of England is not expected to change policy, nor say much new following its decision to raise rates last month. The data, if anything, have softened a little relative to expectations, but we doubt that will have a material influence on the mood music in the September policy statement. We expect the decisions to keep rates and QE on hold to be unanimous (9-0).
Asia | Data preview
The week ahead In China, we expect the slew of August data to show that the economy remains weak and not yet recovering; in India, we expect inflation to ease and the trade deficit to widen.
China: Export growth is likely to rise in August. The evolution of the China-US trade conflict suggests further import tariff hikes and rising trade protectionism, while exporters may have continued to front-load shipments in August. We expect import growth to stay robust, due to several factors including front-loading by importers and a rise in import demand for autos and certain consumer products after the general tariff cuts on 1 July.
We expect August industrial production growth to remain weak at 6.0% y-o-y, as suggested by high-frequency data and a weaker August Caixin PMI. We believe fixed asset investment growth is likely to slow further, as the pick-up in property investment should be more than offset by the continued weakening of infrastructure investment. August CPI inflation should rise, driven by higher pork prices (African swine fever) and vegetable prices (floods at a main vegetable production region). PPI inflation is likely to ease despite higher industrial product prices due to a negative base effect. We expect M2 growth to edge up in August and the seasonal increase in new RMB loans to be stronger than in previous years, as the PBoC continues to ease policy. Aggregate financing is likely to increase in August, driven by seasonal factors and the PBoC’s recent guidance to encourage high-yield bond investment and trust company lending.”
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