Macroeconomics: The Day Ahead for 17 September

The data and events calendar to end the week is very modest, with disappointing Singapore Exports and UK Retail Sales to digest ahead of final Eurozone CPI and the US preliminary Michigan Sentiment, along with a smattering of ECB speakers, an expected no change rate decision in Nigeria, while Russia kicks off its parliamentary elections, which conclude on Sunday. It is also ‘quadruple witching; with equity and index options expiries in Europe and the U.S.  Wholesale energy prices continue to be extraordinarily volatile, as can be seen on the array of attached charts. But what is also striking is how the sharp swings in oil prices have also dictated the bigger swings in the S&P 500 over the past 3 months, even if the narrative remains a very fickle one, initially with oil price moves seen as a proxy for better / worse growth prospects, and latterly inflation risks.

Next week will be dominated by central bank policy meetings, with the focus on the Fed and the BoE, and rather less on the BoJ, while Turkey’s TCMB faces yet another round of political pressure to reduce rates. Politically the week is bookended by elections in Canada (Monday) and Germany (Sunday), with opinion polls suggesting a period of political gridlock in both, before some form of ruling coalition can be established. Statistically there are the ‘flash’ G7 & Australia PMI readings, along with numerous surveys in the Eurozone and the UK, including Germany’s Ifo, while the US has a raft of housing data, and Brazil has IPCA IBGE Inflation; the OECD will also publish its latest Interim Economic Outlook.

U.K. – Aug Retail Sales

The run of disappointing UK activity data continues with the unexpected 0.9% m/m setback meaning that sales have fallen for four consecutive months, though still leaving sales 4.6% higher than the February pre-pandemic level, above all thanks to the 9.3% m/m jump in April. Outside of a modest 0.7% m/m gain for Clothing & Footwear, all other sub-categories fell, and the weakness doubtless reflects some rebalancing of personal spending from goods to services, as the economy re-opened fully, as well as a drag from the high level of infection rates. While no changes to Base Rate or QE volumes are expected at next week’s meeting, the CPI data still leaves the possibility that one or other MPC member (with new Chief Economist Huw Pill being touted as a hawk) joins Saunders in voting for a QE reduction. The MPC majority will almost certainly be cautious about making any changes to policy until some data becomes available about the impact of the termination of the furlough scheme at the end of this month, despite labour market developments proving to be a lot better than many had feared.

U.S.A. – Sep Michigan Sentiment

The divergence between Michigan Sentiment and Consumer Confidence has been eye catching, with the setback in Consumer Confidence in August still leaving it at a solid level, just as the Michigan measure plumbed a new pandemic & 10-year low of 70.3, attributed above all to the rapid spread of the delta variant, and weaker labour and spending data. If yesterday’s sharp rebound in Retail Sales (above all the 2.5% m/m in the core Control Group measure), that is in part being attributed to the expanded child tax credit programme, that started to be disbursed in mid-July, then there may be a sharper rebound than the consensus for a dead cat bounce to 72.0.