Week Ahead: Highlights include FOMC mins, US Retail Sales; PBoC

NOTE: Previews are listed in day-order

JAPAN GDP (MON)

GDP is expected to rise 0.2% Q/Q in Q2 (prev. -1.0%), +0.7% Q/Q annualised; private consumption is seen falling 0.1% vs the decline of 1.5% in Q1, capex is seen picking up to 1.7% in Q2 after -1.2% previously, while external demand is expected to fall by 0.1% after a decline of 0.2% in Q1. "There won't be much of a rebound from the first quarter's big contraction. The data will show the economy continues to stagnate," Dai-ichi Life Research Institute said, "conditions won't improve much in July-September 2021, as expanded COVID-19 curbs and surging infections hurt consumption during the summer."

CHINA RETAIL SALES, INDUSTRIAL PRODUCTION (MON)

Analysts expect industrial production growth to pare back to +7.9% Y/Y in July (prev. +8.3%), while retail sales growth is seen paring back to +10.9% Y/Y in July (prev. +12.1%).

RBA MINUTES (TUE)

Commentary surrounding the economic outlook from the minutes will likely be stale given COVID developments since the August 3rd meeting. Since then, Melbourne's lockdown has been extended, capital Canberra declared a snap lockdown, Sydney tightened restrictions in some areas and New South Wales' new COVID cases almost doubled. That being said, traders will be eager for more meat on the bone with regards to the surprise August hold in monetary policy settings. To recap, The RBA maintained policy settings despite expectations pointing to a deferral of the September QE taper announced in July, whilst some called for weekly purchases to be increased. The statement expressed flexibility in the QE programme and optimism on the recovery but cautioned that the recent COVID outbreak is interrupting the recovery. “The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly. Prior to the current virus outbreaks, the Australian economy had considerable momentum and it is still expected to grow strongly again next year.”, the statement said. Desks at the time suggested that the central bank opted to signal confidence in its policy decisions, and the Board is hesitant to ease policy just to tighten it further as COVID restrictions are lifted. Although this turned out not to be the case.

UK JOBS REPORT (TUE)

Consensus looks for the unemployment rate to hold steady at 4.8% in the three months to June, whilst headline earnings are seen rising to 8.7% 3M (NYSE:MMM) Y/Y from 7.3% (ex-bonus exp. 7.4% vs. prev. 6.6%). As has been the case for several months, the report will need to be viewed in the context of the furlough scheme drawing to a close in September. The impact of the scheme unwinding will begin to become more evident in next month’s report (July data) as it will cover the point at which employers were required to contribute more towards employee wages. As such, the upcoming release might be of limited use to the market. That said, from the MPC’s perspective, the risks surrounding the conclusion of the programme are deemed to be less severe than feared earlier in the year with policymakers now of the view that there will be no material spike in unemployment when it draws to an end vs. an expected unemployment rate peak of 7.75% outlined in the February MPR. In a recent note, analysts at ING have suggested that the latest outlook from the BoE might prove to be somewhat optimistic and instead are of the view that the jobless rate could nudge higher to 5.5% over the coming months.

US RETAIL SALES (TUE)

The street consensus expects retail sales to slip by 0.2% M/M in July after the 0.6% M/M rise in June; auto sales are likely to weigh, with analysts forecasting the ex-autos measure at +0.1% M/M after a +1.1% showing in June; vehicle sales fell to a SAAR of 14.7mln in the month from 15.4mln. Credit Suisse (SIX:CSGN) looks for the control group (which excludes restaurants, building materials, autos and gas sales) to decline 0.6% M/M; it says that high-frequency data suggest goods consumption ex-auto/gas lost momentum in July, as the Delta variant started affecting mask advisories towards the end of July, but this should have only a small negative impact on restaurant spending. "We expect restaurant consumption continued to pick-up in June but rose only 1%, this would put overall restaurant sales at an impressive 7.6% above their pre-pandemic peak." Ahead, CS says goods consumption is likely to decline as the boost from fiscal stimulus fades and consumption shifts toward in-person services. "We expect spending on household durable goods and building materials to continue their decline," the bank writes, "overall, we expect goods retail sales to continue moderating as services consumption recovers."

RBNZ POLICY DECISION (WED)

The RBNZ is almost wholly expected to lift the Official Cash Rate (OCR) by at least 25bps, with some outside bets for a 50bps hike. The OIS strip prices a full 25bps hike at the next meeting, followed by another in November, and two more in the H1 2022. Meanwhile, most major antipodean banks now expect the OCR at 1.00% by year-end – intimating 75bps worth of hikes from today’s OCR. Since the July confab, data has pointed to a strengthening economic outlook – despite the hindrance in the COVID-hit tourism sector. Second-quarter CPI QQ and YY both surpassed forecasts at 1.3% (exp. 0.8%) and 3.3% (exp. 2.8%) respectively. Meanwhile, a solid Q2 jobs report showed the employment rate slumping to 4.0% (exp. 4.5%) from 4.7%, whilst the Employment Change rose to 1.0% (exp. 0.7%) from 0.6% albeit participation missed forecasts at 70.5% (exp. 70.6%), but nonetheless ticked higher from the prior 70.4%. Desks note that the Kiwi economy is fast heading into full employment and sharp increases in inflationary pressure – with both areas poised to run hotter than the RBNZ’s prior round of forecasts. “The balance of risks has shifted and the ‘least regrets’ approach for the RBNZ is now to begin hiking sooner rather than later”, analysts at ASB say, “Further hikes should follow in October and November, taking the OCR to 1% by the end of the year.” The analysts acknowledge the RBNZ would be ahead of the G10 central bank curve, but the data justifies such a move, and fiscal policy is better suited to address the remaining fragments of regional and sectoral inequality. ANZ, BNZ, and Westpac also forecast the year-end OCR at 1%.

FOMC MINUTES (WED)

The meeting itself was more hawkish than the consensus was expecting; two key tweaks were made to the FOMC's statement: the Fed now acknowledges that the “economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings" but the Fed does not appear to think that the ‘substantial further progress’ threshold has been met, noting that “the sectors most adversely affected by the pandemic have shown improvement but have not fully recovered". The minutes will be eyed for any suggestion that the Fed is on the cusp of signalling any intention to taper its USD 120bln of asset purchases in the near-term. Incoming inflation metrics (notably, the July CPI report) generally conform to the 'transitory inflation' narrative, and some Fed officials have indicated a willingness to scale-back the rate of asset purchases. From a trader's perspective, the key questions are: the timing of the hint; the timing of an official announcement; the rate at which asset purchases will be tapered, and over what time scale; and any implications regarding the sequencing of asset purchases with potential rate hikes -- many desks have been using potential tapering timelines to inform their view on when rate lift-off will be, but should be cognizant of remarks from a few Fed officials that the two are separate debates; it is also worth noting that the meeting minutes will not resolve all of these questions, it will likely be many weeks before we have a firm gauge on all of them. However, notable Fedwatcher Tim Duy has offered a potential timeline for the tapering process, and expects that the Fed will announce that it is on track to reach its 'substantial further progress' threshold at its September meeting, which lines up an official announcement in November (unless the data were to materially worsen), with tapering to follow shortly after. "The pace of tapering will depend on how the Fed views the risk of 2022 rate hikes, with more risk equalling a faster pace," and "this risk is pulling some weight toward a tapering announcement in September, in which case the signalling from Powell at Jackson Hole will be more direct." NOTE: The Jackson Hole Economic Symposium will take place 26-28th August.

UK INFLATION (WED)

Current guidance from the BoE is that CPI inflation is projected to rise temporarily in the near term, to 4% in 2021 Q4, owing largely to developments in energy and other goods prices, before falling back to close to the 2% target. However, before we get into Q4, consensus for the July report looks for Y/Y CPI to drift lower to 2.3% from 2.5% with the core metric seen moving lower to 2.0% from 2.3%. Such an outturn will likely be a by-product of base effects from 2020 which saw disruptions to the usual calendar price reductions in clothing and firmer petrol prices. Thereafter, the August report is expected to mark a pickup in inflation towards the profile outlined by the BoE. Consensus on the MPC remains that near-term price pressures are likely to prove to be transitory. That said, ahead of the August policy announcement, a range of views on the inflation outlook were aired with external member Saunders suggesting that “it may become appropriate fairly soon to withdraw some of the current monetary stimulus in order to return inflation to the 2% target on a sustained basis”. As such, a string of strong inflation reports could bring into question whether or not any other members of the MPC could begin to fret over the durability of price pressures in the UK. That said, the July report is unlikely to be one that could lend more weight to this argument.

CANADIAN CPI (WED)

Canadian bank RBC expects CPI to rise +0.4% M/M in July, which it says would lift the Y/Y rate to 3.4% from June's 3.1%. With auto prices and home replacement costs driving the upside. “The autos component usually sees a seasonal decline in the month, and we expect it to be at least flat in this report, which would put upward pressure on the Y/Y rate,” RBS (LON:NWG) says, but adds that overall Y/Y increase is expected to be driven by core prices. The bank also adds that “the July report could also see a repricing in some of the categories that have been ‘imputed’ during the pandemic (due to prices being unavailable, e.g., travel tours), though there is uncertainty around the timing and method of how these prices will ‘come back online’.”

NORGES BANK POLICY DECISION (THU)

Expected to leave the Key Policy Rate at 0.00% in-line with the guidance provided at the June MPR. The prior gathering featured an explicit signal from the Governor that “… the policy rate will most likely be raised in September” and the repo forecasts themselves showed the rate at 0.28% (prev. 0.13%) in December. Further out, the end-2022 path implies just one additional hike when compared with the March MPR [Dec'22 1.07% (prev. 0.75%)]. The signaling for September rather than August’s meeting is almost certainly a function of providing the MPC with the capacity to take a cautious approach regarding their short-term policy progression; additionally, the Bank generally refrains from significantly altering policy at non-MPR events. On the flip side, following the June announcement Governor Olsen said that the rate could increase twice in 2021 – seemingly implying there is optionality for the Bank to be more-hawkish than the new heightened path implies; desks generally look to December’s MPR for a subsequent hike. Focus for this meeting will be on updates to the language around raising rates, as we will not get a formal repo path update, particularly as recent developments have been mixed overall, but with slightly ‘dovish’ undertones for next year's repo path; namely, delays to the COVID-19 reopening plan and lower market pricing for Norges Bank tightening.

AUSTRALIA JOBS REPORT (THU)

The July labour market data is expected to show 30k jobs added to the economy. New South Wales’ lockdown was extended in July, while Victoria’s was in the second half of the month. Aussie bank Westpac says that the 29k seen in June might have been stronger if not for lockdowns in Victoria. Westpac notes that the ABS Weekly Payrolls slipped 2.4% in the fortnight to 17/Jul versus the -0.2% for the two weeks through 3/Jul. The bank explains "that payrolls are not seasonally adjusted, they measure only people paid in the week so those working zero hours but still employed are not counted; and, due to late submissions positive revisions can be significant”; it is looking for 20k for July, but says that would be a “flat print in original terms." Ahead of the Thursday labour market stats, Australia's Q2 wage price index is due on Wednesday, and the street looks for +0.6%, matching the prior reading.

CHINA LPR RATE DECISION (FRI)

Analysts expect both the 1-year and 5-year LPR to be left unchanged at 3.85% and 4.65%. In the run-up to the August decision, speculation has been rising that the PBoC would need to provide further accommodation on account of the slowdown in some economic metrics (recently, the trade data and money supply data; delta fears also add to the case for more policy support; some have noted that downside in the economic metrics was portended by the June and July PMI data, and as such, the PBoC was unlikely to panic). But whether this comes via the LPR channels or the RRR channels is worth considering. Analysts explain that the LPR rates play more of a role in property markets and the broader economy, while the RRR rates influence liquidity and reserves (along with other policy tools such as the repo facilities, MLFs and SLFs). With around CNY 3.75trln of MLs maturing in the rest of the year, the PBoC could support liquidity via the latter series of rates, rather than the LPR, some analysts have suggested. Heading into the PBoC's meeting, it is worth keeping in mind commentary in the China Daily, which suggested that the PBOC may need to "fine-tune" monetary policy by lowering its RRR or interest rates in order to boost growth; other commentary this week has warned against the prospects of any flood-like stimulus.

UK RETAIL SALES (FRI)

Consensus looks for both headline and core M/M retail sales to hold steady at 0.5% and 0.3% respectively. Ahead of the release, recent indicators have seen the BRC retail sales report for July register Y/Y growth of 4.7% with the Consortium noting “July continued to see strong sales, although growth has started to slow. The lifting of restrictions did not bring the anticipated in-store boost, with the wet weather leaving consumers reluctant to visit shopping destinations”. Elsewhere, Barclaycard found that consumer card spending grew 11.6% in July compared to the same period in 2019. Within the report, Barclaycard stated “Face-to-face retail (excluding grocery) also saw a drop in demand last month, following a post-lockdown boom, as spending slipped back into decline (-0.2 per cent). At the same time, online retail (excluding grocery) continued to perform well, growing 47.4 per cent, as consumers continued to enjoy the convenience of internet shopping.”. Analysts at Oxford Economics note that the June report was bolstered by the start of the European Football Championship, however, this time around “with that temporary fillip to spending absent in July and spending on social consumption, such as eating out, continuing to move back to pre-pandemic levels, we think sales volumes flatlined in July”.

CANADIAN RETAIL SALES (FRI)

StatsCan’s flash estimate for June retail sales data is 4.4% M/M, although Canadian bank RBC suggests that there could be some upside to this view, based on its own card transaction data. “A fall in cases and a rise in vaccination levels saw re-openings across most of the country in June, with categories hardest-hit during lockdowns likely to see a sharp rebound. “The bank is focussing on the July flash estimate, and says its own consumer spending tracker looks for +2.0% M/M, which would then have reversed much of the downside seen in the ‘third wave’ of the pandemic in Canada.