A few things of note

I included this quote on Tuesday from the UK CBI July retail survey and they were certainly on to something with respect to what Amazon said about its retail business: “Internet sales were flat in the year to July. With growth slowing for the 5th consecutive month, the balance in July was the weakest since the question was first asked in August 2009. Retailers expect internet sales to pick up next month, but growth is expected to remain well below the long run average.”

Ahead of the PCE inflation report today where the CPI already tipped its hand for June a few weeks ago when it was reported as did Q2 GDP, I’ll argue again that while we will likely see a slowdown in the rate of increase in goods prices, particularly in used cars from its extreme level and because its unsustainable, service price inflation was just about to accelerate, particularly from rental prices. If you didn’t see, Invitation Homes on Wednesday said they raised rents by 8% nationwide in Q2 with a 14% increase for new leases and 5.8% on renewals. Again, there is nothing temporary with services inflation and therefore there is nothing transitory about overall inflation.

Ahead of the Employment Cost Index also today, the Carrier CEO yesterday said “there is a shortage of highly skilled talent for the amount of demand…we’re having to raise compensation including in some of our factories, and we’re also raising prices…we are now on our 3rd price increase pretty much across our portfolio just this year not only for the 3rd and 4th quarter this year but to also manage next year.”

While there have certainly been issues with the Olympics it is so encouraging to see that they are powering thru. Japan also reported some economic data overnight which showed a good increase in the jobs to applicant ratio to 1.13 from 1.09 and above the estimate of 1.10. Their unemployment rate fell to 2.9% from 3% led by an increase in the number employed. They also reported industrial production in June which exceeded forecasts while retail sales were as expected. Of course this is June data and we know we’ve had further selective restrictions which unfortunately is becoming a way of life but is quite different than broad shutdowns which I don’t think we’ll ever go back to. Fast spread and more people every day getting the shots will speed up the process of broad immunization. None of this was able to save the Nikkei which fell 1.8% along with red throughout the region. JGB yields were little changed and the yen is up a hair. I remain bullish on Japanese stocks trading at 16x next year’s earnings estimate.

South Korea’s June IP also was better than expected with a 2.2% m/o/m increase vs the estimate of up 1.5%, partially offset by a 3 tenths upward increase to the May figure. As it’s old news, it didn’t move markets.

We got our first look at the Eurozone July CPI and it rose 2.2% y/o/y vs 1.9% in June, led by higher energy prices and that was 2 tenths more than expected. The core rate higher by .7% was as forecasted. Again, all around the world countries are experiencing intense wholesale inflation but it is more idiosyncratic on what can be passed on to consumers. For example, in some countries in Europe, they have summer clothing sales. Well, last year there was none because people weren’t shopping anyway. This year they were back on, thus distorting the y/o/y comparison. Either way, expectations for higher inflation in the region have broken out to the highest level since late 2018 with the 5 yr 5 yr Euro inflation swap now up to 1.70%. The euro is higher while European nominal yields are little changed. The German 10 yr inflation breakeven is unchanged today but up 10 bps on the week to 1.41%.

5 yr 5 yr Euro Inflation Swap

Also out of the Eurozone was the better than expected Q2 GDP print where it rose by 2% q/o/q vs the estimate of 1.5%. The unemployment rate for June fell to 7.7% from 8% and that is the lowest since May 2020. It was 7.1% pre Covid and a variety of job subsidization plans kept it from getting above 8.6% post Covid.