Macroeconomics: The Day Ahead for 21 November

While the ‘main events’ for the week (FOMC Minutes, Nvidia earnings & Sep Labour data) have come and gone, there is still plenty for markets to consider on today’s data schedule, though the main talking point will be the abrupt reversal of the very short-lived post Nvidia earnings rally. The latter may in part have been a belated reaction to the labour data, but more likely a case of investors and speculators hedging positions ahead of the Thanksgiving holiday shortened trading week, and indeed with year-end in view. There are Japan’s Trade and National CPI, UK Retail Sales, PSNB and GfK Consumer Confidence and French Business Confidence to digest, accompanied by the run of G7 & India flash PMIs, with ECB’s Negotiated Wages indicator and Canadian Retail Sales also on tap. The events schedule has numerous Fed, ECB and ECB speakers, with the COP30 conference scheduled to end today, while tomorrow sees the G20 leaders’ summit in South Africa, though the US president will not be in attendance. New PM Takiachi’s cabinet has finally settled on the size of the supplementary budget, but details on how much extra borrowing this will entail remain absent, though it will likely be higher than the Y6.69 Trln that was required for last year’s supplementary budget. The question now is whether support for the budget can be secured from opposition parties, with Takaichi aiming to have the legislation passed by the end of the year. Meanwhile, Japan’s MoF is rattling the drum roll for JPY FX intervention, but as with anything nowadays, this needs the extra punch of a BoJ rate hike, if it is to achieve anything but slowing the JPY’s downturn, which again underlines that the JPY remains front and centre for BoJ policy. Today’s CPI data clearly support a further rate hike, and the muted downturn in exports to the US along with strength in exports to Asia, China and the EU only add to that, while the Japan PMIs were little changed, continuing to show well documented headwinds for Manufacturing and a relatively solid expansion in Services.

** U.K. – Retail Sales & GfK Consumer Confidence **

Following a robust run of increases in Q3 (0.5% to 0.6% m/m), UK headline Retail Sales posted a sharper than expected reactive correction of -1.1% m/m, getting Q4 Personal Consumption to a poor start. That is hardly surprising, given the whirring talk of an increase in income taxes for much of the past month, until last Friday’s U-turn, which was also reflected in the dip in GfK Consumer Confidence to -19 (vs. -17), and the sharper than expected setback in the Services PMI (50.5 vs. expected 52.0). October’s PSNB data were worse than anticipated and leaves the April-Oct PSNB running £9.9 Bln above the April budget update forecast, underlining the scale of the challenge facing Reeves and Starmer. Their record in misjudging the mood, and by extension left wing support for their legislative measures has been extraordinarily poor, and it will be interesting to see if the left wing of the Labour party opts to ‘leak’ any details (and by extension grievances) between now and next Wednesday.

** G7 – Nov ‘flash’ PMIs **

Forecasts for the G7 PMIs assumed little or no change in any of the G7 economies, with only the US expected to show an expansion in Manufacturing, though Services reading were universally expected to signal a modest expansion. Thus far, India’s PMIs proved to be disappointing, even if still indicating relatively solid growth. There appears to be a sampling problem for French and German PMIs, with the month to month volatility in Services PMIs (France 50.8 vs. 48.0), Germany (52.7 vs. 54.6, 51.5 and 49.3) suggesting erratic participation, with the underlying change in the pace of activity probably much more muted.

** U.S.A. – Sep Labour data / market response **

The initial market reaction appeared to be rather dismissive, choosing instead to continue to dine out on Nvidia earnings ‘euphoria’. While there were pockets of weakness in the report, the solid rise in Payrolls at 119K, even accounting for a net -33K revision to July and August, and the more impressive 250K rise in the Household survey’s Employment measure (after some protracted weakness) do not imply a sharp drop in labour demand. The 0.1 ppt rise in the Unemployment Rate to 4.4% was wholly accounted for by a rise in the size of the labour force, with the small rise in the Labour force Participation Rate to 62.4%, and a similar drop in the Underemployment Rate to 8.0% perhaps the more noticeable aspects. This was the last set of labour data before the December FOMC meeting, with a likely aggregated (and not necessarily statistically reliable given the govt shutdown) October/November report scheduled for December 16, even if the Fed will likely receive a BLS briefing on preliminary data. As such weekly jobless claims and anecdotal evidence from ADP reports, as well as regional Fed surveys, will have to act as the primary guides on the health of the labour market, but at the current juncture the case for a December cut is very weak. One aspect of Payrolls does bear consideration with the 19K pick up in Construction payrolls contrasting with a further -6K drop in Manufacturing brings the 1 yr totals for both sectors to +38K and -94K, which one considers the weakness in housing and office construction seems incongruous. But closer inspection highlights that the category which includes Data Centre construction jobs accounts for most of the strength, and that the underlying picture on growth in the economy is very lopsided and uneven.