Macroeconomics: The Day Ahead for 20 October

The day’s data schedule is quite heavily frontloaded, with Japan Trade (slightly better than expected), Australian Unemployment (modest miss relative to forecasts), German PPI (yet another upside miss) and French Business Confidence (better than expected, outlook improved) to digest, while the US dominates the remainder of the schedule via way of weekly jobless claims, Philly Fed manufacturing and Existing Home Sales. A busy run of Q3 earnings features ABB, Akzo Nobel, DNB, Nordea, Volvo and Yara International in Europe, while across the pond American Airlines, Blackstone, Dow, Freeport-McMoRan, Nucor, Snap, Tenet Healthcare and Union Pacific are likely to be among the headline makers.

As anticipated there were no changes at China’s monthly LPR fixings, with EM rate decisions expected to see Bank Indonesia raising rates a further 50 bps, Ukraine’s NBU holding, and Turkey’s TCMB cutting yet another 100 bps, again due to hefty political pressure.

There is a further rash of BoE, ECB and Fed speakers, though many of these are talking about non-monetary policy issues, but there is yesterday’s Fed Beige Book to digest, which saw a continued divergence in regional growth, some easing in inflation pressures, and generally more pessimism on the economic outlook.

Govt debt supply has multi-maturity sales in France and Spain, while the US offers 5-yr TIPS. But it will almost certainly be the political arena which continues to dominate alongside inflation concerns, with the UK government seemingly unable to do anything but stumble from one crisis to another (the key 1922 Committee is set to meet today amid calls for PM Truss to resign immediately), with the Home Secretary being forced to resign due to amateurish behaviour, while the two-day EU Summit that starts today will again try to debate and adopt the EU Commission’s energy market reform proposals, even though deep divisions remain all too evident.

Russia’s attacks on Ukraine’s energy and other key infrastructure appear to be intensifying, even as it finds itself on the back foot due to Ukraine’s counter-offensive, and Putin’s rhetoric continues to raise the odds of either an attack on other states in Europe and/or deployment of tactical nuclear weapons.

The continued and unprecedented delay in the publication of key Chinese activity data, and the lack of any changes to its Zero Covid policy (with the proposed quarantine changes for travellers at best marginal in impact terms), and the absence of measures to restore some stability to its property sector, let alone measures to bolster its weak economy at this week’s CPPC, continues to cast a long shadow.

The fact is that markets continue to clutch at straws in terms of central bank rate pivots and hopes that the economic downturn will not be as bad or protracted as looks likely, while policymakers (govt and monetary) are still mired in firefighting a broad array of crises, most of them borne on the wings of decades of capital misallocation, and per se not rectified by emergency measures, but requiring root and branch rethinks that are antithetical to vexed political cycles.

** U.S.A. – Philly Fed Manufacturing, Jobless Claims & Existing Home Sales **
While Industrial Production proved to be stronger than expected, today’s Philly Fed survey is expected to remain very weak -5.0, even if somewhat better than September’s -9.9, with the focus on the details on Orders, Employment, Prices and CapEx outlook.

Following on from the larger-than-expected falls in the NAHB survey and Housing Starts, today’s Existing Home Sales are forecast to post an eighth consecutive fall, of -2.2% m/m; and unsurprisingly hobbled by mortgage rates at 6.92%.

Nevertheless, for all that the economy is clearly cooling, the labour market is showing little sign of loosening, with Initial Claims forecast at a low 232K (vs. prior 228K).