Macroeconomics: The Day Ahead for 30 November

As is often the case, month end brings an avalanche of statistics, which generates little in the way of market reaction precisely because of month end, as well as a hefty dose of markets dining out on central bank policy ‘hope-ium’. There will be no shortage of central bank speakers, with the Fed’s Beige Book and a keynote speech by Fed’s Powell on the economic outlook and labour market at a Brookings Institution event the likely highlights of the day. Concerns over China’s Covid woes may have ebbed somewhat, along with those about Europe’s energy crisis, but both will bear long-term costs. Consider the fact that the EU’s efforts to secure winter energy supplies, while trying to mitigate the cost to consumers and businesses has thus far cost EUR 600 Bln, and if one adds in the UK and Norway this total goes past EUR 700 Bln, none of which solves longer-term supply or energy infrastructure problems, even if helps to stave off the risk of a full-scale halt to activity and ease some household cost of living pressures. Also consider that with Wind power generation going through a weather-induced lull, yesterday’s German power generation (mostly coal and gas) had a sky-high CO2 intensity of 765g/kWh; as a comparison point, China’s 2021 average power generation carbon intensity of was 550g/kWh.

Be that as it may, there are China’s NBS PMIs, Japan and South Korea Industrial Production, Australia CPI, UK BRC Shop Prices, French CPI and Consumer Spending to digest. There was little that was positive in the run of overnight data, with China’s NBS PMIs, Japan and South Korea Industrial Production all falling more than expected, while UK BRC Shop Prices jumped yet again and the Lloyds Business Barometer fell to a fresh cyclical low, all of which was perhaps unsurprising given the array of anecdotal evidence. The drop in Australia’s monthly CPI was the one positive surprise, and even if the monthly data are less comprehensive than the quarterly data, this still suggests that the peak in Australian inflation has probably been seen, and per se reinforces the easing in rate hike pressure that the RBA has been signalling. Ahead lie German Unemployment, Eurozone and Italian CPI, Indian Q3 GDP & GVA, a slew of final Q3 national (EU) GDP readings, and in the US: ADP Employment, revised Q3 GDP, Goods Trade Balance, Chicago PMI, JOLTS Job Openings and Pending Home Sales.

** Eurozone November CPI **

While the risks are very modestly to the downside of the expected 0.2% m/m rise in headline CPI, that would edge the y/y rate down to 10.4% from a peak of 10.6%, the core rate is seen unchanged at 5.0% y/y, with ‘super core’ also likely remaining higher. As Lagarde noted on Monday, October is unlikely to prove to be the peak for Eurozone CPI, and per se, a below-forecast reading does not of itself support the case for easing the pace of rate hikes, and much really depends on the December staff forecasts (however unreliable they may ultimately prove to be), and how Lagarde marshalls a renewed outbreak of tensions between the council’s hawks and doves.

** India Q3 GDP **

The consensus is for GDP to slow sharply to 6.2% from Q2’s 13.5% y/y, largely due to base effects, given a large re-opening boost to Q3 2021 GDP, which would also be in line with the RBI’s forecast assumption. PMIs, robust loan growth and indeed tax receipts all suggest a solid expansion, though export demand is clearly decelerating, and there may be a degree of fiscal drag as spending on public services has declined, while dry weather has created some disruption in the agri-food sector, though strong growth in renewables has been offsetting pressure from high gas prices. On balance, the risks look to be skewed modestly to the downside of the consensus.

** U.S.A. Nov ADP Employment, revised Q3 GDP, Oct JOLTS Job Openings **

Today’s data is of distinctly second-order importance relative to Powell’s speech at the Brookings Institution, and to a lesser extent the Beige Book. Be that as it may, the ADP Employment measure is seen easing somewhat to 200K vs. October’s 239K, whereby its importance is not as a predictor of risk skew for Friday’s. JOLTS Job Openings will also be important in that respect, with a renewed drop to a still very high 10.3 Mln after the unexpected September rebound to 10.717 Mln, which equated to roughly 1.9 Job Openings for each person unemployed. Eminently this is really a case of the massive skills mismatch that has been so evident everywhere as economies re-opened after the worst of the pandemic had passed. As for the second reading on Q3 GDP, upward revisions to September PCE account for the anticipated upward revision to 2.8% from 2.6% SAAR, and to GDP ex-Inventories and Trade from a very sluggish preliminary estimate of just 0.5% SAAR. The latter serving as a reminder of the large 2.8 ppt contribution from Net Exports to the headline reading, which was more down to a dramatic fall in consumer goods imports as retailers and wholesalers ran down bloated stock levels, even if there has been a boost to energy exports.