US pending home sales in July fell 1.8% (vs +0.3% expected), for an annual pace of -9.5%. Low inventories and high prices remain headwinds, although the NAR did report that the heated market might be starting to cool with slowly rising inventory.
The Dallas Fed manufacturing survey fell to 9.0 (from 27.3, expected 23.0), continuing to reflect supply chain issues. Declines were broad-based. The employment component fell to 21.9 from 23.7, with wages/benefits at 43.4 from 46.0. New orders dropped to 15.6 from 26.8, with shipments at 15.2 from 31.6.
German CPI inflation was flat in August (vs 0.1% expected, 0.9% prior), for an annual pace of 3.9% (3.8% prior). Base effects and special factors, such as Germany’s temporary VAT cut last year, have contributed to the overshoot.
ECB’s Villeroy downplayed the rise in inflation and stressed that interest rates will remain favourable, adding that the ECB has more time to decide on the future of the PEPP emergency program than the Fed. He did, though, hint at tapering, saying that “on monthly purchase volumes, we are looking at favourable financing conditions, and we should underline that they are more favourable than at our June meeting”.
Event Outlook
Australia: Westpac expects a 5.0% fall in dwelling approvals in July as HomeBuilder support unwinds amid lockdown disruptions. For July private sector credit, Westpac is forecasting a 0.5% gain with housing aided by low rates and as businesses in lockdown tap lines of credit. The current account balance is forecast to widen to $20.5bn in Q2 as high commodity prices boost export earnings. Q2 net exports shouldtake0.7ppts from GDP growth however as import volumes rebound on domestic recovery while export shipments fall as a result of weather and maintenance disruptions. Finally, public demand is set to rise in Q2 on the health response to the pandemic and stimulus spending (WBC f/c: 2.0%).
New Zealand: Building permits are forecast to fall 3.0% in July mainly due to an expected pull back in the ‘lumpy’ apartments category after a large number of consents were issued last month. Despite this setback, annual consent numbers will linger near record levels. ANZ business confidence will capture some of the lockdown which started on 18 August.
China: The August manufacturing and non-manufacturing PMIs are set for release, providing the market with a helpful barometer of the impact of recent restrictions.
Euro Area: Annual inflation is expected to trend back down in coming months. The Market is forecasting a 2.6%yr result in August.
US:FHFA and S&P/CS home prices are expected to have gained 1.9% in June, supported by loose financial conditions and with affordability yet to become an issue. Conference Board’s consumer confidence index is anticipated by the market to drift down to 124.0 in August as delta uncertainty remains front of mind.
US growth is slowing and will keep doing so for the rest of the year. It is not Delta. It is the fiscal downdraft and inventory resolution, with a few acute and high-profile problems remaining.
I now think that the base case is no Fed taper this year as the US slowdown collides with the Chinese old economy hard landing producing a growth scare.
For me, that is enough risk for a bid to remain under DXY despite the Fed backpedaling.
Nor is the market overly long. Via Goldman:
In the week ending August 24,non-commercial traders net purchased $7.6bn USD, following net sales of $2.2bn USD in the previous week. Non-commercial traders net sold EUR, GBP, AUD, JPY, CHF, MXN, and BRL. They also net purchased a small amount of CAD. Asset managers continued to net purchase USD over the week, against net sales of EUR, CAD, NZD, CHF, BRL, and MXN. They were also net buyers of small amounts of AUD and RUB. Leveraged funds turned to net sellers of USD, primarily against net purchases of EUR and also smaller amounts of CAD, BRL, and NZD. They were also net sellers of GBP, AUD, JPY, MXN, and RUB.
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