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RANsquawk Week In Focus: The Docket Thins Out Mid-Summer With The RBNZ At The Fore

Key Events: -

Monday:            

Tuesday:        China Trade Balance (Jul)                                                                                                                                

Wednesday: RBNZ MonPol Decision        

Thursday:     UK Trade Balance (June)                                                                                                                                  

Friday:           US CPI (Jul)

North America: -

The major US release for the week comes on Friday in the form of July’s CPI. Analysts expect the headline to come in at 1.8% YY from 1.6% last time out, while the core reading is expected to rise by 1.8% YY from 1.7% last time out. The core metric has missed expectations over the last four releases. HSBC opines that “one major reason why core inflation has softened this

year has been a slowdown in the pace of increase in rents.” At its most recent decision the Federal Reserve noted that it is “monitoring inflation developments closely” while it is of the belief that “inflation will remain somewhat below 2% in near term, but stabilise around 2% in medium-term.” This is of course against a back drop of limited wage growth.

It is also worth noting that North American liquidity will be lower on Monday owing to a Canadian national holiday.

Other releases of note during the week: Monday US Fed Labour Market Conditions Index (Jul) Tuesday US JOLTS Job Openings (Jun) Wednesday US Nonfarm Productivity (Q2) US Unit Labour Costs (Q2) US Wholesale Inventories (Jun) Thursday US PPI (Jul)

Europe: -

There are no major European releases due in the week.

Other releases of note during the week: Tuesday German Trade Balance (Jun) Friday German CPI (Jul, F)

UK: -

Thursday brings the major UK releases for the week. June’s trade data will headline the docket, with analysts looking for the trade deficit to narrow to GBP 11.00bln from GBP 11.86bln last month. Surveys have backed up anecdotal evidence that UK exports are responding to sterling weakness, although this has had little effect on the headline trade data thus far. Thursday will also bring the release of June’s output data. Industrial output is expected to rise 0.1% MM, after the initial Q2 GDP release showed a slight pick-up in UK growth relative to Q1, although industrial production and manufacturing both fell on the quarter, according to the preliminary estimate. HSBC note that “this is somewhat at odds with the relatively strong manufacturing PMIs, so there may be upside to this.” However, the bank expects the ONS estimate to be confirmed.

Other releases of note during the week: N/a

Asia-Pacific: -

Chinese trade data for July is due on Tuesday, with analysts expecting the surplus to widen to USD 46.08bln from USD 42.77bln last time out. HSBC believe that “exports growth likely remained strong in July supported by still resilient external demand.” The latest Caixin manufacturing PMI gives credence to this view, as it pointed to new export orders expanding at a faster pace. On the import front HSBC expect that “import growth remained strong, supported by the broad-based nature of the economic recovery.”

 On Wednesday evening (Thursday morning New Zealand time) the Reserve Bank of New Zealand (RBNZ) will issue its latest monetary policy decision alongside its quarterly monetary policy statement. All of those surveyed expect the Reserve Bank to leave its overnight cash rate unchanged at 1.75%. Focus will fall on the language surrounding the domestic currency, the Bank’s OCR profile and domestic economic conditions. While the kiwi economy continues to experience robust economic growth, Q2’s inflation and labour market releases disappointed. While this did little to change many analysts’ outlooks, it led to both ASB and HSBC pushing their forecasts for a hike. HSBC noted that “measures of wages growth have been weaker than forecast, partly as a result. This has, in turn, weighed on domestic inflation. Although core inflation has lifted over the past 18 months, Q2 CPI data were weaker than expected and all of the key core inflation measures slowed, as did non-tradable inflation. In addition, the RBNZ has taken a very cautious tone, virtually ignoring the lift in many of the underlying inflation measures, and has indicated that higher rates are not on the agenda until inflation is sustainably back to 2%. In the past, the RBNZ would have sought to progressively remove monetary stimulus until the cash rate setting was at a ‘neutral’ level when inflation was back at target. We have changed our view and now expect the RBNZ to be on hold until Q3 2018 (previously Q1 2018, a view we have held since December 2016). However, we still expect a hike in 2018, for the same reasons as before. We expect that inward migration will slow as the global labour market improves and this should put some upward pressure on wages growth over time. It’s just taking longer than we thought.” Following the labour market release ABS posited that “the softness in employment growth is surprising, especially given employment indicators were robust over the quarter. Annual growth is, nevertheless, strong at 3.1% (and no longer distorted by the survey changes made last year). Wage growth remained modest over the quarter, in line with expectations. This release reinforces the idea that the RBNZ will be in no rush to raise interest rates any time soon. We now expect the RBNZ will leave the OCR on hold until February 2019, previously November 2018.” The RBNZ decision will be supplemented by the 2 year inflation expectations release on Monday, the metric currently stands at 2.17% and its market impact has been varied recently.

Other releases of note during the week: Monday Chinese FX Reserves (Jul) Tuesday Japanese Current Account (Jun) Australian NAB Business Survey (Jul) Wednesday Australian Housing Finance Data (Jun) During the week: Chinese New Yuan Loans & Money Supply Data (Jul)
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