Macroeconomics: The Day Ahead for 25 September

Surveys will be the main feature of a light statistical schedule, with Germany’s Ifo Business Climate and the UK CBI Retailing survey to the fore in Europe, and the Chicago Fed National Activity Index and Dallas Fed Manufacturing the only items of any note in the US. The week is going to be long on central bank speakers, with Lagarde’s regular testimony to the European Parliament, and speeches by Villeroy and Schnabel offering plenty of food for thought in terms of the ECB policy outlook, while dove turned arch hawk Kashkari requires particular attention in regards to the Fed. The EU gets this week’s busy schedule of govt bond auctions underway with EUR 4.0 Bln of 11 & 30-yr, and with a whopping USD 134 bln of US 2, 5 & 7-yr to be auctioned Tuesday through Thursday, govt bond yields may see some further upward pressure as market makers factor in a concession for this week’s supply. Otherwise, the overnight news on China Evergrande’s inability to raise new debt once again serves as a reminder that all the tweaks that have been made to legislative and monetary policies do not address the ‘elephant in the room’, i.e. balance sheet reconciliation in the sector, and without this, it is difficult to see how private investors’ confidence will be meaningfully restored.

Germany’s Ifo Business Climate is expected to edge lower to 85.2 from 85.7, with a fall in Current Conditions to 88.0 from 89.0 seen as the primary driver. While the pick-up in Friday’s Services PMI and a slightly higher, but still desultory Manufacturing PMI imply some upside risks, the two surveys often diverge in month to month terms.

In the UK, PM Sunak’s pushback on climate targets and an apparently imminent announcement of further cutbacks to the already curtailed HS2 high speed rail link is sadly symbolic of everything that has been wrong with UK govt spending on infrastructure since the end of WWII. The seemingly deep-seated and Pavlovian instinct to cut or cancel spending on infrastructure at any point where the economy, and by extension govt tax revenues, faces headwinds underlines why it is successive UK governments (of whatever political hue), and not any external factors that have persistently hobbled the economy. Until the UK Treasury can escape the shackles of this deep rooted bean counting mentality, the prospects for the UK economy will continue to be heavily constrained.

RECAP: The Week Ahead – Brief Preview:  

The week’s major data schedule is heavily backloaded but kicks off with Germany’s Ifo, US Consumer Confidence and a host of other surveys, US House Prices, Home Sales and Durable Goods. Thursday and Friday have national and Eurozone CPI, US annual GDP revisions, Personal Income, Japan Tokyo CPI, Industrial Production and Retail Sales, while Saturday sees China’s NBS PMIs. There will be month and quarter end to contend with, while the Mawlid-al-Nabi (Birth of the Prophet Mohammed) will see many Islamic countries during the middle of the week, and Friday sees China close down until 8 October for the Autumn Festival ‘Golden Week’. Central bank speakers are plentiful, with CEE and EM rate decisions expected to see a 75 bps rate hike to 9.50% in Nigeria, but rates on hold in Czechia, Hungary, Mexico and Colombia. Govt bond supply will be plentiful, with the US selling a whopping USD 134 Bln total of 2,5 & 7-yr, and auctions in EU, Germany, Italy, Netherlands and UK, and Japan, Australia and Canada, with the earnings schedule minimalist, with Costco and Nike headlining in the US. Politically the focus will be on a seemingly inevitable US Govt shutdown and any efforts to bring the UAW strike to an end; tensions between Ukraine and Poland (very much related to the upcoming Polish election), as well as increasing signs of Ukraine support ‘fatigue’ in Europe and US, the kick-off to party conference season in the UK, amongst other factors including US/Iran relations.

Commodities markets will continue to keep a close eye on oil and oil product price trends, but above all overwhelmed by a deluge of conferences around the world. To highlight but a few: Energy Trading Week and Future Food Tech in London, IEA Critical Minerals and Clean Energy, and IEA/ECB/EIB Energy Transition and the Economy in Paris, World Chemicals in Berlin, China International Aluminum Week. International Rapeseed in Australia and Globoil India (international edible oil) conference. The IEA also publishes an update to its Net Zero Roadmap.

Eurozone CPI: Base effects will be the key drivers of an expected sharp drop in Germany and sharp rise in Spain, with France seen up a little, and Italy down a little, but all resulting in Eurozone CPI rising 0.5% m/m, but dropping to 4.5% from 5.2% y/y (thanks to the German fall) and core easing to 4.8% from 5.3% y/y.

US PCE deflators are likely to echo CPI: headline rising 0.5% m/m to edge up 0.2 ppt to 3.5% y/y, but core up just 0.2% m/m, with y/y down 0.3 ppt to 3.9%.

Japan’s Tokyo CPI is expected to edge down 0.1 ppt across all measures, but with ‘core core’ still riding high at 3.9%.