Macroeconomics: The Week Ahead: 11 to 15 November 2024

The new week swings the focus back to economic data with a raft of statistics from the US (CPI, PPI, Retail Sales, Industrial Production, NFIB), China (CPI, PPI, Credit Aggregates, Retail Sales, Industrial Production, FAI, Property data) and the UK (Q3 GDP, activity data, Unemployment, RICS House Prices), with Japan awaiting Q3 GDP, PPI and Economy Watchers survey, Australia looking to Q3 Wages and Unemployment, and India to CPI, WPI, Industrial Production and Trade. The October ECB minutes will get plenty of attention, as will a further barrage of central bank speakers, both the Fed’s and BoC’s Q4 Loan Officers surveys, while the UK also looks to speeches by BoE’s Bailey and Chancellor Reeves at the annual Mansion House gathering. In the commodity space, there are monthly Oil Market Reports from EIA, IEA and OPEC, as markets ponder the implications for supply from Trump’s sector policies, amid ongoing concerns about the demand outlook, above all in China and Europe. COP29 gets under way in Azerbaijan, while there are also a myriad of sector conferences including: Global Grain Geneva, World Energy Capital Assembly in London, and Asia Copper Week in Shanghai. The events of recent weeks (US elections, German govt collapse, UK Budget and Japan elections) will continue to cast a long shadow, along with the conflicts in Ukraine and the Middle East, and low visibility on China’s economic prospects.

– U.S.A.: Inflation data will be the initial focal point; both headline and core CPI have been running a little hotter of late and are expected to see further rises of 0.2% and 0.3% m/m respectively, that would see headline y/y rise to 2.6% from 2.4%, with core unchanged at 3.3%. But bear in mind that the Fed targets the PCE deflators, and while core CPI ran at a 3-mth annualized rate of 3.0% in Q3, the core PCE deflator was just 2.3%, Auto prices (both new and used) will exercise some upward pressure, but this should largely be offset by a continued easing in Housing OER, and by October’s annual methodological adjustments to Medical Insurance that will bear down on inflation over the coming year. PPI is seen rising by similar increments in m/m terms, though adverse base effects will serve to drive up y/y rates to 2.3% headline (up 0.5 ppt) and core to 3.0% (+0.2 ppt). Surveys (NFIB and NY Fed Manufacturing) are also due ahead of Friday’s run of activity indicators, with Retail Sales expected to slow to 0.3% m/m on all measure after stronger than expected readings in September, as ever subject to revisions, with some impact possible from hurricanes Helene and Milton, though perhaps some positive and offsetting impact from Amazon Prime Day. By contrast, manufacturing sector data has been weak, with Industrial Production seen falling for a third month in the past four by -0.3% m/m, and Manufacturing Output by -0.5% m/m (vs. Sep -0.4%), with the weaker than Manufacturing ISM, the Boeing strike and hurricane disruptions predicating expectations. The other point of interest will be the Fed’s quarterly Senior Loan Officer survey, which most expect to see some further tightening in bank lending standards, but rather more modest than in prior recent surveys, with credit growth expected to have seen some improvement. While outliers will inevitably trigger market reactions, the messaging from this weeks’ Fed speakers on the policy will likely be a case of reserving judgement on the incoming Trump government’s policy measures, and probably treat October data as having less sensitivity to the short to medium outlook for policy.

– China: The weekend inflation data were both weaker than expected, with a fall in Food prices weighing on headline CPI (0.3% y/y vs. expected 0.4), while the broad spectrum of energy and energy related (e.g. Chemicals) weighed heavily on PPI (-2.9% y/y vs. expected -2.5%, prior -2.8%). The National Day (‘Golden Week’) holidays will have likely delayed the recent stimulus measures from getting much immediate traction, though the run of PMIs offer some grounds for optimism going forward. Credit Aggregate growth will be adversely affected a typical seasonal drop in lending, with a CNY 1.54 Trln increase in Aggregate Financing expected (somewhat above the trend rate for the month) and an around average CNY 700 Bln in New Yuan Loans. The week ending activity data is expected to see a pick-up Retail Sales to a still very weak 3.8% y/y from 3.2%, presumably boosted by the govt handouts to low earners just ahead of the holiday, and notably despite adverse base effects (October 2023 Sales jumped to 7.6% y/y from September’s 5.5%). Industrial Production is expected to accelerate modestly (0.2 ppt) to 5.6% y/y, but slip 0.1 ppt to 5.7% in year to date terms, while Fixed Asset Investment is seen marginally higher at a sluggish 3.5% y/y, and continue to be wholly fuelled by Public FAI (last 6.1% y/y), while Private FAI should start to ‘bottom out’ (last -0.2%), but continue to see colossal drag from Property Investment that is seen only marginally better at -9.9%. The big question is how effective will the recent stimulus measures be, with implementation a critical element to ensure that, especially given the minimal benefits that have been seen from the measures to boost the property sector, prior to the latest round of measures.

– U.K.: This week’s labour market and activity data should go some way to shaping expectations for the December BoE rate decision (currently priced as a 20% probability), though next week’s CPI will be perhaps more decisive. HMRC Payrolls are forecast to drop a modest -13K, though still the fourth drop in the past 5 months, and the Unemployment Rate to tick back up to 4.1%, though the much-criticized LFS Employment measure is seen posting a further robust rise of 290K for Q3. The focus will however be on Average Weekly Earnings that are expected to edge up to 3.9% y/y headline, though basic pay is anticipated to drop to 4.7% y/y from 4.9%, still uncomfortably high for the BoE, even if trending in the right direction. The RICS House Price Balance is expected to be steady at 11, with gains in prior months checked by the budget and rise in Gilt yields, which serves to stymie the downtrend in mortgage rates. Friday’s GDP data is forecast to see m/m steady at 0.2%, but Q3 slow to 0.2% q/q, in line with the BoE’s latest projections, with Private Consumption seen as the only significant contributor, while Net Exports are likely to exercise a small drag. Monthly activity data are projected to show a 0.2% m/m rise in the Index of Services and Construction Output, and Industrial Production to slow to 0.1% after a solid 0.5% m/m increase in August. On balance these are set to confirm a loss of growth momentum, though whether this will be sufficient in the BoE’s eyes to allay concerns about the Budget’s potential inflationary impact is debatable.

– Eurozone: Tuesday’s German ZEW survey is unlikely to have captured much reaction to the collapse of the ruling coalition, and there are some downside risks to the anticipated no change in Expectations (median 13.2) after a choppy month for the Dax, while better than expected Q3 GDP gives a very small boost to Current Conditions, though still leaving it at an abject -85.0. The ECB minutes will be combed for hints on the likelihood of a further rate cut in December, as well as the extent of concerns about stubborn Services inflation, and downside risks to the growth outlook. While the French and German political crises are the current focal points in the Eurozone, a close eye needs to be kept on Italy, where still popular PM Meloni faces a lot of coalition internal stumbling blocks to her reform programme, resulting in increased chatter that she may try and engineer early elections (not due until 2027) to strengthen her hand, though it should be remembered early elections are the prerogative of President Matarella.

– Japan: Ahead of Friday’s provisional Q3 GDP, an eye needs to be kept both on PPI (seen flat m/m and edging up to 2.9% y/y) and the Economy Watchers survey, which is forecast to drop back further to 47.2 from 47.9, not boding well for Household Spending. Q3 GDP is expected to 0.2% q/q or 0.7% SAAR, predicated on sharp slowdown in Private Consumption to 0.2% q/q from Q2’s 0.9%, and a drop of -0.2% in Business CapEx, after a jump of 0.8% q/q in Q2, with a marginal offset from small positive contribution from Net Exports. Aside from domestic political uncertainty, the run of data would make the case for continued BoJ caution about the timing of a further rate hike.

– India: With so much going on in the US, China and Europe, India has fallen off many people’s radar, but should garner some attention with this week’s run of key monthly indicators. CPI is forecasts to accelerate further to 5.9% y/y from 5.49%, as the impact of bad weather on food prices (above all vegetable prices) as well as a rise in cooking oil prices continues to be felt. This should prove to be transient, but will likely prompt the RBI to continue to keep rates on hold, despite the increasing evidence that inflation pressures are into corporate profit margins and pricing power. Industrial Production is forecast to rebound from an even weaker than unexpected -0.1% y/y in August, though there appear to be some modest downside risks to expectations of +3.7% y/y, both from the drop in the Manufacturing PMI in September, a weak outturn for Infrastructure Industries Output, even if there should be support from a pre-holiday related boost to output, and a rebound in Exports. By contrast October’s Trade deficit is expected to widen mostly to $-22.0 Bln on the self-same seasonal rise in demand in holiday related Imports.

– Australia: The RBA continues to resist pressure to join other central banks in cutting rates. This week’s Q3 Wage Price Index and October labour data should go some way to indicating when it might relent, with Wages seen rising 0.1 ppt to 0.9% q/q, boosted by the annual minimum wage increase and still too high for the RBA’s comfort. Employment growth is forecast to drop back to just 25K (Sep +64.1K), after a run of much higher than expected readings in recent months, with the Unemployment Rate holding at 4.1%.

– Energy: I was asked by an energy analyst over the weekend what the implications are for the oil and gas sectors under a Trump Presidency? I replied that this is quite a ‘complicated question and I suspect the implications for oil and gas need to be differentiated. For oil & gas Trump is likely to push for more domestic production, and roll back regulation to allow drilling in ‘native’ conservation regions. As we know the world is more than well supplied with oil (at the current juncture), and oil demand is proving to be weaker than many (above all OPEC) had projected. To some extent physical oil markets are quite well prepared for this, given very low levels of inventories, but barring an unexpected pick up in demand, the overall implication is negative. For NatGas/LNG, the signals from the recent collapse in LNG freight rates suggests that any increase in supply may well be modest, simply because margins are becoming an ever bigger issue given supply is more than plentiful, and if Trump succeeds in his stated intention to reach a negotiated settlement between Russia and Ukraine, then there is the prospect of even more supply. A good deal also depends on how fast demand from India picks up. For the time being increasing Asian LNG demand has offset the lower than expected demand in Europe, the latter in no small part due to record levels of renewable production (obviously vulnerable to greater fluctuations in Winter due to intermittency and higher seasonal demand). I can see a situation where output drops due to margin pressures, and flips the S&D picture, above all if demand picks up, so there is potential for greater volatility, some of this may depend on how rapidly Chinese road freight moves from diesel to LNG fuelled vehicles, which has already had, and will continue to have some impact. The picture for refined products is more complex, given decreasing refining capacity in Europe, and per se greater demand for imports. For the time being that is not a problem, given the European economic outlook is at best for marginal growth.’

– There are just 11 S&P 500 companies reporting this week, and with 91% of companies having reported, according to Factset: ‘for Q3 2024 (with 91% of S&P 500 companies reporting actual results), 75% of S&P 500 companies have reported a positive EPS surprise and 60% of S&P 500 companies have reported a positive revenue surprise’ – overall a positive signal. But with the S&P 500 four quarter forward P/E ratio on 22.2 (vs. 10-yr average 18.1), and a current P/E ratio of 25.76, valuations look challenging, above all if the current rise in UST yields persists, even if seasonal factors are likely to be supportive through to the end of the year. Worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: Allianz, Applied Materials, Aristocrat Leisure, Asian Paints, AstraZeneca, Banco do Brasil, Bayer, Bridgestone, Brookfield, Cellnex Telecom, Cisco Systems, Deutsche Telekom, Dubai Electricity & Water Authority, E.ON, Experian, Generali, Hannover Re, Hapag-Lloyd, Hindustan Aeronautics, Home Depot, Hon Hai Precision Industry, Infineon Technologies, Japan Post, Japan Post Bank, JD, Live Nation Entertainment, Loblaw, Merck, Mitsubishi UFJ Financial, Mizuho Financial, NetEase, Nu Holdings/Cayman Islands, Occidental Petroleum, Oil & Natural Gas, PTT, Recruit, Rocket, Sea, Shopify, Siemens, Siemens Energy, Singapore Telecommunications, SMC, SoftBank Group, Spotify Technology, SSE, Sumitomo Mitsui Financial Group, Suncor Energy, Swiss Re, Tencent, Tokyo Electron, Walt Disney.