Macroeconomics: The Day Ahead for 26 September

The new week looks to be getting off on the same turbulent note that it ended last week on. There are Japan’s flash PMIs, Singapore Industrial Production, Thai Trade and the clear cut win for the Fratelli d’Italia and its right wing bloc allies in Italy’s general election to digest. A modest run of data ahead has Germany’s Ifo Business Climate and US Chicago Fed National Activity Index and the Dallas Fed Manufacturing survey, accompanied by the first round of this week’s flood of central bank speakers and the OECD’s latest Economic Outlook update. Govt bond supply takes the form of EU 3 & 10-yr Green bonds and US 2-yr. But all eyes will remain on the very sour tone in bonds and stocks, above all the woes of the GBP and UK assets, amid some rather wild chatter about an ’emergency’ BoE rate hike, which would probably do more harm than good, given that it would likely put the BoE into a game of chicken with markets, that would be reminiscent of Black Wednesday 30 years ago. But it is nevertheless a baptism of fire for the new UK government, and the fact is that this is as much about USD strength, fuelled by the Fed’s policy stance, which in effect is exporting inflation to get domestic price pressures under control, and in turn creating a major headache for any sovereign or corporate with outstanding USD debt.

RECAP: The Week Ahead – Preview:

Another tempestuous quarter draws to a close, with markets in full ‘capitulation’ mode after last week’s barrage of rate hikes were accompanied by unrelenting hawkish rhetoric, while also handing out a colossal ‘thumbs down’ to the new UK government’s ‘Barber boom’ borrow and spend mini-budget last Friday. In respect of the latter, the in principle ideas behind the mini-budget measures are not bad. But with a now very long history of failure in terms of delivering, above all due to the gross incompetence and ugly patronizing arrogance in evidence across all parties in the UK parliament, a crisis for the UK economy looks to be a relatively high probability.

While there is a good volume of hard economic data, amongst which Eurozone CPI gets top billing, and numerous business and consumer surveys to digest, these are likely to fall under the wheels of an epic torrent of central bank speakers, and myriad local and international political tensions and risks. There are the seemingly clear win for the right-wing bloc in Italy’s general election to digest, while Russia holds sham annexation votes in Ukraine, as popular unrest against Putin’s mobilization grows, which is prompting a growing exodus of people from Russia. EU Energy Ministers reconvene on Friday to try and agree on a package of measures to combat the energy crisis. Popular protests about the cost of living crisis are becoming more numerous, and Monday’s OECD Economic Outlook update is unlikely to paint an encouraging picture about the global economic outlook. The US Congress will also need to pass stop gap measures by Friday to avoid another government shutdown.

In the commodity space, the rout in energy markets on the one hand offers some hope that energy price pressures may finally be easing in a significant way, but supply and output challenges remain very real, and a very sharp about turn (even in the face of many recessionary signals) is just one unexpected disruption away, particularly given very poor liquidity conditions. The APPEC energy conference in Singapore, and various other energy related conferences in Japan will also be in focus.

While the corporate earnings schedule is very light, the govt bond auction calendar is busy, headlined by the US selling $145 Bln total of coupons. The more important focal point will be credit markets, with what should have normally been a seasonally very busy flow of new issuance slowing to little more than a trickle in the face of rates volatility, which is hardly surprising when one considers the colossal rise in govt bond yields year to date (see attached charts).

Statistically, the week kicks off with Germany’s Ifo Business Climate, where a further slip to 87.0 from 88.2 is expected. The US has Durable Goods Orders, where a modest headline slip is expected, though core measures are seen fractionally higher, while FHFA House Prices are seen unchanged, confirming the stall signalled by the June reading of 0.1% m/m that brought a run of increases of 1.0% plus every month over 24 months. But the focal points will be Consumer Confidence (exp. 104.5 vs August 103.2) and the week-ending Personal Income and PCE, where the deflators are forecast to see 0.1% m/m 6.0% y/y headline and more importantly 0.5% m/m 4.7% y/y core. New and Pending Home Sales are both expected to sizeable falls.

Eurozone CPI is expected to jump 0.9% m/m to take the y/y rate up to 9.9% from 9.1%, heavily boosted by the ending of the EUR 9.0 public transport pass scheme in Germany in September, though Core is seen rising 0.4 ppts in y/y terms to a new record of 4.7%, underlining that second round effects are getting traction, above all in Services. The EC’s confidence surveys’ indices are all expected to fall, while German Unemployment is expected to rise a further 20K. The UK has Consumer Credit and Mortgage Lending, but the Lloyds Business Barometer and GfK Consumer Confidence will likely get more attention.

Elsewhere Japan has its usual end-of-month run of Retail Sales, Industrial Production and Unemployment, Canada looks to monthly GDP and Australia to Retail Sales and Job Vacancies.

Earnings highlights for the week according to Bloomberg News include Cintas, Micron Technology, Nike and Paychex, but the focus is already shifting to the Q3 earnings that kicks off in just a couple of weeks.