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Analysts at Nomura offered a preview ahead of today’s key US data for the US session.

Key Quotes:

“Personal income and spending: We forecast a steady 0.4% m-o-m increase in June personal income (Consensus: 0.4%) as tightening labor markets and steady employment growth help gradually increase earnings. For personal spending, we expect a healthy 0.5% m-o-m increase (Consensus: 0.4%), despite soft core retail sales in June. Spending on nondurables excluding fuels and gasoline likely slowed, while spending on gasoline likely increased strongly. Sales of motor vehicles and parts likely increased healthily, based on the receipts at auto and parts dealers in June. In addition, we expect a rebound in service spending in June, driven by solid gains in spending on food services in June. A healthy labor market and persistent consumer optimism will continue to support personal spending in the near term.

PCE deflators: We expect core PCE inflation to slow to 0.06% m-o-m in June (Consensus: 0.1%), down from 0.2% in May, likely lowering the y-o-y rate 0.1pp to 1.9% (1.88%, Consensus: 2.0%). Within the details of core PCE, the contribution from components covered by CPI data are likely to slow, contributing only 2.3bp to the June m-o-m increase after an 18.7bp contribution in May. While rent inflation in the June CPI report increased strongly, the core PCE price index places less weight on rent-related components. PPI-related components are likely to rebound in June, contributing roughly a weak 1bp to m-o-m core PCE inflation in June after a negative contribution in May. For non-core components, we expect a modest 0.2% m-o-m increase in food prices and a 0.3% m-o-m decline in energy prices, consistent with the June CPI report. Altogether, we expect headline PCE inflation to register 0.053% m-o-m in June, corresponding to 2.3% (2.26%) on a 12-month basis, unchanged from the 2.3 y-o-y rate in May.

Employment cost index, Q2: We forecast a 0.6% q-o-q gain in the overall employment cost index for Q2 2018 (Consensus: 0.7%) and a similar 0.6% q-o-q gain for the wages and salaries component, corresponding to 2.8% y-o-y for both series. Wage growth during Q2, as reported by the monthly BLS employment report, increased healthily by 0.65% q-o-q for total private workers and 0.8% q-o-q for production and nonsupervisory employees. The ECI’s wages and salaries component increased strongly by 0.9% q-o-q in Q1 with broad-based strength among subcomponents. However, we view that pace as unsustainable in the coming quarters as some of that increase was driven by an unusually strong increase in the financial service sector

Case-Shiller home price index: Residential home prices increased 6.6% y-o-y in April, well-above the pace of income and wage growth. With scarce supply and steady consumer demand, home prices are likely to continue to climb over the near term.

Chicago PMI: We forecast a modest 1pp decline to 63.1 for the July Chicago PMI (Consensus: 61.8). On a Chicago PMI-adjusted basis, regional surveys have sent somewhat conflicting signals on business activity, with a decline from the Empire State survey but an improvement in the Philly Fed release. Taken altogether, we believe business optimism remained firm in July, consistent with steady demand, but traderelated concerns may have marginally weighed on sentiment.

Consumer confidence: We expect consumer confidence to improve slightly to 127.0 in July (Consensus: 126.5). The University of Michigan consumer sentiment index ticked down marginally during the month, partly reflecting increased trade concerns from consumers. However, consumer fundamentals likely remain firm with a low unemployment rate and steady job growth and we continue to expect consumer confidence to remain elevated over the near- to medium-term.”