Saxo Spotlight: US inflation, UK GDP, Disney and Alibaba earnings – Aug 7-11

US CPI may not be able to get a Fed rate hike priced in for September

After a mixed US NFP jobs report on Friday failed to provide conviction to markets that the Fed can hike more from here, focus turns to July inflation due on Thursday. Disinflation theme has so far been supported this year by the goods sector, while services have continued to create upside pressures. However, good prices may be seeing some pressures return amid an unfavourable base effect and modestly higher gas prices. Risks continue to escalate from drought conditions in the Panama Canal, El Nino weather patterns, labor strikes and six consecutive weeks of gains in oil prices. However, shelter inflation now appears to be easing with the expected 12-month lag from measures of new rents and house prices. Shelter has been the biggest driver of services inflation, and it seems to be turning lower. Bloomberg consensus expects headline CPI to accelerate to 3.3% YoY in July from 3.0% YoY in June but stay unchanged at 0.2% MoM. On a core basis, CPI is expected to remain unchanged at 4.8% YoY/0.2% MoM. If inflation undershoots consensus expectations, disinflation narrative will continue to gain traction, supporting risk assets.

China’s trade, inflation and credit data to keep the focus on stimulus measures

While Chinese authorities have continued to announce several targeted support measures to boost economic growth, high frequency data is still not showing a pickup as evident with the PMI numbers last week. This week’s data is expected to continue to demand more policy support as weakness persists. Credit growth is expected to slow in July as mortgage demand probably weakened with new home sales dropping more than 30% from June in 50 major cities. Bloomberg consensus expects new yuan loans to weaken to 780bn yuan in July from 3tr yuan in June. Trade data for July is also scheduled to be reported on Tuesday and inflation metrics are due on Wednesday. July exports will likely show exports shrinking at a faster pace as global demand and geopolitics continues to weigh. Domestic demand weakness will also likely be highlighted by July imports, and an outright deflation with both July CPI and PPI coming in negative territory.

UK GDP to confirm a stagnating economy

UK’s second quarter GDP is due to be released on Friday and consensus expectations point to a further economic slowdown after Q1 GDP remained marginally in expansion with growth of 0.1% QoQ. While retail sales and a recovery in construction boosted growth in Q2, the decline in manufacturing and the weakening momentum in services provided an offset. Some drag is also likely from strikes and an extra bank holiday in May. Concerns of the UK economy dipping into a recession will likely continue to gain traction as higher interest rates filter through the economy, and inflation in the UK still remains one of the highest in the G7 countries, suggesting the Bank of England will have to bring the economy to a recession to get a lid on price pressures.

Commodities: Crude and grains remain at risk on Russia’s attacks

While the oil market is already battling supply tightness concerns after Saudi Arabia extended its 1mbpd production cut through to September, the escalating war in Ukraine also continues to threaten flows. Weekend reports that Ukraine attacked another Russian vessel have put Russia’s commodity exports via the Black Sea at risk. The Black Sea route carries most of the grain exports and 15-20% of the crude oil that Russia sells daily to global markets. Further escalation of the war could threaten oil and food prices, especially if Ukraine continues to target Russia’s critical infrastructure. Shipping and insurance costs will also likely be impacted. Wheat futures in Chicago were up 3% on Monday. Meanwhile, after India’s ban to export non-basmati rice, Thailand – the second biggest rice exporter – has asked farmers to reduce rice plantings due to drought and Indonesia may do the same. Thai rice prices have jumped to three-year highs at July end, and may continue to see more upside until the supply situation is clearer.

Earnings: Disney, Roblox, Vestas, Novo Nordisk report while tech focus moves to Asia

With major tech companies having reported earnings over the last two weeks, earnings calendar may be starting to thin out. But a number of major companies are still reporting earnings this week and may reflect sector and industry fundamentals, even if broader macro takeaway may be limited. Entertainment industry will be particularly in focus as Disney (Wednesday after-close), Fox (Tuesday) and Paramount (Monday) report results with labor disputes remaining under scrutiny. TV advertising may take a hit as hinted by Warner Brothers last week, and Disney’s declining theme park attendance will also be in focus although cost cutting could boost margins. Roblox also reports on Wednesday and the AI theme will be on test to see how it can bring incremental engagement and revenue. EV makers Rivian, Lucid Group and Li Auto also report, while earnings from delivery giant UPS may bring fresh signals on the health of the global economy.

Key European earnings to watch will be Vestas Wind Systems and Novo Nordisk. Vestas reports on Wednesday and may bask in the glory of increasing profit margin as backlog increases. Pharma giant Novo Nordisk has seen an uptick in expectations in the run up to the earnings. Meanwhile, tech and AI focus is coming to Asia with Japan’s Softbank group reporting a rebound in net income on Monday. Alibaba as well as Hong Kong’s SMIC will be in focus amid China ramping up support for its AI and chip sector and a more favourable stance towards internet companies amid a weakening economic growth.

Earnings this week:

• MON: KKR, Palantir, Tyson Foods, Lucid Group, Paramount, Beyond Meat, BioNTech
• TUE: Eli Lilly, UPS, Duke Energy, Softbank, Glencore, Bayer, Li Auto, Coupang, Rivian, Fox Corp, Barrick Gold, Lyft, Under Armour
• WED: Disney, Sony, Vestas, Roblox, Illumina, Royal Gold, Wynn Resorts, Plug Power, ABN Amro, Commonwealth Bank of Australia
• THU: Novo Nordisk, Alibaba, Siemens, Deutsche Telekom, Orsted, Henkel, Ralph Lauren, Allianz, SMIC, Rakuten
• FRI: Constellation Software, Newcrest Mining

Key economic events this week:

• MON: BoJ Summary of Opinions, German Industrial Output (Jun), EZ Sentix Index (Aug)
• TUE: EIA STEO, China Trade Balance (Jul), German Final CPI (Jul), Canadian Trade Balance (Jul)
• WED: China CPI and PPI (Jul)
• THU: RBI Announcement, Banxico Announcement, OPEC MOMR, US CPI (Jul)
• FRI: IEA OMR, UK GDP (Jun), French/Spanish Final CPI (Jul), US PPI (Jul), US Uni of Michigan Prelim. Survey (Aug)