Key Factors for The week Ahead highlights: More earnings, July inflation readings, UK Jobs Report, Housing Indicators.
Next week could be one of the last busy weeks of this earnings season, with reports from major retailers including Walmart, Home Depot, and Target.
On Tuesday, the Census Bureau will issue data on nationwide retail sales for July, indicating whether consumer spending held up last month.
The Federal Reserve will release minutes from the latest FOMC meeting on Wednesday, which could offer clues as to the trajectory of monetary policy.
The latest updates on the housing market will include building permits and housing starts for July, and the NAHB’s Housing Market Index for August.
Key factors for the wall street week Ahead
US Retail Sales
July sales are predicted to climb +0.4% M/M (prev. +0.2%). In July, lower- and middle-income households showed resilience in consumer spending, according to Bank of America’s consumer checkpoint data. “July consumer spending returned to positive Y/Y territory, and Bank of America’s internal card spending per household rose +0.1% Y/Y in July, compared to -0.2% in June, helped by July 4th holiday spending, promotions from online retailers and movie mania’,” the bank stated. However, BofA noted that lower- and middle-income households remain resilient, while higher-income households still appear to be under some pressure from slower wage growth and incrementally weaker labour markets, “but this is probably manageable and BofA Global Research now sees a soft landing with no US recession.
Retail Earnings and Sales
Next week, Walmart, Home Depot, and Target report profits, which often reflect retail sales and consumer spending. If they beat forecasts, the U.S. consumer may be healthy.
The Census Bureau will release more detailed July retail sales data on Tuesday, showing if consumer spending kept steady. Retail sales, unadjusted for inflation, likely climbed 0.4% last month for the fourth straight month. The slowest yearly growth rate since the pandemic-related losses of early 2020 is expected at 1%. After climbing 7% last year, the National Retail Federation (NRF) expects retail expenditure to rise 4%–6% to $5.13–$5.23 trillion in 2023.
FOMC Minutes
On Wednesday, the Federal Reserve will issue meeting minutes from the July 25-26 FOMC meeting, where policymakers raised interest rates by a quarter of a percent in the 11th and likely final tightening cycle rate hike. The minutes may reveal if the Fed plans to hike rates to reach its 2% inflation target. CME Group’s FedWatch Tool estimates a 90% chance that the Fed will maintain rates at its September policy meeting.
Housing Indicators
Next week, we’ll see July building permits, housing starts, and the August NAHB Housing Market Index. Housing starts rose to 1.44 million last month from 1.43 million in June. The NAHB Housing Market Index should remain at 56. After bottoming out in December, the index, based on homebuilders’ sales projections, has risen for seven straight months as housing demand rises despite higher mortgage rates and low inventory.
Canadian CPI
Consumer price rise is forecast to slow to 2.7% from 2.8% in June. Analysts highlighted that removing mortgage interest expenses, June inflation was 2.8% Y/Y, which was consistent with the BoC’s 2.0% objective. However, the BoC’s core measures of inflation remain excessive (the three measures averaged 4.2% in June), although experts believe sluggish retail sales in May and June indicate demand is reducing and that core inflation will fall through 2023. “With the Bank of Canada implying that the data need to surprise to the upside to warrant another interest rate hike, the softer labour market data support our view that the Bank is unlikely to follow through with current mark,” Capital Economics said.
Weekly Market Outlook (14-18 August) / Day Wise
MONDAY 14 AUGUST
NO EVENTS
TUESDAY 15 AUGUST
PBoC MLF, RBA Minutes, Japanese Prelim. GDP (Q2), Australian Wage Price Index (Q2), Chinese Industrial Output and Retail Sales (Jul), Japanese Industrial Output, UK Jobs Report (Jun/Jul), German ZEW Survey (Aug), US Retail Sales (Jul), Canadian CPI (Jul).
Wednesday 16 AUGUST
RBNZ Announcement, FOMC Minutes, UK Inflation (Jul), EZ GDP, and Q2 Employment.
THURSDAY 17 AUGUST
Norges Bank Announcement, Australian Jobs Report (Jul), EZ Trade Balance (Jun), US Philly Fed (Aug).
FRIDAY 18 AUGUST
Japanese CPI (Jul), UK Retail Sales, EZ Final CPI.
Day-wise events in details
TUESDAY 15 AUG
PBoC MLF
Despite bad Chinese statistics and multiple central bank and other agency support commitments, the 1-year MLF rate is anticipated to remain at 2.65% next week. The PBoC stated that RRR cuts, open market operations, MLF, and all structural policy tools must be flexibly used to maintain reasonably ample liquidity in the banking system, while it will guide banks to effectively adjust mortgage interest rates and support banks to reasonably control liabilities. It also released guidelines to encourage private business development and stated it will apply differentiated home credit rules in a “precise manner” to support stable and healthy real estate market development. However, these have primarily been targeted initiatives, and the PBoC has underlined its careful monetary policy, so it is not expected to drop rates for short-term funding or the medium lending facility so soon after cutting them in June for the first time in 10 months. Given China’s weak economic data, including deflation and a wider-than-expected drop in exports and imports, the bank may want to avoid cuts to avoid currency pressure. However, an RRR cut is expected during H2.
RBA Minutes
The RBA will issue the minutes from its August 1st meeting, where it kept rates constant at 4.10% despite mixed views before the meeting. Most economists had expected for a 25 bps raise, while money markets were strongly pricing in a pause. However, the central bank’s tone did not change, as it underlined that monetary policy may need to be tightened and that the Board is determined to return inflation to goal. It also reaffirmed the Board’s priority is to return inflation to the target within a reasonable timeframe and sees inflation returning to the 2%-3% target range in late 2025. Higher interest rates are helping to establish a more sustainable balance between supply and demand in the economy, but household consumption remains a major source of uncertainty.
Japanese Prelim GDP
Q/Q is projected at 0.8% (vs 0.7% in Q1), and Y/Y at 3.1% (prev. 2.7%). GDP CapEx should drop to 0.4% in Q2 from 1.4% in Q1. Private consumption is predicted to dip to 0.1% from 0.5% in the quarter, although external demand is expected to rise 0.9% (from -0.3% in Q1). ING analysts expect a 0.6% Q/Q growth rate, noting a small net exports increase and a healthy service activity recovery. “We should expect exports to record a contraction in July, particularly due to base effects,” says the desk.
Chinese Activity Data
July Retail Sales are predicted at 4.8% Y/Y (prev. 3.1%), Industrial Production at 4.5% (prev. 4.4%), and Fixed Asset Investments at 3.8%. Following the spate of negative data from the world’s second-largest economy, the data will be widely watched for signals of weakened domestic and global demand. In July, China consumer prices declined 0.3% Y/Y (exp. -0.4%, prior. 0.0%), entering deflation for the first time since February 2021. Consumer spending did not rebound post-COVID, indicating poor domestic demand. Additionally, the Caixin PMIs issued earlier in the month indicated the manufacturing sector is still struggling. ING states, “Data from China Railway show that there was a 14.2% increase in operating passenger trains compared to the same period in 2019. Flight numbers recovered slower. They are currently at 48% compared to the same period in 2019, yet this is still a 12% annual and monthly growth. Movement may improve retail sales and consumption. However, the effect is unlikely to spill over into industrial production, and we should continue to see weak growth here.” Given the weaker trade data earlier this week and property sector tensions, several analysts have suggested that the data fuels calls for more government support measures. Some predict rate and RRR reduction later this year.
UK Jobs Report
The unemployment rate is expected to remain at 4%, while the other measures are unconfirmed. In the three months to May, the unemployment rate unexpectedly rose to 4.0% from 3.8%, HMRC payrolls contracted by 9k, and headline earnings growth rose to 6.9% from 6.5% 3M/YY. Pantheon Macroeconomics expects the June data to reveal that employment growth slowed but pay growth remained too high for the MPC to stop raising rates. The firm estimates “the headline unemployment rate rose to 4.0% in June, from 3.9% in March, but was unchanged from May”. “May’s estimate of wages will be revised up by 0.17%, ensuring that the headline rate of wage growth in June picks up to 7.5%, most likely above the consensus,” it says. Policymakers will focus on wages and inflation, which could increase calls for action in September but won’t be fully priced until the next day’s inflation measurements.
US Retail Sales
July sales are predicted to climb +0.4% M/M (prev. +0.2%). In July, lower- and middle-income households showed resilience in consumer spending, according to Bank of America’s consumer checkpoint data. “July consumer spending returned to positive Y/Y territory, and Bank of America’s internal card spending per household rose +0.1% Y/Y in July, compared to -0.2% in June, helped by July 4th holiday spending, promotions from online retailers and movie mania’,” the bank stated. However, BofA noted that lower- and middle-income households remain resilient, while higher-income households still appear to be under some pressure from slower wage growth and incrementally weaker labour markets, “but this is probably manageable and BofA Global Research now sees a soft landing with no US recession.
WEDNESDAY 16 AUGUST
Canadian CPI
Consumer price rise is forecast to slow to 2.7% from 2.8% in June. Analysts highlighted that removing mortgage interest expenses, June inflation was 2.8% Y/Y, which was consistent with the BoC’s 2.0% objective. However, the BoC’s core measures of inflation remain excessive (the three measures averaged 4.2% in June), although experts believe sluggish retail sales in May and June indicate demand is reducing and that core inflation will fall through 2023. “With the Bank of Canada implying that the data need to surprise to the upside to warrant another interest rate hike, the softer labour market data support our view that the Bank is unlikely to follow through with current mark,” Capital Economics said.
RBNZ Announcement
Money markets predict a 99% chance that the RBNZ will maintain the Official Cash Rate at 5.50% at next week’s meeting. As a reminder, the RBNZ left the OCR unchanged at the prior meeting to snap a streak of 12 consecutive rate hikes, which was widely expected given the central bank had previously signalled that the hiking cycle was over. The Committee agreed that the OCR will need to remain at a restrictive level for the foreseeable future and noted that interest rates are constraining spending and inflation pressure as expected and required. The RBNZ agreed inflation is too high but expects it to fall within the target range by H2 2024. Since that meeting over four weeks ago, the central bank hasn’t said anything, so the current notion of no additional rate hikes and a tight OCR hasn’t changed. In addition, the data releases have been mixed and support the case for a pause, with CPI firmer-than-expected for Q2 at 1.1% vs. Exp. 1.0% (Prev. 1.2%) and YY at 6.0% vs. 5.9% (Prev. 6.7%) but has slowed from the prior and labour cost index was also softer than estimated, while jobs growth topped forecasts at 1.0% vs. 0.5% (Prev. 0.8%) but the Unemployment Rate also rose to 3.6% vs. 3.5% (Prev. 3.4%).
FOMC Minutes
With the Fed in a data-dependent policy-setting mode, the July meeting minutes are unlikely to surprise. However, traders will be looking for any comments on how the Fed views growth dynamics, as inflation is steadily returning to goal and many expect the Fed to pivot policy and slash rates to help the economy. Money markets predict rate decreases to begin in Q1 2024, but the Fed’s June projections call for another boost. In July, the Fed hiked rates by 25bps to 5.25-5.50%, as expected. Like June’s, it mentioned rate hikes. It noted that the economy is developing at a “moderate” rather than “modest” pace and that job gains are significant and the unemployment rate is low. The Fed is cautious about inflation, not reacting to single data points. At his news conference, Chair Powell stated future interest rate decisions will depend on data and tightening impacts are not yet felt. The labour situation is improving, but inflation is still above 2%. However, consumer spending growth has slowed this year. Powell again framed future rate decisions around incoming data, saying the Fed may hike rates in September if the data supports it. He proposed slowing rate rises, although raising them at consecutive sessions was possible. Powell warned that faster economic growth could raise inflation, necessitating policy action. He suggested rate cuts if inflation falls significantly. Wages may help lower inflation sustainably.
UK Inflation
Y/Y CPI is expected to drop to 6.7% from 7.9% and the core rate to drop to 6.8% from 6.9%. Petrol and fuel costs lowered headline Y/Y CPI in June to 7.9% from 8.7%, matching the Bank’s May MPR. Core inflation fell to 6.9% while services inflation fell to 7.2%. Investec is “relatively confident” that energy costs will decline after the OFGEM price ceiling adjustment, lowering headline inflation by 0.7% for the forthcoming release. However, Investec warns that the underlying indicator likely “remained sticky” since clothes and footwear costs were countered by restaurant and services industry pricing. The desk believes “there is limited scope for extra disinflation from services in the near term, so look to goods price inflation to account for the bulk of the easing momentum” beyond next week’s announcement. In September, the BoE is projected to raise rates by 25bps to 68%, but a sticky inflation report might push this up to 100%.
THURSDAY AUG 17
Norges Bank Announcement
Expected to rise 25bp to 4.00%. A move justified by the Norges Bank’s preferred inflation metric staying elevated but printing broadly in-line with their July projection. Since June, the NOK has appreciated, however it is now off best, which should reduce inflation impulses. Markets still expect a 50bp rise at 20%. The verdict will be released at 09:00BST, however the press conference will be held in Arendal with public and press questions. This is an interim meeting, so we do not receive formal inflation or repo path predictions, which in June predicted an 80% possibility of another 25bp raise in September if delivered in August.
Australian Jobs Report
The Labour Force report is projected to indicate 21.5k jobs added in July (prev. 32.6k), with 3.5% unemployment and 66.8% participation. Westpac analysts expect “another robust reading in July” due to no change in labor demand statistics and the reinstatement of work-hour limits for overseas students. To be cautious, the desk anticipates a 25k employment increase with upside risks, expecting the participation rate and unemployment rate to match market projections.
FRIDAY 18 AUG
Japanese CPI
National Core CPI is predicted to drop to 3.1% in July from 3.3% in June, with no estimates for headline CPI Y/Y and M/M. Core Y/Y rose to 3.3% from 3.2% in June, reflecting expectations. Since then, the BoJ has made a back-door adjustment to YCC for flexibility and upped its near-term inflation estimates, with the Fiscal 2023 median forecast rising to 2.5% from 1.8%, over its target. Governor Ueda said the 2% inflation objective is still far away, but the substantial adjustments to the FY23 price projection show the April prognosis was underestimated. However, the Fiscal 2024 median projection fell to 1.9% from 2.0%. The Tokyo July CPI, a proxy for mainland measurements, surpassed forecasts across the board with an alarming 4.0% “super core” reading (vs exp. 3.7%, prev. 3.8%).
UK Retail Sales
A consensus has yet to be reached, although BRC retail sales climbed 1.8% Y/Y in July, with the publication noting that “The slowing pace of retail price inflation fed through into slower sales this July.” “Online retail was particularly hard hit as the long-term trend back to in-store spending continued, leading to the lowest online penetration rate since the pandemic began,” BRC says. “Retail spending grew 2.9% in July 2023, compared to year-on-year growth of 6.0% seen in June 2023,” according to the Barclaycard Consumer Spending Report. Sports & Outdoors spend fell 1.5% in July 2023 due to the rainy weather.
USA Economic calendar for week
Monday, August 14
- Consumer Inflation Expectations (Jul)
- China Unemployment Rate (Jul)
- China Industrial Production (Jul)
- Japan GDP Growth Rate – Preliminary Reading (Q2 2023)
Tuesday, August 15
- Retail Sales (Jul)
- Business Inventories (Jun)
- NAHB Housing Market Index (Aug)
- New York Fed Empire State Manufacturing Index (Aug)
Wednesday, August 16
- Building Permits (Jul)
- Housing Starts (Jul)
- Industrial Production (Jul)
- FOMC Meeting Minutes
- U.K. Inflation Rate (Jul)
- Eurozone GDP Growth Rate (Q2 2023)
Thursday, August 17
- Philadelphia Fed Manufacturing Index (Aug)
- Conference Board Leading Economic Index (Jul)
- Japan Inflation Rate (Jul)
Friday August 18
Eurozone Inflation Rate – Final Reading (Jul)
Global Economic calendar for week
Monday
No Events
Tuesday
USA
Retail sales, import & Export prices (jul)
Japan
Q2CY23 GDP (PRELIMINARY ESTIMATES), industrial production & capacity Utilisation (June)
China
industrial production, Retail sales, Unemployment Rate
U.K.
Unemployment Rate (June)
Wednesday
Usa
FOMC Minutes; API & EIA Crude oil stock change, MBA Mortgage applications (for week ended Aug 11); Housing starts, Industrial Production (July
Euro area
Q2CY23 GDP Growth (2nd Estimates), industrial production (June)
U.K.
Inflation (July)
Thursday
USA
Initial jobless claims (for week ended Aug12)
Euro Area
Balance of trade (June)
China
Balance of trade (July), Machinery Order(June)
Friday
Euro area
Inflation (July)
China
Inflation (July)
U.K.
Retail Sales (July)
EARNINGS CALENDAR
Monday, August 14
- Suncor Energy (SU), Roivant Sciences (ROIV), Monday.com (MNDY), Reata Pharmaceuticals (RETA), Rumble (RUM), and Embraer (ERJ)
Tuesday, August 15
- Home Depot (HD), Agilent Technologies (A), Sea Limited (SE), Nu Holdings (NU), Cardinal Health (CAH), Legend Biotech (LEGN), Tencent Music Entertainment Group (TME), CAVA Group (CAVA), and H&R Block (HRB)
Wednesday, August 16
Cisco Systems (CSCO), TJX Companies (TJX), Synopsys Inc. (SNPS), Target Corp. (TGT), JD.com (JD), Amcor (AMCR), and Wolfspeed (WOLF)
Thursday, August 17
Walmart (WMT), Applied Materials (AMAT), Ross Stores (ROST), Keysight Technologies (KEYS), NICE Ltd. (NICE), and Tapestry Inc. (TPR)
Friday, August 18
Deere & Company (DE), Palo Alto Networks (PANW), Estee Lauder Cos. (EL), Vipshop Holdings Ltd. (VIPS), and XPeng Inc. (XPEV)
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