Macroeconomics: The Day Ahead for 20 October

Politics and trade tensions continue to dominate market sentiment, even if the overnight run of key China data offers some distractions, with German PPI, UK Rightmove House Prices, unchanged China LPR rates, Japan coalition formation and aftermath of Friday’s Trump-Zelenskiy meeting also to be digested. There is little ahead aside from Canada PPI and earnings from Cleveland-Cliffs.

The run of Chinese statistics sent some very mixed signals. Q3 GDP was a lot stronger than expected at 1.1% q/q vs. forecast 0.8% q/q, though tempered slightly by a small downward revision to Q2 to 1.0% q/q from 1.0%. It sets a very low bar for Q4 at around 4.5% y/y for the target of 5.0% for 2025 GDP to be met, but that is of little consequence when one considers the run of September data. Much stronger than expected Industrial Production at 0.6% m/m 6.5% y/y vs. a forecast of 5.0% y/y accounts for the better than expected GDP. That rise was paced by a surge in Auto Output (16.0% y/y vs. Aug 8.1%), which sits very uncomfortably with the narrative of overcapacity, and hefty price cuts in the sector to stimulate softening demand; IT production at 11.3% y/y vs. prior 9.9% and Mining Output at 6.4% y/y from 5.1% also gave a boost, as did a rebound in Crude Oil refining. Retail Sales were in line at a meagre 3.0% y/y, with a further sharp deceleration in purchases of Home Appliances to just 3.3% y/y, having run at a 28.7% t/t pace as recently as July, as the impact of subsidies has faded rapidly. While both new and existing home price falls accelerated along with Property Investment and Sales, the really alarming monthly statistical was Fixed Asset Investment sliding into contraction at -0.5% y.t.d., with State-Owned FAI dropping to just 1.0% y/y, and Private FAI’s fall accelerating to -3.1% y/y from -2.3%, with all manufacturing sectors seeing deceleration, and only Mining a slight pick up to 3.7% from 3.0%. Per se, one can only make the observation that not only is the transition to Consumption led growth not getting any traction, but Investment, the long-standing primary driver of growth, is also fading very rapidly. The economic policy challenges for this week’s Fourth Plenum are abundantly clear.

RECAP: The Week Ahead – Preview: 

The new week brings US CPI and New & Existing Home Sales, China’s Q3 GDP and run of monthly activity and property sector indicators, UK CPI, PSNB and Retail Sales, G7 & India ‘flash’ PMIs, and inflation readings from Canada, Japan, Brazil and Mexico. National and geopolitical themes remain front and centre, with US/China trade and security relations, US government shutdown (entering its fourth week), China’s CCP ‘Fourth Plenum’, the fragile ceasefire in Gaza, the war in Ukraine, France, Japan (PM vote due on Tuesday) and UK budget woes all vying for contention. The US Q3 earnings season picks up speed, with Coca-Cola, Ford, GE, GM, HCA, Intel, Netflix, Procter & Gamble, Tesla and Texas Instruments likely to be among the headline makers in the US, with plenty of major companies also reporting in Asia and Europe. Last week’s JPM loan loss provisions, and the fraud related write-downs from Zions Bancorp and Western Alliance have put credit risk back into focus in terms of earnings reports, along with tariffs, margins and AI investments. On the monetary policy front, China’s 1 & 5-yr Loan Prime Rates are seen unchanged at 3.0% and 3.5%, with rates in Hungary and South Korea also expected to be held, while a further 25 bps cut is seen in Indonesia, and 100 bps cuts in both Turkey and Russia. Fed speakers enter their ‘purdah period’ ahead of the October 28 FOMC meeting, though there will be plenty of ECB speakers on tap. In the commodity space, earnings from the likes of Alcoa, CATL, Cleveland Cliffs, Eni, Freeport McMoRan, Halliburton, Newmont, Norsk Hydro, Usminas Gerais and Q3 production reports from Vale and Woodside Energy will command attention. As will various conferences, EU meetings on energy security and the environment.

# Politics: China’s weeklong CCP Fourth Plenum will deliberate on and outline priorities for the next 2026-2030 ‘5-yr Plan’, which will be a blueprint for ratification at the March 2026 annual National People’s Congress. The Plenum follows the expulsion of 9 senior military officials from the CCP, 8 of whom sat on the Central Committee, on charges of corruption. While President Xi has taken an aggressive stance on rooting out corruption at all levels of government, it remains to be seen whether this was part of the power struggle that has been going on for a protracted period, with Xi’s opponents looking for a significant change of course on economic and international policies, blaming Xi’s policies for the weakness in the domestic economy. Per se how the Plenum unfolds could prove to be very significant. The prior two 5-yr plans have focussed on economic ‘transition’ and security as much as growth, with the new plan expected to replace ‘transition’ with ‘transformation’, in part to convey a sense of urgency in dealing with the many structural issues that China’s economy faces: long standing property woes, competition and excess capacity driven deflation, trade tensions with the US and much of the rest of the world. Beyond dealing with these, there will likely be good deal of emphasis on improving income distribution, the weak social safety net, and the consistently elusive attempts to facilitate a transition from investment to consumption led growth. Expectations are that it will set a GDP target of 4.3-4.5%, down from the prior 5.0%, but well above other consensus estimates which anticipate a pace of around 3.0-3.2%.

The US government remains in shutdown, with no signs (as yet) of any form of rapprochement between Republicans and Democrats, with both sides primarily indulging in a blame game, unwilling to give any quarter, and the weekend ‘No Kings’ demonstrations across much of the USA underlining the depth of social and political divisions. In terms of US-China trade tensions, ambiguity continues to be the hallmark, though US Treasury Secretary Bessent and China Vice Premier He did have a discussion late Friday, and are scheduled tp meet this week in Malaysia to try and dial down the chatter around a further escalation of tit-for-tat measures, and prepare for the still planned meeting between Trump and Xi on the sidelines of November’s APEC meeting. While French PM Lecornu survived last week’s no confidence votes, the S&P ratings downgrade on Friday serves as a reminder that compromises such as that of suspending the 2023 pensions reform will only pile on the already large pressures on the French budget. Last week’s failure to reach an international agreement on adopting IMO’s Net Zero Framework was a prime example of how geopolitics continues to ride roughshod over efforts to decarbonise shipping. It will make efforts to raise funding for green investments in new ships and green fuel initiatives all the more challenging, given that there is no reason to assume that the next IMO meeting will succeed where this one failed, likely leading to companies postponing investment plans, until a clearer picture emerges. Sadly, it also raises the prospect of national or regional legislation (e.g. EU ETS) that makes the regulatory landscape ever more complex, and ever more complex to navigate, leaving aside the already hefty burden of tariffs, along with US and China port levies.

 # Economy:

– China gets the statistical week underway with Q3 GDP and monthly indicators. GDP is expected to slow to 0.8% q/q from Q2’s 1.1%, taking the y/y rate down to 4.7% from 5.2%, and the y.t.d measure to 5.1% from 5.3%. That slowdown will be significant. But monthly indicators are likely to show that growth momentum continues to decelerate, as the benefits of subsidy measures in H1 fade, a re-acceleration in the property sector downturn, and the impact of US trade tariffs weigh, notwithstanding last week’s better than expected trade data. Retail Sales are forecast to slow to 3.0% y/y (vs. 3.4%), Industrial Production to ease 0.2 ppt to 5.0% y/y, and perhaps most ominously Fixed Asset Investment to grind to a halt at 0.1% y.t.d., with private sector FAI having posted a drop of -2.3% in August, and Property Investment seen at a woeful -13.1%. All of which would only serve to underline how much need there is for the Fourth Plenum to pull some rabbits out of the hat, given that prior stimulus measures designed to halt the deceleration have lost traction.

– U.S.A.: The delayed CPI data will be published on Friday, and there will be considerable doubt about its accuracy, given the protracted government shutdown will have hampered data collection. Be that as it may, it is forecast to show headline CPI unchanged at 0.4% m/m but rising to 3.1% y/y (from 2.9%), and core CPI at 0.3% for an unchanged 3.1% y/y, though 3-mth annualised rates would rise to 4.0% and 3.6% respectively. If forecasts are correct, then it would question why the Fed seems determined to cut rates by a further 25 bps at its next two meetings, when inflation is accelerating, equity markets are close to all-time highs, credit spreads are tight, even if labour demand is weak. That said, the risks look to be to the downside on headline and core, with used auto prices slowing sharply (as per the Manheim index), and prior pressures from Airfares and Hotels/Restaurants also reversing, as well as evidence of prior tariff related increases in some goods prices having to be reversed, as consumers tighten their purse strings. Flash PMIs are forecast to ease m/m: Manufacturing 51.8 vs. Sep 52.0, Services 53.5 vs. 54.2. Existing Home Sales are expected to post a 1.1% m/m increase, while New Home Sales are likely to see a hefty mean reversion of -11.6% m/m, after surging 20.5% in August.

– U.K.: Wednesday’s CPI is likely to deepen the division of opinions on the BoE’s MPC. Headline is seen up a well behaved 0.2% m/m, but fuel price base effects, as well as some renewed upward pressure on airfares, are likely to push the y/y rate back up to 4.0%, with core seen up 0.1 ppt at 3.7%, and Services at 4.9% from 3.7%. But via way of a comparison to the US, the 3-mth annualised headline rate would ease to 2.4% from 2.8%, underlining that much of the upward pressure comes from the hike in administered prices in April. PPI is back on a regular release schedule, with both Input and Output forecast at 0.2% m/m, pushing up y/y rates to 0.8% and 3.6% respectively. Friday’s Retail Sales are expected to see headline fall -0.2% m/m, and the ex-Auto Fuel measure to slide -0.7% m/m, which would imply y/y rates of just 0.4% and 0.7% respectively while GfK Consumer Confidence seen edging down to -20, with politics and fear of further tax hikes at the November Budget imparting some downside risks (PSNB will be published Tuesday). Flash PMIs are expected to improve modestly on the month: Manufacturing 46.7 vs. 46.2, Services 51.0 vs. 50.8.

#Elsewhere

– Eurozone: a thin week in statistical terms is expected to see PMIs barely changed at 49.9 Manufacturing and 51.3 Services and advance Consumer Confidence also broadly steady at -15.0 French Business and Consumer Confidence are forecast to ease 1 pt to 95 and 86 respectively. Canada’s CPI is seen easing -0.1% m/m thanks to a drop in airfares, though adverse base effects will likely push the y/y rate up 0.3 ppt to 2.2%, while core CPI measures are expected to be little changed at a relatively lofty 3.0% y/y. That said, messaging from BoC speakers has played down the ‘strength’ in core CPI, suggesting that underlying core CPI is lower at 2.5%, while also emphasising that growth was weak, and effectively dismissing the stronger September employment readings, still characterising labour demand as weak. Japan has Trade and National CPI data, as well as Tuesday’s PM vote, the latter hinging on talks with the right leaning Ishin party on a co-operation agreement due to be concluded on Monday, with conflicting media reports on whether this would be a formal coalition. Trade data are forecast to see a rebound in both Exports (4.4% y/y vs, -0.1%) and Imports (0.6% y/y vs, -5.2%), but as with August this will be wholly due to base effects, but it will still evidence a very sharp drop in exports to the US.

– There are 89 S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: 3M, Amphenol, Assa Abloy, AT&T, Atlas Copco, Baker Hughes, Blackstone, Boston Scientific, Capital One Financial, CBRE Group, CenterPoint Energy, China Shenhua Energy, China Telecom, Chubb, Chugai Pharmaceutical, CME Group, Coca-Cola, CAtl AKA Contemporary Amperex Technology, Crown Castle, Danaher, Dassault Systemes, Delta Electronics Thailand, DNB Bank, Dr Ing hc F. Porsche, DSV, East Money Information, Elevance Health, Eni, EQT, Equifax, FirstEnergy, Ford Motor, Freeport-McMoRan, Galderma Group, General Dynamics, General Electric, General Motors, Great Wall Motor, HCA Healthcare, HDFC Bank, Heineken, Hexagon, Hilton Worldwide, Hindustan Unilever, Hithink RoyalFlush Information Network, Honeywell International, ICICI Bank, Illinois Tool Works, Intel, International Business Machines, Intuitive Surgical, Kinder Morgan, Kone, Lam Research, Lloyds Banking Group, Lockheed Martin, Moody’s, Nasdaq, NatWest Group, Netflix, Newmont, Nokia, Norfolk Southern, Northrop Grumman, O’Reilly Automotive, Orange, Paccar, PG&E, Philip Morris International, Ping An Bank, Procter & Gamble, Raymond James Financial, Roper Technologies, RTX, Saab, Sandvik, Sanofi, SAP, Schindler Holding, Shenzhen Inovance Technology, Shin-Etsu Chemical, Sika, Skandinaviska Enskilda Banken, STMicroelectronics, Svenska Handelsbanken, Swedbank, T-Mobile US, Tesla, Texas Instruments, Thermo Fisher Scientific, Tractor Supply, UltraTech Cement, UniCredit, Union Pacific, United Rentals, Valero Energy, Vertiv Holdings, WR Berkley, Wanhua Chemical, Waste Connections, WEG, Westinghouse Air Brake Technologies, WuXi AppTec.