The week ahead: a busy schedule of events including the ECB, BoJ, UK inflation, Aussie jobs

The week ahead is jam packed and with respect to the Antipodeans, events will include the RBA minutes, jobs data for Australia and the CPI and GDT price index for the bird.

Analysts at Nomura offered a detailed report on the week ahead for the US, Europe, Japan and China as follows:

The week ahead for the USA

"Despite ongoing policy uncertainty, we expect manufacturer sentiment to remain elevated.

Empire State Survey (Monday): Business sentiment has remained optimistic on balance in recent months despite ongoing policy uncertainty, as a steady improvement in the manufacturing activity continues. For July, we expect the Empire State Survey to show continued ebullience and forecast a reading of 18.3, but it is possible to see some bounce back after a 20.8pp jump in June. Sharp rebounds in new orders and unfilled orders sub-indexes in the prior month point to elevated momentum. However, hiring in the manufacturing sector remained subdued in June, increasing by only 1k after a 2k decline in the prior month. In this sense, although upbeat, manufacturer sentiment may not improve further in coming months

Import prices (Tuesday): Import prices in May suggest that weakness in core goods price inflation in the May CPI report may not have been completely attributable to domestic factors. The import prices of core consumer goods (excluding food, energy, and autos) were unchanged from April, which translates into a 0.2% decline on a year-on-year basis. CPI core goods prices excluding autos also remained subdued in May. In addition to softness in import prices of core consumer goods, fuel imports prices plunged 3.7% m-o-m, reflecting lower oil prices. Altogether, topline import prices remained weak, falling by 0.3% m-o-m. These lower oil prices in recent months may continue to exert downward pressure on headline import prices. Given recent subdued core goods inflation in the CPI report, it is worth paying attention to the evolution of core consumer goods import prices.

NAHB housing index (Tuesday): Homebuilders’ sentiment has remained elevated so far this year. In June, the NAHB housing index fell by 2pp to 67 in June, but it remains high with strength in subindexes. The demand for new single family homes appears to be steady, coupled with a strong pace of job creation and steady income gains. The index of traffic of prospective buyers remained strong despite a slight moderation. Further, the index of sales expectations in the next six months dropped two points to 76, which is still a high reading. Looking at the construction starts of single family homes, which experienced some slowdown in recent months, the year-over-year pace indicates steady improvement. We expect the NAHB housing index to register 65 for July, which is a slight decline from June but still a high reading.

Housing starts (Wednesday): We expect housing starts to increase by 2.6% m-o-m to an annualised pace of 1120k units in June. Housing starts declined for three consecutive months from March to May, but much of the decline was attributable to weakness in multi family housing starts. In May, multifamily starts fell 9.7% to a 298k pace after falling for four consecutive months. Although multifamily starts tend to display sharp mean reversion, permits for multifamily construction in prior months were not strong. This suggests that a sharp rebound in multifamily starts may be unlikely. Single family starts, on the other hand, have shown steady growth in recent months on a year-over-year basis despite three consecutive monthly declines. Given incoming single family permit data, we think that single family construction starts will increase modestly in June. Altogether, we think moderate growth in single family housing starts should contribute positively to the top line growth, while there is a risk that multifamily starts continue to slow given the recent trajectory. For building permits, we forecast a moderate 1.0% m-o-m increase to the annual pace of 1180k for June, following a sharp 4.9% decline in May. A decent improvement in residential construction sector employment and a high reading of home builders’ assessment of six-months ahead housing market sales suggest steady activity in the industry.

Initial jobless claims (Thursday): For the week ending 8 July, initial jobless claims remained within a steady range at 247k while the four-week moving average ticked up slightly to 246k from 244k one week prior. Continuing claims, which lag initial claims by one week, fell 20k to 1945k for the week ending 1 July. Unemployment insurance claims remain low in the face of strong payroll gains and a reluctance of firms to part ways with current employees. Looking ahead, we expect this trend to continue over the medium term, as labor markets continue to improve. Additionally, next week’s claims data correspond with the survey week for the July employment report from the BLS. In that regard, we will be paying more attention as claims data during the survey week tend to have more predictive power in forecasting nonfarm payroll gains.

Philly Fed Survey (Thursday): Despite ongoing policy uncertainty, manufacturers’ sentiment remained elevated. Although the Philly Fed survey’s topline index moderated from the peak observed after the election, overall sentiment is still highly optimistic. However, the six-month ahead general conditions indicator has been dropping from the post-election peak of 61.0 posted in March. The recent sustained decline in this forward looking indicator implies that further moderation in manufacturers’ sentiment is possible. Therefore, we forecast a slight decline in the headline index to 25.0 for July.

The week ahead for Europe

The ECB policy meeting and UK inflation data are in focus this week. 

German ZEW index (Tues): We expect the ZEW expectations index to decline modestly to 17.5 in June from 18.6 in May. Financial conditions have tightened a little over the past few weeks and that may have had an adverse impact on investor sentiment. However, we do not expect this retracement to be that large and overall sentiment should remain at a relatively high level. 

UK CPI inflation (Tues): We see inflation moderating slightly from its 2.9% rate in May to 2.8% in June. RPI inflation is also forecast to fall a tenth to 3.6% during the month. We expect the wedge between the two rates of inflation to increase from its current 0.75pp to around 1.25pp in a year’s time largely thanks to mortgage interest payments no longer putting downward pressure on the difference. This is related to our forecast for gradually rising official – and thereby mortgage – interest rates.

UK Producer prices (Tues): Input prices are likely to be affected in two directions – downwards thanks to the fall in oil prices during the month, but upwards due to lower sterling. We think these two effects will broadly offset each other to yield unchanged input prices in June. As for output prices, the PMI output price index has edged lower relative to its peak, as has that of the CBI. Both continue to suggest rising output prices, thus our forecast for a 0.2% m-o-m increase.

ECB policy announcement and press conference (Thurs): We are not expecting the ECB to announce any major changes to its policy parameters at the next Governing Council meeting on 20 July. We are, however, expecting the easing bias on the asset purchase programme (APP) to be dropped specifically via a removal of the ‘willingness to increase its size and/or duration’ from the forward guidance. That, in turn, should pave the way, for a more formal announcement about the tapering of the APP at the following meeting on 7 September. In the absence of other changes, the focus at this meeting will likely be on the ECB’s response to recent market developments. Is the ECB unhappy about the adjustments that accompanied a seemingly coordinated effort from a number of central bankers (including President Draghi) to prepare markets for less accommodative policy? We doubt that policymakers are uncomfortable, however. Along with Peter Praet, Mario Draghi recently said that financial conditions in the euro area are still extremely accommodative. And with the recent data flow still pointing to a very robust above-trend growth outlook, there seems little reason to push back on the recent trend toward higher yields and a firmer euro.

UK Retail Sales (Thurs): Both the CBI and BRC measures of retail sales improved in June, and with official data having fallen markedly in May we think this combination suggests June is primed for a rebound. Even with a forecast 0.8% m-o-m increase during the month, the 3m % y-o-y rate should slow a little further to only modestly above 2.5%, which would be its weakest rate since the end of 2013. Rising prices thanks to Sterling's past declines are the prime cause.

UK Budget deficit (Fri): The improvement in the budget deficit relative to a year ago has slowed over the last two months. Indeed, combined, the total deficit for the first two months of the fiscal year (April and May) was almost identical to a year ago. We forecast an improvement in the June deficit of just less than £1bn relative to a year ago, which would imply a PSNB-ex deficit of £4bn for the month. 

The week ahead for Japan

We expect the BOJ to leave monetary policy unchanged despite a sustained improvement in the output gap which is owing to the economic expansion. BOJ policy board meeting and

Outlook for the Economy and Price (Outlook Report; Wednesday/Thursday): We expect the BOJ to leave monetary policy unchanged. We think the BOJ is focused on the output gap in order to meet its "price stability target." Thus, while growth in prices has been slow, if the output gap continues to improve, the BOJ believes inflation will perk up sooner or later. The BOJ’s outlook is widely expected to be a bit optimistic about the economy, which holds the key to the output gap and, in our view, has generally been performing in line with the BOJ's expectations. In the BOJ Tankan, an improvement in business conditions and a strong appetite for capex were confirmed, and in various sales statistics, there have also been some bright spots in consumer spending. The benefits of economic measures approved last year have been emerging. In the BOJ’s Outlook Report, we expect a slight upward revision in the real GDP growth forecast, hinting at a sustained improvement in the output gap. We think the core CPI inflation forecast is likely to be lowered to reflect worse-than expected CPI data since the spring. We expect the BOJ’s projections for FY17 will be 1.0% y-o-y (1.4% as of the April report) and for FY18 1.5% (1.7%). We think it is a close call whether language in the April report that the "price stability target" will be achieved "around FY18" will be maintained, but on balance we believe the language is more likely to be kept. That said, in the context of forecasting monetary policy, we think this timing of achieving the price stability target has become less relevant than before.

The week ahead for China

We expect China’s real GDP growth to slow only slightly in Q2, and its June core-tier activity data to remain largely stable. Indonesia’s central bank is likely to stand pat.

We expect real GDP growth to slow only slightly to 6.8% y-o-y in Q2 from 6.9% in Q1, led by a little softening in production and investment as the property sector started to lose some steam. For top-tier data in June, we see growth momentum as largely stable from May as suggested by June’s official PMI, trade and credit data. We expect industrial production growth to remain at 6.5% y-o-y, while fixed asset investment and retail sales growth likely moderated slightly in June.