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The Global Markets Weekly – 7/13/18
Powell, Earnings, China GDP
Key events this week include ongoing trade-related newsflow, Fed Chair Powell’s testimony before the Senate Banking Committee, Q2 GDP in China, and a pickup in the Q2 corporate reporting season. Company revenues have picked up amid the perfect storm of higher energy prices, less dollar and global drag, while tax cuts will help generate a rapid pace of earnings growth which may again touch 25% y/y. Continued rebound after flat growth for the top line S&P 500 earnings from late 2014 to late 2016 is well-anticipated, and not unheard of late-cycle. The question is, “what’s next?”. Lofty forward estimates will need to remain in place or improve to keep the market supported as interest rates rise.
Separating signal from noise will remain challenging over coming months. Trade war risks to firmer economic momentum in the U.S. and pickups around the globe are real, and will look obvious in hindsight if pessimistic scenarios play out. But there are also benign paths, and a mis-timed pause in policy tightening might help contribute to imbalances that cause the Fed to tighten too quickly down the road. Officials are aware expansions tend to die because of shocks including debt implosions, oil prices, and (monetary) policy mistakes.
Powell et al will do their best to balance a strong economy in the here-and-now, and price inflation near target, with possible risks. For now, continuing to remove policy accommodation at a pace at least as rapid as already penciled in will remain prudent. Market participants will need to monitor the likely causes behind inflation in the second half (still not imminent based on CPI data last week) in determining whether one or two more moves this year are warranted. Sturdier price inflation because of tariffs would be offset with a hit to growth, while sturdier price inflation from a truly tight labor market and wage growth would require a response.
As Powell makes his appearance, it’s worth keeping in mind that while the next recession is unlikely to resemble the last, policymakers do not have as much firepower to respond. Rates are low, deficits large, and the Fed’s emergency powers have been curtailed if another financial crisis hits (more within the U.S. section of the Global Markets Weekly).
Coming Week’s Key Indicators and Events
| Release | DE / Consensus | Comment | |
| U.S. | Jun Retail (Mo)
Ex-autos
Powell Testimony (Tu) |
0.5% / 0.5%
0.4% / 0.3%
|
Consumer spending not terribly robust in first half, but lifting to 2.5%-3% in Q2 after 0.9% in Q1.
Progress toward mandates warrants tightening despite risks. |
| U.K. | Jun CPI (We)
Jun Retail (Th) |
2.7% / 2.6% y/y
3.7% / 3.6% y/y |
Data warrant hike next month, caution abounds. |
| Japan | Jun CPI (Fr)
Ex fresh food Ex food & energy |
0.9% / 0.8% y/y
0.9% / 0.8% y/y 0.5% / 0.4% y/y |
Prices ex food and energy continue to decelerate, BOJ reduced its outlook for prices at its last meeting. |
| China | Q2 GDP (Mo)
June IP (Mo) June Retail (Mo) |
6.7% / 6.7% y/y
6.3% / 6.5% y/y 8.7% / 8.8% y/y |
Trade fears impacting activity, sentiment, and authorities’ policies.
Data have been softer recently on the retail side. |
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Research Studies
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[private] [/private] Seeds of A Sovereign Debt Crisis Planted Allen Sinai* The U.S. and Global economies have undergone a fiscal/debt revolution of huge import from which there will be no turning away! The main catalysts read more
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