ON DECK FOR FRIDAY, AUGUST 29
KEY POINTS:
- Bonds, equities both cheapen into key data
- US core PCE inflation is expected to pick up
- Canadian GDP starts the data dependent path to the next BoC meeting
- Eurozone inflation tracking softly, supports ECB on hold
- Eurozone consumer spending softens
- JGB yields slip on Japanese data
- Krona outperforms on solid Swedish GDP
It’s data dump day across the world as important readings on inflation and growth are updated across multiple major economies. The reward to getting through it will be early market closes in Canada and the US ahead of long weekends at least for some folks. Going into N.A. data, the market bias is toward slightly softer prices for both equities and bonds with a touch firmer USD alongside CAD and some Scandies. On top of data, watch Governor Cook’s emergency injunction hearing at 10amET will also be watched.
CANADA TO UPDATE GDP AND IMPORTANT DETAILS
Canada updates GDP figures and important details like final domestic demand (8:30amET). The data deluge on the path to the Sept 17th BoC decision starts now, then jobs next week, then CPI. Q2 is expected to post a mild contraction (-0.7% q/q SAAR consensus, -0.3% Scotia) but volatility in tariff front-running effects over H1 require looking at the core domestic economy with final domestic demand expected to perform better partly as interest sensitive spending picks up. FDD was surging for several quarters and then went flat in Q1 (chart 1). June GDP was guided by Statcan to be up 0.1% m/m SA but data since that flash estimate a month ago might add a bit (Scotia 0.2%). July’s flash GDP estimate will be fresh information amid mixed readings as hours worked slipped but other readings were stronger.
US CORE PCE INFLATION TO ACCELERATE
US core PCE inflation is expected to run a little warmer when July’s reading lands this morning (8:30amET). Most estimates sit at 0.3% m/m SA but even a bit higher is possible. Recall that core CPI was up by 0.3% which immediately hints at a firm core PCE reading (chart 2), then add a touch for PPI’s relevant categories net of different weighting effects in CPI versus PCE. When those effects are taken into account, a rise of 0.4% is possible, but tamped down because of other methodological differences between CPI and PCE such as how PCE captures substitution effects that CPI does not by shifting spending weights each month.
Solid growth rates in US personal incomes and spending are also expected (8:30amET) and the first estimates of US goods exports and imports during July are due at the same time.
JGB YIELDS SOFTEN ON JAPANESE DATA
The Tokyo core CPI gauge picked up to 0.2% m/m SA in August which is the firmest reading since May. Still, at 2.4% m/m SAAR, it’s part of a three month moving average of 1.2% m/m SAAR that remains sharply slower than over prior months. The JGBs curve bull flattened overnight with the 10-year yield down 2bps and the yen was slightly softer to the buck.
Some of that reaction in Japanese markets was also probably due to generally soft macro reports. Industrial output shrank by -1.6% m/m in July (-1.1% consensus) with retail sales down 1.6% m/m (-0.2% consensus) after a 1.0% prior gain.
EUROZONE INFLATION TRACKING SOFTLY
All four major Eurozone economies posted soft inflation readings this morning that support expectations for the ECB to remain on hold on September 11th. The year-over-year rates show wide deviations but indicate around 2% y/y for the Eurozone as a whole. France sits at 0.8% y/y, Italy is at 1.7%, Spain’s reading is 2.7% and Germany’s tally is likely to be about 2% a little later this morning. Here are the readings:
- German states registered a series of soft inflation readings in August that generally supported consensus expectations for the national CPI reading to be flat when released shortly (8amET). Three states were flat, two were up 0.1%, and one fell -0.1%.
- French CPI landed on the screws at 0.5% m/m SA in August on an EU-harmonized basis.
- Spanish CPI was flat at 0% m/m in August on an EU-harmonized basis. Core CPI ticked higher to 2.4% y/y.
- Italian CPI was weaker than expected at -0.2% m/m on an EU-harmonized basis (0% consensus).
EUROZONE CONSUMER SPENDING SOFTENS
German retail sales volumes fell by -1.5% m/m SA in July (0% consensus) which more than reverses the 1.0% surge the prior month. Consumer dynamics nevertheless got a minor lift from an unexpected decline of 9k in the number of unemployment in August that kept the unemployment rate at 6.3%.
French consumer spending volumes were soft. July’s spending fell -0.3% m/m as expected, but June was revised two-tenths lower to +0.4%.
KRONA OUTPERFORMS ON GDP
The krona is the star pupil this morning after Swedish GDP surprised a touch higher than expected in Q2 (0.5% q/q SA, 0.4% consensus). The figures were distorted by a large 3.1% contribution from imports as exports rose 0.7% while consumption was up 0.4%, investment expanded by 6.1%with government spending up by a small amount.
DISCLAIMER
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.