Macroeconomics: The Day Ahead for 26 September

Another modest day for statistics, but a busy one for both Fed and ECB speakers. The latter continues to be a case of compare and contrast. as per yesterday’s comments from ECB’s Lagarde (restrictive levels for as long as necessary) and Villeroy (ECB shouldn’t test the economy “until it breaks”), against Fed’s Kashkari (“If the economy is fundamentally much stronger than we realized, on the margin that would tell me rates probably have to go a little bit higher and then be held higher for longer to cool things off”). Statistically, the focus is on the US via way of CS Corelogic and FHFA House Prices, New Home Sales and above all Consumer Confidence, with Brazil’s IBGE Inflation IPCA-15 also on tap, and only Japan’s Services PPI, South Korea Consumer Confidence and Singapore’s Industrial Production to digest. As noted yesterday, the upward pressure on G7 yields was somewhat inevitable given the hefty round of bond auctions this week, with today seeing the Netherlands sell EUR 2,5 Bln of 10-yr, UK £3.0 Bln of 10-yr, Italy EUR 3.0 Bln 2-yr and 1.75 Bln of 6 & 18-yr I-L, as the US kicks off this week’s sales with $48.0 Bln 2-yr.

** U.S.A. – House Prices, New Home Sales & Consumer Confidence **

US House Price metrics have been a case of watching m/m changes and contrasting them with the base effect driven falls in y/y rates. Thus the FHFA measure is seen up 0.4% m/m, which would lower the 3-mth annualized pace to 5.6% from 7.2%, while the CS CoreLogic is seen down 0.1% y/y (base effects are now unwinding), but up a robust 0.7% m/m (3-mth annualized rate falling to 10.6% from 11.4%). Shortage of supply, above all of Existing Homes accounts for much of the upward pressure, and despite the sharp rise in mortgage rates, with the 30-yr MBA effective rate now at 7.52%, with the ever volatile New Home Sales expected to drop 2.2% m/m after jumping 4.4% m/m in July. That upward pressure on mortgage rates, a further rise in gasoline prices, loosening labour demand and the threat of a govt shutdown suggests the risks are to the downside of an expected further slip to 105.5, after August’s slide to 106.1 from 114.0. Of particular note will be the Labour Differential, which dropped to its lowest level (26.2) since April 2021 in August, though it remains very high on most historical comparisons.