Macroeconomics: The Day Ahead for 25 October

  • China stimulus move, Ifo survey and further rash of corporate earnings likely to dominate, as higher than expected Australia CPI digested; Eurozone M3, US New Home Sales and expected no change from Bank of Canada ahead: Italy, UK, Germany and US to sell debt
  • Germany: Ifo expected to edge higher, PMIs suggest some downside risk; bigger picture remains economic outlook rather bleak, bickering coalition govt adds to headwinds
  • China stimulus ostensibly a reversion to familiar crisis playbook, but size looks very modest relative to local govt debt and property woes


A relatively modest schedule of data has Australia’s higher than expected Q3 & September CPI data to digest ahead of Germany’s Ifo Business Climate, Eurozone M3 (following on from yesterday’s ECB lending survey which showed not only a further tightening of credit conditions, but also a sharper than expected drop in corporate and household credit demand) and US New Home Sales. The Bank of Canada holds its latest policy meeting and issues its Monetary Policy Report, with no change in rates expected, as inflation gradually trends lower, and the economy is starting to wilt under the weight of high rates, as was clear in last Friday’s Retail Sales. Markets will also continue to digest China’s decision to raise its 2023 fiscal deficit ratio to 3.8% of GDP (from 3.0%), as it ups central govt debt issuance by CNY 1.0 Trln ($137 Bln) in Q4 for ‘disaster relief and construction’, in what looks like a reversion to its playbook in past crises of ramping up govt spending, which it had thus far resolutely tried to resist. That said, relative to CNY 92 Trln of outstanding local govt debt, this looks to be a rather modest measure. Another very busy day for corporate earnings has its highlights amongst others: Chalco in Asia; Akzo Nobel, Banco Santander, Deutsche Bank, Heineken, Italgas, Lloyds Bank, Porsche, Saipem, SSAB and SE Banken, while the US looks to ADP, Boeing, IBM, Mattel and above all Meta Platforms (aka Facebook).

** Germany – Oct Ifo Business Climate **

A better than expected but still totally dire Manufacturing PMI (40.7 vs. 39.6), and a sharper than expected Services reading (48.0 vs. 50.3) impart some downside risks for today’s Ifo survey given that the expected marginal uptick to 86.0 (vs 85.7) is premised on a slight uptick in Expectations (83.5 vs Sept 82.90. That said the month to month read across from PMIs to the Ifo is notoriously poor, but will still point to an ongoing economic contraction. Indeed standing back from the myopic market focus on better/worse than forecast, the fact is that Germany badly needs a change in direction, which the very fractious SPD/FDP/Green coalition is not going to deliver. Little wonder that after the Bavaria and Hesse state elections in which all three parties lost votes relative to 2018, the FDP is threatening to leave. There is speculation that Scholz may be looking to revive the grand coalition with the CDU/CSU, perhaps all the more so given the ugly spectre of the AfD now polling in second place, and well above 20% in national polls, and the potential threat from the new breakaway far-left party (BSW) just established by Sahra Wagenknecht.

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