The key events for the week ahead - Nomura

Analysts at Nomura explained the key events for the week ahead:

US week ahead:

We expect a trend-like 0.2% m-o-m increase in June core CPI inflation, corresponding to 2.3% on a 12-month basis.

NY Fed Survey of Consumer Expectations (Monday): Short-term consumer inflation expectations have inched up recently, likely reflecting higher retail gasoline prices. Both the one-year and three-year ahead median inflation expectations registered 3.0% in the May Survey of Consumer Expectations. Looking through these transitory increases, longer-term inflation expectations are likely to remain steady over the medium term. Elsewhere in the survey, consumer earnings growth and labor market expectations remain firm, consistent with our optimistic consumer outlook in 2018.

Consumer credit (Monday): Consumer credit increased $9.3bn in April, the secondlowest monthly increase since July 2012. With a favorable consumer outlook, we expect consumer credit growth to remain healthy this year.

JOLTS (Tuesday): Job openings increased 65k to 6698k in April, marking the first time since JOLTS started in 2000 that vacancy postings outnumbered the unemployed (6346k in the same month). The quits rate remained at 2.3% during the month, its afterrecession high, but below the 2.6% reading in January 2001. In addition, the layoff rate remained subdued at 1.2%, consistent with low reading of initial jobless claims. Taken altogether, recent JOLTS data indicate sustained worker demand as the US economy continues to grow above potential.

PPI (Wednesday): The May PPI report suggested moderate pipeline inflation as both processed and unprocessed material prices excluding food and energy did not show signs of a material acceleration during the month. While the prices paid index of the ISM manufacturing survey eased in June, it indicated continued increases in raw material prices and points to some potential for a pickup in pipeline inflation. Moreover, among components relevant to the core PCE price index, PPI hospital services prices for previous months could be revised as the BLS incorporates delayed responses and makes necessary corrections for this series. A potential downward revision to the February reading of hospital services prices would exert further downward pressure on core PCE y-o-y inflation.

Wholesale inventories (Wednesday): In an advance report by the US Census Bureau, May wholesale inventories increased a healthy 0.5% m-o-m after more modest increases in March and April. At the moment, we think inventory accumulation will add a modest 0.2pp to topline Q2 real GDP growth. 

Initial jobless claims (Thursday): We expect initial and continuing claims to remain subdued. Low readings would be consistent with the ongoing strength in the labor market. In coming weeks, however, claims data could show increased volatility as the summer retooling season approaches.

CPI (Thursday): We expect a trend-like 0.202% m-o-m increase in core CPI inflation in June. On a 12-month basis, we expect core CPI inflation to inch up to 2.272% from 2.237%, previously. On positives, we expect airline fares to have rebounded in the month after two consecutive m-o-m declines, give the lagged impact of higher jet fuel prices. Moreover, while structural factors point to continued downtrend in used vehicle prices, we think this downward pressure may have paused in June. On negatives, the prices of lodging away from home likely fell sharply, after three consecutive month-onmonth increases. This measure displays a high degree of mean reversion and could swing back from gains in previous months. In addition, prices of prescription drugs jumped sharply in May. We think this index likely fell in June. For non-core components, we expect an above-average 0.28% m-o-m increase in food prices, driven by a pickup in food at home prices, while food away from home prices likely increased at a trend-like pace. Energy prices likely increased at a more modest 0.2% m-o-m pace than in April (+1.4%) and May (+0.9%), as retail gasoline prices leveled out. Altogether, we expect headline CPI to increase to 0.212% m-o-m (2.942% y-o-y). Our forecast for CPI NSA is 252.161.

US budget (Thursday): The Treasury Department reported a budget deficit of $147bn in May, bringing the total fiscal-year-to-date (FYTD) deficit to $532bn, roughly $100bn wider than the deficit in May 2017. Total FYTD outlays increased 5.9% y-o-y while receipts rose only 2.6%. For the June report, defense outlays will be of particular interest as they will provide additional information on how quickly the ramp up in federal spending is flowing into the economy.

Import prices (Friday): Import prices excluding fuel rose only moderately by 0.2% m-o-m. Imported consumer goods prices excluding food, energy and autos rose modestly by 0.1% m-o-m. For estimates for June, we expect only modest increases in these components. Import prices of products affected by higher tariffs such as aluminum articles could show continued increases. 

University of Michigan consumer sentiment (Friday): Consumer sentiment pulled back somewhat in the final June University of Michigan consumer survey report, largely due to increased concern regarding US trade policy. The July survey will provide important context as to whether consumer sentiment deteriorated further as trade tensions remain high. Despite trade-related choppiness, consumer sentiment remains at multi-year highs, consistent with steady income growth and a low unemployment rate. Short-term inflation expectations (one year) increased 0.2pp to 3.0% in June, consistent with rising gasoline prices. Longer-term inflation expectations (five years) increased 0.1pp to 2.6%, remaining within the 2.3-2.6% range since April 2016.

European week ahead:

German inflation data and UK industrial production data will be in focus next week.

Germany ZEW Index, Jul (Tues 10 Jul): Despite some more encouraging signs from June PMI surveys and from some of Germany’s hard data, we doubt the German ZEW index will retrace that much this month. June’s press release for eurozone PMIs showed that companies’ optimism is still on a downward trend, mainly owing to rising uncertainty at the global level and generated by protectionist policies and political instability in Italy and Germany. We forecast a further, even if modest, decline in the ZEW survey expectations component specifically to -16.4 in July compared with -16.1 in June

BRC retail sales, Jun (Tues 10 Jul): Recent BRC retail sales prints have been volatile thanks to a combination of weather and Easter timing distortions. Retail sales values growth has slowed over recent months according to the BRC when looked at in terms of a six-month rolling average of annual growth rates. We expect a general improvement in sales growth in coming months as inflation falls further and nominal wage growth responds on the upside to a tighter labour market.

UK Trade, May (Tues 10 Jul): The trade deficit ballooned to £14bn in April (close to a record) thanks almost entirely to a worsening in the balance on erratic items. In fact, the underlying deficit, which strips out erratics and oil, was broadly unchanged on the month. And unwinding of the erratic move could narrow the deficit back to similar levels to that in March (around £12bn).

UK Industrial production, May (Tues 10 Jul): Manufacturing output fell for a third consecutive month in April, the monthly decline being the most sizeable for over five years which in turn had the effect of halving the annual rate of growth to just 1.4%. Overall industrial production fell by a little less thanks to a partial offsetting rise in mining and quarrying output of nearly 7% between March and April. With the output index of the PMI having risen in May and the CBI’s output balances generally having remained upbeat we would not be surprised to see some snapback in production in May.

UK GDP, Mar-May (Tues 10 Jul): This is a particularly important report as it contains the first set of rolling monthly GDP figures ever published for the UK – switching from the quarterly release schedule (with interim monthly revisions) that has operated until now. The data will be published alongside the monthly industrial and services output releases and are said to contain a back series. It means that the previous “first estimate” of each full quarter’s GDP will be delayed by around two weeks, which has the benefit of increasing the amount of underlying data that makes up the estimate. NIESR has had a good record of estimating monthly GDP over recent years and it is currently suggesting a Mar-May quarterly growth rate of 0.2% q-o-q. With the BoE increasingly seeing the slowing in growth earlier this year as temporary we think the risks are to the upside to this official estimate of GDP growth (note the BoE expects GDP in the full Apr-Jun quarter to grow at 0.4% q-o-q).

Euro area Industrial Production, May (Thurs 12 Jul): After the positive surprise sprung by Germany’s IP, and the solid m-o-m increase in Spanish production, we expect euro area IP to increase by 1.2% on a m-o-m basis, showing some signs of recovery after the weakness in Q1 2018. We would be cautious in reading too much into one month’s data however and are unlikely to be convinced that this rebound will earmark the start of a major upward trend. 

China week ahead:

China: PPI inflation likely ticked higher in June, mainly due to base effects. As crude oil prices fell by 3.7% m-o-m in June (June 2017: -3.9%), their effect on PPI inflation should be slight. We expect CPI inflation to edge up by 0.1pp in June. High-frequency data suggest food price deflation moderated to -0.1% m-o-m in June from -0.2% in May; historical patterns suggest non-food price inflation will likely remain at 0.1% m-o-m in June. Meanwhile, export and import growth likely remained resilient in May, as Sino-US trade tensions eased during the month with the release of a joint statement on trade issues. Moreover, some Chinese exporters and importers may have front-loaded their foreign trade, hoping to complete more shipments before any trade restrictions might be imposed.