Here's your complete preview of this week's big economic events

Pamplona running fall bullsREUTERS/Vincent WestA runner falls in front of Fuente Ymbro fighting bulls at Telefonica corner during the fourth running of the bulls at the San Fermin festival in Pamplona, northern Spain.

How much would you give to never read about the Greek debt crisis or the crashing Chinese stock market ever again?

They’re important stories with global implications. But unless you live in or nearby Greece or China, it’s hard to see exactly how much this impacts you.

Greece is responsible for a “trivial” amount of global output, while only accounting for around 0.006% of US exports.

China’s stock market is big, but nowhere near as big as the US market. Furthermore, its wealth effect is “smaller than many assume” is it represents small fractions of Chinese household assets and the country’s social financing.

Perhaps there are bigger things to worry about.

Here’s your Monday Scouting Report:

Top Stories

  • Global growth is decelerating. While we were obsessing over Greece and China, there have been a lot of indications that the world economy is slowing. Deutsche Bank’s Stuart Kirk sums it up succinctly: “Copper hitting a six-year low, oil prices down 10 per cent in two weeks, iron ore tumbling. Anyone might think we were in the midst of a global growth slowdown. Are we? With sub-three per cent output growth in the fourth quarter of last year and the first quarter this year, global output grew at a 2.8 per cent annualised rate in the last six months, approaching its lowest since the financial crisis. The IMF’s modest cuts to forecasts this week bring the 2015 estimate just below the last three years. In manufacturing, even the more recent survey data has been trending down. Instead of a rebound from the US weather- affected first quarter, global manufacturing output PMI has fallen further by two points and is now at a two-year low. Just some passing data turbulence or something more sinister?”
  • Markets may be a “harbinger of worse to come.” “A volatile week on the up-and-down news from Greece and China, but in the end, markets haven’t changed much,” JPMorgan’s Jan Loeys observed. Indeed, the S&P 500 is just 2.7% below its all-time high. “Investors are wondering whether the volatility is a harbinger of worse to come and thus a reason to reduce risk, or creates opportunities to buy cheap assets. We are sitting somewhere in between these two.”

    Loeys continued: “… the real risk for which we need to keep an eye out is an end- of-cycle economic correction/recession. At the moment, we do not yet see enough warning signs that this is within the next year. Still, we need to monitor closely whether any of the growing number of brush fires across the world market and economies can develop into a wildfire. In past issues, we identified two near-term ones — Greece and the Fed-in- Sep — and two more medium-term ones — inflation and EM leverage. How are we doing on these? In short, Greece and EM have become more immediate, while the Fed and inflation have faded a bit as risk factors.”

Devil satan tour de france Didi SenftREUTERS/Eric GaillardDidi ‘El Diablo’ Senft is spotted at 7th stage of the 102nd Tour de France.

Economic Calendar

  • Monthly Budget Statement (Mon): Economists estimate the US had a budget surplus of $US50.0 billion in June. Here’s Morgan Stanley’s Ted Wieseman: “We estimate that the federal government recorded a $US41 billion budget surplus in June, down from $US71 billion in June 2014 on a 6% year/year rise in receipts and 20% increase in outlays. Expected upside in spending mostly just reflects a calendar shift that moved large 1st of the month payments into May last year, while growth in revenues was supported by a solid 5.5% gain in individual withheld income and payroll taxes. For all of FY2015 (ending in September), we see the budget deficit narrowing to $US445 billion, or 2.5% of GDP, from $US483 billion, or 2.8% of GDP, in 2014. That would be the smallest deficit as a share of GDP since 2007 after steady narrowing from the peak of 9.8% in 2009.”

  • Retail Sales (Tues): Economists estimate sales increased by 0.3% in June, or 0.5% excluding autos and gas. From Nomura: “The May retail sales report revealed a stronger path of consumer activity than was previously assumed, which better aligned with improving consumer fundamentals. With the personal saving rate elevated, the consumer spending outlook for the medium term remains positive, so we expect core retail sales (which excludes auto, gasoline, building material, and food services and drinking places sales) to increase by 0.5% in June. However, motor vehicle sales declined in June — from a near ten year high in May — and likely exerted downward pressure on total sales.”
  • Producer Price Index (Wed): Economists estimate producer prices climbed 0.2% month-over-month in June, while falling 0.9% year-over-year. Excluding food and energy, core PPI is estimated to have climbed by 0.1% and 0.7%, respectively. From BNP Paribas: “Services prices likely rebounded in June. Transportation & warehousing and financial services prices were very weak in May, and we expect rebounds in both. Energy prices lead the former and point to the increase. Goods prices likely rose solidly in June, but by less than they did in May. We expect the strength to be broad-based.”
  • Empire Manufacturing (Wed): Economists estimate this regional manufacturing index improved to 3.25 in June from -1.98 in May. From Barclays: “Regional manufacturing activity has remained sluggish through the first half of 2015. The ISM-adjusted version of the Empire State index, however, has only fallen below the neutral mark once year- to-date and was little changed at 51.9 in June. This suggests that price components, which feed into the headline index but provide little signal on the near-term direction of activity, have contributed to the recent volatility.”
  • Industrial Production (Wed): Economists estimate industrial production climbed 0.2% in June, while the capacity utilization rate was unchanged at 78.1%. From Barclays: “We expect manufacturing sector output to have been nearly unchanged on the month with a sequential decline in motor vehicle production offset by a boost from chemicals and other manufacturing categories. Elsewhere, we look for a mining sector output to have been nearly unchanged.”
  • Fed’s Semi-Annual Monetary Policy Testimony (Wed and Thurs at 10:00 a.m. ET): From Bank of America Merrill Lynch: “Overall, we expect Yellen to sound cautiously optimistic about the US outlook, in line with her comments at the June press conference and the broad discussion by voters in the June minutes. Of note will be whether she shares any of the concerns about the pace of growth mentioned in the minutes; such a tone would be more dovish. Conversely, we expect she will continue to sound upbeat on the labour market — although noting that further improvement is still desired — and not too worried about low inflation. Thus, we expect her to state that the FOMC is still on track to hike rates sometime this year.”
  • Beige Book (Wed): The Federal Reserve will publish its latest compilation of economic anecdotes at 2:00 p.m. ET. From Nomura: “We expect the Fed Beige Book prepared for the 28-29 July FOMC meeting to show that the economy continued to make progress from the slew of issues which hindered activity early this year. We will look for additional insights into the pace of the rebound, which we believe continues to be gradual. Another key thing to look for is any evidence of increasing wage pressures in the labour market.”
  • Initial Jobless Claims (Thurs): Economists estimate initial claims fell to 283,000 from 297,000 a week ago. From UBS’s Sam Coffin: “With limited auto plant shutdowns this year, we forecast a reversal in claims in the upcoming week. The July 4 holiday may also have contributed to the latest week’s rise.”
  • Philadelphia Fed Business Outlook (Thurs): Economists estimate this regional activity index fell to 12.0 in July from 15.2 in May. Here’s Bank of America Merrill Lynch: “The surprise jump last month was likely a one-off, as the index had been averaging only 6.1 to start the year. That said, the US economy seems to be broadly strengthening, which should provide some lift to the Philly Fed district’s manufacturing sector. The strong dollar remains a headwind, however, and the recent tumble in oil and commodity prices may yield heightened uncertainty. Developments in Greece and China could also provide some downside pressure.”
  • NAHB Housing Market Index (Thurs): Economists estimate this index of homebuilder sentiment was unchanged at 59 in July. From Bank of America Merrill Lynch: “We look for the NAHB housing index to slip to 57 in July from the strong 59 print in June. While housing conditions remain favourable — low rates, lean inventory and improving economy — we think homebuilders might become concerned by the recent risk-off mood in the marketplace. The “CNN” effect is important with the press noting the risks from Greece and China.”
  • Housing Starts (Fri): Economists estimate the pace of housing starts jumped 7.0% to an annualized rate of 1.109 million units in June, while the pace of building permits fell 8.0% to 1.150 million. “Multifamily permits had picked up sharply in April and May, which is likely to filter into stronger multifamily starts; and we forecast a continued uptrend in single-family starts as well,” UBS’s Sam Coffin said.
  • Consumer Price Index (Fri): Economists estimate producer prices climbed 0.3% month-over-month in June, while climbing 0.1% year-over-year. Excluding food and energy, core PPI is estimated to have climbed by 0.2% and 1.8%, respectively. Here’s Credit Suisse: “A continuation of monthly retail inflation readings similar to those expected for June would be welcomed warmly by Fed officials (and all who would prefer not to relive the disinflationary scares of recent years). However, a renewed swoon in global commodity prices and a rise in the foreign exchange value of the dollar this month threaten to slow the acceleration in inflation we reasonably could have expected otherwise. Whether this challenges the Fed’s reasonable confidence “that inflation will move back to its 2 per cent objective over the medium term” remains to be seen.”
  • University of Michigan Sentiment (Fri): Economists estimate this index of confidence slipped to 96.0 in July from 96.1 in June. From Barclays: “Financial market volatility has spiked higher early this month on concerns about the Greek crisis. At the same time, jobless claims have moved up modestly. Together, these factors suggest a decline in sentiment in July. Weekly indicators confirm this trend, leading us to expect a decline in the preliminary University of Michigan survey estimate.”

Market Commentary

Fundstrat Global Advisors’ Tom Lee observed risk-aversion in the US spike as concerns over Greece, China, and elsewhere escalated in recent weeks. For him, sentiment is so bearish that he sees a 93% probability that stocks go higher into the end of the year.

He identified five signs: an inverted VIX term structure; the AAII % Bulls less % Bears falling to -12%; the CBOE put-call ratio rising to 1.13; the long-term yield curve (30y vs 10y) steepening; and the S&P 500 lagging the DAX.

“We do not expect any material damage to US fundamentals, and hence, see these contrarian signals as supporting our bullish call for a 2H rally,” Lee wrote on Friday.

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