DBdaily: AsiaPac Edition - 29 July 2013
28 July 2013 (7 pages/ 253 kb)

Download the complete report: http://pull.db-gmresearch.com/p/2164-7F66/19199919/DB_DbDailyAPAC_2013-07-28_0900b8c0871373c7.pdf

HEADLINES...
Markets: Quiet end to week, following weak Asian session equities down a smidgen in Europe, up a smidgen in the US, Treasuries marginally firmer, dollar also touch firmer but commodities a little softer, led by crude.
US:  Final est. of U of Michigan confidence revised up 1.2pts to 85.1 in July.
DEU:  Import price index down 0.8%mom/2.2%yoy in June, below mkt.
FRA:  Consumer confidence up 3pts to 82 in July, above mkt.
DNK:  Retail sales up 0.4%mom in June, down 2.0%yoy.
JPN:  National CPI rises 0.2% yoy in June, falls 0.2% yoy ex food/energy, above mkt.
JPN: Tokyo CPI rises 0.4% yoy in July, above mkt, falls 0.4% yoy ex food/energy, below mkt.
CHN:  MNI business conditions index falls 2.4pts to 51.3 in July
SI: Industrial production down 3.1%mom/5.9%yoy in June, below mkt.

THE DAY AHEAD...
US:  Pending Home Sales (Jun)
UK: M4 Money Supply (Jun), Consumer Credit (Jun), CBI Reported Sales (Jul)
ITA:  Business Confidence (Jul), Economic Sentiment (Jul), Hourly Wages (Jun)
SWE:  Retail Sales (Jun)
JPN:  BoJ’s Kuroda to speak, Retail Sales (Jun)
CHN: Leading Index (Jun)

US to drive markets this week – focus on FOMC/GDP/payrolls
Key Asian bourses closely last week on a soft note, especially the Nikkei – down 3% as a stronger Yen and some disappointing corporate reporting weighed. The CSI300 shed 0.6%, falling for third consecutive session. However, markets were fairly stable in Europe (the Stoxx600 falling 0.2%) and the US (the S&P500 rising 0.1%). As the short list of headlines at the head of this note makes clear, there wasn’t a great deal of news to stimulate markets. Japan’s annual national CPI inflation rate nudged into positive territory in June (up 0.2% yoy); French consumer sentiment rose 3pts to 82.0 (up off the May/June historic lows); and the University of Michigan’s index of consumer sentiment was revised up 1.2pts to a five-year high of 85.1 thanks to an upward revision to expectations.

The pace probably won’t pick up much today, either. The weekend press (focused on, amongst other things, who will eventually succeed Ben Bernanke as Fed Chairman) has seen FX markets reopen at around their Friday NY closes. And looking at the day ahead, the only economic reports of note are an update on business sentiment in Italy; the UK’s CBI’s Distributive Trade Survey and June money and credit data; and the June pending home sales report in the US. The corporate reporting season will continue, however (indeed this week we will receive earnings reports from 131 S&P500 companies and 150 Stoxx600 companies).

Looking further ahead a big week looms in the US and this is likely to be the key driver of markets. Initially the focus will be on the outcome of the FOMC meeting on Wednesday. We expect the Fed will continue its $85bn per month of asset purchases and we don’t expect much change in the Fed’s formal rhetoric in the accompanying statement. We will likely have to wait to the release of the minutes on 21 August to get a clearer picture of the likelihood of the Fed beginning to taper asset purchases from the September meeting, subject to economic data meeting the Fed’s expectations. In the meantime this will leave the focus on the economic data, including Friday’s July non-payrolls report (the first of two employment reports ahead of the September FOMC meeting). My US colleagues presently look for a 200k increase in non-farm payrolls whilst the unemployment rate is expected to nudge down 0.1pps to 7.5%. Their estimate could change depending on the outcome of several economic reports due earlier this week, including the Conference Board’s consumer survey (Tuesday), the ADP employment and Chicago PMI reports (Wednesday) and the manufacturing ISM (Thursday). These reports will also be interesting in their own right.

Also of note this week is the release of the US Q2 GDP report. My US colleagues have pencilled in growth of just 1.3% saar following what is presently reported as growth of 1.8% saar in Q1 and 0.4% saar growth in Q4 last year. But it is worth noting that the BEA will at the same time also release comprehensive benchmark revisions that extend back to 1929. My colleagues remind that this has the potential to alter policymakers’ perceptions of both the depth of the last economic downturn and the speed of the recovery. Based on the fact that we have seen a steady pattern of upward revisions to nonfarm payrolls, my colleagues believe there is a decent probability that real GDP growth will be revised higher over the past couple of years. The June personal income and spending report (incorporating the Q2 GDP report) will be released on Friday. Rounding out this week’s US calendar are July auto sales (Thursday) and June factory orders (Friday). My colleagues expect July auto sales to have remained close to last month’s 15.9m saar selling rate but point out that there is scope for further expansion over the year ahead (the average selling rate in the decade leading up to the recession was 16.6m saar).  

Turning to Europe the focus this week is likely to be on the ECB and BoE meetings, the outcome of which will be announced on Thursday. As far as the ECB is concerned, my European colleagues suggest that the forward guidance regime introduced last meeting felt like a compromise and the first month could test the Council’s cohesiveness. Those Council members against cutting rates in July may feel vindicated by the improving PMI readings. Those in favour of cutting rates may be concerned that credit continues to contract and the money market curve has retraced much of the post-guidance announcement flattening. My colleagues feel that it is too soon to judge the relevance or success of forward guidance and expect that President Draghi will likely steer a steady course. Given the current perspective on the euro area economy, my colleagues do not see the ECB changing rates, guidance or non-standard policies (LTROs, collateral, OMT, etc). Given the improvement in the UK PMIs of late it is hard to imagine any change in policy at the BoE this month. It will be interesting to see whether the MPC releases a statement, as it did last month. The BoE remains likely to decide on some type of policy guidance at its policy meeting, to be announced alongside its Inflation Report on 7 August. As far as economy data is concerned, in the euro area this week we receive the EC’s economic sentiment index (Tuesday), German unemployment (Wednesday) and the final manufacturing PMIs (Thursday). In the UK the July manufacturing PMI will be released on Thursday. Finally, it’s worth noting that the final hearing on Berlusconi’s tax fraud appeal will begin on Tuesday. A negative outcome here could potentially increase political instability in the Italy (the final verdict could occur on Tuesday or some weeks thereafter).

Locally, in Australia RBA Governor Stevens will speak on Tuesday, perhaps shedding light on the 72% chance of a 25bp rate cut that is now priced for the 7 August meeting. On the data front we have the June building approvals (Tuesday), private sector credit (Wednesday), RPData house prices (Thursday) and the PPI (Friday). In New Zealand we will receive June building consents on Tuesday and the latest ANZ business confidence on Wednesday. The RBNZ’s money and credit aggregates for June are also released on Wednesday. The market will continue to await the RBNZ’s announcement of restrictions on high LVR mortgage lending. In Japan we will receive the June employment, household spending and IP reports on Tuesday. China’s PMI data will be watched closely on Thursday.