Macroeconomics: The Day Ahead for 29 November

While China’s Zero Covid woes will continue to be the primary focus of attention, with some calm emerging following various measures taken in the past 24 hours, there is a busy run of data today, and a good volume of central bank speakers, including what may prove to be some uncomfortable questions for BoE’s Bailey as he gives annual testimony to the House of Lords Economic Affairs Committee. There are Japan’s Retail Sales and labour data, Spanish CPI, Swedish GDP and confidence surveys to digest, while ahead lie German CPI, UK Credit and Mortgage Lending, US House Prices and Consumer Confidence, and Canada’s monthly and Q3 GDP. Govt bond supply sees 10-yr BTP and 7-yr FRN from Italy and Dutch 10-yr, while Bank of Nova Scotia gets this week’s run of major Canadian Bank earnings underway.

** Germany/Spain – November HICP **

The consensus looked for a modest 0.1% m/m increase in HICP, but coming in much lower at -0.8% m/m as base effects and the mechanics of gas price cap combine to ease headline pressures, with the y/y rate dropping to 6.6% vs. expected 7.3%. However core CPI remained elevated at 6.3% vs. prior 6.2% y/y, thanks to services and goods prices. German HICP is also seen up 0.1% m/m, which would see the y/y rate ease modestly from October’s record 11.6% to 11.3%, though much depends on how continued upward pressure from food and household energy prices is offset by falls in road fuel prices, though core Services prices will continue to exercise a lot of upward pressure. NRW state data (-0.8% m/m 10.4% y/y) points to a sharper than expected fall, with utilities actually falling, and combining with falls in transport (-1.4% m/m) and above all entertainment & leisure (-5.9% m/m) more than offsetting upside pressure from food (0.9% m/m). In contrast to Spain, this should also help to bear down on core Services inflation. Given that France HICP tomorrow is expected to rise modestly, while Italian HICP is set to edge lower, Euro area headline inflation looks likely to come in well below the forecast of 10.4% y/y from 10.6%, but it will be likely sticky core CPI which would be key to making the case for a slower pace of rate hikes, hence the widening divide between the hawks led by Schnabel and the doves led by Lane on the ECB council.

** U.K. – October Consumer Credit & Mortgage Lending **

Today’s lending aggregates will be of particular interest, given that they will offer evidence on the impact of the jump in interest rates after the Truss/Kwarteng budget debacle. Given that the mortgage market appeared to seize up for a number of weeks, the consensus for a drop in Mortgage Approvals to 60K from 66.8K, and a drop in Mortgage Lending to £5.0 Bn from £6.1 Bn implies a passing and relatively modest impact, though risks look skewed to the downside, even if the impact was temporary. The expected rise in Consumer Credit to £900 Mln doubtless reflects some spill-over effects from the mortgage seizure, with a close eye needing to be kept on growth in credit card spending, given the immense cost of living pressures on households.

** U.S.A. – September House Prices, November Consumer Confidence **

The downward pressure on House Prices is not expected to ease up, with the FHFA and Corelogic CS measures both seen falling a further 1.2% m/m, and driving the CS y/y rate down to 10.5% y/y from 13.1%, with some help from base effects. While Mortgage rates have started to ease modestly in recent weeks, they remain sky-high relative to a year ago, and further falls are pre-programmed. Consumer Confidence is expected to echo Michigan Sentiment and drop back for a second month to 100.0 from 102.5, as the array of negative chatter on the economic outlook weighs. A close eye continues to be kept on the Labour Differential (Jobs Plentiful minus Hard to Get), which remains high on any historical assessment, but dropped sharply from 38.1 to 32.5 in October, and is well down on March’s 47.1, even if other indicators (such as Job Openings) continue to suggest a very tight labour market. Indeed judging by the anecdotal evidence on holiday spending, consumers appear to be saying one thing, but doing another, given Mastercard had spending up 12% y/y, within which e-commerce was up 14%, apparel up 19% and restaurant spending up 21%, even if there was an offset from electronics, up just 4%.