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Deutsche Bank Daily Review

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Fuseworks Media
Fuseworks Media

HEADLINES...

Markets: Risk off tone prevails sending equities, commodities and bond yields lower as data fails to quell slow down worries, nervousness about Greece continues.

USA: GDP revised up 0.1pps to 1.9% saar in Q1, at mkt.

USA: Durable goods orders rise 1.9% saar in May, above mkt, upwards revisions to April as well.

DEU: IFO business climate index up 0.3pt to 114.5 in June, above market.

FRA: Consumer confidence unchanged at 83 in June, below market.

ITA: Retail sales rise 0.4%mom/2.5%yoy in April, above market.

ESP: PPI falls 0.3%mom in May, to be up 6.7% over the year.

JN: Corp service price index down 0.9%yoy in May, below market.

CHN: MNI survey down 3.5pts to 57.7 in June.

SNG: IP falls 3.8%mom/17.5%yoy in May, below market.

AUS: RBA's Lowe said that the current economic environment is a particularly challenging one with relatively little spare capacity in the overall economy; also indicated a rate hike at some point.

THE DAY AHEAD...

USA: Fed's Kocherlakota, Hoenig to speak, Personal Inc/Spend (May), Treasury Auction 2 Yr

UK: Hometrack Housing Survey (Jun)

ITA: Hourly Wages (May)

SWE: Trade Balance (May)

CHN: Industrial Profits (May)

NZL: Trade Balance (May)

Another difficult week lies ahead?

( First up, my Australian colleagues send their apologies for the late delivery of Friday's Dbdaily. We appreciate that for many Australian clients it is important to achieve delivery by 8am Sydney time and we do strive to meet that deadline as often as we can.

(The "risk off" tone remained very much in evidence Friday, so that the S&P500 closed down 1.2% (and thus down for the week), the Stoxx600 closed down 0.1% (down for an eighth consecutive week), commodity prices were down across a broad front and 10-year Treasury yields fell to 2.86% (a fresh low for the year).

Whilst the Chinese Premier's assertion in the FT that China now had inflation under control might have been expected to underpin sentiment (supporting our view that credit policy might be able to be relaxed somewhat in late Q3 or early Q4 following a final rate hike next month), markets continued to worry about developments in Greece as the Greek Parliament prepares to vote this week on another round of fiscal austerity measures (with Reuters reporting over the weekend some concerns raised by the Greek Deputy Prime Minister about the potential for at least some of the measures to be voted down).

(The state of the global economy also continues to worry investors. However, on the face of it, Friday's dataflow wasn't too bad. In the US core capex orders rose a solid 1.6% mom in May after April's decline was reduced to 0.8% mom from a previously estimated 2.3% mom. As our first chart shows, this leaves the series on an upward trend. That said, our second chart warns that this trend is at risk of faltering if the most recent reading on manufacturing ISM new orders index is sustained for long.

In Germany, we were likewise impressed by the resilience of the IFO, which remains at levels consistent with very solid growth in IP (see our third chart). But here also, the most recent manufacturing ISM warns of a potential significant slowdown to come (see our final chart). Finally, we noted a better than expected 0.4% mom lift in retail sales in Italy in April, albeit with sales lifted by an 0.8% mom rise in spending on food (non-food sales fell 0.2% mom).

(Clearly the focus will remain on the passage of the various austerity measures through the Greek parliament this week.

But there are also a number of important economic releases, none more important than Friday's US manufacturing ISM for June. My US colleagues expect this to dip just below 50 (to 49.5), a more pessimistic view than market expectations. Thursday's Chicago PMI will cast some light on the state of the factory sector ahead of the ISM, whilst the weekly jobless claims data will be awaited with some interest too.

Earlier in the week we have today's personal income and spending report for May, Tuesday's Conference Board consumer confidence survey and Wednesday's pending home sales report for May (the latter will be especially interesting after the sharp fall recorded in April, with our US economists hoping for a substantial rebound). In Euroland, the dataflow includes Wednesday's EC sentiment survey, Thursday's French and German May retail spending reports (Spain's May retail report is out the previous day), German June labour market report and the latest Euroland HICP and money and credit aggregates, and Friday's final manufacturing PMIs (including the first published reading for the peripherals).

Friday's UK manufacturing PMI will also be of interest. In Japan the focus will be on Wednesday's May IP report (widely expected to report a solid rebound) and Friday's labour market, CPI and Tankan reports. In Australasia a fairly quiet week looms, although there will be some interest in New Zealand's NBNZ business survey on Thursday to see whether confidence and inflation expectations have continued to rise.

Markets

KEY RELEASES

Source: Bloomberg Finance LP

NORTH AMERICA

USA: GDP growth revised up 0.1pps to 1.9% saar in Q1

( A slightly smaller trade deficit and slightly larger increase in inventories contributed to the upward revision to growth.

USA: Durable goods orders rise 1.9% saar in May, above mkt

( May durable goods orders increased in line with our expectations (+1.9%); however, significant upward revisions to April (-2.7% compared to -3.6% as previously reported) lifted the overall trend for the quarter. Ex-transportation orders rose +0.6% vs. -0.4% previously, and core durables (non-defense capital goods excluding aircraft) rose +1.6% vs. -0.8% previously (revised up from -2.3%). Nearly all major subcategories increased with the exception of fabricated metals (unch. vs. -2.1% previously) and "other durables" (-0.8% vs. -0.7%). Headline shipments rose +0.3% vs. -1.4% previously, ex-transportation shipments rose +0.5% vs. -0.7% and core shipments, which are an input into GDP, rose +1.4% vs. -1.5%. Order backlogs also generally rose, as total unfilled orders increased +0.9% vs. +0.5% previously.

The durable goods data cast a less negative outlook for the manufacturing sector, as rising orders will buoy production. This supports our US economics team's view that the economic "soft patch" will not endure meaningfully into H2-something which the Fed Chairman appeared less certain of in his testimony last week. It also leads us to wonder whether the recent, sharp declines in various production gauges, such as the NY Empire and Philly Fed surveys, were a reaction to negative news earlier in the quarter.

EUROPE

DEU: IFO business climate index up 0.3pt to 114.5 in June, above market

( Surprising the market on the upside, the current conditions index rose to 123.3 from 121.5 in May, while the future expectations gauge declined 1.1pts to 106.3 over the month.

The current level of the ifo index - in particular the record level of the current assessment - is probably benefitting from the excellent profit expectations in the corporate sector and might therefore dismiss some of the weaker signals coming from abroad - at least for the time being.

FRA: Consumer confidence unchanged at 83 in June, below market

( The index for general economic situation in the next one year has improved from -49 to -47 in June, while the index for financial situation in the next one year has deteriorated marginally (from -20 to -21 in June).

ITA: Retail sales rise 0.4%mom/2.5%yoy in April, above market

( According to ISTAT, rise in food sales (0.8%) was the main driver behind the surge in April retail sales. The non-food goods rose 0.2% over the month.

ESP: PPI falls 0.3%mom in May, to be up 6.7% over the year

JAPAN/CHINA/IND

JN: Corp service price index down 0.9%yoy in May, below market

CHN: MNI survey down 3.5pts to 57.7 in June

SNG: IP falls 3.8%mom/17.5%yoy in May, below market

( The annual decline was again led by volatile bio-medical sector, which fell 42.1% in May following 22.9% decline in April. However, electronics output fell at a slower pace of 5.4% in May, as compared to 7.6% decline in April.

AUS COMMENTARY

The week ahead?

Another relatively quiet week ahead in Australia. The May private sector credit figures are due Thursday. We look for a rebound in credit growth in the month, following a soft outcome driven primarily by a decline in business credit in April. The extent of the rebound is likely to be constrained however by the fact that the pace of growth in housing credit looks to have softened in recent months. The quarterly job vacancies survey is also due for release on Thursday. With other indicators of labour demand pointing to some softening in the pace of employment growth, it will be interesting to see whether the fall in vacancies recorded last quarter extends further in the latest data, which is for the three months to May. Finally, the RBA commodity price index for June is due on Friday. These data take on added significance at present, in our view, as the most timely (and high frequency) measure of 'Mining Boom Mark II'. In $A terms, commodity prices have lifted in each of the past six months at an average rate of 2.2%mom, underpinning the currently exceptionally strong terms of trade. RBA Assistant Governor Guy Debelle will deliver a talk to a Financial Stability and Regulation Conference on Tuesday, though a topic for his remarks was not available at the time of writing.

NZ COMMENTARY

The week ahead?

This week's calendar begins with the May merchandise trade report on Monday, which should reveal another large surplus (as is usual at this time of year). The remainder of the week's dataflow is scheduled for Thursday. We expect a rebound in building consents (after another disappointing reading in April), a further improvement in business sentiment (consistent with the economy moving to an above trend rate of growth in the second half of this year) but a still subdued rate of growth in the May money and credit aggregates. It is worth noting that the NBNZ business survey is likely to have been mostly sampled prior to the major aftershocks that struck Christchurch on 13 June, thus markets are likely to treat the results with some caution.

DIARY

AUSTRALIA

Today

No Data

Tuesday

RBA's Debelle to speak to the Basel III, Financial Stability and Regulation Conference, Sydney.

Wednesday

DEWR skilled vacancies index (Jun) [Previous -0.4%mom]

Thursday

ABS Job vacancies (May Q) [Previous -1.7%qoq/12.3%yoy]

Private sector credit (May) [Market 0.4%mom/3.2%yoy; previous 0.0%mom/3.3%yoy]

Friday

AIG/PWC PMI (Jun) [Previous 47.7]

RBA commodity price index (Jun) [Previous 2.3%mom/29.4%yoy in SDR terms]

NEW ZEALAND

Today

Overseas Merchandise Trade (May)

[Balance: DB $788m mth/ $1205m ann; Mkt $1,000m mth/$1,410m ann; Prev $1,113m mth/$1,187m ann]

Tuesday

No Data

Wednesday

No Data]

Thursday

Building consents (May)

[Dwellings: DB: 8%mom/-20.1%yoy, Mkt 3.2%mom, Previous -1.7%mom/-32.5%yoy]

NBNZ Business Survey (Jun)

[General Business Confidence: Previous 38.3; Own Activity Expectations: Previous 39.7]

Money and credit aggregates (May) [Household claims: Previous: 0.2%mom/1.2%yoy]

Friday

No Data

DIARY

Source: Deutsche Bank Estimates Reuters and Bloomberg Finance LP

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