Macroeconomics: The Day Ahead for 20 November

As yesterday more than amply demonstrated, the ongoing conflicts in Ukraine and the Middle East can swiftly force markets into a much more defensive stance, and render medium-term considerations about the economic outlook, interest rates or Trump 2.0 little more than hapless bystanders as geopolitical tensions escalate. Today’s data schedule is thin, even though UK and South African CPI will have some impact on domestic asset prices, and some attention will be given to the ECB’s Q3 Negotiated Wages report. ECB and Fed speakers will be out in force, and the ECB also publishes its Financial Stability Review, as no change outcomes at China’s Loan Prime Rate fixings and Bank Indonesia’s policy meeting are digested. Into all of this is thrown the always much anticipated Q3 corporate earnings report from Nvidia, which is expected to post net income of $18.4 Bln, with revenue jumping over 80% to $33 Bln, and it is also expected to lift its forward guidance, after getting over some production ‘snafus’ earlier in the year related to its newest chip. Given that its more recent quarterly earnings ‘beats’ have been dwindling in size, this report will have to beat estimates more than comfortably, especially with broader valuations looking rather lofty, and bond yields still under upward pressure, despite yesterday’s flight to safety reversal lower

** U.K. – October CPI **

– The rise in Household Energy prices and to a smaller extent Education accounted for nearly of the higher than expected 0.6% m/m 2.3% y/y headline rise, and indeed the worse than expected Services CPI (5.0% y/y) and core CPI 3.3% y/y; Recreation also exercised some upward pressure due to adverse base effects, despite falling -0.1% m/m. While the rise in core and Services CPI will not be welcomed by the MPC, the underlying trend in Services inflation is still down, though there will obviously be upward pressure going forward due to the rise in the minimum wage, hike in employer NI contributions and the reduction in Business Rates rebates. Per se, there will be a great deal of BoE caution about further rate cuts, until there is more evidence on the impact of the aforementioned budget measures.

** Eurozone – Q3 ECB Negotiated Wages **

–  With many ECB speakers expressing confidence that wage pressures are continuing to ease, there may be less sensitivity to the ECB’s Q3 Negotiated Wages report, which should be a much more modest drop than the slide from Q1’s 4.8% y/y to Q2’s 3.5%, particularly as forward-looking indicators for 2025 wages suggest further easing in pay settlements, above all due to a very weak economic outlook. Yesterday’s final Eurozone CPI also confirmed that the 3-mth annualized rate for Services CPI slowed to just 3.0% (vs. prior 4.3%), which also points to lower wage growth, given that this is a, if not the, key contributor services inflation.