Macroeconomics: The Day Ahead for 15 September

A relatively busy day to end the week, with the run of China activity and property data along with the PBOCs 1-yr MTLF operation and Indonesian Trade to digest, while ahead lie Eurozone Q2 Labour Costs and Trade Balance, final Italian CPI, UK BoE 1-yr Inflation Expectations, as the US looks to NY Fed Manufacturing survey, Industrial Production and preliminary Michigan Sentiment. ECB speakers are out in force following yesterday’s rate hike, and it will be interesting to see if Lagarde’s equivocation on whether rates have peaked was primarily to reinforce the point that rates will remain high for a protracted period, rather than to suggest that a further rate hike might be possible in December after a pause at the next meeting. It will also be interesting to hear how the doves on the council pitch their argument for opposing yesterday’s hike, given that the ‘solid majority’ for the hike clearly signals rather deep divisions, as market attention now move to the Fed, BoE and BoJ meetings next week. The US auto workers strike will be very closely watched, with even a relatively short strike (say 10 days) likely to be very costly (ca. >$5.0 Bln according to industry estimates), and leaving President Biden in a very difficult position in terms of an intervention, such as occurred with rail workers in 2022 (but far more difficult with the auto sector), given a failed intervention would do a lot of damage going into an election year, but not intervening in the event of a protracted dispute would also leave him being blamed, with Michigan being a pivotal state. The fact that a government shutdown looms at the end of the month, unless a stop gap spending bill can be passed, which the hardline Republican ‘Freedom caucus’ seems determined to resist, as it continues to threaten to unseat House Speaker McCarthy.

** China – Industrial Production, Retail Sales, FAI & Property sector indicators **

– While Industrial Production at 4.5% y/y and Retail Sales at 4.6% y/y were clearly better than expected, despite relatively adverse base effects for Retail Sales, and FAI was broadly in line with forecasts at 3.2% y/y, they suggest that the recent weakness has troughed (as also implied by the PMIs), rather than imply that the piecemeal stimulus measures are getting some sustained traction. Indeed the fall in New Home Prices, the continued sharp drop in Property Investment (-8.8% y/y), and a renewed dip in Property Sales (-1.5% y/y vs. July +0.7%) continue to underline the large drag from the sector. Be that as it may, markets may well choose to focus on the large net boost to liquidity at the PBOC’s MTLF operation following yesterday’s 25bps cut in bank Reserve Requirement Ratio as signalling greater determination on the part of the PBOC to boost the economy. But as previously noted, it is weak credit demand rather than supply that is the problem, so the question is whether the cumulative impact of measures taken is sufficient to boost confidence.

** U.S.A. – Import Prices, NY Fed Manufacturing, Industrial Production & Michigan Sentiment **

– Import Prices round off this week’s run of inflation data, and as was the case with CPI and PPI, energy prices are likely to be the key driver of an expected 0.3% m/m headline rise, with the ex-petroleum measure seen unchanged, though the slightly higher than expected 0.3% m/m PPI ex-Food, Energy & Trade and higher than expected headline CPI and PPI suggests upside risks for both measures. The super volatile NY Fed Manufacturing is forecast to rebound, but only to -10.0 from -19.0z, and after some unexpected utilities and auto sector related strength in July, both headline Industrial Production and Manufacturing Output are seen eking out a marginal rise of 0.1% m/m, echoing the ISM Manufacturing Production sub-index. Michigan Sentiment is expected to dip for a second month to 69.0 from 69.5, with Current Conditions seen dropping to 74.7 from 75.7, with the rise in gasoline prices likely to be a key drag, and imparting some downside risks relative to forecasts.