Macroeconomics: The Day Ahead – 9 November 2020

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

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

• Busy looking calendar of data rather sparse on highlights: China & German Trade to digest ahead of Eurozone Sentix index; deluge of central bank  speakers, a number of key corporate earnings, ADIPEC energy conference  and US election aftermath
• Post US election ‘risk on’ frenzy no better exemplified than by TRY  rally post central bank and Fin Min changes that change nothing
• Week Ahead: busy schedule of US, UK and China data, but little that offer much insight on outlook given pandemic shroud of fog
• Week Ahead: massed ranks of central bank speakers very unlikely to offer any fresh insights into policy outlook 

EVENTS PREVIEW

As much as the day’s data schedule looks busy, in principle it will amount to little more than digesting China and German Trade data ahead of the dubious value added of the Eurozone Sentix Investor Confidence survey. By contrast, there is a deluge of ECB, BoE and Fed speakers, as is the case all week, and the luminaries of OPEC and major oil companies will also be among the headline makers as the ADIPEC Strategic (oil market) conference gets under the way. On the earnings front, Softbank, Infineon, McDonald’s, Occidental Petroleum and Zoom will likely feature quite heavily. The post US election risk buying frenzy continues, and the its quantum in terms of being indiscriminate is no better exemplified than by the sharp rally in the Turkish Lira following the resignation of the central bank governor on Friday and the Finance Minister. Without wishing to pre-judge the talents or abilities of either of the new incumbents, neither can wave a magic wand to make the political clouds (domestic & international) that hang over the economy, nor the dire external liabilities described below in the week ahead preview.

RECAP: The Week Ahead – Preview:

‘Uncertainty’ continues to be the watchword of the moment, even with Biden winning the US presidency, and notwithstanding the legal challenges from the Trump campaign, it will probably not be until the 5 January Georgia senate election ‘run-offs’ before it becomes clear who will control the Senate, which in turn dictates what Biden and his team may or may not be able to enact in policy terms. The fact remains that a US fiscal package ahead of year end remains a key necessity. Be that as it may, the noise around the US elections should ebb somewhat this week, though in its stead will be another seasoned perennial ‘Brexit’, with yet another ‘final’ week deadline for negotiations to be concluded, and still large differences on fisheries and ‘level playing field’ issues. However it is the rapid escalation of pandemic infection rates, and the accompanying measures to try and rein this in across Europe and North America, which continues to cast a very long shadow over the global economy, and presents the greatest challenge to politicians and central bankers.

Under ‘normal’ circumstances, the schedule of data and events would normally considered to be extraordinarily busy. The US, UK and China have plenty of major data, the volume of central bank speakers is enormous, with the energy sector looking to EIA, OPEC & IEA monthly reports, the four day ADIPEC conference and the Gas Exporting Countries Forum (GECF) ministerial meeting. Meanwhile the agricultural sector focuses on the US WASDE and China’s CASDE reports. The corporate earnings starts to ease back, but will still be busy, with a relatively light week in terms of govt bond auctions outside of the US ‘quarterly refunding’ (3, 10 & 30-yr). As noted on Friday in respect of market price action in bonds and equities, the importance of not falling into the trap of retro-fitting macro news flow onto price movements should be borne in mind, given that so much is related to hedging of short-term options flows, with options volumes relative to underlying cash remaining at very high levels, something which central bankers should be very alarmed by, from a financial stability perspective.

As has been the case for much of this year, the key question to be answered in terms of major economic data releases is not whether it is better or worse than forecasts, but what implications does it have for the outlook? Given that the latter is shrouded in the dense fog of the war against Covid-19, the answer in most cases is almost certainly not. As an example, the UK has Q3 GDP and the accompanying swathe of monthly activity data, which will confirm that there was a sharp rebound in Q3, but at 15.8% q/q this was a long way from recovering Q2’s -21.5% q/q, with September data signalling a loss of momentum, and with the fresh lockdown measures Q4 will see a renewed contraction. This is well known, and the BoE has already taken pre-emptive action last week, and it remains to be seen what impact Brexit will have on Q1; disruption there will be, but how much, and how will it interface with the economic impact of the pandemic. Of greater significance will be the UK labour data, which took a sharper than expected turn for the worse in the prior report, and the risks given anecdotal evidence on layoffs look to be to the downside of an expected -160K drop in Employment in the 3 months to September (Jun-Aug -153K), with the Unemployment seen pushing up to 4.8% from 4.5%. BRC Retail Sales are likely to have lost momentum after jumping to 6.1% y/y in September, but are expected to have held up at solid pace, even if November will be a very different story.

Across the pond in the US, it is the NFIB Small Business Optimism and the Q3 Mortgage Delinquencies data which will be of greater interest than CPI and PPI, both of which are seen little changed from September in y/y terms, well above the disinflation being seen in the Eurozone, but still very subdued from the Fed’s perspective. The NFIB Small Business Optimism is expected to edge up to 104.4 from a much stronger than expected 104.0 in September, but the already published Employment indices (Plans to Hire 18 vs 23, Positions Not Able to Fill 33 vs 36) suggest it will drop back, but remain solid on any historical perspective. For all that the US housing market is very much the clear bright spot in the economy, the picture is very uneven, and with Unemployment remaining high despite falling, Q3 Mortgage Delinquencies (see chart) require attention, having spiked sharply in Q2.

China’s Trade data saw stronger than expected exports (11.4% vs. exp. 9.3%) and weaker than forecast Imports (4.7% vs. exp. +9.5%), and while the former continues to be bolstered by medical supplies and recovery related demand to Europe & North America, lockdown measures are likely to be a drag into the end of the year. As for imports, this was once again a case of specific factors, the unwind of the big boost from crude imports earlier in the year, delays to Airbus deliveries given Chinese fears about infection risks, and end of season dop in Soy Imports (above all Brazil). China’s PPI is expected to remain deeply negative at -1.9% y/y (vs. Sep -2.1%), but CPI is likely to be the talking point with another steep fall to just 0.8% y/y from 1.7%, though this will again be due to base effects, as last year’s spike in pork and fruit prices unwinds, and likely to see CPI turn negative over the next 3-4 months; non-Food CPI should remain relatively steady, though low. Lending aggregates are also due, with the expected sharp slowdown in nominal terms wholly due to the National Day ‘golden week’ holidays. Elsewhere German Trade and the pointless ZEW survey, Japan’s Economy Watchers (services) survey), and the end of week run of Q3 GDP readings in the EU/Eurozone will attract some attention, as will the Canada’s Q3 BoC Senior Loan Officer survey.

On the central bank front, there are between 5 and 15 G7 central bank speakers on each day of this week, with the ECB’s Central Bank Forum seeing amongst other things a panel of ECB’s Lagarde, Fed’s Powell and BoE’s Bailey discussing current policies. However outside of the already documented commitments to ensure financial stability, keep near zero or negative rates for the foreseeable future, the promise to do ‘whatever is necessary’, and the emphasis on very expansive fiscal policy, there is unlikely to be anything new. Despite all the chatter around the possibility of negative rates, New Zealand’s RBNZ is expected to hold rates at 0.25%, and in the EM space, Banco de Mexico is seen cutting rates a further 25 bps to 4.0%, with Biden’s US election win likely to strengthen the MXN. Following the dramatic sacking of the governor of Turkey’s TCMB on Friday for ‘allowing’ (mismanaging) the sharp fall in the TRY, there will be a lot of focus on what new governor Naci Ağbal can actually achieve. The facts are that the weakness in the TRY has been, and is, above all about political pressure on the TCMB, and the fact that Turkey’s short-term external debt exceeds its FX reserves by a factor of three.

While EIA, IEA and OPEC itself all publish monthly reports, the focus will be on the ADIPEC strategic conference that sees keynote speeches from all of the major OPEC+ member ministers. The expectation is that they will offer broad hints that the Dec OPEC+ meeting will roll over current production caps, rather than raise them as had been planned, primarily due to an expected drop in demand due to rising infection rates and lockdown measures. This week’s USDA WASDE report will very closely watched for its forecasts for China’s imports of Soy and Corn import as its swine herd has been recovering from the African Swine Fever decimation, with a large upward revision to China Corn Imports expected, reflecting a highly criticized lowball estimate in its prior report, and a near threefold increase in last week’s USDA’s Foreign Agricultural Service estimate.

As the corporate earnings season starts to wind down, Bloomberg note the following as likely to be among the headline grabbers: McDonald’s, SoftBank, Infineon, Simon Property Group, Adidas, Deutsche Post, Datadog, Fujifilm, Tencent, Porsche, Lyft, Manulife, Toshiba, ABN Amro Bank, Walt Disney, Cisco, Siemens, Applied Materials, Brookfield Asset Management, Palantir, Nissan Motor, DraftKings, Hapag-Lloyd and Berkshire Hathaway.

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