Original insights into market moving news

Week Ahead, 21 August 2020: Jackson Hole, RNC, personal income/spending, consumer confidence, Aus capex, NZ retail sales, Canada GDP, BOK

  • MON: US Republican National Convention (24th-27th), Israel Monetary Policy Decision; US National Activity Index (July).
  • TUE: Hungarian Monetary Policy Decision; German Ifo (Aug) & GDP (Detailed/Q2), Norwegian GDP (Q2/Jun), US Consumer Confidence & Richmond Fed (Aug), Building Permits (R/July), Redbook (w/e 17th Aug), CaseShiller(Jun), New Home Sales (July), New Zealand Trade Balance (July).
  • WED: EU Defence Ministers Meeting; Norwegian Labour Force Survey (Jun), French Consumer Confidence (Aug), Swiss Investor Sentiment (Aug), Mexican GDP (Final/Q2), US Durable Goods (July).
  • THU: CBRT Minutes, BoK Monetary Policy Decision, Fed Jackson Hole Symposium (1/2); Chinese Industrial Profit (July), Australian Capital Expenditure (Q2), Swiss GDP (Q2), Swedish Consumer Confidence (Aug) & Trade Balance (July), EZ M3 Annual Growth (July), US GDP (2nd Estimate/Q2), PCE Prices (Prelim/Q2),Initial/Continued Jobless Claims (w/e 17th Aug & 10th Aug), Pending Home Sales (July), Kansas City Fed (Aug).
  • FRI: Fed Jackson Hole Symposium (2/2), Fitch Reviewing Norway's Sovereign Debt Rating; Swiss KOF (Aug), Swedish GDP (Q2), EZ Consumer Confidence (Final/Aug), US PCE Price Index (July), Advanced Goods Trade Balance & Wholesale Inventory (July), University of Michigan (Final/Aug), Dallas Fed PCE (July), Canadian GDP (Q2) & Budget Balance (Jun).

FED JACKSON HOLE SYMPOSIUM (THU/FRI): This week's Jackson Hole Economic Symposium will be virtual in nature, given the pandemic; the topic this year is "Navigating the Decade Ahead: Implications for Monetary Policy", which is likely to feature many discussions on forward guidance, asset purchases, inflation targeting, and yield curve control. The discussions should be framed in the context of the Fed's upcoming policy review, which analysts expect will come in September. The Fed has been guiding us towards some form of enhanced forward guidance, although there is still no clear consensus. The latest edition of the FOMC meeting minutes said the Committee implement guidance to keep the current Fed funds rate target range at present levels until one or more specified economic outcomes was achieved, but it gave us no clear direction on whether that would be outcome-based or calendar-based: "In the context of outcome-based forward guidance, various participants mentioned using thresholds calibrated to inflation outcomes, unemployment rate outcomes, or combinations of the two, as well as combinations with calendar-based guidance," the minutes said. Capital Economics said the Fed is preparing us for the adoption of an average inflation target, and that the Fed does not appear to be leaning towards yield curve control measures. "As it stands, the statement notes that the policy rate will be kept at near-zero until 'the economy had weathered recent events and was on track to achieve the Committee’s maximum employment and price stability goals'," CapEco writes, "but in place of 'on track', we wouldn't be surprised to see the Fed follow the BOC and BOE, who both recently pledged to leave policy unchanged until their policy goals had been 'sustainably achieved'." The minutes showed that there was discussion on this theme, but it does not appear that the Fed has reached any conclusion. More broadly, the minutes noted that "several" participants suggested that additional accommodation could be required, but it seems that the majority are satisfied in waiting for more information, and CapEco says that with infection rates falling again, there may be less urgency to add to the monetary policy stimulus. Elsewhere, officials called on fiscal authorities to do some of the heavy lifting, stating that "strong fiscal policy support" was "necessary to encourage expeditious improvements in labour market conditions." Capital Economics argues that since Congress has failed to extend fiscal stimulus, a greater burden will be put onto monetary policy. Additionally, CapEco believes that as well as adopting an average inflation target and stronger forward guidance in the policy statement, there is a good chance that the Fed will reinforce those changes by accelerating the pace of its Treasury purchases, particularly when demand for its pandemic liquidity facilities remains muted.

US REPUBLICAN NATIONAL CONVENTION (MON-THU): Since last Friday, polling has shifted very little in wake of the DNC; on the 14th August, RCP Poll Average was Biden 49.3 vs Trump 41.6 (Biden +7.7), and it currently sits at 49.9 vs 42.3 (Biden +7.6); polls released over the weekend may offer may insight, but for now, there is not much aggregated polling evidence that the DNC or the Kamala effect has done anything to alter the landscape significantly (one-month ago, the RCP poll average gave Biden a lead of +8.6). The Republicans will have an opportunity to dominate the narrative next week, as their own convention gets underway. We are not expecting the event to be significant in terms of giving any new policy insight. The RNC Chair McDaniel said that the convention will differ from the "grim" DNC, Fox reported, and will focus on 'real Americans instead of Hollywood stars', and the President will highlight American families and their lives. The Democrats have been framing Trump's response to the pandemic as inept, so the President will have an opportunity to respond; we expect he will reiterate is economic credentials, particularly highlighting the impact that Trump's pre-pandemic policies reduced joblessness in key minority groups, while he is likely to continue boasting how he is supported the wealth of Americans as stocks trade at all-time highs. The President will also likely emphasise that he would be stronger than the Democrats on law and order.

US PERSONAL INCOME/SPENDING/PCE (FRI): The Street looks for personal income to fall 0.2% m/m in July, from the prior -1.1%, while personal consumption is expected to rise +1.5% m/m, more modest than the prior +5.6%. RBC's analysts point out that the July jobs report showed aggregate wages rising by 1.2% m/m, so the internals of the report should look fine despite the negative headline print. "One of the main drivers of the weakness is likely to be unemployment insurance pay-outs," the bank writes, "Federal UI pay-outs slipped an annualised USD 75bln on the month as the USD 600/week provision in the Pandemic Unemployment Assistance program expired at month-end, which alone is worth about -0.4% on headline personal income." The consumption side of the data will likely be supported by the strong light vehicle sales in July, and retail sales data showed the "control group" of sales rising for a third month. RBC says this would be a good start to Q3, and it expects real personal consumption to rise in the quarter at a pace of around +40% q/q annualised. Meanwhile, Core PCE is seen picking up in July to a rate of +0.4% m/m from +0.2% m/m in June; desks have noted that inflation has been ticking higher in July as components that drove downside during the pandemic stabilise. It is worth noting that the Fed is not as concerned about inflation currently, with the focus firmly on supporting the labour market and the economy more broadly. 

US CONSUMER CONFIDENCE (TUE): August consumer confidence is seen rising by 1-point m/m, taking the index to 93.6. Credit Suisse' analysts are more pessimistic than the Street, however, and see the series posting a fall to 88.0, slightly above the pandemic low seen in April. CS writes that the expired extra unemployment insurance benefits and the breakdown in Congress negotiations for further fiscal support should weigh on consumer sentiment. "Household cashflows are taking a large hit right now as the extra USD 600/week unemployment insurance benefits expired at the end of July," the bank says, "although the increases in virus infections and deaths have slowed, there remains great uncertainty regarding the path of the virus, and reopenings have either been paused or rolled back, leading to elevated stresses in the labour market." The bank warns that if Congress cannot strike a deal on further aid to Americans, consumer confidence and spending will be subject to further downside in the months ahead.

CANADIAN GDP (FRI): The June and Q2 GDP data are likely to be grim; The official StatsCan GDP tracking looks for a contraction of 40% annualised, while the BOC's forecasts have pencilled in -43%. Canadian bank RBC is slightly more optimistic and looks for a decline of 37%. RBC explains that June data has been strong in the manufacturing, wholesale trade and housing components, along with partial recoveries in the services sector, could mean that June's growth will have risen by as much as 7%, higher than the StatsCan estimate of 5%.

NZ RETAIL SPENDING (MON): The consensus is for retail spending to have contracted by -16.3% in Q2, after a 0.7% decline in Q1, as the impact of the pandemic was felt. Aussie bank Westpac has pencilled in a more benign -12% for the quarter for retail volumes, although says nominal spending will have fallen by a larger magnitude; "New Zealand was in Alert Level 4 lockdown through the early part of the quarter, which prevented a number of businesses from trading and limited travel," and the Alert Level was dialled back over time and spending has rebounded." But, that still has not offset the loss of sales for April, Westpac argues, and additionally it notes that social distancing requirements were in place for much of the quarter, while closed borders will have resulted in international tourism.

AUSTRALIA CAPEX (THU): It is unsurprising that CAPEX will have declined sharply in Q2 (Street looks for -7.9% in Q2 vs -1.6% in Q1), amid the pandemic fallout, as companies focus on preserving cash and surviving. What may be more useful is companies 2020-2021 CAPEX intentions, the survey to which was conducted in July and August. Aussie bank Westpac notes that the second estimate (which was AUD 90.9bln, -7.9% versus the second estimate in 2019), expects the third estimate for 2020-2021 to print around AUD 95bln, which would represent a 16% fall versus the third estimate in 2019. "We will be interested in the industry detail, which is likely to show strength in mining and considerable weakness in non-mining," Westpac writes, "the outlook for mining capex is still positive, albeit COVID-19 has had some impacts, with LNG projects to be delayed in response to lower prices."

BOK PREVIEW (THU): The Bank of Korea is expected to stand pat of its rate at 0.50% (unanimous decision expected), having cut by a cumulative 125bps in 2020 thus far. Analysts suggest that the BOK's worries about the housing markets should keep another rate cut off the table for now; with that said, the pandemic situation is showing signs of a second wave in the capital Seoul, leaving scope for a surprise cut, some analysts say. Either way, the BOK is likely to implement further unconventional measures ahead. South Korea's President named Lee Seung-heon as the new Deputy Governor in the latest shake-up at the Central Bank; this year, three board members have already been replaced in April. For this meeting, analysts will be focussing on the bank's 2021 growth view, which is unlikely to be significantly tweaked, even amid the second wave concerns; nearer-term GDP projections could however be subject to downward revisions, as was hinted in the BOK's previous confab. SocGen thinks that there will not be any further easing from the BOK in the foreseeable future; "Any deterioration in the growth outlook is likely to be addressed by fiscal policy, given the general public's heightened interest in the housing market."

NORWEGIAN GDP (TUE): In June, the Norges Bank forecast a -6.1% Q/Q reading for Q2. However, the May report possibly presents some downside risk to that view (2.4% m/m vs. exp. 3.5% m/m). Norges Bank has noted that the June data has been strong, and at its August policy meeting, said developments were broadly in-line with its June projections; therefore, while there is some downside risk to the reading it shouldn’t stray too far from the Central Bank’s forecast.