Macroeconomics: The Day Ahead for 18 October

  • Gaza hospital strike, China property woes, US China semiconductor ban likely to overshadow busy data, earnings mad central bank schedule
  • Digesting China GDP and activity data, UK inflation; awaiting South Africa CPI, final Eurozone CPI and US Housing Starts; Biden Israel visit, ECB, Fed and Riksbank speakers; Netflix and Tesla headline US earnings
  • China GDP and activity data better than expected, but details less Encouraging, as Services spending helps to offset property drag
  • UK CPI: slightly higher than expected readings makes case for ‘high for longer’ stronger, but not cause for further rate hike
  • US Housing Starts: rebound seen after August slide, NAHB highlights strong headwinds from high mortgage rates


The day’s schedule of data is quite heavily front loaded, dominated by China’s Q3 GDP, monthly activity and property sector data and the array of UK inflation statistics, with South African CPI, final Eurozone CPI and US Housing Starts ahead. Another busy run of Fed, ECB and Riksbank speakers accompanies the latest Fed Beige Book, while the US corporate earnings schedule has more financials (Morgan Stanley, Discover and State Street), but also a larger run of non-financials, with Tesla and Netflix headlining for the tech sector, with Abbott Laboratories, Alcoa, Kinder Morgan and Procter & Gamble also due. Govt bond sales take the form of EUR 4 Bln of German 10-yr and USD 13 Bln of US 20-yr. Eminently Biden’s visit to Israel to try and contain the escalation of the conflict with Hamas in Gaza, a seemingly very unlikely prospect following the terrible missile attack on a Gaza hospital and the cancellation of the summit with Arab leaders that had been scheduled for today, and the woes of China’s property sector behemoths, and further tensions with the US following the latest ban on exports of AI chips to China, will continue to cast a very long shadow. Today’s EIA weekly oil and product inventories data will also attract attention, as stocks continue to run down (API suggesting a 4.1 mln drawdown in crude, 1.6 Mln drop in Gasoline and 610K fall in Distillates).

** China – Q3 GDP, September activity data **

– On the surface Q3 GDP was considerably better at 1.3% q/q than the expected 0.9% q/q, with year to date GDP at 5.2% y/y vs. a forecast of 5.0%, but Q2 was revised down to 0.5% from an originally reported 0.8%. Much the same can be observed about Retail Sales at 5.5% y/y vs. expected 4.9%, but dipped y.t.d. to 6.8% from 7.0%, while Industrial Production was only marginally better at 4.5% y/y vs. expected 4.4%, and FAI dipped to 3.1% y/y. Per se the headline GDP reading is somewhat deceptive as it implies an acceleration in growth momentum, which is not borne out by the monthly activity data, even if Services spending clearly gave a boost. The drop in the Surveyed Unemployment Rate to 5.0% from 5.2% takes it down to the best level since November 2021, suggesting that stimulus measures are getting traction, though the reliability of the data series remains very much in question. Property data remain bleak with the fall in Residential Property Sales to -3.2% y/y from -1.5% echoing other surveyed reports, while the drop in Property Investment accelerated to -9.1% from -8.8%, and with Country Garden missing the coupon payment on USD bond as the grace period elapsed yesterday, it is now in default on all of its external debt, underlining that the sector crisis is for choice deepening.

** U.K. – September CPI & PPI **

– While m/m CPI was in line with forecasts at 0.5%, yr/yr readings were marginally (0.1 ppt) above forecasts – headline unchanged at 6.7%, Core 6.1% vs. August 6.2%, and Services 6.9% vs. August 6.8%, with Clothing & Footwear (0.17 ppt), Restaurants & Hotels (0.12 ppt) and Recreation (0.09 ppt) the main drivers of inflation on the month. While this will be disappointing for the MPC, it hardly makes the case for a further rate hike, but rather reinforces the mantra of high for longer, and the ‘still have work to do’ to bring inflation down, as per comments from both Bailey and Pill earlier in the week. A smaller than expected m/m rise in PPI Input (0.4% m/m -2.6% y/y) also underlines that pipeline pressures remain subdued.

** U.S.A. – September Housing Starts **

– Yesterday’s Retail Sales and Industrial Production once again confounded the massed array of those that have been talking down the US economy for more than a year, but housing sector data remain quite downbeat, as evidenced by another sharp fall in the NAHB Housing Market Index, clearly wilting under the weight of high mortgage rates. Housing Starts remain volatile, with a 7.6% m/m rebound expected after the steep 11.3% drop in August, presumably predicated on the continued relative strength of Building Permits in August (6.8% m/m), though a reversal of 5.7% m/m is anticipated for September. The Fed’s Beige Book will be of interest given the better than expected activity data, though the consensus is expecting it to suggest that activity slowed relative to the prior report, of particular note will be whether companies continue to struggle to pass on rising costs, as was suggested in the prior edition, as well as the anecdotal evidence on labour demand, after another unexpectedly strong payrolls report.

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