Busier day for data, with flash PMIs and other surveys to the fore, also digesting South Korea Q3 GDP, and awaiting Brazil & Mexico inflation; plenty more central bank speakers and corporate earnings
PMIs send mixed signals in Asia and Europe, US readings seen little changed, Beige Book and election uncertainty impart some downside risks
EVENTS PREVIEW
The statistical agenda offers rather more for markets to digest today than has been the case for most of this week, while there are further busy runs of central bank speakers and corporate earnings. G7 and India flash PMIs top the data schedule, with South Korea’s advance Q3 GDP and French Business Confidence to digest ahead of the UK’s CBI Industrial Trends survey, US weekly jobless claims, New Home Sales and KC Fed Manufacturing survey, while tomorrow morning brings a potentially pivotal Tokyo CPI, which also comes just ahead of Sunday’s lower house elections. Given that the ECB is now (finally) acknowledging the downside risks to the Eurozone growth outlook, the day’s run of ECB speakers may be less interesting than comments from BoE’s hawkishly inclined Mann, given a more finely balanced outlook for UK rates, as well as the comments from BoJ’s Ueda overnight. Among the highlights on the corporate earnings schedule, Hyundai Motor and LG Electronics feature in Asia; Barclays, Equinor, Italgas, MTU Aero Engines, Neste, Norsk Hydro, Orange and SE Banken in Europe, while North America looks to ADM, Capital One Financial, CBRE, Hasbro, KKR, Southern Copper, Union Pacific, UPS, Valero Energy, Western Digital, Rogers Communications and Teck Resources.
** G7/India – October ‘flash’ PMIs **
– The run of Asian and European PMIs have been rather mixed. The slight pick-up in India suggests the loss of momentum during Q3 has likely turned a corner, and that underlying growth remains robust. By contrast, the weakness in Japan’s Manufacturing persists, echoing trends worldwide, while the sharp slide into contraction in the Services PMI had been flagged by the most recent Economy Watchers Survey, perhaps due to a drop in tourism as the JPY rebounded over the summer, but also suggesting that the rise in real wages is not giving the sort of boost to personal consumption that the BoJ has anticipated. Meanwhile in the Eurozone, the sharp downturn in France is most likely a reaction to France’s budgetary woes and anticipation of tax hikes, while the rebound in German manufacturing is probably little more than a correction to excessive pessimism, but still implies the sector is in a structural recession, with the modest pick-up in Services offering some hope that private consumption may pick up in Q4. As for the UK, the setback in both Manufacturing and Services was to be expected given the upcoming budget, but the economy continues to expand, albeit at a moderate pace. US flash PMI readings are seen little changed (Manufacturing 47.5, up 0.2; Services 55.0, down 0.2); the anecdotal evidence from regional Fed surveys has been mixed for Manufacturing, but has seen solid gains for Services, outside of the NY Fed region. Yesterday’s Beige Book implies some modest downside risks, with activity barely changed vs. the prior report, labour demand easing and labour supply generally improving, though skills shortages remain in a number of key sectors (technology and manufacturing amongst others), while consumers remain quite price sensitive. But with the upcoming election mentioned no less than 15 times in the report, it would be wise to leave judgement on underlying trends until after the election dust settles. That may take some time given that nearly all swing states polls point to a dead heat.
** Japan – October Tokyo CPI **
– The consensus looks for a sharp deceleration in headline (1.8% y/y from 2.2%) and ex-Fresh Food (1.7% y/y from 2.0%), though ‘core core’ is forecast to be unchanged at 1.6%, as energy subsidies continue to weigh. However, some forecasters suggest that the sharp rise in wage costs and the lingering impact of JPY weakness on imports of raw materials impart some potentially sharp upside risks, above all given the usual round of price hikes at the start of the H2 fiscal year (in October). While the BoJ has effectively all but ruled out an October rate hike, an upside surprise may well prompt markets to re-price limited expectations of a December hike. That said, with Sunday’s general election looming in the headlights, and the ruling LDP at quite severe risk of losing its majority, speculators may be a little cautious about going ‘all in’, perhaps all the more so given the proximity of an equally uncertain US election. But a rise in USD/JPY volatility looks to be a reasonable expectation.
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