The key events for the week ahead - Nomura

Analysts at Nomura offered their outlook for the week ahead.

Key Quotes:

"Week ahead for the USA

Trade balance (Wednesday): Both goods exports and imports fell in the advance report by the Census Bureau for July, but the decline in goods exports outpaced that of imports. Based on these advance estimates, we forecast a total trade gap of $44.5bn for July, which is a modest widening from $43.6bn in June. As for services, we expect steady increases in imports and exports.

ISM non-manufacturing (Wednesday): We forecast a 1.5pp increase to 55.4 for the August ISM non-manufacturing index. Incoming spending data have been pointing to a modest acceleration in economic activity in Q3. Personal spending has been contributing solidly to economic growth. Specifically, core retail sales were strong in July with upward revisions to prior months. These indicators suggest that domestic demand remains healthy in the economy. Other business indicators such as the Empire State and Philly Fed surveys both rose strongly in August, in line with our view.

Fed Beige Book (Wednesday): The FOMC appears set to announce its plan to start the Fed’s balance sheet roll-off in at its September meeting. What is more uncertain is the timing of the next rate hike, which will depend on the progress of inflation and continued strength in the labor market. That said, any anecdotal evidence of improvement in price pressure in the Beige Book prepared for the September FOMC meeting would be noteworthy. Core CPI inflation was below expectations in July. While it was lowered by a transitory drop in lodging-away-from-home prices, we think that a quick rebound in core inflation in the near term is unlikely. On labor markets, we expect remarks that reiterate strong labor market conditions and a shortage of skilled labor in some industries. We continue to expect above-trend gains in payroll employment and a sustained downtrend in the unemployment rate in the near term. Further, given lukewarm auto sales in recent months, anecdotal information on regional auto demand would be interesting. Lastly, it is possible that most of the comments collected for the Beige Book may have been received before Hurricane Harvey made landfall on the Gulf Coast. Remarks on the impact of Harvey would most likely be reflected in the following issue.

Initial jobless claims (Thursday): Initial jobless claims remain subdued as firms continue to hold on to workers in a tight labor market. However, upcoming claims releases will likely show a transitory increase reflecting the widespread economic damage from Hurricane Harvey in the Gulf Coast region, similar to previous hurricanes in the area.

The week ahead in the EU

The ECB’s monetary policy meeting and UK PMI data are in focus this week.

UK BRC retail sales (Tue): Sales values growth turned positive in June and July on this survey measure, and in real terms (accounting for the BRC’s shop price index) has averaged 1.5% y-o-y in the year to date. A similar reading in August would require sales values growth of 1.2% y-o-y (versus 0.9% in July). 

UK PMI services (Tue): Our forecast for the services PMI (53.5) is to remain broadly similar to its July reading (53.8), which is slightly lower than its average year to date (54.2). 

German factory orders (Wed): We expect German factory orders to decrease 0.2% m-o-m in July, following a 1.0% m-o-m increase in June. However, this is a small retracement and we expect strong German manufacturing activity to continue in the period ahead. 

German industrial production (Thu): We expect German industrial production to increase 0.1% m-o-m in July, which will follow a 1.1% decline in June. German manufacturing output should have risen on the month in line with forward-looking PMI data.

ECB policy announcement and press conference (Thu): We are not expecting too much new information to emerge from next week’s ECB policy board meeting. There will probably be an acknowledgement, however, either in the statement or from Mr Draghi at the post-meeting conference that an announcement about the APP will be made at the following meeting in October. The key macro focus at this meeting will therefore be the update of the ECB staff forecasts. We expect modest upward revisions to the GDP growth projections for 2017 and 2018. However, notwithstanding this, there will likely be a mechanical downward adjustment to next year’s inflation forecasts in light of the strength of the euro in recent months. Relative to the technical assumptions that the ECB deployed at the time of its previous forecast update in June, the trade-weighted euro exchange rate is about 4.4% higher. Oil prices are also a little lower. The impact of this on the inflation forecasts will be partly mitigated however by stronger growth than previously assumed and the impact of this on the euro area output gap. The other focus will be on Mr Draghi’s comments on euro appreciation. Although the ECB is cautious about financial market tightening, we expect Mr Draghi to not make direct verbal interventions to depreciate the euro. Finally, the tweaking of forward guidance on the asset programme may be in focus as well. There was a suggestion to change it at July’s meeting. However, we expect forward guidance on the asset programme to be maintained because the ECB will want to avoid sending messages that could cause an over-interpretation from the market. 

UK trade (Fri): The trade deficit widened sharply in June owing to a combination of a fall in underlying export volumes and a rise in import volumes, as well as a rise in the oil deficit to its widest since last September. We expect some reversal of those moves to lead to a small improvement in the trade deficit in July, although we see it remaining above £12bn.

UK industrial production (Fri): Manufacturing output has not risen during a single month this year so far. The same cannot be said for industrial production, however, where output has risen by a cumulative 0.7% during the past three months thanks to a combination of rising mining/quarrying and energy production. Surveys suggest that manufacturing should be growing stronger than what we have seen – thus our forecast for a 0.3% m-o-m gain in August. We have industrial production weaker at 0.2% m-o-m.

Asia week ahead

China: We expect CPI inflation to rise modestly to 1.6% y-o-y in August on higher food prices from 1.4% in July, and PPI inflation to rebound to 5.8% y-o-y after three months at 5.5% given rising inflationary pressures on the supply side – as suggested by a much higher purchasing price sub-index in the official PMI. We expect both export and import growth to moderate in August. Our FX strategists believe China’s headline FX reserves will dip by USD1.0bn to USD3079.7bn in August. After adjusting for FX and coupon effects, we estimate a fall of USD10.0bn in August after a fall of USD20.6bn in July. 

Australia: We expect the Reserve Bank of Australia (RBA) to leave its cash rate unchanged at 1.50%. We believe the RBA could sound a little more confident about the domestic growth outlook, noting better recent data, but should again convey no policy bias and no sense of urgency in raising the cash rate. We continue to expect the cash rate to remain at 1.50% through 2017 and 2018. Our Q2 GDP tracking is currently sitting at 0.6% q-o-q, with contributions to growth from consumer spending, business investment and government spending. We expect net exports and inventories to make modest negative contributions. However, partial data released over the next few days could cause our (and consensus) estimates to change."