What To Watch Today? Schedule Shows US Retail Sales, Speeches Of Fed's Members| FXMAG.COM

Equity markets show resilience in the face of faster inflation. China activity data and US retail sales in focus.

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Macro outlook

Global: Wednesday's equity resilience in the face of the higher inflation figures was sustained yesterday, even shrugging off some Wall Street earnings misses. Both NASDAQ and S&P500 ended almost unchanged, and equity futures also indicate some optimism today. That’s not a bad outcome considering that the CPI overshoot was reinforced by a further acceleration in factory gate prices in June too. Today’s market test will come from retail sales data and consumer sentiment figures. EURUSD pushed a bit lower again yesterday, reaching as low as 0.995 intraday, but is back above parity again now at 1.0019. The AUD finished a bit lower yesterday after strong labour market data increased the chances of the Reserve Bank having to maintain a rapid pace of tightening over the coming months. Cable also moved lower to 1.1836, up from an intraday low of 1.1760. And the JPY had an awful day, coming close to 140.0 and currently trading at 138.98. There was weakness across most of the rest of the Asian FX space, with the SGD and PHP eking out small gains thanks to unscheduled monetary policy tightening (see here and here for further detail). US Treasuries were relatively muted yesterday. The 2Y UST yield dropped back slightly, while the 10Y yield nosed a few basis points higher. Curve inversion remains solid, however. Italy’s political issues are leading to 10Y Italian bond yields widening over Bunds.
G7 Macro: As noted above, US Producer price inflation for June also surprised markets with its strength. PPI inflation for final demand goods rose to 11.3%, up from 10.8%. Like the CPI data, there was some moderation in core PPI inflation, which declined to 8.2% from 8.5%. June advance retail sales today provide the main market interest. The consensus for the headline figure is a solid-looking gain of 0.9% MoM, though this includes all the price increases from the previous month, so stripping these out would point to s real-terms contraction. The so-called control group of retail sales – stripping out the main volatile items - is expected to grow only 0.1% MoM. University of Michigan sentiment, which is already at multi-decade lows, is expected to stay at an index level of 50.0.
China: The 1Y Medium Lending Facility policy rate (MLF) decision will be out at 0920. And, GDP, retail sales, industrial production, fixed asset investment and property investment data will also be released after that. We expect no cut in the MLF as the PBoC has commented that liquidity is more than enough. On activity data, we expect all of them should improve in June from May. The focus should be on the retail sales recovery, which should at least move out of contraction on a yearly basis. Another focus should be on property investment, which has triggered the mortgage delinquency story reported widely in the media. So far, some banks have released statements that these delinquencies are controllable and some have commented that these mortgages are small relative to their portfolios. We believe that the government will quickly settle this incident so that this will not affect sentiment on the financial sector.
Indonesia: Trade data is set for release today. We expect both imports and exports to post sizable gains again in June. Exports may expand more than 30% as the authorities have allowed a partial resumption of palm oil exports. Imports will also likely surge, driven by higher by pricey energy imports and a pickup in demand for capital machinery and raw materials as the economy reopens. The overall trade balance will remain in surplus and may even improve to $3.5 bn from last month’s $2.9bn. A sizable trade surplus will be supportive of the IDR in the near term.
South Korea: Import price data showed a gradual deceleration as the import price index rose 0.5% MoM in June down from 3.8% in May (33.6%YoY compared to 36.5% in May). However, the weak won is increasing domestic inflation pressure as import prices (contract currency based) recorded a much lower annual rate of growth (19.9%YoY in June vs 23.3% in May). Also, monthly growth has slowed sharply since March, consistent with actual global commodity price trends.

What to look out for: China activity data and US retail sales

China activity data (15 July)
Indonesia trade balance (15 July)
US retail sales, sentiment and industrial production (15 July)
Fed’s Daly, Bostic and Bullard speak (15 July)

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