NAB Morning Call

A big week for jobs, inflation, earnings and banks

Monday 29th July 2024

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Get ready for a busy week, with US jobs umbers, Australian inflation, three ig earnings results from US tech giants; and the Fed meets, so does the Bank of England and the Bank of Japan. NAB’s Rodrigo Catril says one will stay on hold, one is expected to lift rates and the other is 50:50 on a cut. He also discusses with Phil last week’s core PC numbers, which showed inflation was slowing, along with earnings and consumer spending. A scenario that is very supportive of cuts by the FOMC.

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Duration:: 14m
Broadcast on:: 28 Jul 2024
Audio Format:: mp3

Well it's one of those weeks when everything comes together US jobs numbers three beginning results this week the Fed meets so does the Bank of England so does the Bank of Japan we've got inflation numbers for Australia we've also got retail sales hope you're ready for it all it's Monday it's the 29th of July 2024 it's the morning call from NAMM good morning well a very lackluster US dollar on Friday again the Aussie climb back up a little to 65 and a half US cents the yen strengthened slightly by 0.1% but over the week last week it climbed back 2.4% so obviously the the barge the fact that the Bank of Japan might actually be faster to raise rates than the Fed is to cut them that might have a bit to do with that the share market in the US did all right on Friday 1.6% for the Dow 1.1% for the S&P and 1.1% for the Nasdaq as well 1.7% for the Russell 2000 which despite all the ups and downs last week and the rotation is on rotation is off talk well from Monday morning to Friday night the Russell 2000 managed to rise 2.9% whereas the Nasdaq fell 3% so there's a lot of hope resting on some of those smaller companies in the United States and stocks did well in Europe as well on Friday up over 1% for the Euro stocks 50 up 1.2% for the FTSE 100 1.2% for the Kat Karant as well but Germany just 0.7% high for the Dax and the Nikai despite all the talk in our weekend edition about good times of Japan well it was down 5% last week the ASX 200 was down 1.4% over the week as well and bond yields fell further on Friday down 5 basis points for 10 year treasuries now 4.19% that's down 20 basis points over the month compared to for example just eight basis points over the month for 10 year bundles in Germany and Aussie 10 years which over the last month have been flat finally oil falling again on Friday Brent down 1.5% back to just over 81.1 US dollars gold up over 1% on Friday but down over the week basically it's been a bad week for commodities and precious metals so an absolute ego control again up early this morning to pick up where we left him off on Friday morning and the big news on Friday obviously core PCE in the United States this is the feds preferred inflation measure which for June well the core measure came in higher than expected 0.2% up on last time and last time it was 0.1% I think that was expected again but I'm sure you're going to tell me it's not such a big change if you look at the second decimal place yes morning Phil it was 18 basis one higher on the month and then we had these revisions for the previous month which were a little bit stronger but but overall I think what is pretty worth highlighting as well is that when you look at the details the Fed likes to take some of those imputed costs into the core PCE and when you look at that sort of core core measure for life it's often in June declining from 2.5 to 1.89 yeah this we are seeing a deceleration in the core core measure and I think the other sort of important thing which is worth highlighting as well is that when you look at the income and spending from the US in June yeah both down so that I mean that's good news for the fed presumably that's having so this is you know this will spare them on to a September cut then presumably well yeah I think that you look at pricing expectations the market doesn't think that the fed will move this week so that's important in the sense of what to expect this week we we probably need to see Fed Chair Powell reinforcing the market's view that Ray cuts are coming as soon as September so that would be important there's a bit of a debate in the market as to whether we too early for the chair to signal that and maybe he works for Jackson Hole later next month where they will have a little bit more data as well to confirm what is going on so so that's kind of the risk if you like in terms of the price action for this week but but overall when you look at sort of the dynamics in the US I think it's fair to say that you know we've seen it you know inflation coming down on all major measures for the US it's you know you have a reading with a 2% handle and whilst at the same time we also starting to see evidence that you know the labor market is no longer as tight as it used to be and and to the point made earlier and now we also starting to see the impact is having on the consumer so the deceleration in terms of consumption it looks like it as well so it's kind of the perfect setup for for the fair to begin using and for what it's worth the Michigan sentiment consumer sentiment report was out as well on Friday wasn't it that was down to 66.4 actually a bit better than expected but from 68.2 last time and inflation expectations they've fallen as well down to 2.9 percent now they have been as high as 3.3 percent back in in May so I mean that is just reflecting the sentiment that we've been seeing more generally yes I think so yeah and of course there's been a little bit more volatility in the equity market which you know it's kind of probably playing a little into that too right we also got China's industrial profits which rose 3.3 percent for the year to June which was a slight increase on the previous month read which obviously helps drive investment I mean they'll take any good news they can out of China would they I guess yeah so and so it what is interesting of course is that you see industrial profits increase against a backdrop where industrial production has actually been slowing so and then the question is well where did this come from and this is some taste sustainable so it appears that you know the export side has played a significant part of that and with you know the demand for tech products being a main contributor but whether this is a reflection of a broader market improvement it remains questionable and of course given all the concerns around you know the tariffs that are maybe coming then and that was also been already in post from Europe and the US then the outlook doesn't suggest that you know you should be expecting more of the same over coming months so it certainly still points to the need for for China to do more in particular to do more to stimulate a domestic consumption right now that was that was last we let's look at today then and if first of all happy birthday the king of Thailand it's his birthday today something you possibly wouldn't know if you didn't listen to this podcast also today New Zealand gets employment indicators so what what jobs numbers what what are they yes it's a bit of a long title is New Zealand's employment indicators field jobs for all the industries right so I suppose the numbers are relevant because we get the big employment report next week and expectations are from our colleagues in New Zealand that we will we're not going to see much of a lift there so it will suggest that you know like basically in line with what they're being said has been the Albion said has been thinking is that it's a flat pick for for what the legal market report for Q2 will reveal next week so not a lot of strength if you like in the legal market in New Zealand German retail sales around this afternoon as well in April they fell 1.2% they're expected to flatline today obviously because Germany has never had a great time of it but if you want to compare Germany with the rest of Europe well there's bits of data isn't there so we get Swiss retail sales if you want to compare those to German retail sales and we also get individual countries GDP numbers today as well for Belgium Ireland and Sweden so individually perhaps not terribly important but if you want to get pieced together a jigsaw puzzle of where the strength is and where the weaknesses in Germany well there's a few numbers to play with today yes well the weaknesses in Europe as well yeah so you will get that picture ahead of the GDP number that comes on Wednesday so yeah overall it will be important and I think that if anything what would be important within that is the state of the consumer the slowdown in Europe has been you know quite particularly in the sense that it's always you concentrated around those of major economies France and Germany but also its employment has still still been quite robust and wages have also been robust which is obviously one of the concerns from from the from the ECB so whether we see the consumers still being a big driver if you like it will be an interesting thing but our sense is that the economy overall is still not firing on all cylinders and the need for records is it should be evident from the data right the UK releases its consumer credit numbers today now credit numbers are quite important aren't they really because if you don't if you don't see credit increasing you're not going to see the money supply increasing because credit creates money which means the money supply increases and obviously it's very difficult for the economy to grow if there's if there's not the money there in circulation to support it so 1.5 billion pounds in May pretty close to the average actually for each month over the last year it's had its ups and downs but that's quite a good number isn't it well that's that's the thing is that when you look at the UK economy it's it's actually sort of checking along and and okay well what is interesting of course is that the changing government and what that will do to sentiment as well as there you know increasing investment giving there's always the pure of uncertainty when you have it elections and so on and then of course the great expectation because of because there was no incentive at all was of course in the last those of the last government of course it was just happy days what is what has been uncertain is exactly what labor plans to do in terms of invigorating the economy and also how closely he wants to tie itself to Europe so so those things will be important to follow yeah well we've got and I think the the treasure or the chancellor there is that he's actually delivering her budget or sort of like providing an outline anyway at some point today yes and the title is so broke and broken yes that's right we've got no money it's basically what she's there's no money yeah and the economy is broken but we're gonna be okay we're gonna fix it exactly the Dallas Fed manufacturing index is out overnight tonight as well but look the week ahead so fairly busy day today but the week ahead we'll look at this we've got the Fed all their speakers obviously in quiet mode now which is why if you're wondering why we're not hearing from them the Bank of Japan also on Wednesday and the Bank of England on Thursday and then on top of that we've got non-farm payrolls in the US we've got manufacturing ISM on Thursday from the US we've got earnings from Microsoft Amazon and Apple there's a lot happening isn't there and you're probably going to tell me there's a lot more well and then you have the Australian CPI in on Wednesday of course which would be extremely important for the RBI expectations over coming months so and what are we expecting that yeah so Taylor's done quite a lot of work on this one the trim mean inflation is seen at 1% which is close to where consensus is really but it will be quite an important number you know if it does print closer or at 1.1% it will be very difficult for the LBA to stay with the current strategy of holding for longer so a hike would probably come into the picture but at 1% and the details will matter too and that's why I think the market will kind of play around with a little bit of sort of uncertainty if you like for what the RBA may do but our sense is that 1% keeps the RBA on hold but certainly still alert with a hike in bias if the inflation outlook or the upcoming inflation prints don't show a bit of a slowdown that is needed now we've already said we think the Fed will be on hold this week but the Bank of England on Thursday yeah that one is 50/50 price at the moment we think there's enough therefore for the bank to two years but certainly as we mentioned already the evidence in terms of the activity readings and and also in terms of the inflation reading you know there's an argument there that says well maybe you can wait a little bit longer but our sense is that they will go and of course the other one is the Bank of Japan we think that the now they they the combo of if you like the trifactor is that the economic data is telling you that the outlook for inflation suggests that it should remain about 2% over the over the horizon so that's from economic perspective normalization should be happening from a political perspective now we also seen LDP leaders suggesting that the bank should do something about the weakness of the currency and of course the weakness of the currency itself has been a hot hot potato with trading partners and with Trump also emphasizing the need or the desire or strongly in I think that all those components favor the view that the bank should hike on Wednesday okay we'll watch with interest for that and of course talking about Donald Trump you know a whole week of politics ahead as well it's gonna be you know we've got to keep an eye on all of that out of all of that particularly with Donald Trump telling people on Friday a bunch of Christians that if they vote this time around they won't have to vote again in four years time we have it fixed so good and you're not gonna have to vote he said I don't I think it's just this sense of humor isn't it I don't think he's seriously actually saying vote for me now and I'll become a dictator I think he's just he's just having a laugh isn't he I think maybe we just misunderstand him yeah I'm trying to be a calm I'm trying to be accommodating yes and sorry in terms of the political side I think what will also be interesting over coming weeks is we we're gonna learn more about Kamala Harris and her policies I think that that would be important to in terms of whether the uplift for the democratic support can be sustained so so that would be okay we'll watch all of that with interest as well as if there's not enough to watch this week but look you can keep a corset all obviously by just listening to the morning call 15 minutes every day you get it sorted good to talk with Rico catch you next time cheers Phil oh I see 14 minutes today didn't we do well that's it for today I'm Phil Dobby for now back again tomorrow morning I'll see you then thanks for listening