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The Global Markets Weekly – 7/27/18
Strong U.S. Growth Sustainable, Busy Week Ahead
A big question after the expectedly-strong Q2 GDP report is whether results of 3%-plus are sustainable or transitory. DE continues to believe that the answer is “sustainable”, buoyed by strong labor market and business fundamentals, tailwinds from fiscal stimulus, and better global growth on average around the globe than in past years. Consumer spending should be treated as having more staying power given revisions (upward) to the saving rate. DE projections remain markedly stronger than consensus and the Fed (chart).
The coming week is packed with central bank decisions, Eurozone GDP, U.S. payrolls, and a slew of earnings reports. Big weeks have not always delivered, but keep an eye on non-U.S. events as catalysts for a domestic 10yr yield still struggling to breach 3% despite 5%-plus nominal GDP growth.
For all the worry about yield curve flattening in the U.S.—a reliable but still loose timing indicator of possible recession—it’s also worth remembering the role of non-U.S. central bank policy on yields. It’s hard to argue that the U.S. 10yr would still be sub-3% if policy rates in Europe and Japan were not still sub-0%, and their respective 10yr bond yields at 0.4% for Germany and 0.1% in Japan. That not only makes the trouble with the U.S. curve potentially less problematic, but reminds investors of the sensitivity to an upside Eurozone GDP print, or hints of tweaks at the BOJ this week.
Coming Week’s Key Indicators and Events
| Release | DE / Consensus | Comment | |
| U.S. | ECI/PCE Data (Tu)
Jul ISM Man (We) FOMC Rate (We) Jul Payrolls (Fr) Unemployment Avg.Hrly.Earn |
-1.7 to 58.5 / -1.0 Hold / Hold 210K/ 194K 3.9% / 3.9% 0.3% / 0.3% m/m |
Inform the evolution of broad price and wage pressures.
Supplier bottlenecks ease, high prices, tariff concerns, labor shortages? Would need a big surprise at <100K or >300K to shift the needle. Wage growth still steady and benign? |
| Euro | Real GDP (Tu) | 0.5%/0.4% q/q | Further deceleration in a y/y comparison, to roughly 2.3% y/y after 2.5% in Q1 and 2.8% in Q3/Q4 2017. |
| U.K. | BoE Rate (Th) | +25/+25 bps to 0.75% | Protecting forward guidance, more will depend on evolution of Brexit. |
| Japan | BoJ Rate (Tu)
|
Targets unch / Targets unch | JGB yield spike reasonably reflects speculation of coming shift in yield curve targets. Change would admit some error squeezing bank profitability, weak justification given inflation miss. |
| China | NBS Man PMI (Tu)
Cxn Man PMI (We) |
+0.1 to 51.6 / -0.2
+0.1 to 51.1 / -0.1 |
Pre-tariff activity has muddled recent data, but hard to argue results won’t impact market thinking. |
| India | Rate Decision (Tu) | unch / +25bps | Inflation not quite high enough to hike. |
| Brazil | Rate Decision (We) | unch / unch | |
| Mexico | Rate Decision (Th) | unch / unch |
[private]gmw_0727[/private]
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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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