Macroeconomics: The Day Ahead for 24 November

It’s US Thanksgiving week, which will likely front load
some end of month portfolio adjustments to the first half of the week, against
the current volatile backdrop in ‘risk’ assets, as markets fret over government
debt levels, the UK and Japan budgets (France and USA are also a worry, but not
the immediate focus), the recent meltdown in crypto assets, as well as a
potential sucker punch combo of the BoJ raising rates in December, and the
Federal Reserve pausing rate cuts. Typically favourable seasonal flows may thus
be subordinated to these concerns in what is a fickle and fluid environment.

Be that as it may, there is a reasonable volume of data
to digest, with the US awaiting current readings on Consumer Confidence,
regional surveys, Pending Home Sales and the Fed’s Beige Book, as well as
delayed reports on PPI, Retail Sales, Business Inventories, and never timely
House Price metrics. Provisional November CPI from all major Eurozone countries
is accompanied by a stream of provisional or final Q3 GDP readings, and German
Ifo Business Climate, Unemployment and Retail Sales. Japan’s usual end of month
rush of statistics has Tokyo CPI, Industrial Production, Unemployment and
Services PPI, while Canada and India look to Q3 GDP, and Australia, Brazil and
Mexico to inflation data. The earnings schedule is modest, with only 11 S&P
500 companies reporting, but has a number of key reports from Agilent
Technologies, Alibaba, Alimentation Couche-Tard, Analog Devices, Deere &
Co, Dell and Zoom. On the central bank front, New Zealand’s RBNZ is expected to
cut rates by a further 25 bps to 2.25%, while also publishing its latest
forecasts update which will likely justify hints of at least one further rate
cut to 2.0% in 2026. Both the Bank of Korea and Sri Lanka’s CBSL are expected
to keep rates unchanged, and there will again be plenty of central bank speakers,
though many will be talking about regulation and banking supervision.

On the political front, a very high stakes UK Budget
presentation on Wednesday contends with the latest US attempt to try and
railroad a peace plan for the Ukraine, though most of what has been suggested
has been on the table for some time, and many points remain unacceptable both
for Ukraine and the EU, with the EU’s inability to agree on a strategy to help
Ukraine due to fundamental disagreements on a series of issues in no small part
contributing to the US ‘going it alone’. But at least some form of ‘counter
plan’ has been floated by members of NATO on the sidelines of the G20 meeting,
which neither US President Trump or China President Xi attended.

In the commodities sector, it is Asia Copper Week in
Shanghai, while oil markets will be watching for the usual array of official
and unofficial ‘briefings’ ahead of next Sunday’s OPEC+ ministerial meeting.
That said, barring some form of ‘behind closed doors’ pledges by Saudi Arabia
on production, OPEC+ looks likely to stick to it plan to halt further
production increases. The EU’s MARS Crop bulletin and a number of second tier
energy conferences are also on tap, with Petrobras also to unveil its 2026-2030
‘business plan’ on Friday.

– UK: outside of the Budget there are only the CBI
Retailing and Lloyds Business Barometer survey, which are both expected to echo
other surveys falling 3 pts to -30 and a still solid 47 respectively; responses
will have been collected prior to the most anticipated Budget in many years. As
for the Budget, the weekend announcement of a freeze on increases for most UK
rail fares is a statement of intent on optically lowering elements of
non-discretionary cost of living, which will help to drive down CPI below
target next year and is an obvious pitch to boost the government’s popularity.
However, it will likely prompt rail companies to pursue a hardline on salary
increases, which will almost certainly prompt strikes, given the rail sector
unions are among the most militant. UK railfares are in any case among the most
punitive in the whole of Europe and will remain so even with a temporary
freeze. Having ditched their original plans to hike income tax rates, the
question then is how Starmer and Reeves will increase their fiscal headroom to
around an expected £20 bln (vs. current £9.9 Bln). The freezing of income tax
band thresholds will likely be extended beyond 2027 to 2029, which does not
immediately impact taxpayers. There is also a lot of chatter about some form of
banking tax, though this runs in the opposite direction of the government’s
push to roll back some of the post-GFC banking regulations. There has also been
a lot of talk about a wealth tax, one element of which might be to increase
council tax rates for properties in the highest value bands (G and H), but
doing this without a very long overdue reform of valuations (still set at 1991
rates), and will likely create a popular backlash, and a host of problems for
local councils. Caps on ‘salary sacrifice’ schemes for pension contributions
have also been bandied around, but this would likely create a lot of problems
in future, as private pensions saving would likely be hit hard. The other big
question is where spending cuts might be made, above all investment spending,
which since World War II has been a frequent victim when governments have run
up against fiscal problems, but has left UK infrastructure in a woeful state
(though this is also true in many countries in Europe and North America). But
the real test for Reeves and Starmer will be reaction in the days and weeks
after the Budget, both public and above all the left wing of the ruling Labour
party, which in turn will decide how much longer they can retain their current
positions.

– USA: as noted, much of this week’s data run will be
catching up on those items not published during the govt shutdown, and while
potentially significant, they are both rather historical in terms of the Fed’s
December rate decision, and more than likely treated with caution from a
reliability perspective. Sept Retail Sale are seen up 0.4% m/m headline,
slowing from August’s 0.6%, but still solid, while Sept PPI is forecast to rise
0.3% m/m headline and 0.2% m/m on core, leaving y/y rates barely changed at 2.6%
and 2.7% respectively, while both Sept House Price measures are expected to
edge up by just 0.1% m/m. But it will be November Consumer Confidence that
attracts most attention, with a further drop to 93.4 from 94.6, the fourth
consecutive decline, with a particular focus on the Labour Differential (Jobs
Plentiful minus Hard to Get), which steadied in October (9.4 vs. prior 8.7)
after a run of declines. Given a stream of layoff announcements, the risks
would appear to be for a further drop.

– Japan: the key questions will be can PM Takaichi muster
opposition support for the ¥21.3 Trln supplementary to pass necessary
legislation, and when Japan will start to intervene to prop up an ailing JPY,
with one government panel member suggesting the MoF will take a ‘proactive’
stance, presumably also to try and stave off an immediate BoJ rate hike.
Friday’s Tokyo CPI is forecast to show headline and core measures easing by 0.1
ppt to 2.7% y/y, though a weak JPY is likely to have exercised upward pressure
on food and goods prices, imparting some upside risks. A reactive correction of
-0.5% m/m to the September 2.6% m/m surge is expected for Industrial
Production, though ongoing support from a rebound in auto output due to the
trade deal with the US that lower sector tariffs to 15% from 25%, as well as
continued strong demand for AI related products imparts some upside risks to
forecasts. Retail Sales are expected rebound 0.9% m/m after a flat reading in
September. Perhaps the more salient point is that the recent rise in tensions
with Japan may well hit tourist spending in November’s report, given that this
has seen Retail Sales running at a much stronger pace than Consumer Spending
for the past year to 18 months. Japan also holds a 40-yr JGB auction this week,
which will be the subject of considerable attention after the persistent
steepening in the JGB yield curve throughout much of this year (see chart),
which has clearly put upward pressure on long-dated yields in the G7 and the
Eurozone.

– Eurozone: Preliminary HICP readings from the major
Eurozone economies are forecast to show some uneven upward pressure from energy
pressures pushing up French and German HICP modestly, the latter also seeing
some pressure from package holidays, while Italy holds at 1.3% y/y and Spain
edges down to 3.0% y/y. None of which are likely to alter the ECB’s messaging
that rates and inflation are in a ‘good place’ and set to hold steady in the
near term.

– Worldwide corporate earnings highlights as compiled by
Bloomberg News likely to include: Agilent Technologies, Alibaba Group,
Alimentation Couche-Tard, Analog Devices, Autodesk, Compass Group, Deere &
Co, Dell Technologies, Fubon Financial, KazMunayGas National, Keysight
Technologies, Naspers, Prosus, Symbotic, Workday, Zoom Communications, Zscaler.