Week Ahead: highlights include US CPI, retail sales; UK jobs data, Canadian CPI

NORWEGIAN ELECTIONS (MON)

Norwegians will vote at their regularly scheduled election on September 13th, when polling stations open at 08:00BST/03:00EDT and close at 18:00BST/13:00EDT. Currently, Conservative PM Solberg heads up a minority government and is expected to lose to a left-wing coalition, likely to be led by Labour’s Støre.

The main unknown at this stage is which parties will be involved in a left-wing coalition and the outside chance of Centre Party leader Vedumn heading up such a ruling group instead of Støre. While the election marks a change of government, SEB believes the impact on NOK and Norwegian rates should be limited, mainly as fiscal impulses are unlikely to be overly affected. There are differing views within the potential new ruling coalition parties over future oil exploration permits, and while not a near-term consideration, this could be one to watch over the next four-year term.

Over the past few months, the Conservative Party lost its COVID-19 related boost and has been gradually erring lower with the Labour Party and left-wing groups grinding higher. The gap between the (current) two most prominent parties of Conservative and Labour has been relatively steady between 3-5ppts, depending on the poll.

UK JOBS REPORT (TUE)

Expectations are for the unemployment rate to fall to 4.6% in the three-months to July (from 4.7%), which would mark a further decline from the COVID peak of 5.2% seen in December 2020. That said, Oxford Economics suggests that the consensus of a decline in the unemployment rate might not be realised as improving job prospects are likely to have also led to increased labour market participation.

On the wages front, the consultancy notes that compositional effects and the furlough scheme have distorted earnings data, and as such, its forecast of 8.2% for average earnings “is much higher than the underlying pace of wage growth.”

As has been the case for several months, the report will need to be viewed in the context of the furlough scheme ending in September. The impact of the scheme unwinding will begin to become more evident in the upcoming report as it will cover the point at which employers were required to contribute more towards employee wages.

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 of the view that there will be no material spike in unemployment when it ends versus an expected unemployment rate peak of 7.75% outlined in the February MPR.

More recently, Governor Bailey has flagged his concerns around shortages in the labour market, where despite noting that the furlough scheme drawing to an end should help fill some of these vacancies, he highlighted the issues posed by migration prompted by COVID-19 and Brexit as well as older males leaving the labour force.

US CPI (TUE)

Early analyst forecasts look for US headline CPI to rise by +0.4% M/M in August, matching the July pace; the core measure is seen rising +0.3% M/M, also matching the July pace. UBS' big data nowcasting seems to be in line with the consensus view, and expects +0.4% M/M too, underpinned by strong food and energy prices pushing up a moderate core increase. However, UBS says that a +0.4% M/M pace would still represent a notable step down from the surging rates seen in March.

Regarding the energy component itself, gas prices have risen by around 3% in August, but UBS says this will reverse in the run-up to September, which suggests a further cooling in inflation pressures could be observed in September.

Many Fed participants have suggested that the central bank has already met its inflation goals, though is short on its labour market objectives; accordingly, the impact of inflation metrics have been mitigated, of late, with market participants placing more emphasis on labour market metrics for clues about the central bank's policy reaction function. Indeed, a cooling inflationary backdrop gives credence to the Fed's 'transitory' characterisation of inflation upside.

Ahead, the data should continue to support this narrative; UBS notes that its inflation projections are on the high side of the consensus, as well as the Fed for this year, but it falls below them next year; "the difference appears to be that we expect stronger inflation over the next few months, but then a greater slowing after the summer as the forces pushing up inflation start to push down inflation." But UBS adds that "the consensus is a little stale as neither the Fed, nor much of the consensus, have updated forecasts since last month's CPI release" just yet.

UK INFLATION (WED)

The consensus looks for headline CPI to jump to 2.9% Y/Y from 2.0%, with the core metric seen rising to 2.9% Y/Y from 1.9%.

The respite in price pressures last month was a by-product of less favourable base effects as the UK economy reopened in July 2020; this time around, the expected surge in inflation is set to be attributed to base effects from August 2020 which saw the launch of the ‘Eat Out to Help Out’ scheme as well as disruptions to the usual summer sales patterns.

As a reminder, current guidance from the BoE is that CPI inflation is projected to rise temporarily in the near-term, to 4% in Q4 of this year – owing largely to developments in energy and other goods prices – before falling back towards the BoE’s 2% target.

In terms of interpreting the release though a ‘BoE lens’, Governor Bailey remains of the view that inflation is unlikely to be persistent, however, Deputy Governor Broadbent recently said that labour market pressure on inflation could persist.

External member Saunders remains at the more hawkish end of the spectrum on inflation; however, the upcoming report is unlikely to prove either camp on the MPC with enough conviction that their view has played out.

Interestingly and worth bearing in mind for upcoming releases, Governor Bailey recently revealed that MPC members in August were split 4-4 as to whether minimum necessary conditions were met to raise interest rates. Bailey is of the view that the minimum conditions for a rate rise have been met but were not sufficient for a hike.

CANADIAN CPI (WED)

There is not yet a consensus expectation for next week's Canadian CPI data; Canadian bank RBC expects a +0.1% M/M rise to the headline in August, which will see the annual rate nudge up to 4.0% Y/Y from the 3.7% in July.

"Although gasoline base effects are a big part of the Y/Y increase, the large shelter category has seen its Y/Y rate rise from 1.4% in February to just below 5% in July, with home replacement costs (closest thing to home prices in the CPI) and owned accommodation expenses (real estate fees) driving this," the bank explains.

RBC also looks for another rise in shelter prices, but at a slower rate than the 0.5-0.8% M/M range seen in recent months. Supply constraints are likely to have pushed auto sales prices higher. Regarding the core BoC measures of inflation, RBC says that the focus is more likely to fall on the CPI-Common measure, since the BoC sees the CPI-Trim and the CPI-Median are seen as overstating underlying inflation; an average of these measures stood at 2.47% in July.

NEW ZEALAND GDP (WED)

Q2 Q/Q GDP growth is expected to moderate to 0.5% from 1.6% in Q1, with the Y/Y seen at 0.9% from 2.4%. In terms of the other metrics, the GDP annual average is expected at -2.8% vs -2.3% in Q1, and GDP Expenditure QQ is forecast at 0.5% vs prev. 1.4%. It’s worth bearing in mind that this data is somewhat stale after the Kiwi lockdowns in Q3, which prompted the RBNZ to postpone a highly expected rate hike. Analysts at ASB expect Q2 GDP to be at 1.5% Q/Q but sees the Delta outbreak shedding Q3 GDP by 6-7% in Q3 but thereafter quickly bounce back.

AUSTRALIAN LABOUR FORCE (THU)

The Street looks for -70k jobs to be shed from the Aussie economy in August after the 2.2k added in July. The participation rate is seen declining to 65.5% from 66.0%, while the jobless rate is seen rising to 4.9% from 4.6%.

Australian bank Westpac says that the July data saw a meaningful hit to participation (which fell 0.2ppts); the bank will be keeping an eye on the divergences between states, given that NSW male participation was down a little less than female participation, while Victoria's participation recovered more quickly for females; the point Westpac is trying to make by highlighting the split is that "female participation again proved more responsive to the lockdowns partly reflecting that women tend to be the first to take on additional household responsibilities, notably during school holidays."

Last month's data was a story about 'hours worked', Westpac says; into this month, the bank notes that in the two weeks through 14th August, payrolls declined 0.7% vs a decrease of 1.8% in the prior two week period; "through the month to the 14th, payrolls are down 2.4%; making an allowance for potential revisions our employment forecast is -150k (-1.6% not seasonally adjusted)," the bank says, "this brings the proportional variation between payrolls and employment closer to what was seen during the lockdowns last year, but we still see upside (a smaller negative) rather than downside to our forecast."

US RETAIL SALES (THU)

The consensus expectation is for US retail sales to fall -0.7% M/M in August (prev. -1.1%), and the ex-autos measure is seen falling a shallower -0.1% M/M (prev. -0.4%). If the headline is realised, it would represent the third successive monthly fall in retail sales. Downside in August is likely to come from auto sales, where SAAR unit sales slipped to 13.1mln in August from 14.7mln, driven by chip shortages.

For the ex-autos measure, Credit Suisse (SIX:CSGN), citing high-frequency card spending data, suggests softness in goods and services spending, as momentum slows after a rapid reopening earlier and the recent COVID outbreak dragged purchases; the bank also expects restaurant spending -- which has seen five straight months of growth through July -- to come off too.

CS recently downgraded its US consumption forecast "due to a loss of momentum in services spending and further supply chain disruptions brought by the Delta variant," and adds that "real goods spending has already started falling, and we expect the decline to continue."

UK RETAIL SALES (FRI)

Headline retail sales are expected to rise 0.5% M/M in August compared to the 2.5% decline seen in July; the annual rate is expected at 2.6% Y/Y vs the previous 2.4%. July was a soft month for the retail sector as the UK economy grappled with the fallout from the “pingdemic.”

August should have seen a petering out of this theme, albeit with some lingering effects as self-isolation rules were not eased until 16th August.

In terms of proxies ahead of the release, the latest BRC report noted that UK retail activity declined by 18% in August vs 2019 levels, and rose 10% M/M; the BRC noted that “as the post-lockdown pent-up demand has mellowed, the growth in retail sales we have seen over the past few months slowed for August.

Despite this, the month still saw growth above pre-pandemic levels, as rising consumer confidence and footfall levels led to a boost in in-store sales.”

Elsewhere, the latest Barclaycard card spending data noted that “consumer card spending rose by 15.4% in August, compared to the same period in 2019, with growth recorded across all sectors apart from international travel.”