Macroeconomics: The Day Ahead for 13 September

It will be a relatively subdued end to the week in statistical and event terms, with US Import Prices and provisional Michigan Sentiment the only likely movers in data terms, and otherwise the focus will be on speeches by Rehn and Lagarde following yesterday’s ECB rate cut, with Nagel and Rehn both leaning to the dovish side, in talking about inflation trending in the right direction, and rate cuts supporting growth. There was a very familiar feel to Lagarde’s press conference, which echoed the messaging in June after the first rate cut, and in principle closed out the chance of a further cut in October. She stressed the need to keep policy ‘sufficiently restrictive’ and noted that ‘domestic inflation is not satisfactory’, above all reflected in core CPI forecasts being revised up by 0.1 ppt for 2024 and 2025, even though GDP forecasts were shaded lower for 2024 through 2026, with growth risks ’tilted to the downside’, though Unemployment forecasts for 2024 and 2025 were held at 6.5% (but raised from 6.3% to 6.5% for 2026). Outside of the US data, there are the latest BoE inflation expectations surveys and the generally overlooked Eurozone Industrial Production, while tomorrow brings the run of China’s monthly activity and property sector data.

The latter will only serve to compound concerns about China’s economic outlook, with Retail Sales seen slowing to a very sluggish 2.5% y/y (from 2.7%), Industrial Production to drop to 4.7% y/y from 5.1%, Fixed Asset Investment to ease to 3.4%, while Property Investment is seen at -10.0% y/y, a marginal improvement, though only thanks to benign base effects. Credit aggregates may also be published today or over the weekend. These have been woefully weak in recent months with a rebound in Aggregate Social Financing of CNY 3.33 Trln, and a still sluggish CNY 1.064 Trln rise in New Yuan Loans expected, the latter above all still signalling a dearth of credit demand, thanks to the lack of business and consumer confidence, that is further exacerbated by rising youth unemployment, and flat to falling wages.

US Import Prices are likely to face downward pressure from energy prices, with a drop of -0.2% m/m expected, while the ex-Petroleum measure is conversely seen up 0.2%, in both cases effectively echoing PPI and CPI. Michigan Sentiment is seen languishing at very weak levels, up fractionally to 68.5 from August’s final 67.9, with inflation expectations expected to be unchanged at 2.8% (1-yr) and 3.0% (5-10-yr). Neither are really that material to the Fed decision, which will rest largely on whether the Fed judges the current loosening of the labour markets to have the degree of momentum which requires a more pre-emptive path for rates, while at the same time weighing whether an ‘aggressive’ 50 bps cut might send a ‘panicky’ signal on the economy.

Next week has the US FOMC meeting as its focal point, and the much anticipated initial 25bps rate cut. It also sees key US activity data, with headline Retail Sales expected to drop -0.2% m/m thanks to the Auto Sales drop, though core measures are expected to rise 0.3%/0.4%, mirroring July’s solid if unspectacular increases. Industrial Production is seen edging up 0.1% m/m thanks to higher Utilities output, though Manufacturing is forecast to fall -0.2%, with NY & Philly Fed Manufacturing surveys also on tap, along with various housing data (NAHB, Starts and Existing Home Sales). In the UK, the BoE MPC meeting, inflation and Retail Sales data top the agenda, with headline CPI published just ahead of the BoE meeting seen unchanged, while Friday has Retail Sales, PSNB Budget and GfK Consumer Confidence. Expectations for no change from the BoE are unanimous, and it will be interesting to see if there is any reference to prospective fiscal policy tightening, which would in principle imply the need for easier monetary policy. The BoJ also meets on Friday, and will very likely keep rates unchanged at 0.25%, though its narrative will likely be hawkish, though with the LDP leadership election following the next week, it will likely want to stay on the sidelines, awaiting ‘guidance’ from whoever takes over at the Ministry of Finance.