Macroeconomics: The Day Ahead for 13 October

  • Busy day all round: digesting strong China Trade, weaker than expected Japan Orders and UK GDP and monthly activity indicators; awaiting US CPI, FOMC minutes; raft of Oil Market Reports, G-20 finance ministers and central bank press conference; JPM & Blackrock kick off US Q3 earnings season; debt auctions in Germany, Italy, UK and USA

  • US CPI: re-opening related prices to fall, restrain upward pressure from gasoline, energy, housing and household goods

  • US FOMC minutes: discussion around inflation outlook and appropriate policy response in focus

  • China Trade better than expected, but focus already on forward impact of power and property crises

  • UK GDP rebound proves tepid thanks to very modest Services pick-up; but focus already on impact of power and logistics crises over end Q3 into Q4

EVENTS PREVIEW

Another busy day for data and events awaits, with a heavily front loaded statistical schedule offering China’s Trade data, Japanese Orders and UK monthly GDP, Index of Services, Industrial Production and Trade on the ‘to digest’ list, while ahead lies US CPI. Then there are the barrage of oil market reports: IEA annual World Energy Outlook, and monthly Oil Market Reports from OPEC and the EIA. Of particular note will be how much the oil market reports revise up overall demand over the winter season, given a domino effect of the spike higher in natural gas price prompting energy providers to switch to oil; according to some industry estimates current NatGas prices in Europe equate roughly to a $200 oil price! The IMF / World Bank annual meetings continue, featuring a press conference with G20 central bankers and finance ministers, while the FOMC publishes the minutes of its September 20/21 meeting. The US Q3 earnings season gets under way with JP Morgan Chase and Blackrock reporting. According to Factset, the consensus is for overall Q3 earnings growth to be up 27.6% y/y, but it will be forward earnings guidance that attracts most attention, with negative guidance climbing and positive having fallen for Q3. The govt bond auction schedule has Italian 3, 7 & 30-yr, UK 30-ur Index-Linked, and conventional 30-yr sales in Germany and the U.S.A.  In the EM space, Chile’s BCC is likely to follow up last month’s aggressive initial rate hike with a further 75 bps hike to 2.25%, and is likely to maintain a tightening bias.

 

U.S.A. – September CPI / FOMC Minutes

– CPI is seen up 0.3% m/m headline to leave the y/y rate unchanged at 5.3%, while core is expected to rise 0.2% m/m to edge the y/y rate up to 4.2%. Notably, the delta variant spread will again likely see re-opening components pulling inflation lower, but upward pressures on housing, household goods (due to rising transport costs) and a 1.4% m/m rise in petrol prices will more than offset this, and clearly pose a bigger challenge to the Fed’s ‘transitory inflation’ narrative, with the risks skewed to the upside of the consensus. As for the FOMC minutes, while the discussion around the policy outlook above with regards to the now much anticipated QE taper will be of interest, along with the rationale for those that shifted their rate hikes trajectories, it is worth remember that two of the hawkish dots (Kaplan and Rosengren) have since been forced to step down from the FOMC.

 

China Trade and UK GDP

– For all that China’s Exports were much better than expected, and Imports were robust despite missing forecasts, (and implying a material boost to next week’s Q3 GDP) the widening property and power crises put the markets focus firmly on the outlook, with the power crisis likely to start hitting October exports, before providing a much larger drag in November and December. Much the same can be said about the UK monthly GDP and activity indicators, with the modestly weaker than expected 0.3% m/m bounce from July’s marginal contraction underlining the weak recovery momentum, despite a stronger than expected 0.5% m/m rebound in Manufacturing Output, and primarily due to a sluggish 0.3% m/m rebound in the Index of Services. But with logistics and power crisis getting a lot of traction in September, the question is how much of a drag this will prove to be over the end of Q3 and into Q4, in turn presenting a further challenge for the BoE as it gets ever more uncomfortable with current inflation trends.

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ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

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