Macroeconomics: The Day Ahead for 19 September

Aside from digesting the BoJ’s policy meeting and this afternoon’s Fed speak from Daly and lone dissenter Miran, the focus will be on the call between the US and China presidents, which will focus on the agreed TikTok USA sale and trade. Today’s data schedule is light with the overnight UK Retail Sales, GfK Consumer Confidence and PSNB budget balance to digest, and only Canada’s Retail Sales ahead.

** U.K. **

– While the BoE policy meeting outcome was as expected, both on rates and QT, the fact that it has chosen to increase the net volume of active Gilt sales,  with a very modest tweak to the maturity distribution, can only be described as being ‘unable to see the wood for the trees’. It is symptomatic of a broader malaise within UK policy making of dithering, floundering and a palpable inability to show real leadership, either in thought or in practice. Today’s run of data was mixed. On the one hand Retail Sales were solid, above all the 0.8% m/m increase in Retail Sales ex-Auto Fuel, following July’s 0.4%, imply a solid contribution to Q3 GDP from Personal Consumption. But this along with a modest setback in GfK Consumer Confidence to -19 from -17 that likely reflects concerns about political instability, pales into insignificance with yet another sharp overshoot in the August PSNB (£18.0 Bln vs. forecast £12.8 Bln, with July’s deficit revised to £2.8 Bln from £1.1 Bln). The latter was all the more dire for Chancellor Reeves given that while tax receipts rose, this was outweigh by expenditure on debt servicing, public services and welfare benefits, leaving the fiscal year to August deficit already running £11.4 Bln above the OBR’s forecast.

** Japan **

– While there were some hawkish signals from this meeting, via way of the two dissents for a 25 bps rate hike to 0.75%, and the decision to reduce ETF and J-REIT QE holdings (albeit at a current pace that Ueda said would imply completion of its unwind taking around 100 years!), Ueda’s rate messaging was still cautious. While he pointed to the economy recovering, and the impact of tariffs thus far being very limited (outside of crimping manufacturers’ profit margins), he continued to stress downside risks to the economy, though reiterating that rates will need to rise further, as has been the case at recent policy meetings. That said, it is clear that political uncertainty is the number one factor restraining the BoJ from making any significant policy moves at the current juncture, which is understandable given that the various LDP leadership candidates’ policy agendas would have differing implications for BoJ policy, as well as for the degree of political resistance to further policy tightening.