Macroeconomics: The Day Ahead for 9 September

  • RIP Queen Elizabeth II
  • Modest run of data has China and Norway CPI, drops in French and other Eurozone Industrial Production; Canada jobs and Brazil inflation ahead; final run of Fed speakers ahead of ‘purdah’ period; EU finance and energy ministers meeting in focus; USDA WASDE monthly report
  • China CPI & PPI: commodity & energy price falls and weak domestic demand drive PPI even lower; offers PBOC to cut rates, but ….
  • France/Eurozone: array of weak Industrial Production underscore impact of energy/power crisis

EVENTS PREVIEW

The week ends with something of a whimper, with the ECB meeting offering no material surprises,  outside perhaps of the unanimous backing of the 75 bps (doubtless at price of taking any discussion of QT off the table), and the fact that by paying interest on banks excess reserves at the ECB, banks will still benefit from super low TLTRO rates (though with around 55% of TLTROs maturing by June 2023, this will be a transitory though significant benefit). There are the weaker than expected Chinese and Norwegian inflation readings to digest, and much sharper than expected fall in French Industrial Production in no small due to the energy crisis, above all the French Nuclear power sector, but also echoed in Spain, Austria and Netherlands output data. Ahead lie Brazil IPCA inflation, which is expected to decelerate sharply both due to the fall in energy prices and base effects, and Canadian labour data, where a modest 15K rise in Employment is seen, after the surprise drop in July, with both Wages and the Unemployment expected to edge up 0.1 ppt to 5.0% and 5.5% respectively. The Fed’s unrelenting message on the rate outlook will find renewed voice in speeches by Evans, George and Waller, while Agricultural commodity markets will focus on the USDA’s monthly WASDE report. But it will be the EU finance and energy ministers meeting to try and reach a deal on a package to mitigate the impact of the energy crisis, which will be in focus, following on from the still rather sketchy UK package announced yesterday (above all in financing terms). As with the UK and recently enacted measures in Finland, Sweden and Switzerland, the centre piece will be a package of ’emergency’ liquidity measures for energy companies, with estimates of the total ‘margin call’ that the sector is facing in Europe ranging all the way up to $1.5 Trillion.

In terms of the Chinese inflation data, the fall in PPI was primarily due to falling commodity and energy prices, though manufactured goods inflation also decelerated sharply, underlining the lack of domestic demand. Meanwhile the lower than expected CPI (2.5%) was above all due to base effects bringing down fresh fruit and vegetable prices sharply, further slippage in Non-Food Prices (1.7% y/y vs. 1.9%, which offset a further rise in Pork Prices (22.4% y/y vs. July 20.2%). To be sure this gives the PBoC to cut rates further, which in truth will do nothing to help the woe stricken property sector, or mitigate the effects of Covid shutdowns, the drought and power crises. Indeed the PBoC will also be mindful of not adding to downward pressure on the CNY.

Next week has US inflation data, as the Fed enters pre-FOMC meeting purdah period, Chinese activity and property sector data, along with a busy run of UK data (CPI, monthly GDP, labour data and Retail Sales) as well as the BoE MPC meeting. There will also be particular focus on the Putin-Xi meeting on the sidelines of the SCO (Shanghai Cooperation Organization) meeting in Uzebekistan.

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ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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