Macroeconomics: The Day Ahead for 24 September

Following on from the deluge of central bank policy meetings, today brings a deluge of central bank speakers (Fed, ECB, BoE and Norges Bank), while the data schedule offers a further rash of surveys including Germany’s Ifo Business Climate, UK Gfk Consumer Confidence and CBI Retailing, with Japan’s national CPI, Brazil’s IPCA-15 inflation and US New Home Sales also on tap. Outside of the run of central bank speakers, there is the (US, India, Japan and Australia) meeting that will get some extra attention, as Franco-US/UK relations have plunged to their worst levels since the invasion of Iraq in 2003. The overarching themes of China Evergrande’s debt woes and the UK and Europe’s power crisis will also continue to reverberate.  Next week brings end of month and quarter, a deluge of US and Japanese data, as well as the ECB’s Sintra central bank conference, a Fed conference on the implications of its actions in response to the pandemic, the annual US NABE conference. and a regular Senate hearing on the CARES (Coronavirus Aid, Relief, and Economic Security) act and Lagarde testimony to the European parliament – so expect to be deafened by a barrage of central bank speakers.

UK/Germany – September surveys / Federal Election

– Given the scale of disruptions in the UK due to labour shortages and the power crisis, and a sharp shift higher in inflation expectations, it was no surprise that the latest GfK Consumer Confidence saw a sharper than expected setback, with the CBI Retailing Sales measure expected to drop sharply from a spectacularly high 60 to a still very solid 34, but with risks on  the downside given the scale of disruptions in the UK. While the usual caveats apply about the read across from PMIs to Germany’s Ifo Business Climate, the downside miss on the PMIs and the run of other anecdotal evidence underlines the downside risks to the forecast of 99.0 vs August’s 99.4, with expectations of a rise in the Current Assessment to 101.8 from 101.4 looking particularly misplaced. But ultimately the key question is when will the extensive and ostensibly intensifying supply chain disruptions start to ease, and how permanent will the associated price pressures prove to be. However it is Sunday’s highly uncertain election outcome which is the focal point, with final opinion polls suggesting that the CDU/CSU has regained some ground, with the SPD lead narrowing to just 3 pts (25%/22%), i.e. the assumed margin of error, and the FDP increasingly looking as though they may well be the kingmakers in the event that a 3 party coalition proves to be the only viable option. In that case, it could well be that the SPD may win, but the FDP insist that it will only consider a coalition with the CDU and the Greens. It is also more than possible that another grand coalition is an option, but the resistance to this within both of the major parties looks to be large, though in the spirit of ‘Ordnungspolitik’ as was the case after the 2017 election, they both may be left with no choice. The complex process of excess seat election and the issue of whether the far left ‘Die Linke’ manage to cross the 5% minimum for entry into the Bundestag could alos prove critical in the potential coalition mathematics.