Commentary:
The US data is starting to perk up. In particular, the housing sector, which has been a drag in the 1H, is now surprising to the upside at a rate that we haven’t seen in over a year. How this will affect yields, however, is anyone’s guess as US data surprises and yields have been disconnecting somewhat:
A lot of that is due to Europe, of course. The Barclay’s chart below highlights the key problem. Despite decent M1 growth, broader monetary aggregates in the EU have been very weak. As I’ve mentioned before, this is likely a result of the impaired banking system – something that the AQR (along with forced recapitalization programs) will hopefully fix. I think this is a problem that the ECB recognizes, and a reason why the TLRTO’s specifically target bank lending, as well as coinciding with the AQR. IMO, this is also a reason the ECB is reluctant to pursue QE outright. There are many views on how QE affects the economy, but one of the clearest effects is the growth in base money. As the chart below shows – that really isn’t the problem at this juncture.
Notable:
- German CPI was stable at 0.8% as exp
- US Jobless Claims declined to 298k vs 300k exp and 299k prev
- US Pending Home Sales rose 3.3% MoM in July vs 0.5% exp and -1.1% prev. Strength was broad based, bust strongest in the North east.
- US Q2 GDP was revised up to 4.2% vs 4.0% exp and 3.9% prev
- WSJ: Nonbank’s share of mortgage originations hit 23% in 1H
Upcoming:
- Thu: NZ Building Permits, UK GfK Consumer Confidence, Japan Unemployment, CPI
- Fri: Month End, UK House Prices, EU Unemployment, CPI, CanadaGDP, US Core PCE, Chicago PMI
- Mon: US holiday, AU Mfg PMI, Japan CapEx, China PMI, Japan PMI, EU PMI, Australia BoP, Building Approvals
- Tue: RBA, EU PPI, US Markit PMI, ISM, Australia GDP, Japan Services PMI
- Wed: EU Services PMI, 2Q GDP, BoC, NZ House Prices, AU Trade Balance, Retail Sales
- Thu: BoE, ECB, ADP Employment, US Jobless Claims, Services PMI, ISM Non-Mfg