ON DECK FOR TUESDAY, JULY 13
- Slightly flatter curves ahead of US inflation
- Will US core CPI repeat the pattern of upside surprises?
- US bank earnings strongly beat but soft on details
- Chinese markets shrug off stronger exports
US bank earnings and inflation figures will dominate attention this morning.
Sovereign bond curves are very slightly flatter ahead of US inflation. 10 year yields are down by 1–2bps across US Treasuries, Canada and European markets. The USD is slightly firmer again. Equity market sentiment is fragile with little change across most N.A. and European benchmarks so far.
While Chinese data is always to be taken with a mountain of salt, exports appear to have beaten consensus expectations for June. In yuan terms they were up 20% y/y (consensus 15%, prior 18%) and in USD terms they were up 32% (23% consensus, 28% prior). How much was driven by price effects is unclear. So is how much of a rebound was just due to prior port capacity issues with damaged supply chains and shipping delays after a COVID-19 surge in Guangdong. GDP growth arrives tomorrow night (ET).
For US core CPI inflation, I went with 0.4% m/m and 4% y/y (8:30amET). That would be a cooler but still strong month-ago pace of change and a further climb in year-over-year terms.
The issue is whether the pattern of upside beats will continue after it began in March. Back in March, core CPI increased by 0.3% m/m (0.2% consensus) but then in April the 0.9% m/m rise was triple expectations and the May reading of 0.7% m/m also beat the consensus estimate of 0.5%.
The consensus range for today is almost evenly divided between 3.9%, 4.0% and 4.1% with small tails in the 4.2%+ and 3.8%-and-under categories. One issue is that used vehicle prices may not contribute as much this time, at least to the extent indicated by the Manheim index (chart 1). That doesn’t necessarily mean that used vehicle price inflation is over and done with as we’ve previously seen pauses on the sharp upswing and supply chain issues on the new vehicles side of the picture remain acute. Gas prices are also a waning influence in year-ago terms but not month-ago. Another reopening effect is expected.
As for other transitory factors, I’d just repeat the caution not to cherry-pick the ones that may be temporarily hot and downplay those while ignoring ones that may be temporarily cool like most services prices relative to goods prices as the services side reopens, or like medical care for other long-term reasons, or food at home etc. I find there is a strong tendency in some quarters of the markets to talk one’s book and pretend the upsides of the past few months never happened and can’t ever possibly repeat.
Bank earnings season got off to a solid start at least in terms of headlines. JP Morgan Chase beat expectations with EPS of US$3.78 (consensus $3.15). Their presentation is here. Goldman Sachs smashed expectations with a 50% beat to analysts’ expectations (US$15.02 EPS, consensus US$10.15) as investment banking revenues and other factors offset a miss on trading revenues relative to expectations. I’ll leave the details to bank equity analysts but generally they seem to be on the soft side.
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.