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BMO Capital Markets Economics | A Weekly Financial Digest August 23, 2019
Focus
Feature Article
Let’s Get Fis-i-cal
Our Thoughts The Sound of Silence (feat. BoC, excl. U.S. Administration)
Fed Policy: 25 bps in 26 Days
Canada’s Economy Has Not Fallen… Yet
As the World Turns
BMO Capital Markets Economics
economics.bmo.com • 1-800-613-0205
Please refer to the last page for important disclosuresOur Thoughts
The Sound of Silence (feat. BoC, excl. U.S. Administration)
You are hereby ordered to read this… or not. A highly anticipated Fed event
was again upstaged on Friday by a dramatic trade announcement. An hour after Jay
Powell’s Jackson Hole speech, which made only minor waves, President Trump created
. a tsunami when he tweeted that U.S. companies “are hereby ordered to immediately
start looking for an alternative to China, including bringing your companies HOME
and making your products in the USA”. This unambiguous message was in response
to China’s (entirely predictable) retaliation to earlier tariff hikes. Apparently, this
means war. While markets were scrambling to determine just how serious this latest
declaration is, the flight-to-safety trade cranked up as the week wound down.
In these late days of summer, many may be wishing for a bit more silence. After
all, this latest trade salvo followed a cacophony of conflicting and confusing
communications, on everything from tax cuts, to rate cuts, to trade talks, to
Brexit, and even to Greenland. Through the din, it appeared that the August fever
for bonds had finally broken, with Treasury yields actually rising for much of the week.
Similarly, stocks were on course to snap a three-week losing skid, gold had receded a
tad, and oil mostly held steady, in a tentative risk-on move prior to Friday’s bombshell.
The temporary upswing in yields and stocks was washed away by the late-week rush
of news. In quick succession, we learned that China will indeed proceed with tariff
hikes on $75 billion of U.S. imports, followed by a fresh new cycle-low for the yuan.
Fed Chair Powell’s eagerly anticipated comments from Wyoming slightly added to the
suddenly dovish turn. And the coup-de-grace was delivered by the President, who first
lashed out at the Fed, and then issued his edict to U.S. companies.
Perhaps the loudest message at Jackson Hole was delivered by a central banker who
didn’t speak—the financial version of Sherlock Holmes’ dog that didn’t bark. Bank of
Canada Governor Poloz attended the event, but purposely remained a low-key
participant. We have raised this issue in summers past; but, by the next interest-rate
decision on September 4, we will have gone eight long weeks with nary a peep from
the Bank. This radio silence comes at a time when the trade war has kicked into high
gear, bond yields have plunged globally, currency markets have been roiled by the
yuan weakening, and recession chatter has reached a rolling boil.
Two years ago, when certain folks squawked loudly about this issue of a total absence
of summer communications (okay, mostly me), the official response was, essentially,
“it’s always been done this way”. Some others, not with the BoC, chimed in that
markets should not be counting on being spoon-fed by the Bank. The comeback on
the first point would be: times change, and summers are far from news-free these
days. On the second point: absolutely no one is asking to be spoon-fed, but a general
sense of direction would be nice—i.e., does the Bank believe we are in the Northern or
Southern Hemisphere?
To be perfectly fair, the BoC actually did fine-tune communications after that 2017
episode, by introducing speeches after every meeting. The aim here is to ward off
any sustained market over-reaction, such as what unfolded two years ago amid the
communications void. And, Deputy Governor Schembri will give a speech the day after
the coming rate decision. Will he be explaining another September surprise for rates
(i.e., a cut)? That seems extremely doubtful, after mostly decent domestic data this
August 23, 2019 | Page 2 of 17Our Thoughts
week (see Ben’s Thought) and inflation holding remarkably steady at 2.0%. Markets
have reeled back odds of a rate cut in two weeks to barely 15%.
However, the market is still fully anticipating a rate cut by the Bank of Canada
at some point over the next three meetings, even if the near-term odds have
been pulled back. In all frankness, we are grappling mightily with this issue, still
maintaining our longstanding view that the Bank will stay patient—the equivalent of
keeping its head, while all about them are losing theirs. Three things have reinforced
our view on that front: 1) the Canadian dollar has actually weakened, not strengthened,
since the Fed began cutting, removing one key potential pressure point on the Bank to
respond; 2) core and headline inflation have actually been a bit hotter than the Bank
(and others) expected, giving them no free pass to cut; and 3) the housing market
has generally regained strength and household borrowing has ticked back up, again
dimming any appetite to offer rate relief.
The comeback, of course, is that trade risks have exploded higher since the Bank
last opined in mid-July. And, at that time, Governor Poloz indicated that “if we faced
risks and we believed they were unbalanced” that would “lead to a discussion about
whether it was time to adjust policy”. Investors clearly seem to believe that risks have
become unbalanced, and are screaming for rate cuts, highlighted by the deep inversion
in Canada’s yield curve. Even with a 5-bp back-up this week, 10-year GoC yields are
still more than 50 bps below the overnight rate; little more than a year ago, they were
more than 100 bps above the overnight rate. Plus, there’s the small matter that all the
cool kids are doing it, i.e., many central banks are slashing rates with purpose. As we
pointed out two weeks ago, if the Fed does indeed trim twice by October, it would
leave the BoC with the highest overnight rate among all major central banks.
Overall, it appears that the real debate will centre on the Bank’s decision at the
October 30 meeting. That’s one we have been circling for a long time. For trivia buffs,
that will mark the first time in the 19 years of fixed announcement dates that the Bank
and the Fed have scheduled a rate decision on the same day—the Bank announces
at 10 am, the Fed at 2 pm. (The two have cut rates on the same day before, but that
was always on an inter-meeting, emergency basis.) Moreover, it’s the week after the
Federal Election, so politics won’t be in the way, and it’s the day before a potential
hard Brexit. If the Bank is going to move on rates, that would seem to be the most
logical choice of dates. Pity that there will be zero guidance on that front until after
Labour Day.
And speaking of silence, sometimes it may be best to say nothing. To wit, this week
brought a wave of potential quotes to be used as fodder in the future: While President
Trump ping-ponged on possible tax cuts, he averred that “we are far from recession”.
His Chief of Staff, Mick Mulvaney, suggested that “any recession would be moderate
and short” (ironically, at a different event in Jackson Hole earlier this week). Economic
Advisor Kudlow, who famously missed the 2008 meltdown, opined that “I sure don’t
see a recession” on the horizon. And, finally, Trade Advisor Navarro later said that “the
trade war does not mean the U.S. economy will slow” and that there is “no anxiety
in the White House about the economy.” And if you fully believe all of that, I have an
island for sale in the North Atlantic that you may be interested in… a very big island.
August 23, 2019 | Page 3 of 17Our Thoughts
For the record, the most up-to-date U.S. indicators are not flashing red, even if the
10s/2s yield curve is again on the cusp of inverting. Weekly initial jobless claims dipped
again last week to 209,000, and the 4-week moving average is at an unremarkable
214,500. The monthly leading indicator rose a hearty 0.5% (albeit for July), while home
sales and mortgage applications rose in the summer. Of course, the trade war shadow
looms over all these stats, and the omens are inauspicious to say the least as we head
into the September 1st tariff hikes.
Fed Policy: 25 bps in 26 Days
This week’s Fed pronouncements pointed to a second consecutive policy rate cut of the
quarter-point variety. In his Jackson Hole speech on “Challenges for Monetary Policy”,
Chair Powell said: “The three weeks since our July FOMC meeting have been eventful,
. beginning with the announcement of new tariffs on imports from China [and China
announced retaliatory tariffs on U.S. goods today]. We have seen further evidence
of a global slowdown, notably in Germany and China. Geopolitical events have been
much in the news, including the growing possibility of a hard Brexit, rising tensions
in Hong Kong, and the dissolution of the Italian government.” Powell referred to this
picture of events as “complex” and “turbulent”, which signalled that the risks to the
U.S. economic outlook, in the Fed’s perception, have ratcheted up another notch. And,
that it’s time for another “bit of insurance”, which is how Powell described one of the
motives for the July 31 rate cut.
It’s noteworthy that the Minutes from the July 30-31 FOMC meeting said that
“participants generally judged that downside risks to the outlook for economic activity
had diminished somewhat since their June meeting.” But, the risks were obviously still
high enough at the time to warrant a rate cut from a risk management perspective,
and they’ve since heightened meaningfully.
However, Chair Powell also said “the U.S. economy has continued to perform well
overall, driven by consumer spending. Job creation has slowed from last year’s pace
but is still above overall labor force growth. Inflation seems to be moving up closer to
2 percent.” This calmer domestic picture, despite concerns on the factories front, still
points to a 25 bp action instead of 50 bps, but there’s still 26 days to go. Indeed, if the
next three weeks are anything like the last three weeks, we could see more FOMC
voters moving into St. Louis President Bullard’s 50 bp camp.
Canada’s Economy Has Not Fallen… Yet
Amid all the dire trade headlines, the Canadian economy appears to be holding up
relatively well for now. We’ll get June and Q2 GDP on August 30, but the latest figures
weren’t bad. That’s particularly encouraging after the steep drop in international
. trade activity reported in June. Here’s a quick run through… GDP growth surged in
March and has been decelerating since, but Q2 will likely be the strongest among the
developed economies. June wholesale and retail volumes were both positive, with the
former climbing despite the weak export/import figures, and retail benefitting from
better weather. True, retail volumes are flat from a year ago, but that’s a well-known
domestic issue. Manufacturing sales were a soft spot in June, falling modestly, but
activity is up 2.3% y/y, holding up remarkably well in the face of the global slowdown.
The housing market has perked up once again, boosted by falling mortgage rates.
August 23, 2019 | Page 4 of 17Our Thoughts
Sales were up 12.6% y/y in July, with Vancouver and Toronto bouncing back. And, CPI
continues to run around 2% for both headline and core.
All told, while growth has slowed a bit after the bounce back from Q4/Q1 weakness,
the Canadian economy has held up surprisingly well. Is Canada an island amid the
global uncertainty and trade instability? Certainly not. However, the resilience in
the data reinforces that Canada’s economic fortunes are closely tied to the U.S., and
domestic demand south of the border has been a bright spot. It’s also possible that the
Canadian numbers are just so very delayed and the impact of the global slowdown has
yet to hit the data. Summer’s almost over and we’re only starting to get the summer
data.
Key Takeaway: The data, combined with the intensifying U.S.-China trade war, make
the BoC’s coming policy decisions complicated. Too bad we haven’t heard a peep from
policymakers since July 10.
As the World Turns
While financial markets tried to stay on top of the “we are mulling over tax cuts”
versus “no, we are not mulling over tax cuts” confusion, and now, an order from the
Oval Office for American companies to close up shop in China, there were also plenty
. of political changes afoot overseas…
Brexit is still Brexit: Boris Johnson didn’t have a particularly good week. He
embarked on his first foreign trip as the British PM, paying a visit to Chancellor Merkel
and President Macron ahead of the G7 summit to discuss changes to the Withdrawal
Agreement; namely, to ditch the backstop. Not surprisingly, that demand was met with
a cool reception. Although Merkel said she was open to changes, it was up to BoJo to
figure it out and to use his “imagination”. Macron was more blunt: “Let me be very
clear, we will not find a new Withdrawal Agreement within 30 days that will be very
different from the existing one.” Meantime, the PM had to do some damage control at
home, where a leaked document warned that the U.K. would face chaos at the ports,
and shortages of food, medicine and gas. And for those of you counting down, there
are just over two months before Brexit. Tick tock.
M5S+PD+LEU? Lega Nord+ Forza Italia? No, that’s not secret code. It is the possible
party tie-ups that could form Italy’s new government. PM Conte stepped down this
week, but not before slamming Deputy PM Salvini, accusing him of putting the country
at “serious risk” for dissolving Parliament. The lawyer-turned-politician will continue
to serve as a caretaker PM, while the various party leaders try to form a new majority.
And, the Democratic Party is looking to return to power, arm-in-arm with the Five-
Star Movement. Both parties are like oil and water, but may be willing to put aside
their differences to prevent Salvini (with support from former PM Berlusconi) from the
coveted leadership. If it doesn’t work, then we can expect an early election in the fall,
but in the meantime, there’s the matter of an EU-mandated October deadline to pass a
new budget (for all EU countries). Otherwise, an automatic sales tax hike will kick in, to
offset expected deficits.
No Nuuk for you! Was it the promise of seeing the Northern Lights, the Ilulissat
Icefjord, or dog sledding? Or, the rare earth minerals and uranium that could be had?
Regardless of the reason, President Trump really wanted to buy Greenland but was
August 23, 2019 | Page 5 of 17Our Thoughts
firmly told “we are not for sale”. So, an official visit to Denmark was cancelled, putting
one of America’s strategic allies into the bad books. Don’t worry; it is not alone.
That’s for me to know, and you to find out. Japan and South Korea’s trade war
has been going on for some time, but it heated up in July after Japan cut off its
neighbour from accessing some of its specialized technology products (needed for
semiconductors and computer screens), which South Korea’s technology industry relies
heavily on. South Korea retaliated as well, limiting DRAM chip exports to Japan. Now,
the dispute has been raised to another level; but, this time, with regards to security.
Seoul removed Japan from its intel list and will now stop sharing intelligence, which
prompted Japan to summon its ambassador back. So now, not only are supply chains
threatened with this particular trade war, but security risks have been heightened.
Black or white? The protests in Hong Kong are showing little sign of a let-up, and the
international community is speaking up, expressing support and sympathy for both
sides. Their input is not welcomed.
Enjoy the Silence. (Apologies to Depeche Mode.) This weekend’s G7 summit in
Biarritz, France will be a little different from prior ones. Host President Macron decided
a communiqué will not be issued when it concludes, which will be a first since these
gatherings began in 1975. In the past, all leaders signed off on the communiqués; but,
more recently, the U.S. has refused to endorse a section, prompting a separate line to
express its views. For example, this happened at the May 2017 summit in Italy, in the
climate change section. Macron cited a “deep crisis of democracy” for his decision.
August 23, 2019 | Page 6 of 17Recap
Indications of stronger growth and a move toward price stability are good news for the economy.
Good News Bad News
Canada Retail Sales Volumes +0.4% (June) Manufacturing Sales Volumes -0.2% (June)
Wholesale Trade Volumes +0.6% (June) Manufacturing New Orders -4.2% (June)
Alberta extends oil output
cuts as transportation Consumer Prices +2.0% y/y (July)
constraints persist
United States Existing Home Sales +2.5% to 5.42 mln a.r. (July) New Home Sales -12.8% to 635,000 a.r. (July)
—but upward revision to prior month
Leading Indicator +0.5% (July)
Stocks reverse on worsening
U.S./China trade war Initial Claims -12k to 209k (Aug. 17 week)
Pres. Trump pledges
response to China’s
retaliatory tariffs and orders
American companies from
making products in China
Chair Powell says Fed will
“act as appropriate” to
maintain expansion
Japan Manufacturing PMI +0.1 pts to 49.5 (Aug. P) Exports -1.6% y/y; Imports -1.2% y/y (July)
Services PMI +1.6 pts to 53.4 (Aug. P) Consumer Prices +0.5% y/y (July)
Odds for more BoJ easing
mount amid muted inflation Department Store Sales -2.9% y/y (July)
All-Industry Activity Index -0.8% (June)
Trade talks with the U.S. in the
“final stage” (only a mini-deal)
Europe Euro Area—Manufacturing PMI +0.5 pts to
47.0 (Aug. P)—but 7th straight month below 50
Euro Area—Consumer Prices +1.0% y/y (July F)
—revised lower
ECB Minutes point to more
Euro Area—Services PMI +0.2 pts to 53.4 (Aug. P) Euro Area—Consumer Confidence -0.5 pts to
stimulus in September -7.1 (Aug. A)
Germany to introduce fiscal U.K.—Rightmove House Prices -1.0% (Aug.)
stimulus?
Italy in political turmoil after
PM Conte resigns
Chancellor Merkel offers
chance for U.K. to come up
with Brexit alternatives
Other Mexico—Real GDP revised lower to
-0.8% y/y (Q2)
China to raise tariffs on $75
bln of U.S. imports and restart
25% levy on autos
PBoC moves ahead with
interest-rate reforms
Indonesia unexpectedly cuts
25 bps to 5.50%
August 23, 2019 | Page 7 of 17Feature
Let’s Get Fis-i-cal
. .
The marked slowdown in the global economy is
prompting policymakers to actively explore channels to
support growth. Many central banks have already cut
borrowing costs, but with policy interest rates in some
cases already close to—or below—zero, there’s little
room at the monetary policy inn. Instead, attention has
suddenly turned to the fiscal policy lever, as widely as
from China, to the U.K., to Germany, and now it’s even
entered into the U.S. conversation. However, following
a swirl of conflicting messages, President Trump said
that cuts for both capital gains and payroll taxes weren’t
being considered at this time, and that the U.S. economy
is “very far from recession”.
.
What makes such talk of further potential fiscal measures
so remarkable is that the U.S. budget deficit is already
ballooning (Chart 1). The Congressional Budget Office
(CBO) released its latest Budget and Economic Projections
this week, with the return of trillion-dollar deficits now
occurring two years earlier than the CBO’s previous
projection (in early May). For the fiscal year ended
September 2019, the shortfall is now pegged at $960
billion or 4.5% of GDP, up $63 billion owing to lower-
than-expected tax revenues (Chart 2). On top of this now
larger starting point, last month's budget deal (i.e., the
Bipartisan Budget Act of 2019) pushed the 2020 and 2021
deficits past the $1 trillion mark by halting the legislated
$125 billion cut in discretionary spending caps and
.
providing room for growth in outlays. However, some of
the negative deficit impact was offset by a sharply lower
forecast for interest rates (e.g., 10-year yields averaging
2.2% in 2020 vs. 3.6% before). On balance, the deficit
forecast increased $116 billion to $1,008 billion in 2020
(4.6% of GDP) and $72 billion to $1,034 billion (4.5%) in
2021.
Suffice it to say that it is extremely unusual for the budget deficit to be widening—as
it has been doing for the past four years—as the economic expansion matures; in the
past half century, the deficit has only meaningfully widened during downturns. (And,
no, that is not meant to suggest that the U.S. economy has been in a surreptitious
downturn for the past four years.)
One Administration official suggested that the tariff revenues from the trade war
could be wheeled out to fund potential tax cuts. The issue there is that while customs
and excise taxes are indeed well up in the past year—they are up about $30 billion
August 23, 2019 | Page 8 of 17Feature
from pre-trade war days—this source could scarcely move the needle for growth. The
increase in tariff revenues weighs in at little more than 0.1% of GDP, and has been
more than offset by declines in corporate income taxes and even estate and gift taxes
(Chart 3). In fact, overall revenues are up a moderate 2.4% y/y in the past 12 months,
roughly two percentage points below nominal GDP growth, and almost all of the
increase has been due to social insurance contributions.
The slow growth in U.S. government receipts reflects the
lingering impact of last year’s large tax cut package. As
many noted when the cuts were implemented, while the
timing may have made sense for the political calculus, it
made little sense from an economic cycle standpoint. As
a share of the economy, the deficit has widened out from
less than 2.5% of GDP in 2015 to its current clip of 4.5%
(or more), even as the unemployment rate has dropped
to multi-decade lows. In the past 60 years, there has only
been one other sustained episode (i.e., for more than one
year), where the U.S. budget deficit was widening as a
share of GDP even as the unemployment rate was falling
(Chart 4). That other divergence was during the peak of
the U.S. involvement in the Vietnam War during the late .
1960s, a period that also saw a slow-but-steady build-
up in both core inflation and interest rates (and perhaps
set the stage for the leap in both to double-digit terrain
in the early 1970s). However, the fact that long-term
bond yields are collapsing in the current environment
suggests that rising interest costs will act as much less of
a budgetary constraint this time around.
Nevertheless, the already large budget deficit and
associated debt dynamics are constraining the capacity
for further stimulus. Apart from immediate post-recession
periods, current deficit ratios are the largest on record.
Before the 2007-09 recession, the deficit was just above
1% of GDP. The subsequent combination of economic
forces driving revenues down and outlays up, along .
with countercyclical fiscal policy, hoisted the shortfall
to nearly 10% in two short years. Next downturn, we’ll
be starting with a deficit closer to 5% of GDP, and even
if the economic forces don’t do as much damage to
government finances, there’s still less room to conduct
countercyclical fiscal policy without blowing up the
deficit.
Moreover, through 2029, deficits are projected to run in the $1.2-to-$1.5 trillion range
(4.4%-to-5.0% of GDP), causing the national debt to soar. Debt held by the public is
projected to rise from $16.7 trillion this year (78.9% of GDP) to $29.3 trillion (95.1% of
GDP) in 2029 (Chart 5). The latter has only been surpassed in 1945 and 1946. The CBO
called this fiscal outlook “challenging” and “on an unsustainable course”.
August 23, 2019 | Page 9 of 17Feature
And it is not just fiscal policy that’s facing constraints,
Fed policy is as well, given already low policy rates and
the Fed’s already large holdings of securities. The FOMC
reduced the target range for the fed funds rate by 25 bps
to 2.00%-to-2.25% on July 31, which was characterized as
a “mid-cycle adjustment”. In the event that more than an
“adjustment” is required, the Fed could conceivably cut
rates by 200 bps, back to the effective lower bound (ELB),
which is where they were from late 2008 to late 2015.
However, the potential cumulative 225 bps in easing is
far less than half what occurred amid than past three
recessions (1990-91: 681 bps, 2001: 550 bps, 2008-09: 513
bps).
.
At the lower bound, the Fed could engage in quantitative
easing (QE) again. However, it will be starting with a
$3.6 trillion portfolio of securities as part of a $3.8 trillion
balance sheet (Chart 6). The FOMC stopped shrinking
the balance sheet (“QT-lite”) as of August 1st. When
the Fed began unsterilized asset purchases in March
2009, the System Open Market Account held only $588
billion as part of a $1.9 trillion balance sheet (the various
emergency lending programs made up most of the rest).
Studies reveal that while QE is effective overall, it does
have a diminishing effect.
Bottom Line: Both U.S. fiscal policy and monetary policy
still have capacity to provide further economic stimulus if
required, but it’s a constrained capacity. .
August 23, 2019 | Page 10 of 17Economic Forecast
.
August 23, 2019 | Page 11 of 17Key for Next Week
Canada
.
Canada’s current account deficit likely narrowed big time in Q2 to $9.8 bln (or
$39 bln annualized), reversing the widening seen over the prior two quarters. The
improvement is driven by a rebound in goods trade, with May and June marking
. the first back-to-back monthly trade surplus since late 2016. A further rebound in
energy exports provided a lift, with autos and aerospace pitching in, as well. The
non-merchandise deficit is expected to be flat to slightly narrower, consistent with
the experimental monthly services trade data from Statcan. Our estimate would peg
the current account shortfall at around 1.8% of GDP, miles from the decade plus of
surpluses Canada once enjoyed, but much more comfortable than the 3%+ deficits
seen in three of the prior five quarters.
Following nearly no growth through the turn of the year, the Canadian economy
showed a burst of life in Q2, with GDP expected to grow 3% annualized. Net
exports are the big driver once again in the quarter, but in the opposite direction of Q1,
when trade cut just under 4 ppts from growth. Indeed, net exports look to add about
4 ppts to GDP in the quarter as goods exports surged double-digits, while imports
pulled back modestly. The story for domestic demand is the reverse, as it was solid
in Q1 (despite the weak headline) and is expected to slow significantly in Q2. Retail
sales eked out growth of about 1% a.r. in the quarter, as auto sales continue to slowly
retreat. Business investment surged in Q1 due to favourable tax changes and, while
. we could get some follow-through, the size of the increase suggests any growth in Q2
will be modest and there could be some payback within the next couple of quarters.
Note that there’s upside risk to our call, with the monthly GDP figures suggesting
something in the 3%-to-3.5% range. Either way, it looks like Q2 is going to easily
outpace the BoC’s July MPR forecast of 2.3%.
June GDP is expected to rise 0.1%, continuing the decelerating trend since the huge
rebound in March, which itself was payback for six months of soft growth. Although
the international trade numbers were quite weak, manufacturing saw only a small
pullback in volumes, while wholesale trade and retail sales bounced back from a drop
in May. Home sales were slightly higher, and oil production is projected to see a small
gain as well. And, don’t forget the Raptors effect. It might feel like months ago already
(and it was), but the Raptors title-run went into June, and arguably that's when Raptors
fever really caught on. That could boost the arts, entertainment & recreation sector
as well as restaurants (bars). We’re forecasting a high-end 0.1%, so there’s a tick of
upside risk to our call.
August 23, 2019 | Page 12 of 17Key for Next Week
United States
.
Durable goods orders should grow 1.8% in July, lifted by increased Boeing bookings.
Beyond the transportation sector, we look for a lacklustre overall result (0.1%)
reflecting payback for a surprisingly strong June (1.0%) amid increasing business
investment caution stoked by the escalating trade war. Among manufacturers, the
. ISM’s new orders index is hovering close to the break-even level (50.8 in July vs. 50.0
in June). However, we still see support coming from equipment purchases designed to
address labour shortages and outlays on durable items related to oil production. Core
capital goods orders (nondefence excluding aircraft) should also only inch up after a
giddy gain (0.1% vs. 1.5%).
Consumer spending likely increased 0.5% in July, reflecting a strong snapback in
consumer confidence and still-sturdy job growth trend (total retail sales were up 0.7%
with a 1.0% “core” reading in the month). With prices up 0.2%, or 1.4% y/y, which
matches June’s clip, real consumer spending should post a respectable 0.3% rise.
Excluding food and energy items, PCE prices likely increased 0.2% to lift the core
inflation rate a tenth to 1.7%, paced by medical care costs along with rebounding
apparel and used vehicles prices (recall the core CPI index recorded back-to-back 0.3%
increases). Personal incomes should grow 0.4% for the fifth consecutive month.
.
August 23, 2019 | Page 13 of 17Financials Markets Update
.
August 23, 2019 | Page 14 of 17Global Calendar — August 26-30
Monday August 26 Tuesday August 27 Wednesday August 28 Thursday August 29 Friday August 30
Jobless Rate
Japan
July (e) 2.3%
June 2.3%
Retail Sales
July (e) -0.9% -0.6% y/y
June unch +0.5% y/y
Industrial Production
July P (e) +0.3% -0.5% y/y
June -3.3% -3.8% y/y
GERMANY GERMANY EURO AREA EURO AREA EURO AREA
Euro Area
Consumer Price Index
ifo Business Climate Q2 F (e) -0.1% +0.4% y/y M3 Money Supply Economic Confidence Aug. A (e) +1.0% y/y
Aug. (e) 95.1 Q2 P -0.1% +0.4% y/y July (e) +4.7% y/y Aug. (e) 102.3 July +1.1% y/y
July 95.7 Q1 +0.4% +0.9% y/y June +4.5% y/y July 102.7 Core CPI
Aug. A (e) +1.0% y/y
FRANCE GERMANY Consumer Confidence July +0.9% y/y
Consumer Confidence GfK Consumer Confidence Aug. F (e) -7.1 Jobless Rate
Aug. (e) 102 Sep. (e) 9.6 July -6.1 July (e) 7.5%
July 102 Aug. 9.7 June 7.5%
GERMANY GERMANY
ITALY Unemploy. Jobless Rate Retail Sales
Consumer Confidence Aug. (e) +4,000 5.0% July (e) -1.3% +3.0% y/y
Aug. (e) 111.6 July +1,000 5.0% June +3.5% -1.6% y/y
FRANCE
July 113.4 Consumer Price Index Consumer Price Index
Aug. P (e) unch +1.2% y/y Aug. P (e) +0.5% +1.2% y/y
July +0.4% +1.1% y/y July -0.2% +1.3% y/y
ITALY
FRANCE Real GDP
Real GDP Q2 F (e) unch unch y/y
Q2 F (e) +0.2% +1.3% y/y Q2 P unch unch y/y
Q1 +0.1% -0.1% y/y
Q2 P +0.2% +1.3% y/y Jobless Rate
Q1 +0.3% +1.2% y/y July P (e) 9.6%
Consumer Spending June 9.7%
July (e) +0.4% +0.1% y/y Consumer
Aug. P (e)
Price Index
unch +0.5% y/y
June -0.1% -0.6% y/y July -1.8% +0.3% y/y
ITALY
Markets Closed Nationwide House Prices D GfK Consumer Confidence
U.K.
Industrial Orders Aug. (e) -11
Aug. (e) +0.1% +0.8% y/y June July -11
July +0.3% +0.3% y/y May +2.5% -2.5% y/y
G7 Summit in Biarritz, France BRAZIL AUSTRALIA
Other
Building Approvals
concludes Real GDP July (e) unch -22.2% y/y
Saturday August 24 Q2 (e) +0.1% +0.9% y/y June -1.2% -25.6% y/y
Q1 -0.2% +0.5% y/y INDIA
Fed Symposium in Jackson Hole, Real GDP
WY concludes Q2 (e) +5.6% y/y
Q1 +5.8% y/y
D
= date approximate Upcoming Policy Meetings | Bank of England: Sep. 19, Nov. 7, Dec. 9 | European Central Bank: Sep. 12, Oct. 24, Dec. 12
August 23, 2019 | Page 15 of 17North American Calendar — August 26-30
Monday August 26 Tuesday August 27 Wednesday August 28 Thursday August 29 Friday August 30
Noon 2-year bond auction 8:30 am Current Account Deficit 8:30 am Real GDP Chain Prices
Canada
$3.0 bln Q2 (e) $9.8 bln ($39.0 bln a.r.) Q2 (e) +3.0% a.r. +3.6% a.r.
Consensus $9.7 bln ($38.8 bln a.r.) Consensus +3.0% a.r. n.a.
Q1 $17.3 bln ($69.4 bln a.r.) Q1 +0.4% a.r. +4.5% a.r.
8:30 am Survey of Employment, 8:30 am Real GDP at Basic Prices
Payrolls, and Hours (June) June (e) +0.1%
Consensus +0.1%
May +0.2%
8:30 am Industrial Raw
8:30 am Durable Goods 9:00 am S&P Case-Shiller Home 7:00 am MBA Mortgage Apps 8:30 am Initial Claims
United States
Product Material
Orders Ex. Transport Price Index (20 city) Aug. 23 Aug. 24 (e) 215k (+6k) C Prices Prices
July (e) +1.8% +0.1% June (e) +0.2% +2.3% y/y Aug. 16 -0.9% Aug. 17 209k (-12k) July (e) +0.1% +1.5%
Consensus +1.1% unch Consensus +0.1% +2.3% y/y Fed Speakers: Richmond’s Barkin 8:30 am Continuing Claims June -1.4% -5.9%
June +1.9% +1.0% May +0.1% +2.4% y/y (12:20 pm); San Francisco’s Daly Aug. 17 Ottawa’s Budget Balance D
8:30 am Nondef. Cap. Goods ex. Air 9:00 am FHFA House Price Index (5:30 pm) Aug. 10 1,674k (-54k) June ’19
July (e) +0.1% June (e) +0.2% +4.8% y/y 11:30 am 2R-year FRN auction 8:30 am Real GDP June ’18 +$1.1 bln
Consensus +0.1% May +0.1% +5.0% y/y $18 bln GDP Deflator
June +1.5% 10:00 am Conference Board Q2 P (e) +2.1% a.r. +2.4% a.r.
1:00 pm 5-year note auction
8:30 am Chicago Fed National Consumer Confidence $41 bln Consensus +2.0% a.r. +2.4% a.r.
Activity Index Index Q2 A +2.1% a.r. +2.4% a.r. 8:30 am Personal Personal
July Aug. (e) 130.0 Q1 +3.1% a.r. +1.1% a.r. Spending Income
June -0.02 Consensus 130.0 8:30 am Pre-Tax Corporate Profits July (e) +0.5% +0.4%
10:30 am Dallas Fed Mfg. Activity July 135.7 Q2 P (e) -1.3% y/y Consensus +0.5% +0.3%
Aug. (e) -3.0 C 10:00 am Richmond Fed Q1 -2.2% y/y June +0.3% +0.4%
July -6.3 Manufacturing Index 8:30 am Goods Trade Deficit 8:30 am Core PCE Price Index
G7 Summit in Biarritz, France Aug. (e) -1 C July A (e) $74.4 bln July (e) +0.2% +1.7% y/y
concludes July -12 Consensus $74.3 bln Consensus +0.2% +1.6% y/y
11:30 am 13- & 26-week bill 11:00 am 4- & 8-week bill auction June $74.2 bln June +0.2% +1.6% y/y
auctions $87 bln announcements 8:30 am Wholesale and Retail 9:45 am Chicago PMI
1:00 pm 2-year note auction Inventories (July A) Aug. (e) 47.5
Saturday August 24 $40 bln Consensus 48.0
10:00 am Pending Home Sales
Fed Symposium in Jackson Hole, July 44.4
July (e) +0.2%
WY concludes 10:00 am University of Michigan
Consensus unch
June +2.8% Consumer Sentiment
11:00 am 13- & 26-week bill Aug. F (e) 92.5
auction announcements Consensus 92.5
Aug. P 92.5
11:30 am 4- & 8-week bill auctions July 92.1
1:00 pm 7-year note auction
$32 bln
C D R
= consensus = date approximate = reopening Upcoming Policy Meetings | Bank of Canada: Sep. 4, Oct. 30, Dec. 4 | FOMC: Sep. 17-18, Oct. 29-30, Dec. 10-11
August 23, 2019 | Page 16 of 17General Disclosures
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