ECONOMICS COMMENTARY — Aug 04, 2023
Week Ahead Economic Preview: Week of 7 August 2023
The following is an extract from S&P Global Market Intelligence's latest Week Ahead Economic Preview. For the full report, please click on the 'Download Full Report' link.
US, China inflation and GDP readings across the regions
A busy economic calendar in the week ahead is filled with inflation figures, most notably from both US and mainland China, as well as second quarter GDP data from the UK, Singapore, Indonesia, Philippines and Hong Kong SAR.
Risk sentiment improved of late, owing to broadly better than expected US earnings performance thus far. To a large extent, this was also with conviction that a soft landing may be the base case scenario despite the ongoing series of interest rate hikes by the US Federal Reserve. With that said, the likelihood of further rate rises is nevertheless expected to be data-driven and the upcoming US July CPI data will be closely watched next week for hopes of a further easing inflation trend at the start of the third quarter. At the time of writing, the consensus expectation is for core inflation to cool from 4.8% to 4.7%, with both headline and core prices rising 0.2% on the month.
Across the pacific, however, mainland China has a vastly different issue to deal with, which is namely the lack of inflation and thereby pressure on margins for businesses. This had been further shown in the latest July Caixin PMI figures. Official comparisons via July's CPI and PPI data will thus be of interest to confirm the extent to which inflation is lacking, especially for a market closely watching the disappointing recovery in mainland China.
Meanwhile, a series of GDP updates from the UK and several key APAC economies will shed light on growth conditions over the second quarter. The global expansion continued into Q2, powered mainly by service sectors, but the pace of growth appears to have eased by the end of the quarter. With growth likely having peaked in the second quarter, greater uncertainties have arisen surrounding the resilience of the global economy in the second half of 2023. Any surprises on the downside against consensus for these figures may still garner concerns over the full-year growth picture. Read more about our recent forecasts:Persistent headwinds hinder global growth prospects.
Additionally, insights into money managers' views on the US equity market will be drawn with the August update of the S&P Global IMI survey while the GEP Global Supply Chain Volatility Index will shed light on another keenly watched subject.
US soft landing scenario to be tested by CPI data
The markets are increasingly pricing in the likelihood of a soft landing for the US economy, believing that the Fed can tame inflation while simultaneously avoiding recession. That scenario will be tested in the coming week as the US releases new inflation numbers.
June's better-than-expected CPI data brought a rally from the market, with core inflation in particular showing an encouraging easing. But the survey data for July are signaling a stubbornness of price trends, notably in consumer-facing service sectors, which leaves inflation holding close to the 3% level. The final leg of the FOMC's inflation fight down to the 2% target therefore still looks like it could be problematic.
Besides taming inflation, the soft-landing scenario also needs resilient economic growth to persist. In that respect, the latest survey data brought encouraging news on manufacturing growth, but the service sector has seen a waning of momentum, suggestive of overall economic growth slowing to a 1.5% annualized rate at the start of the third quarter. The widely watched Atlanta Fed GDPNow estimate is more encouraging, pointing to third quarter GDP growth of 3.5% at the time of writing, but the survey data hint that it's too early to take a sustained expansion for the rest of 2024 as a given, especially if rates rise further.
Key diary events
Monday 7 Aug
Canada Market Holiday
Japan BOJ Summary of Opinions (Jul)
Indonesia GDP (Q2)
Thailand Inflation (Jul)
Germany Industrial Production (Jun)
United Kingdom Halifax House Price Index* (Jul)
S&P Global Metal Users and Electronics PMI* (Jul)
Tuesday 8 Aug
South Korea Current Account (Jun)
Japan Household Spending (Jun)
Philippines Trade and Industrial Production (Jun)
Australia Building Permits (Jun, final)
China (Mainland) Trade (Jul)
Indonesia Consumer Confidence (Jul)
Malaysia Industrial Production (Jun)
Germany Inflation (Jul)
France Trade (Jun)
Taiwan Trade (Jul)
Canada Trade (Jun)
United States Trade and Wholesale Inventories (Jun)
S&P Global Investment Manager Index* (Aug)
Wednesday 9 Aug
Singapore Market Holiday
South Korea Unemployment Rate (Jul)
Philippines Unemployment Rate (Jun)
China (Mainland) CPI, PPI (Jul)
Malaysia Retail Sales (Jun)
Japan Machine Tool Orders (Jul)
United States MBA Mortgage Rate
Canada Building Permits (Jun)
Thursday 10 Aug
Japan PPI (Jul)
Philippines GDP (Q2)
Malaysia Unemployment Rate (Jun)
India RBI Interest Rate Decision
Norway Inflation (Jul)
United States CPI (Jul)
United States Initial Jobless Claims
GEP Global Supply Chain Volatility Index* (Jul)
Friday 11 Aug
Japan Market Holiday
China (Mainland) M2, New Yuan Loans, Loan Growth (Jul)
Singapore GDP (Q2, final)
Malaysia GDP (Q2)
Hong Kong SAR GDP (Q2, final)
United Kingdom monthly GDP, incl. Manufacturing, Services and Construction Output (Jun)
United Kingdom GDP (Q2)
United States PPI (Jul)
United States UoM Sentiment (Aug, prelim)
* Press releases of indices produced by S&P Global and relevant sponsors can be found here.
What to watch
Americas: US CPI, PPI, trade data
The key release from the US next week will be CPI and PPI data for July. Consensus expectations point to further easing of price pressures in July, albeit still elevated above the 2% target by the Fed. This is in line with S&P Global US PMI data indications, which revealed that inflation pressures remain consistent with CPI readings of around 3%. The focus will be on the stickiness of inflation in the service sector, which is now the main driver of higher prices.
Europe: UK GDP, Germany inflation, industrial production data
Second quarter GDP, alongside detailed sector output figures for June, will be released for the United Kingdom. Latest UK PMI figures indicated that recent interest rate hikes have taken a toll on growth into the end of the second quarter and into July, though the economy remained in expansion with above-50.0 prints through the March to June period. That said, this was primarily services driven, with manufacturing output in contraction. Industrial production data for Germany will meanwhile be eagerly assessed after a slew of worryingly weak survey data from the PMI and IFO.
Asia-Pacific: China trade and inflation data, Indonesia, Singapore, Philippines, Hong Kong SAR GDP
In APAC, trade and inflation data from mainland China will be closely watched with the Caixin PMI data having revealed export weakness in July. Meanwhile price pressures remained subdued with further deflation on the output prices end, which continues to affect confidence among private sector firms.
S&P Global IMI survey and GEP Supply Chain Index
The S&P Global Investment Manager Survey, which collects data from approximately 300 participants employed by firms that collectively represent around $3,500bn assets under management, will be updated for August in the coming week, offering insights into the US equity market including regarding risk sentiment and expected returns.
The latest GEP Global Supply Chain Volatility Index for July will also shed light on worldwide supply chain conditions at the start of the second half of 2023. This followed indications of global supply shortages having fallen to their lowest since January 2020 earlier in June, though conditions varied by region.
Special reports
Factories Report Deeper Global Production Downturn in July as World Trade Slumps - Chris Williamson
South Korea's GDP Growth Improves in Mid-2023 - Rajiv Biswas
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Purchasing Managers' Index™ (PMI®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
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