Macroeconomics: The Day Ahead for 21 October

While the statistical schedule has some points of interest via way of the overnight UK PSNB (reinforcing the view that Chancellor Reeves faces a very difficult, if not nigh on impossible balancing act in next months’s budget) and South Korea’s October 1-20 Exports ahead of India’s Infrastructure Industries Output and Canada’s CPI, these will likely attract more domestic rather than international interest. A busier run of US corporate earnings looks to be of greater interest with Coca Cola, GE, GM, Halliburton, Lockheed Martin, Netflix, Pulte, Texas Instruments and perhaps above all Western Alliance Bancorp, given last week’s fraud related writedown.

There are also a good number of BoJ, ECB and RBA speakers. Takaichi’s confirmation as Japan’s new and first female PM does not really ease the overall political uncertainty, as the LDP/Ishin coalition does not have a majority in either the lower or upper house of the Diet and will have to make deals with other parties to pass legislation, which will inevitably constrain its ability to enact meaningful reforms. As such, the shift to the right in terms of the government composition is probably of less significance than some commentators are suggesting. But it does leave the BoJ heavily constrained on further and now rather imperative rate hikes, as the rather ambivalent and non-committal comments from Ueda over the past week have highlighted, despite a number of hawks doubling down on their calls for another rate hike at the end of the month.

Market sentiment remains dominated by persistent risk appetite, with a deluge of newswire headlines this morning citing ‘US trade deal’ optimism, but even a fleeting glance through related headlines underscores that this is a case of telling a good story premised on little more than fluffy optimistic comments from officials, and a desire to ride roughshod over any potentially or actually negative news. In other words, this is essentially FOMO, which in a very tense political environment will lead to frequent setbacks on the back of any official comments that are more confrontational, underpinning heightened levels of volatility

** Canada – September CPI **

– Canada’s CPI is seen easing -0.1% m/m thanks to a drop in airfares, though adverse base effects will likely push the y/y rate up 0.3 ppt to 2.2%, while core CPI measures are expected to be little changed at a relatively lofty 3.0% y/y. That said, messaging from BoC speakers has played down the ‘strength’ in core CPI, suggesting that underlying core CPI is lower at 2.5%, while also emphasising that growth was weak, and effectively dismissing the stronger September employment readings, still characterising labour demand as weak.