Macroeconomics: The Day Ahead for 21 October

  • Modest run of data to end the week: digesting Japan CPI, Korea Trade, UK GfK Consumer Confidence, Retail Sales and PSNB; Eurozone Consumer Confidence and Canada Retail Sales ahead: UK Politics and EU Summit in focus, smattering of central bank speakers; more US Q3 earnings
  • UK: Consumer Confidence pick-up, but still weak; Retail Sales slide and wider budget deficit a reminder of challenges facing new PM
  • UK politics: new PM faces huge uphill climb to restore confidence and credibility; likelihood of further Conservative internecine warfare to sustain higher GBP risk premia

EVENTS PREVIEW

The week ends on something of a damp squib in terms of the schedule of data and events, with Japan’s National CPI and the array of UK GfK Consumer Confidence, Retail Sales and PSNB budget data to digest, while Canadian Retail Sales and provisional Eurozone Consumer Confidence are the only notable items ahead. There are a few central bank speakers, but barring off-topic comments, these are unlikely to have much impact, while a modest run of US earnings reports features American Express, Schlumberger and Verizon. Next week’s data run is dominated by surveys at the start of the, first and foremost the G7 flash PMIs, German Ifo and Consumer Confidence, while the back end of the week US European and South Korea Q3 GDP along with national October CPI readings in the Eurozone. While no date has been set, the delayed run of China Q3 GDP, monthly activity data and Trade are also likely to be published. In monetary policy terms, the ECB meeting gets top billing (75 bps rate hike expected, and focus on QT timeline discussions), with the Bank of Canada seen hiking 50 bps and the Bank of Japan expected to hold. Eminently politics will continue to cast a dark shadow, be that at national levels or geopolitically.

** U.K. – Sep Retail Sales, Oct GfK Consumer Confidence **
– Given the seemingly endless chaos in UK politics, today’s run of data will be nothing more than statistical roadkill, though it will serve as a reminder that whoever does become PM will have an economic crisis to contend with. The better-than-expected Consumer Confidence (-47 vs. forecast -52 and prior -49) was more than offset by the much sharper-than-expected slide in Retail Sales, and wider-than-expected PSNB budget deficit.

a) The hope of many was that the embarrassing budgetary U-turn over the past week might just usher in a little bit of calm to UK politics, but this was clearly not to be.

b) Who’s next? Well the front runners according to the bookies are Sunak and Mordaunt, though there is a suggestion that Boris Johnson will throw his hat in the ring. Chancellor Hunt is still due to detail the Medium Term Financial Strategy on 31 October, implying he will stay on, but a week is now a very long time in UK politics. The sense is that there are a) some very undemocratic forces at work, and b) a huge self-inflicted amount of economic damage to be rectified, but that any solution is likely to present even more stagflationary headwinds to an economy already reeling from the impact of the cost of living crisis.

c) Interestingly BoE’s Broadbent yesterday suggested that markets discounting a 5.25% peak Base Rate are overestimating how rates may go, and adding that rates at that level would probably result in a 5% (cumulative) decline In GDP. This obviously got largely lost in all the political furore, but should nevertheless be taken on board.

d) Very difficult to see how confidence in the UK’s economic management and political stability can be restored to attract broad-based foreign inflows in the short to medium term after what has happened in recent months (there will of course always be the speculative element that may look to pick up some “bargains”, but that is certainly not what the UK needs.

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Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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