ON DECK FOR MONDAY, JULY 15
KEY POINTS:
- Trump trade, Powell and strong US bank earnings compete for market attention
- Soft and mixed evidence of a ‘Trump trade’
- How much more confident will Powell sound today?
- BoC surveys are likely to post lower inflation expectations
- PBOC holds as growth slows
- The condemnable attack revealed a plethora of ironies
- Reminder: Global Week Ahead — Gauging Powell’s Confidence here
The week is kicking off with major potential developments, but so far relatively minor market moves. It’s difficult to disentangle the myriad effects on markets from one another amid the general sentiment that the assassination attempt added to the polling advantage Trump already and that will be further informed by polls in the aftermath (chart 1). Is it the Trump trade driving slightly outperforming US equity futures and a mild bear steepener? If so, then it’s not much of a trade. Or is it some combination of anticipation ahead of Powell’s appearance, plus expectations into the continuation of the US bank earnings season this morning relative to soft European earnings?
Soft ‘Trump bump’ Evidence
The hubris behind the Trump bump headlines is greater than the observed market effects and lacks consistency in my opinion. For instance, TIPS breakevens are flat in 10s, and slightly lower in 2s which leans against a Trump-trade lifting inflation expectations because of his plans for tariffs and fiscal expansion. The US curve is steeper because longer-term yields are up by about 3–5bps and thus underperforming other markets, which might be a combination of the market’s assessment that US growth risks pivoted higher on a more priced Trump victory, and/or that markets are bracing for more debt issuance and possibly more inflation notwithstanding the breakevens evidence. One manifestation of the assassination attempt’s effects is probably the fact that MXN is underperforming, though the yuan was little changed overnight. European equities are underperforming, but mixed into the effects were some disappointing earnings. CAD is holding flat.
How Much More Confident is Powell?
In my opinion what matters more is that Federal Reserve Chair Powell will appear at the Economic Club of Washington starting soon after noon ET. He will be interviewed by David Rubinstein. Key will be the degree to which he may signal increased confidence after last week’s softer than expected core CPI print. He may be asked about the weekend’s developments but has been around long enough to know that the best response is signal disapproval while dodging election questions in public.
Better US Bank Earnings
The Q2 US bank earnings season continues this morning after a soft start on Friday. Goldman Sachs beat on EPS, revenues and PCLs. BlackRock also beat with EPS of US$10.36 (consensus $9.93) but revenues and AUM both very slightly missed.
BoC Surveys
The Bank of Canada releases the Q2 versions of its Business Outlook Survey, Business Leaders’ Pulse and the Canadian Survey of Consumer Expectations this morning (10:30amET). Key will be expected further progress by the measures of inflation expectations given that more timely measures of small business expectations have declined and are highly correlated to the BoC’s measures (charts 2–5). The business gauges are coming back within the BoC’s 1–3% policy target range. Consumers’ expectations are always higher in every country and are arguably formed in more naïve fashion.
Canada will also update minor measures including manufacturing sales and wholesale trade, both of which are expected to be soft but details like volumes will factor into how May and Q2 GDP are tracking (8:30amET).
PBOC Holds as China’s Growth Slows
The PBOC held its 1-year Medium-Term Lending Facility Rate unchanged at 2.5% last evening as expected.
China’s economy slowed a little more than expected in Q2 (chart 6). GDP was up by 0.7% q/q SA nonannualized (0.9% consensus, 1.6% prior). The way the quarter ended in terms of higher frequency gauges offers a soft hand-off to Q3. For instance, retail sales slipped by -0.1% m/m SA in June which is the latest in a string of generally soft numbers this year. Industrial production was up by 0.4% m/m SA which was roughly an average pace.
Ironies Aplenty
Beyond the markets, the assassination attempt reveals multiple ironies. For one, a man who has been and remains a grave threat to US democracy was subject to the most vile, condemnable form of assault on democracy.
An extraordinarily divisive individual invited public unity in the response against the attack.
A draft dodger who has always gotten others to do his dirty work is being portrayed as a tough guy.
Trump says he threw out today’s speech at the RNC because “he can’t say those things after what I’ve been through” which may indicate that he learned to turn down the temperature.
A man who has driven deep divisions in the US and world promises to deliver a unity speech today.
The US secret service’s secret is apparently its inability to protect a presidential candidate against obvious security lapses and a stunningly slow response to an emerging threat.
We look to markets to assess the potential effects of a Trump victory, and yet markets—especially in the short-term—are arguably incapable of forming of accurate expectations of the complex and competing effects of Trump’s plans for macroeconomic policies especially in isolation of everything else.
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