Macroeconomics: The Day Ahead for 16 September

With markets fully focussed on next week’s FOMC meeting, today has a heavily front loaded data run, dominated by the run of China’s activity (and property sector data, with UK Retail Sales, Singapore Exports and EU New Car Registrations also to digest. Ahead lie final Eurozone CPI, which given the upward revisions in France and Spain may well be tweaked higher from the provisional 0.5% m/m 9.1% y/y on headline, and 4.3% y/y for core CPI. Canada’s Housing Starts and preliminary US Michigan Confidence are the only other statistical items likely to distract from the FOMC vigil. ECB speakers are again plentiful today and indeed tomorrow, while the meeting of Nato chiefs will obviously focus on the successes that Ukraine has had in retaking territory from the Russian invaders. Rates are expected to be cut 50 bps to 7.50% in Russia. Next week’s schedule is quite light in terms of hard data, with an array of US and Canadian Housing stats accompanying G7 flash PMIs and other surveys including UK GfK Consumer Confidence. But it will be the Fed (exp. +75 bps to 3.0-3.25%) and BoE (exp. +50 bps 2.25%) meetings that are centre stage, with the monthly Loan Prime Rate fixing in China not expected to see any change, and Brazil’s BCB also expected to hold rates at 13.75%. While the US CPI data has fomented some speculation about a 100 bps Fed rate hike (currently seen as 20 % probability), but having already ratcheted the rate hike pace up to 75 bps in June and July, and then ratcheting up to 100 bps next week would have more than a whiff of desperation about it, and with financial conditions at/close to their tightest levels since mid 2020, it might be the trigger for a much sharper tightening that sends risk premia much higher.

** China – August Activity & Property data **

– The activity data was considerably better than expected, despite the heatwave and power disruptions, and benefitting from some re-opening effects, with power consumption getting a boost from higher air conditioning use, as well as the strength in public sector Fixed Asset Investment, with local governments initiating numerous projects to meet central govt directive. The latter should continue to act as a prop for Industrial Production going forward, but with further bouts of lockdowns, the rebound in Retail Sales may have less traction. Property sector data were unsurprisingly dire, with the renewed accelerated fall in Home Prices in part a reflection of discounting to boost very weak sales, but overall the data underline that there is still a long way to go before the sector’s problems are resolved.

** U.S.A. – Sep Michigan Sentiment **

Michigan Sentiment is seen up for a third month, but still very low at 60.0 on any historical comparison. As with the NFIB Small Business survey, this does really appear to be no more than a proxy for gasoline prices, as can be seen on the attached chart comparing it to US Average Retail Gasoline Price, even if the correlation pre-2022 was largely ‘in step’, as opposed to inverse as it has been this year. That being the case, it is little surprise that 1-yr Inflation expectations are forecast to dip to 4.6% from 4.8%, while 5-10 yr are seen at unchanged at 2.9%, in line with the long term average.