APAC Strategy Team
Summary: A busy week ahead with tier 1 data due globally and in Asia, alongside some key earnings such as the Australian miner BHP and US retailers such as Walmart and Home Depot. FOMC minutes and Fed speakers will likely continue to push back against easing expectations for next year, while the UK and European stagflation warnings will only get louder. Gains in commodity currencies may be checked with Australia’s jobs data and RBA minutes, while RBNZ is likely to press ahead with its fourth 50bps rate hike. China’s activity data will be out soon, and China earnings also take centre stage with Meituan and Li Auto reporting today, and Tencent, Billibili and Xiaomi also on the wires in the week.
The Federal Reserve had lifted rates by 75bps to bring the Fed Funds rate at the level that they consider is neutral at the July meeting, but stayed away from providing any forward guidance. Meeting minutes will be out this week, and member comments will be watched closely for any hints on the expectation for September rate hike or the terminal Fed rate. The hot jobs report and the cooling inflation number has further confused the markets since the Fed meeting, even as Fed speakers continue to push against any expectations of rate cuts at least in ‘early’ 2023. We only have Kansas City Fed President Esther George (voter in 2022) and Minneapolis Fed President Kashkari (non-voter in 2022) speaking this week at separate events on Thursday, so the bigger focus will remain on Jackson Hole next week for any updated Fed views.
US economic indicators have held up in the recent week, given a strong labor market and falling gasoline prices which are supporting the sentiment. Housing starts, due tomorrow, may still show a cooling demand amid the rising mortgage rates as well as overbuilding. Existing home sales will, meanwhile, show a further drop as demand remains weak. Retail sales however should have been more resilient given the lower prices at pump improved the spending power of the average American household, and Amazon Prime Day in the month possibly attracted bargain hunters as well. Industrial production is also forecasted by consensus to improve in July from last month’s drop of 0.2%.
Favourable base effects may spur rises in July industrial production, retail sales, and fixed asset investment data scheduled to release this Monday. The Bloomberg surveyed median forecast for July industrial production is a growth of 4.3% from a year ago, moderately accelerated from 3.9% in June. Retail sales in July are expected to grow 4.9% (vs 3.1% in June), being helped by improved consumer sentiment and a vehicle purchase tax cut. Market consensus forecast for the year-to-date growth of fixed-asset investment is 6.2% from a year ago, only marginally higher than 6.1% in June. Strength in infrastructure investment was likely to be partially offset by a continuous decline in property investment.
Japan reported Q2 GDP this morning, which was weaker than expected despite the rebound in consumption. The nationwide CPI for July is now due to be reported at the end of the week. July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are waddling high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. More government relief measures are likely to be announced, while any little hope for a Bank of Japan pivot is fading. Bloomberg consensus estimates are calling for Japan’s CPI to accelerate to 2.6% y/y from 2.4% previously, with the ex-fresh food number seen at 2.4% y/y vs. 2.2% earlier.
The UK and European stagflation threat is growing bigger by the day, and we expect to hear more warnings on that this week. UK CPI, due on Wednesday, is likely to touch close to ~10% levels amid higher food and services prices before a further push higher towards 13% in October. The final print of Eurozone CPI for July follows on Thursday, and it will likely confirm an acceleration to 8.9% y/y from 8.6% y/y in June. We also continue to watch the other key activity and economic indicators in the region, including UK’s labor market and retail sales as well as Germany’s ZEW survey which might show a hit to consumer confidence from the soaring price pressures and the brewing energy crisis.
Earlier in the month, the Reserve Bank of Australia (RBA) raised the cash rate by 50bps to 1.85% and the accompanying Statement on Monetary Policy emphasized an uncertain and data-dependent outlook. On Tuesday, when the RBA releases its minutes, the market focus will be on the range of options discussed for the August hike and any hint of future interest rate path. The wage price index is scheduled to release on Wednesday and the Labour Force Survey will come on Thursday. Wages growth is expected to accelerate (Bloomberg survey: +0.8% QoQ, +2.7% YoY in Q2 vs +0.7% QoQ, +2.4% YoY in Q1). Employment growth however is expected to moderate to +26.5K in July (+88.4 in June). The unemployment rate is expected to remain unchanged at 3.5%.
The RBNZ is scheduled to meet on Wednesday. Economic data since the July meeting has been strong overall, with a tight labour market and higher inflation. The market, according to the survey by Bloomberg, is expected to raise the Official Cash Rate by 50bps to 3.0%.
This week’s most important earnings are highlighted below with the names in bold being those that can move market or industry sentiment. Meituan and Li Auto on Monday are important for gauging consumer spending and behaviour in China. BHP Group is a must watch on Monday as the Australian miner is tapped into China’s growth and demand for iron ore. On Tuesday, earnings from Walmart and Home Depot can provide an updated picture on global supply chains and price pressures across a wide range of consumer products. Tencent reports on Wednesday and is an important earnings release for investors watching Chinese technology stocks, especially the latest trend of online advertising. In the payments industry, Adyen’s result on Thursday will be highly watched as Adyen is really challenging PayPal on growth and dominance in the industry. On Friday, Bilibili will inform about online entertainment in China and Xiaomi will tell us about consumer demand.
Japan: GDP Growth Annualized Prel (Q2) Industrial Production (Jun)
China: House Price Index (Jul), Fixed Asset Investment (Jul), Industrial Production (Jul) Retail Sales (Jul)
Thailand: GDP Growth Rate (Q2)
Indonesia: Balance of Trade (Jul)
United States: NAHB Housing Market Index (Aug), Net Long-term TIC Flows (Jun)
Australia: RBA Meeting Minutes
Japan: Tertiary Industry Index (Jun)
United Kingdom: Unemployment Rate (Jun), Employment Change (May), Average Earnings (Jun), Claimant Count Change (Jul)
India: WPI Inflation (Jul), Balance of Trade (Jul)
Euro Area: ZEW Economic Sentiment Index (Aug), Balance of Trade (Jun)
Germany: ZEW Economic Sentiment Index (Aug)
Canada: Core Inflation Rate (Jul)
United States: Building Permits (Jul), Housing Starts (Jul), Industrial Production (Jul)
Australia: Westpac Leading Index (Jul), Wage Price Index (Q2)
New Zealand: RBNZ Interest Rate Decision
United Kingdom: Inflation rate (Jul)
Euro Area: GDP Growth Rate (Q2)
United States: Retail Sales (Jul), Business Inventories (Jun), FOMC Minutes
Japan: Foreign Bond Investment (Aug)
Australia: Employment Change (Jul), Unemployment Rate (Jul)
Euro Area: Inflation Rate (Jul)
United States: Continuing Jobless Claims (Aug), Initial Jobless Claims (Aug)
New Zealand: Balance of Trade (Jul)
United Kingdom: Gfk Consumer Confidence (Aug), Retail Sales (Jul), Public Sector Net Borrowing (Jul)
Japan: Inflation Rate (Jul)
Canada: New Housing Price Index (Jul), Retail Sales (Jun)
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