Read on for our overview of the macroeconomic and market events from the first week of August. The focus was on the 'Super Thursday' event and the latest payroll data from the US. What can we expect later this week?
The Bank of England held its inaugural ‘Super Thursday’ event, bringing together key releases from the Bank of England in an effort to improve the impact of the Central bank’s output. Under the new format, the Monetary Policy Committee (MPC) policy decision is announced at the same time as the minutes are released, and, on a quarterly basis, are also accompanied by the quarterly inflation report and a press conference. Whether or not all the data results in a powerful and coherent message or simply becomes a wall of noise remains to be seen, but this is the latest change from a reform-minded governor who clearly has some sort of vision for the Old Lady of Threadneedle Street. As it stood, Super Thursday had a decidedly dovish theme. From the inflation report we saw the outlook for UK full-year inflation halved from 0.6% to 0.3% at the same time as the 2015 GDP growth outlook was upgraded by 0.3% to 2.8%. In line with the weaker inflation reading, the MPC echoed this dovish signal by voting to maintain the base interest rate at 0.5% by a margin of 8-1, with fewer dissenters than the market had expected following hawkish comments from several members recently. Sterling weakened on the news.
Latest from the US
Over in the US Non-Farm Payroll data came in, with 215,000 jobs added in July, slightly below expectations of 223,000 and a fall from June’s revised up figure of 231,000. Still, the data confirmed an average 235,000 jobs were added per month in the second quarter, up from 195,000 in the first quarter. The unemployment rate was unchanged at 5.3%, and average hourly earnings increased 0.2% month on month from flat the month before. This broadly supported a sense that labour market conditions are continuing to improve, and according to the latest assessment from Deutsche Bank, the market is now pricing in a 54% chance that the Fed hikes interest rates in September.
Other macro events
- Chinese economic data over the weekend disappointed, with exports sharply lower in June, falling 8.3% year on year (forecast was -1.5%). Imports were down 8.1% but this was largely expected, and the producer price index continues to be weak, at -5.4% year on year. This has been the 40th straight monthly fall, as the CPI printed stronger than expected largely due to the spike in pork prices.
- US core inflation remained flat at 1.3%, whilst the personal spending rate slipped to 0.2% from 0.7% with manufacturing PMI also slowing.
- In the UK, Manufacturing PMI ticked up 0.5 to 51.9, slightly ahead of expectations.
- After the disappointment of the Manufacturing PMI numbers for China, the Services PMI print showed a notable improvement, increasing to 53.8 for July.
- European retail sales numbers disappointed with a worse-than-expected fall of -0.6% for June, lowering the year-on-year rate to 1.2%
Last week was pretty quiet in markets. Sterling weakened following the dovish output on Super Thursday, whilst industrial commodities continued to suffer. Bonds and equities largely coasted the week.
- Equities – In the UK, the FTSE All-Share was up 0.38%, and Japan was also slightly up as the TOPIX advanced 1.21% on the week. Other major markets were marginally softer: the S&P 500 slipped -1.23%, Europe (excluding the UK) returned -0.59%, and in China the Hang Seng was down -0.35%.
- Bonds – 10-year gilts tightened 5 bps to 1.84%, whilst in the US, treasuries flattened, with the ten-year fairly unchanged at 2.17% but 6-month yields increased 7 bps to 0.21% and the 30-year yields fell 10 bps to 2.82%. German bunds were little changed on the week.
- Commodities – There was further weakness in oil, with both Brent and WTI below US$50. Brent was at US$48.39, whilst WTI was US$43.39 at the last reading on the weekend. Copper was also down US$2.34 and gold ticked up slightly but was still below the US$1,100 mark at US$1,093.20 an ounce.
- Currencies – Sterling softened after the more dovish than expected Super Thursday, off 0.83% against the dollar. Most other major currencies were relatively uneventful.
Monday: A quiet start, with only the Japanese consumer confidence release of note.
Tuesday: Japanese machine tool orders are released early in the morning, with the ZEW economic surveys in Germany out later in the morning.
Wednesday: The data releases start to pick up mid-week, and Wednesday starts with official Chinese economic data, including Fixed Asset Investment, Industrial Production and Retail Sales. Later in the morning the UK updates employment conditions, with unemployment and earnings numbers, which are expected to have slowed from 3.2% to 2.8% year-on-year increases. Later in the morning, the Eurozone Industrial Production numbers are released and the afternoon has the US JOLTs Job Openings data.
Thursday: Japanese Machinery Orders are out overnight, then Greece reports preliminary Q2 GDP results. In the afternoon, there are more US economic indications, with jobless claims and retail sales numbers due out.
Friday: The focus for the end of the week will be Q2 GDP growth estimates for the Eurozone along with the latest inflation reading, which is expected to have slipped -0.6% month-on-month in July. The US then reports on capacity utilisation and Industrial Production before we have the Michigan Consumer Sentiment Survey to finish the week.