The Economic Week Ahead

Main Macro Events This Week

Sanctions, tariffs, and trade frictions have increased market nervousness, but so far there’s been little observable real sector impact. Nevertheless, the meltdown in the Turkish lira after the US doubled down on tariffs raised worries over a full blown financial crisis with global repercussions. European markets shuddered over the exposure of its banking sector. And the ensuing drop in equities sent yields sharply lower too. While the fear of contagion will leave trading nervous this week, the problems appear more endemic to Turkey than systemic to the global financial sphere.

United States: There are plenty of US data reports to go around this week, though its concentrated on Wednesdayand Thursday, and most should show the economy continues to hum at a solid clip. But the releases may only provide a distraction with the focus still on sanctions and tariffs. July retail sales headlines (Wednesday), which are expected at a 0.3% increase. That would be a positive start to Q3. July industrial production (Wednesday) is projected to rise 0.2%, after rising 0.6% in June. The Empire State index (Wednesday) is estimated to slip to 20.0, from 22.6 in July and compares to an 8-month high of 25.0 in June. The Philly Fed index (Thursday) should decline to 23.0 in August, from 25.7, which would be just off the 6-month average of 25.2.

Q2 nonfarm productivity (Wednesday) is estimated to climb to a 2.5% pace, from a soft 0.4% reading in Q1. The Q2 gain should be driven by a 5.2% increase in output. However, the underlying trend in productivity remains disappointing and is one of the big mysteries faced by the Fed. Housing starts (Thursday) should rebound 7.4% in July to 1.260 mln, partially reversing a 12.3% drop in June. The weakness in June was in both single- and multi-family starts and we see a rebound in July.Trade prices (Tuesday) should post gains of 0.1% in July for both imports and exports, following respective -0.4% and 0.3% readings in June. In July, we expect an increase in petroleum import prices, but that could be partially outweighed by a stronger dollar as well as tariffs which may restrain import prices. Import prices ex-petroleum are expected to rise 0.1%. The preliminary August Michigan sentiment reading Friday) is expected to rise to 98.5, from 97.9 in July.

Canada: Canada’s data highlight also appears at the end of the week. This time it is CPI (Friday), projected to grow at a 2.5% y/y pace in July, matching the 2.5% y/y clip in June. CPI is seen rising 0.1% on a month comparable basis in July after rising 0.1% m/m in May and June. Bank of Canada projected a run-up to 2.5% CPI growth rates, so the July and June reports will not move the needle on the policy outlook. Meanwhile, June manufacturing shipment values (Thursday) are seen rising 1.0% m/m after the 1.4% gain in May. The calendar also has the July Teranet HPI on Tuesday. Existing home sales for July are expected Wednesday. The ADP employment figures for July will be released on Thursday. There is nothing from the Bank of Canada this week.

Europe:This week’s calendar focuses mainly on Q2 growth indicators and final July inflation readings, which are unlikely to hold many surprises. German ZEW investor confidence, though, will be watched very carefully, especially against the background of growing concerns over the exposure of European banks to Turkey, which is sliding deeper into crisis. Coupled with lingering concerns about Italy’s political situation, this is threatening to further add to a widening of spreads and will spark fears of a flaring up of the debt crisis.

The first release of German Q2 GDP (Tuesday) expected to show a slight acceleration, while Eurozone Q2 GDP (Tuesday) is likely to be confirmed at 0.3% q/q. The recovery is ticking along, but the balance of risks is starting to tip to the downside with Turkey now adding to bank concerns and volatility on bond markets. With risk aversion spiking higher on Friday, the timing of the responses to the latest ZEW Investor Confidence survey (Tuesday) will play a larger than usual role. The busy calendar also has Eurozone production and trade data for June, which will be overshadowed, however, by the 2nd reading of Q2 GDP numbers.

UK: The calendar is highlighted by the release of monthly labor data covering June and July (Tuesday), July inflation figures (Wednesday) and July retail sales (Thursday). The labor report is expected to show unemployment holding unchanged at 4.2% in June , and average household earnings to come in with 2.5% y/y and 2.7% y/y growth in both the including- and ex-bonus figures, which would match the respective growth rates that were seen in the month prior. Steady wage growth, which has been running above inflation for some months now, was one of the justifications the BoE gave behind its decision to tighten monetary policy this month. The inflation is anticipated to remain steady at 2.4% y/y in July. As for retail sales, a rebound of 0.2% m/m is expected after the 0.5% contraction in June, which had been an unexpectedly weak figure, blamed on hot weather and the distraction of the world cup for a good portion of the population.

Japan: The Revised June industrial production is due on Tuesday. Preliminary production dropped 2.1% in June, and slid 1.2% y/y. The July trade report (Thursday) is expected to see the previous JPY 720.8 bln surplus flip to a JPY 100.0 bln deficit.

China:Chinese July industrial production (Tuesday) is forecast to rise to 6.2% y/y from 6.0%, while July retail sales (Tuesday) should increase to a 9.2% y/y pace from 9.0% in June. July fixed investment (Tuesday) is estimated slowing slightly to 5.9% y/y from 6.0%.

Australia: The July employment (Thursday) is expected to rise 25.0k after the 50.9k bounce in June. The unemployment rate is seen at 5.4%, matching the rate in June. The wage price index (Wednesday) is seen expanding 0.5% (q/q, sa) in Q2 after the matching the 0.5% rise in Q1. The index is expected to grow at a 2.0% y/y pace in Q2 from 2.1% in Q1. RBA governor Lowe (Friday) appears before the House of Representatives’ Standing Committee on Economics. Assistant Governor (Economic) Ellis speaks at the Australian National University (Friday).  RBA’s Deputy Head of Payments Policy Department Harris (Thursday) participates in a panel discussion at the Risk Australia 2018 Conference.

New Zealand: In New Zealand, PPI-output and PPI-input for Q2 are due Friday.