Macroeconomics: The Day Ahead – 22 October 2020

Good Morning: The Long & the Short of it and The Bigger Picture

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

  • Politics and pandemic news still front and centre; digesting drop in French Business and German Consumer confidence, awaiting UK CBI Industrial Trends, US weekly jobless claims and Existing Home Sales; plenty of G7 central bank speakers & EM cen bank policy meetings with focus on Turkey; US presidential debate, corporate earnings; bond  auctions in UK, USA and Canada
  • Turkey rate decision: 175 bps hike expected, but no panacea as political and economic risks still abundant
  • Steepening US yield curve, time for Fed to start Yield Curve Control?
  • US weekly jobless claims: Initial seen resuming modest downtrend; risk  of mean reversion higher on Continued Claims
  • US Existing Home Sales: expected to continue going from strength to  strength
  • Charts: US 5 / 30 yr yield spread; US HY vs Asia USD HY denominated HY


My apologies for the non-publication of both ‘Overnight Headlines’ and ‘Good Morning’ over the past two days, this was thanks to Microsoft designating me a spammer and blocking my email account for sending these, which as longer term readers will know I have been publishing daily for some 20 years. From my own personal perspective, I would have thought MS Office would be a far more suitable candidate for the type of anti-trust case being brought against Google, given that there are no other viable choices (so it’s a monopoly), above all for businesses, unlike search engines or web browsers. But enough of that.

There remains no doubt that the regular or normal ‘macro’ inputs (data, central banks) are little more than flotsam and jetsam in an ocean of uncertainty, in which politics (Brexit, US fiscal package and elections) and pandemic (infections, vaccines, lockdown measures) rule the waves. A busier schedule awaits on all fronts, even if the data run with Thai Trade, French Business and German Consumer Confidence to digest, with the UK CBI Industrial Trends and quarterly Business Optimism surveys, and US weekly jobless  claims, Existing Home Sales and KC Fed Manufacturing survey ahead. There are plenty of BoE and Fed speakers, but it is also a busy day for EM central bank policy meetings, with Turkey’s TCMB front and centre, and the rest not expected to change policy rates. The pressure on the TRY and by extension the central bank due to the numerous political tensions, and the sharp erosion of FX reserves to service external debts has perhaps never been greater. The recent consolidation of the TRY is partly due to measures to choke offshore TRY liquidity, and expectations of a substantial rate today, with the consensus looking for a 150-175 bps hike. Barring a far more aggressive move, there may be an element of ‘sell the fact’, above all given the very obvious determination of the political to continue its aggressively confrontational stance in all areas of dispute, and the ongoing woes of the economy. Tonight also sees the last of the US TV presidential debates. US corporate earnings highlights are likely to include AT&T, Coca Cola, Kimberly-Clark, Mattel, Seagate Technology and Union Pacific, while the govt bond auction schedule has 15 & 30-yr UK, US 5-yr TIPS and Canada 3-yr. It is also well worth noting that the steepening of the US Treasury curve 5/30 yr spread has breached previous major resistance in the +120/123 bps are and would appear to be heading for the 140/142 bps area – see chart – and offering a clear signal that markets are betting on a clean sweep for the Democrats, as well as raising the question: at what level does the FOMC start to consider deploying Yield Curve Control?

On the political front, the UK government seems determined to demonstrate that it can outdo both the former Soviet Communist party and China’s Communist Party in terms of the centralization of govt, though in the most incompetent and antagonistic manner possible, and the deep rooted ‘blame culture’ that is deployed at any and every opportunity is the rhetoric of abject failure. Be that as it may, markets will for the time being take heart from the resumption of high level Brexit talks following the past week’s brinkmanship.


U.S.A. – Weekly Jobless Claims / Sep Existing Home Sales

After last week’s 53K spike (largely due to a catch up in California), Initial Claims are expected to resume their modest downtrend with a 28K drop to 870K, which as has been pointed remains above both the prior record peak in 1946, and well above the post GFC speak. As yesterday’s Beige Book noted: “Employment increased in almost all Districts, though growth remained slow. Employment gains were reported most consistently for manufacturing firms, although firms continued to report new furloughs and layoffs.” Continued Claims are seen falling below the 10.0 Mln level to 9.625 Mln, though that assumes that last week’s precipitous 1.165 Mln drop (way above an average drop of 530K in prior weeks) was not anomalous, and the risk is distinctly to the upside of the forecast. For the time being (in the continued absence of a replacement PPP programme), the better gauge of the labour market’s health is the Pandemic Employment Unemployment Compensation claimant data, which has nearly doubled in the past 2 months to 2.778 Mln. The Housing sector remains in good health (Beige Book: “Residential housing markets continued to experience steady demand for new and existing homes, with activity constrained by low inventories”), and following the fresh record for the NAHB index, Existing Home Sales are projected to accelerate to a very robust 6.30 Mln SAAR pace (up 5.0% m/m vs. Aug 2.4%).



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