European Outlook: A mixed session in Asia, where Nikkei and ASX are moving higher, while Hang Seng and CSI 300 are under pressure amid profit taking as investors start to doubt the recent run higher. Banks led the correction despite better than expected earnings numbers and a stronger than hoped China manufacturing PMI. A weaker Yen meanwhile helped the Nikkei to move higher despite weaker than anticipated production data. European and U.S. stock futures are also moving higher as risk appetite comes back. Released overnight U.K. consumer confidence unexpectedly improved. The very busy European calendar includes labour market data out of Germany at the start of the session, and most importantly prel Eurozone HICP for August, which after yesterday’s national data is likely to come in higher than initially anticipated, as annual energy price inflation surges higher. The second round of Brexit talks ends today and the update is unlikely to show the type of progress that would prompt heads of states to clear the way for future trade talks to start this year when they meet in October
German July retail sales dropped -1.2% m/m, more than anticipated, but with June revised up to 1.3% m/m from 1.1% m/m, the annual rate still rose to 2.7% y/y from 2.0% y/y in June. The three months trend rate fell back to 0.6% from 0.9% in the three months to June. Mixed data, but retail sales are volatile, subject to heavy revisions and cover less than 50% of private consumption and with latest consumer confidence at the highest level in nearly 16 years, consumption is set to continue to underpin the robust recovery. Especially as the labour market is looking increasingly tight.
US reports: revealed the expected Q2 GDP growth boost to 3.0% from 2.6% with component revisions that also closely tracked assumptions, alongside a solid 237k August ADP rise that beat the 185k private payroll estimate with a 190k total nonfarm payroll increase, after a big boost in the July rise to 201k from 178k that narrowed the gap to the 205k private payroll increase last month. For GDP, the data leave Q3 growth on track for a solid 3.5% climb led by strength in business fixed investment. For ADP, we now have a robust 223k average rise in 2017 that signals ongoing upside risk for U.S. payroll growth that may well materialize in Friday’s report, though ADP has persistently overshot reported job growth since the last methodology change in October.Meanwhile, WTI crude was virtually unchanged at $46 area following the EIA inventory data which showed a 5.4 mln bbl fall in crude stocks. The street had been expecting a 3.5 mln bbl decrease. Focus remains on damage to energy infrastructure following hurricane Harvey. Meanwhile, gasoline supplies, seen down 1.5 mln bbls were flat, while distillate stocks were up 700k bbls, versus expectations for an unchanged reading. Refinery usage rose to 96.6% from 95.4%.
Main Macro Events Today
- EU HICP – After yesterday’s stronger than expected inflation numbers from Spain and Germany forecast lifted for the Eurozone number to 1.5% y/y from 1.4% y/y expected previously. German data suggests the expected uptick from 1.3% y/y in July will be mainly driven by higher annual rates for energy and food prices, which means core inflation is unlikely to see the same acceleration as the headline rate and even the latter remains clearly below the ECB’s 2% upper limit for price stability.
- Canadian GDP – Q2 real GDP is expected to accelerate to a 4.0% pace (q/q, saar) from the robust 3.7% pace in Q1. The projection is driven by consumption, which is expected to grow 4.0% in Q2 (q/q, saar) after the 4.3% run–up in Q1. A small positive addition is seen from net exports.
- US Income & Consumption – The income, consumption data for July will be just as important for the FOMC. A 0.3% gains is expected in income and spending, with the chain price index and the core rising 0.1%. That would leave the headline index rising at a 1.4% y/y pace, the same as in June, while the core rate would slip to 1.4% y/y from 1.5% y/y. That would be seen keeping the Fed on hold, but there’s still four months of data before the Committee has to make that decision.
- US Unemployment – U.S. initial jobless claims are expected to be 237k in the week-ended August 26. Continuing claims are expected to rise to 1,955k for the week-ended August 12.
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