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Analysts at Nomura offered their outlook for the key events for the week ahead.

Key Quotes:

United States | Data preview

We expect healthy readings on June retail sales and industrial production, consistent with solid underlying economic momentum.

Empire State survey (Monday): Incoming survey data suggest that continued business expansion, driven by strong domestic demand, may have outweighed increased risk from trade uncertainties. In particular the June ISM manufacturing survey signaled steady business expansion although supply disruptions appear to have worsened in part due to protectionist trade policies.

While we think that the July estimate of Empire State index will reflect this ongoing strength, we forecast a reading of 19.0 to reflect potential impact from supply constraints, partly worsened by trade uncertainties. However, this is still an elevated reading, which would be consistent with recent strong readings of new orders and production indices.  

Retail sales (Monday): We forecast a steady 0.4% m-o-m increase in June core (“control”) retail sales after a solid 0.5% m-o-m in May, consistent with firm momentum in personal spending in Q2. Among noncore components, sales at auto and parts dealerships likely rose solidly given a strong increase in total light vehicle sales reported by WardsAuto. In addition, the reversion in retail gasoline prices in June from their highs in May suggests that receipts at gasoline station likely increased at a much more modest pace in in June after a sharp 2.0% m-o-m increase in May. Excluding autos, we forecast 0.3% m-o-m increase in retail sales. Altogether, we expect a 0.5% m-o-m gain in total retail sales in June.

Business inventories (Monday): We expect a solid m-o-m increase in business inventories in May based on the Census Bureau’s advance estimates on manufacturing, wholesale, and retail inventories. We expect private inventory accumulation to contribute modestly to real GDP growth in Q2 after being a drag in the previous two quarters. The gains in wholesale inventories were solid in May while manufacturing and retail inventories increased at a steady pace.

Industrial production (Tuesday): We forecast a robust 0.9% m-o-m gain in industrial production in June after a 0.1% decline in May. June industrial production was likely boosted heavily by auto assemblies. In May, a fire at a parts supply factory disrupted auto production. Industry forecasts after seasonal adjustment suggest that automakers likely ramped up their production in June. That said, it is possible for auto production to revert to trend in July after an idiosyncratic jump in June. Excluding autos, we expect industrial production to rebound in June by around 0.4% m-o-m after a 0.2% decline in May. The expected recovery would be consistent with our view that a sudden slowdown in May was likely transitory. Incoming business surveys suggest that business activity expanded at a steady pace, driven by healthy domestic demand, despite elevated trade uncertainties. We expect June industrial production data to reflect this trend. In addition, mining sector output likely contributed solidly to total industrial production. Crude oil and liquid gas extraction has been on an upward trajectory, mostly driven by the shale oil sector. Elevated oil prices will likely remain supportive of mining sector output in the near term.

NAHB housing market index (Tuesday): While consumer demand likely remained strong, increased concern over rising building material costs and skilled construction labor shortages may have weighed on homebuilders’ sentiment. On net, we expect NAHB housing market index to have remained at its elevated reading of 68 in July.

Housing starts (Wednesday): We expect a 4.4% m-o-m decline in housing starts to 1290k saar in June. The strong labor market suggests that consumer demand for new housing likely remained firm. However, structural factors such as ongoing shortages of skilled labor and a lack of developable lots will likely weigh on construction of new single family housing. Moreover, permits for single family housing declined in May, pointing to slower starts in June. In addition, we expect sharp mean reversion in multifamily housing starts in June, which increased sharply by 7.5% m-o-m in May. On permits, we expect a 1.3% m-o-m increase to 1318k saar in June as permits for multifamily housing construction could revert. However, continued slowing in single-family permits in the West could weigh on the reading for June.

Fed Beige Book (Wednesday): Anecdotal evidence on trade tensions will be a key focus for the Beige Book prepared for the 31 July FOMC meeting. The minutes from the June FOMC meeting noted that “contacts in some Districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy.” Any additional evidence on disruptions caused by trade uncertainty will be of interest as the June minutes indicated that “most participants noted that uncertainty and risks associated with trade policy had intensified.” At the moment, it appears that stimulative fiscal policy is offsetting the Committee’s angst on trade policy. However, further escalation in the US-China trade dispute, with a subsequent response from district business contacts, could eventually begin to tilt the balance of risk to the downside for some participants. However, apart from trade uncertainty, we expect the Beige Book to indicate sustained growth and solid employment gains given strong underlying momentum in the economy.

Initial jobless claims (Thursday): Initial jobless claims remain subdued in a tightening labor market. A surprise increase in the unemployment rate in June was driven not by the newly unemployed but rather a sharp increase in the number of unemployed workers reentering the labor force. With elevated labor demand, we expect initial jobless claims to remain low over the medium term.

Philly Fed survey (Thursday): Similar to our view on Empire State survey, we think that the Philly Fed survey would reflect ongoing momentum in the industrial sector despite elevated trade uncertainties. We expect the headline index to reach 20.0 in July, after registering 19.9 in June. This reading would be consistent with steady pace of business growth in the sector. Substantial escalation in trade tensions, however, can weigh on sentiment materially.

Euro area | Data preview

The week ahead Euro area June final inflation data and UK CPI will be in focus next week.

UK labour market report, June (Tuesday): Quarterly employment growth remained strong in last month’s release, though private sector regular pay was static in April (admittedly after a large gain in March). A 0.2% monthly rise in this measure of wages during May should keep the 3m annualised rate around its current 2.5% rate.

UK CPI inflation, June (Wednesday): Rising oil prices and household energy bills together are likely to add between 0.1pp and 0.2pp to the annual rate of CPI inflation in June. As a result, our forecast for CPI inflation is on the cusp between 2.5% and 2.6% – we have opted for the former as our official forecast (previous 2.4%, the BoE’s view is also 2.5%). With a broadly unchanged wedge that implies an RPI inflation forecast of 3.4% (index level 281.6). We see June’s rise as a temporary blip before a fall back to 2% towards year-end.

UK producer prices, June (Wednesday): Our simple model that takes into consideration shifts in oil and commodity prices and sterling suggests a flat reading on input prices in June. Still robust output price readings from the PMI and CBI surveys point to a further 0.2% increase in core output prices – the headline should rise by more owing to higher petrol prices.

UK retail sales, June (Thursday): There are various upside and downside influences on official sales volumes in June. On the positive side, warm and dry weather (the warmest June for 15 years, driest since 1925) probably helped sales, alongside (according to the BRC) World Cup-related TV sales. And the CBI measure of sales volumes duly picked up sharply. However, on the negative side BRC sales growth slowed relative to May, and two sizable monthly rises in official sales volumes in April and May risk being partly reversed. Taking all of that into account we forecast a flat official sales reading in June.

UK public finances, June (Friday): Recent public finance data have been encouraging, the deficit on average close to £2bn narrower per month than a year ago during the March to May period (and the 2017-18 deficit having been revised narrower to the tune of around £3bn from its initial estimate). The OBR notes that, relative to its forecasts made at the time of the March spring statement, weaker-than-assumed spending growth has been the cause of the narrower deficit in the current fiscal year to date (i.e. April and May). We forecast a further, but lesser, narrowing in the June data.

Asia | Data preview

The week ahead We expect China’s real GDP growth to slow in Q2 after staying stable for the past three quarters, Bank Indonesia to leave rates on hold and Singapore exports to weaken.

China: We expect real GDP growth to slow to 6.7% y-o-y in Q2 from 6.8% in Q1, given signs of growth momentum losing steam in Q2. High-frequency data (growth of coal consumption by six power plants and crude steel production) and weaker-than-expected official and Caixin June PMIs add conviction to our slowdown view. We expect industrial production growth to moderate further to 6.6% y-o-y in June. Deleveraging over the past year should continue to weigh on investment, and we expect fixed asset investment growth to slow to 5.9% y-o-y ytd. Retail sales growth may rebound mildly to 8.8% y-o-y in June from a much weaker-than-expected 8.5% in May, partly driven by price factors.