ON DECK FOR FRIDAY, JULY 25
KEY POINTS:
- Markets on cautious footings ahead of jam-packed week
- Tech earnings are not helping
- Soft Tokyo core CPI complicates the BoJ’s stance next week
- UK retail sales disappoint
- Russian central bank cut 200bps
- US core durable goods orders have stalled since inauguration day
Markets are ending the week and transitioning toward a jam-packed coming week on cautious footings. Stocks are mixed but on average little changed. Sovereign yields are up a bit across major global benchmarks. The dollar is gaining against most crosses. There are at best very light developments to consider like Tokyo CPI and UK retail sales that markets didn’t much pay attention to.
WEAK TECH
One is that Intel’s earnings and guidance in yesterday’s after-market went over like a lead balloon. The stock is down by about 6% compared to just before the release and into this morning’s pre-market. Concerns center around the viability of a multi-year turnaround plan that continues to slash payrolls.
SOFT TOKYO CORE CPI COMPLICATES THE BOJ’S STANCE
The fresh Tokyo measure of core CPI inflation was weak again. July’s reading was flat at 0% m/m SA. That follows a reading of only 0.1% m/m SA in June (chart 1). Is the surge over? Was it temporarily fed by prior peaks in oil prices in 2023–24 plus peak weakness of the yen in 2024? Are Shunto wage gains not really filtering through to more of the workforce than the under 20% of workers who benefit from the union agreement? Perhaps, but the BoJ will need more evidence than two reports as it refreshes forecasts and guidance at next week’s decision when it is expected to remain on hold.
LIGHT EUROPEAN DEVELOPMENTS
UK retail sales disappointed expectations. June’s rise of 0.9% m/m SA was ok, but fell shy of the 1.2% consensus mark and didn’t claw back much of the 2.8% decline the prior month. Sales ex-fuel were up by only 0.6% m/m—half of consensus—and after a 2.9% prior drop.
German IFO business confidence was little changed in July. Nothing to see there.
Russia’s central bank cut its key rate by 200bps in line with consensus expectations.
US EQUIPMENT ORDERS STALLING?
The US updates durable goods orders for the month of June this morning. The volatile headline is expected to drop as the prior surge of aircraft orders won’t repeat. Key, however, will be core orders (ex-defence and air) as a proxy for underlying equipment investment. They too have been hard to read of late with an oscillating pattern of ups and downs since February. To smooth through the noise, we need to look at seasonally adjusted levels. The level of orders had increased in later 2024 into January but has been bobbing along a flat trend since then perhaps as policy uncertainty escalated. There is little cost to postponing investment decisions at least until there is some clarity surrounding erratic and protectionist US trade policies.
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