Macroeconomics: The Day Ahead for 25 October

While the day has a reasonable volume of statistics and corporate earnings, but a light volume of central banks speakers, the overarching themes of the US presidential elections, tensions in the Middle East, Sunday’s Japan elections, next week’s UK Budget and the week ending US labour data may serve to temper trading activity, given that array of event risk. There are Japan’s Tokyo CPI and UK & French Consumer Confidence, while ahead lie Germany’s Ifo Business Climate and Italian Manufacturing & Consumer Confidence, Canadian Retail Sales, US Durable Goods Orders and final Michigan Sentiment. Russia’s Bank Rossiya is expected to hike rates a further 100 bps to 20.0% to combat inflation pressures, though it is coming under unusually intense pressure from businesses complaining about the high level of rates. It’s unusual in so far as the Russian economy has historically been rather less sensitive to rates than other economies, though the banking reforms that governor Nabiullina has delivered over the years, and the lack of access to international capital markets and lenders, outside of China and to a lesser extent India, may well be creating a credit crunch. Be that as it may markets have heard from all of today’s central bank speakers during the past week, per se there is unlikely to be any fresh policy insights. The run of corporate earnings has amongst its likely highlights: Great Wall Motor, JSW Steel, Kia Motors & Kweichow Moutai in Asia; Eni, Mercedes-Benz, Natwest, Sanofi and Yara International in Europe; Colgate-Palmolive, HCA Healthcare and NY Community Bancorp in the US.

** Japan – Oct Tokyo CPI **

– While headline and ex-Fresh Food Tokyo CPI dropped somewhat less than expected to 1.8% y/y (i.e. below the the BOJ’s target), the key element of today’s report was the higher than expected 1.8% y/y on the ex-Fresh Food & Energy measure (so called ‘core core’), particularly as this rose 0.5% m/m, very much an outsized m/m rise by Japanese standards. It certainly skews the risks to sooner rather than later in terms of the next BoJ rate hike, though definitely not at next week’s meeting. Much will be contingent on the outcome of Sunday’s general election, which opinion polls suggest will see the LDP lose its majority, even with its coalition partner Komeito, though as elsewhere opinion polls have proven to be wrong. But if these are correct, then it would usher in a period of political uncertainty which would like stay the BoJ’s hand, though this would also likely weaken the JPY, which as has been clear for much of this year would strengthen the case for a further rate hike, given that the JPY is front and centre for the BoJ in policy terms.

** U.K. – October GfK Consumer Confidence **

– Unsurprisingly given the negative news flow around next Wednesday’s Budget, Consumer Confidence edged lower to -21 vs. -20. Of note in the detail was that the primary driver was a sharp down move in the ‘Economic Situation over the PAST 12 months’ -42 vs. prior -37, with little change in the equivalent forward measure (-28 vs. -27), while the Climate for Major Purchases recovered modestly to -21, after last months steep fall from -13 to -23. Going forward, it will likely be the case of how perceptions about the personal impact from Budget measures balances against hopes for further BoE rate cuts, which will as ever be guided by media (press, social) headlines, rather than a more thorough analysis of their actual impact.

** Germany – Oct Ifo Business Climate **

– Yesterday’s better than expected Manufacturing and Services PMI will doubtless skew expectations for today’s Ifo to the upside of a marginal 0.2 pt gain to 85.6 for the headline Business Climate, expected to be paced wholly by a rise in Expectations to 86.9 from 86.3, the latter doubtless predicated on the rise in ZEW Expectations. PMIs and the Ifo are not that well correlated in month to month terms, and even if a better outturn is achieved, it would be premature to herald a turnaround, even a trough given that many had expected the up in H1 to have offered that signal only for the index to slide back close to January’s low.

** U.S.A. – Sep Durable Goods Orders **

– Durable Goods Orders are forecast to fall 1.0% m/m, with the rise in Boeing orders in September, contrasting with hefty disruption to production, which will be rather more evident in October data; core orders measures are expected to be barely changed on the month, though with some downside risks from election uncertainty related deferrals of investment plans, which was evident in the recent Atlanta Fed CFO survey and in Wednesday’s Beige Book, with its many references to election uncertainty.