Macroeconomics: The Day Ahead for 11 October

After a busy run of conferences over the past 5 weeks, Good Morning returns. I will be compiling some observations and impressions from those conferences, which I would hope to publish by the end of next week. In my absence, there have been some quite sharp shifts in market rate expectations for the Fed, ECB, BoE and BoJ, but what astounds me is that aside from the short squeeze in oil markets, the impact of the escalation of tensions in the Middle East on risk appetite has been rather limited, though the potential risks are now very large, above all given the increasing proximity of the very uncertain US elections.

Be that as it may, the week ends with a relatively busy run of economic data, as well as the official start of the US Q3 earnings season with the usual run of financials getting things underway, the USDA’s monthly WASDE report, accompanied by some Fed and ECB speakers. There are the Bank of Korea’s as expected initial 25 bps rate cut, UK monthly GDP and activity data and final German CPI to digest, along with France’s 2025 budget details. Ahead lie US PPI and preliminary Michigan Confidence, Canadian labour data, along with Indian and Mexican Industrial Production. The US, Japan and Canada will all be closed for holidays on Monday, which may well serve to dampen reaction to today’s data and thin trading volumes. Tomorrow’s government briefing on China’s stimulus measures and how the tensions between Israel and Iran evolve will set the tone at the start of next week.

Next week has a barrage of data from the US (Retail Sales, Industrial Production, Import Prices, NAHB and Housing Starts), China (Q3 GDP, Retail Sales, Industrial Production, Property prices sales and investment) and the UK (Unemployment, Wages, CPI, PPI and Retail Sales). The Eurozone will focus on the ECB meeting on Thursday, while Japan looks to Machinery Orders, Trade and National CPI, while Australia has Unemployment and Canada CPI.

** U.K. – August GDP & Activity indicators **

– While August monthly GDP was slightly below forecast at 0.2% m/m, primarily due to sluggish Services (0.1% m/m), while Manufacturing rebounded more than expected, it was downward revisions to prior months (May-July GDP revised to 0.3% q/q from 0.5%) that was more significant. While Manufacturing has been volatile over the summer months, the -0.8% m/m drop in Transport & Storage catches the eye, though it may be primarily related to the former, but could on the other hand owe more to the weakness in Wholesale & Retail in the past 3 months (-0.3%, +0.6% and -0.7% m/m). Overall, the data fit with the rising expectations that the BoE will cut rates in November and December, particularly once it has assessed the potential impact of the end of month budget.

** U.S.A. – September PPI, October Michigan Sentiment **

– Yesterday’s CPI and weekly jobless claims sent mixed messages on the outlook for Fed policy, though the slightly stronger than expected rise in core CPI (0.3% m/m 3.3% y/y) is very unlikely to shift Fed views that inflation is on a downward trajectory. It was to a large extent paced by another jump in airfares, which as with the August rise was somewhat counter-intuitive given that airfares typically mirror energy prices, which fell in both months, but doubtless reflects the woes of the airline sector over the summer months, as highlighted this week by Delta Airlines. As for sizeable jump in weekly jobless claims to 258K, this was primarily due to a combination of auto sector layoffs and Hurricane Helene, and with the Columbus Day holiday looming on Monday, further outliers should be expected, but judgement on underlying trends should be cautious. Today’s PPI is expected to be subdued, with a 0.1% m/m rise in headline edging down the y/y rate to 1.6%, while renewed upward pressure on Portfolio Fees and some a rise in Health Care costs (medical services) is anticipated to see core rise of 0.2%, pushing up the y/y rate 0.1 ppt to 3.3%. The latter will be of greater significance in October as pandemic related emergency measures are due to expire. But overall it should continue to underline that pipeline pressures remain subdued. Michigan Confidence is expected to improve to 71.0 from 70.1, paced by falling gasoline prices and a more positive flow of news on the economy, above all the labour market, That said, in absolute historical terms the index remains depressed, though still very much at odds with the Conference Board’s Consumer Confidence.