- A positive start to the week for stocks, with moderate gains across the board in Asia (albeit with the Topix up just 0.2%) and the main European bourses currently up more than 1.5% despite ongoing momentum in the pandemic in both regions.
- Major sovereign bonds are weaker, with yields on USTs, Bunds and Gilts a bp or so weaker, but BTPs outperforming again on positive risk appetite.
- With a smattering of top-tier data due from the major economies, the Jackson Hole economic symposium (from Thursday) will be the key economic focus this week, with Jay Powell to speak on the Fed’s strategic policy review, and other major central bank figures also contributing.
After Friday’s flash PMIs suggested a weakening of momentum in August, particularly in the services sector in response to the revival in the pandemic, this week will bring the results of the most comprehensive economic survey in the EU, the European Commission’s economic sentiment survey (Friday), as well as various national business and consumer confidence releases from the larger member states, including the German ifo business survey tomorrow.
In terms of hard data, the release of July figures for Spanish retail sales and French consumer spending on goods at the back end of the week will likely be consistent with a rebound on retail spending above the pre-Covid level. But, of course, retail spending accounts for less than 40% of total private consumption, with expenditure on services still well below levels up to February.
Among other releases due this week, final Q2 GDP numbers for Germany and France, to be published tomorrow and Friday respectively, are expected to confirm double-digit record declines in output in both countries (-10.1%Q/Q in Germany and -13.8%Q/Q in France). The German release will bring the first official expenditure breakdown. Friday will also bring the flash French CPI estimate for August, which is likely to show that headline inflation fell sharply, reversing the surge in July which reflected the delay to summer sales on the high street this year. Meanwhile, euro area bank lending figures for July will also be published on Thursday.
On the central banking front, the back end of the week will see ECB Chief Economist Lane and Executive Board members Panetta and Schnabel – all among the most thoughtful of the Governing Council members – make virtual appearances at this year’s Jackson Hole economic symposium.
BoE Governor Bailey will also participate in the Jackson Hole symposium on Friday. Among other policy developments, informal talks will continue between UK and EU officials on the nature of the future relationship after last week suggested little willingness to make meaningful concessions to secure a deal before year-end. Data-wise, it will be a quiet week in the UK. The CBI’s distributive trades survey for August is due out tomorrow and expected to point to further pickup in retail sales this month as shopper footfall improved further, among other things encouraged supported by the government’s ‘Eat out to help out’ scheme. However, with the government’s Job Retention Scheme beginning to unwind, and many large retailers already announcing their intention to make significant reductions in staffing levels, the survey could flag expectations of tough times ahead for the retail sector. Finally, the Lloyds business barometer is due on Friday.
The main event this week will be Fed Chair Powell’s Jackson Hole speech – after last week's FOMC minutes provided no substantive new information on the Fed’s strategic policy review, hopefully Powell's speech can provide greater insights into what to expect next month, when the outcome of the review should be published. Of course, a move to some version of an annual inflation-targeting strategy, that would see the Fed seek a period of above-target inflation to compensate for the recent trend of sub-target inflation, is on the cards. However, quite how the strategy will be defined is far from clear.
In terms of economic data, insights into the recent growth profile will be provided by Friday's release of advance goods trade figures and personal income and consumption numbers for July while advance durable goods data for the same month are due on Wednesday. Tomorrow will bring new home sales figures for July, as well as the Conference Board's latest consumer confidence survey. And Friday will also bring the revised University of Michigan consumer confidence survey for August. Thursday will also bring revised Q2 GDP figures, which are expected to confirm a record contraction last quarter, broadly in line with the initial estimate of -32.9%Q/Q annualised.
A very quiet week for Japanese releases brings all industry activity figures for June on Thursday. Having declined for four consecutive months, output is expected to have risen by a little more than 6%M/M, supported by a near-8%M/M increase in tertiary activity and near-2%M/M rise in industrial production. But this would leave output still down around 10%Q/Q in Q2, a slightly steeper pace of contraction than reported in the first estimate of Q2 GDP (-7.8%Q/Q). Friday, meanwhile, will bring Tokyo CPI figures for August, which are expected to show that headline inflation moved sideways at 0.6%Y/Y, while the BoJ's forecast core measure of inflation eased back to 0.3%Y/Y. Both of these measures have been a firmer than the nationwide measure of inflation over recent months.
Ahead of the Q2 GDP release at the start of September, this week will bring a number of releases that will provide greater insight into the pace of contraction last quarter. In particular, Wednesday and Thursday bring Q2 data for construction and private capex respectively, with declines of 7-8%Q/Q anticipated. Meanwhile, July goods trade figures are due tomorrow along with weekly jobs and pay numbers.