Forecast with positive expectations - levels for NZD/JPY and GBP/JPY

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Press review

Sergey Golubev, 2015.07.26 19:29

Crédit Agricole for Week Ahead: FOMC, GDP, Durable Goods, ECI, Cons Conf (based on efxnews article)

• "Durable goods orders are expected to rise by a sturdy 3.0% in June, boosted by a jump in non-defence aircraft orders. The bi-annual Paris air show in mid-June reported record levels of attendants and exhibitors, with over USD130bn orders announced. The strong showing was apparent in June’s Boeing aircraft orders: 161 new orders compared with 11 in May.
• We see risk of a small slip in the July consumer confidence index to 99.0, which bounced by almost 7pt in June. That rise fully reversed the April/May weakness and pushed the index close to its post-recession high of 103.8, reached in January. A likely decline in July would primarily reflect a partial reversal from the June jump.
• No rate hikes are expected in July. There are no updates to the Fed’s Summary of Economic Projections or a press conference following the meeting. Fed officials are looking for more evidence that economic growth is sufficiently strong and labour market conditions continue to firm enough to return inflation to the Committee’s longer-run 2% objective over the medium term. We believe that the FOMC will begin rate normalisation in September with a gradual, data-dependent pace of rate hikes thereafter.
• We look for Q2 real GDP to grow at a 2.5% pace in the advance release following a 0.2% contraction in Q1. The Q1 stall reflected a wide range of transitory factors, in our view. While oil and dollar impacts may continue to weigh, we expect a broad-based recovery in activity in Q2. We look for consumer spending to pick up to a 2.6% rate from 2.1% in Q1, on the back on cheap gasoline prices and a stronger labour market. The deep negative contribution of net exports in Q1 (−1.9pp) is expected to turn slightly positive as trade flows recovered from the port disruptions. We expect greater residential investment in line with robust growth in housing starts, while nonresidential investment likely recovered but remained relatively weak.
• The Q2 Employment Cost Index (ECI), a measure of total worker compensation costs, likely rose at a 0.6% pace, easing modestly from a 0.7% rate in Q1. Wages and salaries, which account for 70% of the index, are expected to rise at a slower pace, in line with the Q2 average hourly earnings growth of 0.5% on the quarter (Q1: 0.7%). We do see upside risk, however, drawing from encouraging developments in survey data.