Five things to look out for this week ....... well, four now actually (Note to self : Must Keep Up!)

Monday 15th August 2016

Five things to look out for this week....... well, four now actually (Note to self: Must Keep Up!)

ref:- "Top 5 Economic Calendar Events for August 15 - 19", EconomicCalendar.com

In the absence of any "news-not-to-be-ignored" this Monday morning, we thought we'd offer a brief heads-up as to what are the five key releases this week as selected by Economic Calendar:

1. Japan 2nd Quarter GDP Data

Strictly speaking, this was no. 5 on the list and owes its promotion simply to the fact that it has already been released in the early hours of this morning (00.50 am London time, in fact) . On the face of it, it must have made pretty dismal reading for the Japanese authorities too. Q2 GDP was expected to come in at +0.2%, down from +0.5% in Q1. In the event, the figure was 0.0%  --  in other words, stagnation. On an annualised basis, growth of 0.2% was well below expectations of 0.7% and last quarter's spike of 1.9%. These are the kind of numbers that should depress stocks and encourage speculation of further Bank of Japan stimulus, pushing down bond yields and the Yen, surely?

Er ..... apparently not. The markets are little changed and have somewhat surprisingly taken the data in their stride. The rationale seems to be that things like personal consumption, which makes up such a large part of GDP, were adversely affected by Yen strength, higher oil prices Apr - Jun and a couple of earthquakes. You can see how they might have had that effect, but might reasonably ask whether those factors should have been built in to expectations. Still, according to various talking heads this morning any number that isn't negative isn't disastrous ..... which seems a little over-relaxed but is plainly the markets' initial take on things.

2. US Federal Reserve Minutes of July Meeting

To be released at 19.30 BST on Wednesday Aug 17th, and always closely watched for clues as to future policy decisions. Were there any shifts in the balance between hawks and doves on the Fed Open Market Committee, or in the force of their opinions? If risks had diminished (as the Fed's statement suggested in July), which particular risks were they alluding to and how much did they think things had improved? Are they close to being comfortable about the potential problems presented by China and Brexit? What's the FOMC's latest thoughts about future inflation?

You know the sort of things people will be looking for ..... the trouble is, by definition these July cogitations within the Fed are to some degree out of date. The strong employment data has since been followed by weak retail sales, which has seen futures markets suggesting probabilities of a rate hike this year falling from 49% to 41%  --  data dependency in action, perhaps? Still, getting a handle on the mindsets of the individuals who make the decisions is always useful.

3. UK July Inflation Data

Tuesday Aug 16th at 09.30 BST ...... this will be the first data to show any inflationary impact of the Brexit decision (CPI expected +0.5). You've got to believe that it will take some time, certainly months, to get a true reflection of what we might expect the future to hold for post-referendum Britain, but the effect of much weaker sterling and changes to corporate pricing behaviour should start to show itself in these numbers.

These are extraordinary times in the UK and accepted rules don't necessarily apply, but in the normal course of events one would expect any evidence of a jump in inflation to restrict the Bank of England's hand in cutting rates further.

4. US July Consumer Prices

Tuesday Aug 16th at 13.30 BST ...... You could make a fair case for arguing that these numbers are as important as any in the Fed's decision-making process in this data-dependent age (there it is again !) . It's true that employment numbers get the most attention and they do more directly reflect growth in the economy perhaps, but a good deal of their importance is about labour costs and expendable incomes, and therefore inflation . The Fed's mandate is about inflation as well as growth, after all.

Doveish elements within the FOMC are perceived as being open to the idea of allowing inflation to run above target short-term in order to boost growth and keep employment high (or even higher). Naturally enough, it's not a view endorsed by the hawks (in fact it's become quite a contentious issue within the committee) and a strong number will make it more difficult for the Fed to continue along with its cautious approach. Obviously the flip-side to that is that a weak number would give the Fed even more room to manoeuvre.

5. Fed's Reserve President Dudley to Speak

Thursday Aug 18th at 15.00 BST ..... More Fed-watching in the hunt for clues about the timing of a rate hike. Not too many expect a rate kike at the September meeting ..... futures suggest a probability of about 9% ...... but if the Fed are even considering the possibility of action that soon, they'll probably need to communicate it pretty quickly ..... like on Thursday, perhaps.

Mr Dudley has made doveish statements on the issue as recently as late July ...... it will be interesting to see whether stronger employment data induces him to make any more hawkish observations. More interesting still would be to hear the comments of Fed Chair Janet Yellen .... but for that we'll have to wait for her appearance at the annual Jackson Hole get-together next week.