Week review · w/c 11 July 2022 · An inside NFP week into CPI and bank earnings

Monitoring: 3922 (high) and the 3830 mid area. The other levels are marked on the weekly and monthly profile reviews, above and below.

Economic previewFrom IHS Markit: a busy week sees a series of GDP releases for the UK, China and Singapore, which will no doubt take centre stage. At the same time, industrial production data for Japan, the eurozone, India, China and the UK will be eyed for clues as to whether growth rates have slowed. The week ends with retail sales and sentiment data for the US.

The global trend of aggressive monetary policy tightening looks set to continue, with the Bank of Canada widely expected to deliver a 75 basis point rate hike this week, following two consecutive 50 basis point rises.

The spotlight, however, likely lies with China, which has seen lockdowns persist into the second quarter, for which GDP data are released. While the latest PMI revealed a return to growth following some recent relaxation of COVID-19 restrictions, demand growth remains weak amid the ongoing zero-COVID policy. IHS Markit's forecasts currently see China (mainland) contracting in Q2 at an annualised quarterly rate of 0.17%, taking the year-on-year growth rate to 0.8%, the weakest since the pandemic lockdowns of Q1 2020.

The UK will also issue Q2 GDP estimates on Wednesday, alongside services and industrial output data, which are also likely to show an economy in decline. Although recent PMI data for the UK pointed to business activity growth, the surveys also show the cost of living crisis hitting demand growth, adding to the risk of a further UK economic contraction, and a technical recession, in Q3.

It's a relatively quiet week for the US, with only retail sales and sentiment data due on Friday. That said, retail sales figures will be watched intently to assess whether surging fuel costs have added to price pressures and forced consumers to cut back on spending, as hinted by the latest PMI data.

Elsewhere, industrial production data for the eurozone, Japan and India will be closely watched. The former two have seen industrial production contract in recent months, which is expected to be the case yet again. Meanwhile, India's manufacturing sector continues to perform strongly.

CPI and retail sales: key takeaways

• Corporate earnings season kicks off next week, with second-quarter earnings expected from some of the largest banks and financial institutions, including JPMorgan Chase, Wells Fargo, Citibank, Morgan Stanley and BlackRock, among others.
• The latest inflation readings, tracking the month of June, are expected as the Bureau of Labor Statistics (BLS) is set to release CPI and PPI figures on Wednesday and Thursday respectively.
• June retail sales data will be released on Friday, providing valuable insight into consumer spending and overall confidence.
• The preliminary July reading of the University of Michigan's Consumer Sentiment Index will also be released on Friday, after the consumer sentiment indicator plunged to a record low in June.

Events calendarSource: Investopedia.

• Monday, July 11: New York Fed President John Williams gives a speech.
• Tuesday, July 12: PepsiCo (PEP) reports earnings; NFIB Business Optimism Index (July); IBD/TIPP Economic Optimism Index (July); Consumer Inflation Expectations (June).
• Wednesday, July 13: Delta Air Lines (DAL) reports earnings; Consumer Price Index (CPI) Inflation Rate (June); Fed Beige Book release.
• Thursday, July 14: Taiwan Semiconductor Manufacturing Company (TSM), JPMorgan Chase (JPM), Morgan Stanley (MS), Cintas (CTAS), First Republic Bank (FRC) and ConAgra Brands (CAG) report earnings; Producer Price Index (PPI) Inflation Rate (June); Fed Board of Governors member Christopher Waller gives a speech.
• Friday, July 15: UnitedHealth Group (UNH), Wells Fargo (WFC), BlackRock (BLK), Citigroup (C), U.S. Bancorp (USB), PNC Financial Services (PNC), BNY Mellon (BK), State Street (STT) and First Horizon (FHN) report earnings; Retail Sales (June); Import Prices (June); Export Prices (June); Industrial Production (June); Michigan Consumer Sentiment Index, preliminary (July); Business Inventories (May); Retail Inventories (May); Atlanta Fed President Raphael Bostic gives a speech.

Earnings season kicks off with bank earningsThe corporate earnings season kicks off next week, with some of the largest US banks and financial institutions scheduled to report. JPMorgan Chase, Morgan Stanley and First Republic Bank report on Thursday, followed by Wells Fargo, BlackRock, Citigroup, U.S. Bancorp, PNC Bank, BNY Mellon and State Street on Friday. Other companies scheduled to report include PepsiCo, Delta Air Lines, TSMC and UnitedHealth.

Bank earnings are expected to take a hit from the sharp decline in mortgage refinancing applications, as rates have soared in recent months. Big banks are some of the largest mortgage lenders, and some, including JPMorgan Chase and Wells Fargo, have begun laying off workers in response to market losses. Wells Fargo previously reported a 33% year-over-year decline in mortgage revenue for the first quarter, a decline that is expected to accelerate as the bank reports earnings on Friday.

Weekend reading: is a global recession coming?Here is Macro Alf, who talks about the global economy and the possibility of a recession. He's a top analyst, and I recommend him to anyone who wants to follow the latest economic developments: he's on Twitter as @MacroAlf and writes The Macro Compass on Substack.

And here is a short video explaining some macro: how housing and durable goods are important leading indicators, and something to be closely monitored.

Oil: goodbye inflation trade, hello recessionAnd finally, I'm often commenting on the price of oil. Its importance as a primary cost inflator for almost everything in the global economy makes it an important market to monitor every day. We are seeing high correlations between WTI and inflation-sensitive markets. We're at a critical moment for pricing: on the one hand Putin and war inflationary pressures, on the other the emerging recession narrative.

Here is an alternative piece from Bloomberg, 'Oil's latest slump: goodbye inflation trade, hello recession', looking at the emergence of the recessionary narrative in oil:

• US crude futures fell below $100 for the first time since May.
• The market remains vulnerable to big moves amid a liquidity crunch.

Please also look at the GFC and see what happened to oil during that period. I won't spoil it; look for yourself!

From TwitterSome of the other macro players I follow: @perfiliev, @AndreasSteno, @Amena__Bakr, @dampedspring, @LynAldenContact, @ncitayim, @Schuldensuehner, @duz, @C_Barraud, @fwred and @anasalhajji. These are just off the top of my head, but remember you don't need too many. Cognitive dissonance!