Macroeconomics: The Day Ahead for 15 October

The re-escalation in trade tensions between the US and China is likely to remain the dominant factor on another busy day for events and corporate earnings, as China’s inflation indicators are digested ahead of Eurozone Industrial Production, US NY Fed Manufacturing and India’s Trade Balance. Central bank speakers are again very numerous, the Fed publishes its Beige Book, while G7 Finance Ministers meet to discuss additional measures / sanctions on Russia. In terms of corporate earnings ASML headlines in Europe, while the US has Bank of America, Morgan Stanley and United Airlines amongst its highlights. Underlying risk appetite remains robust, even if there is a good deal of wishful seeing and wilful blindness in evidence, with markets taking solace from Powell’s comments on the economy and rates, and doubtless the signal on the potential end of QT. On the other side they are blithely ignoring the fact that we are now in the third week of the US govt shutdown, with no progress on bridging the deep divide between Republicans and Democrats, in what appears to be a high stakes and ideologically driven positioning game ahead of next year’s mid-term elections. It sends the rest of the world a very negative signal on US political governance, further undermining trust in the US, and domestically only deepens the already chasm like divisions, which fuel the fire of increasing social unrest.

China’s inflation data were broadly in line with forecasts at 0.1% m/m -0.3% y/y for CPI and flat m/m 2.3% y/y for PPI, though in both cases the improvement was wholly due to benign base effects. The small crumb of comfort is that core CPI continues to edge higher (1.0% y/y vs. prior 0.9%), and the measures to curb ‘involution’ (competitive price cuts) that come into effect this month should help to ease some of the downward pressures. However, the biggest drag remains food prices (-4.4% y/y), and within PPI Consumer Goods fell -1.7% y/y (unchanged), as Consumer Durables prices continued their descent.