Macroeconomics: The Week Ahead: 12 – 16 September

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

The Week Ahead – Preview: 

As the UK remains in mourning for the passing of Queen Elizabeth II, there will be a deluge of data from the US, UK, China and Japan, in what will be a very busy week for key monthly Agriculture and Energy markets reports, and indeed major commodity conferences. The Fed will be in ‘purdah’ ahead of next week’s FOMC meeting, with the BoE MPC meeting postponed until 22 September, while the ECB holds its annual research conference, with a number of ECB speakers also on hand elsewhere. Geopolitics remains front and centre, with Ukraine’s recapturing parts of the North East, and Russia retreating, and some chatter about local govts in St Petersburg and Moscow openly criticizing Putin. It should be observed that even if there were regime change in Russia, any replacement would doubtless come from the current nomenklatura, and an easing of tensions with EU and NATO would be anything but assured, and the risk of precipitous action with or without Putin is clearly heightened. In that context, the week also sees a Shanghai Cooperation Organization (SCO) summit, at which Putin will meet with China’s President Xi on the sidelines. The EU continues to struggle to find agreement on a package of measures to ease the energy crisis in the short-term, with a good deal of resistance to the proposed price cap on Russian oil and gas imports. A light week for corporate earnings, but a relatively busy one for govt bond auctions, led by the US with $91 Bln of 3, 10 & 30-yr, and France with medium term conventionals and inflation linked heading the run from the Eurozone that also sees sales in Germany, Italy, Spain and Portugal, while Japan sells 5 and 20 yr.

The week’s run of US data will offer the Fed a full run of monthly statistics to peruse at next week’s FOMC meeting. CPI gets top billing with headline seen dipping 0.1% m/m on gasoline prices, while core is seen up 0.3% m/m, which would see headline dip to 8.0% y/y from 8.5%, but core rising to 6.1% y/y from 5.9%, as housing and services pressures override lower car and some other goods prices; PPI is expected to confirm easing pipeline pressures, with a strong USD expected to weigh heavily on Import Prices (exp. -1.2% m/m). But even a downside miss on CPI seems unlikely to deter the Fed from a 75 bps next week, above all due to core CPI, still being a long distance from its 2.0% target. Retail Sales are forecast to be unchanged m/m on both headline and ex-Autos, as gasoline price falls (down 12.8% m/m) offset volume gains, with Auto Sales a further drag, with the ex-Autos measure seen up a solid 0.8% m/m, and the Control Group measure posting a respectable 0.5% m/m rise. In the manufacturing sector, Industrial Production is expected to be constrained to a 0.1% m/m gain by seasonal adjustments to Auto output (a mean reversion from July’s surge that was largely due to atypical re-tooling and maintenance). Meanwhile the NY Fed Manufacturing survey is expected to bounce from August’s near all-time low, but remain deeply negative, and the Philly Fed survey to dip modestly after bouncing in August; details on prices, orders and supplier deliveries will require scrutiny. Michigan Sentiment is seen up for a third month, but still very low at 60.0 on any historical comparison. Business Inventories and NFIB Small Business Optimism are also due along with the Business Roundtable quarterly CEO Economic Outlook Index.

In China, the lower than expected CPI and PPI are not expected to prompt any further cuts to the 1-yr MTLF rate (2.75%) this week, with the volume seen held at CNY 400 Bln, with markets there closed for the Mid-Autumn festival on Monday. The week ending rush of activity and property sector data are forecast to show an uptick in Retail Sales to a still very sluggish and intermittent lockdown constrained 3.2% y/y. Industrial Production is expected to be unchanged at 3.8% y/y, though the combination of heat waves, power supply constraints and Covid outbreaks/lockdowns impart considerable downside risks, and are also expected to weigh on Fixed Asset Investment (exp. 5.5% y.t.d. vs. prior 5.7%). The surveyed Unemployment Rate is also seen unchanged at 5.4%, with the focus on any further gains in Youth Unemployment after it hit an all-time high of 19.9% in July. Unsurprisingly given continued sector woes, the run of property related data (including New Home Prices and Residential Property Sales) is likely to show further deterioration, with Property Investment forecast to drop 7.0% y/y after a 6.4% fall in July.

In the UK, the period of national mourning may well serve to mute reaction to the busy run of data, as well as the lack of details on last week’s measures to combat the energy crisis, which will be material to the UK’s growth and inflation outlook. GDP and monthly activity get the week under way with a 0.4% m/m rebound from the smaller than expected -0.6% m/m June fall, which was due to the double bank holiday to celebrate the late Queen’s Platinum Jubilee. But a proper picture of underlying trends in activity will only emerge with the August data, which seem likely to turn out close to flat m/m; sharp fluctuations in health services remain a wild card. Labour data on Tuesday are forecast to show a solid 63K gain in August HMRC Payrolls, above all thanks to sky high levels of Vacancies, even if these are easing modestly. The less timely May-July Employment measure is forecast to slow to a still solid 128K pace, and the Unemployment Rate to be unchanged at 3.8%, while base effects will to an extent account for an expected pick up in Average Weekly Earnings to 5.4% y/y from 5.1%, with core Wage seen at 5.1% from 4.7%. As Wednesday’s CPI is likely to underline, real wage growth will remain very negative, and as the attached FT chart highlights the trend has in fact been very bad ever since the GFC. Headline is anticipated to be up an unchanged 0.6% m/m to edge the y/y rate down 0.1 ppt to 8.7%, but conversely core CPI is expected to edge up 0.1 ppt to 6.3%. Pipeline pressures as measured by PPI are expected to ease in m/m terms, but not y/y. Friday’s Retail Sales round off the week, with a drop of 0.5% m/m expected after June’s slightly better than expected +0.3% broke a run of 8 months of no increases. In truth all the data, regardless of beats and misses relative to forecasts are only marginally relevant to next week’s BoE decision.

Elsewhere Japan’s run of data is expected to see Private Machinery Orders ease modestly m/m, a narrower trade deficit due to falling energy prices (also helping to lower PPI in m/m terms) and some strength in Exports, with the quarterly BSI survey of business spending intentions also in focus. Germany’s ZEW survey is forecast to see a drop in Expectations to -60.0, close to its 2008 low of -63.9, and a further drop in the Current Situation to -52.1 from -47.6. India’s CPI is forecast to rebound to 6.9% y/y from 6.7%, primarily due to food price pressures, though also not helped by adverse base effects, with core CPI likely to push higher given robust domestic demand; India’s Industrial Production will likely decelerate sharply (exp. 4.1% y/y from 12.3%) also due to very adverse base effects, as well as a sharp 2.3% m/m fall in the already reported Infrastructure Industries Output, and weakness in non-oil Exports. Australian Employment is forecast to rebound 30K after an unexpected -40.9K drop in July, with the Unemployment Rate is seen unchanged at a record low of 3.4%, though an expected 0.1 ppt increase in the Participation Rate 66.5% as the country moves into Spring imparts a risk of a slightly higher jobless rate.

In the commodity and energy space, uncertainty over whether to focus on recession risks to demand, or numerous supply issues (productive capacity in energy, drought and extreme weather and the war in Ukraine for agriculture) continue to make for a volatile trading environment, not helped by poor trading conditions, above all visible in drops in Open Interest. Energy markets look to the IEA and OPEC monthly oil market reports, focussing above all on demand forecasts, which have been rather less pessimistic than market price action suggests, but also on supply, which in OPEC’s case has seen OPEC+ failing to meet raised production targets for many a month, and inventories looking very low in seasonal terms, particularly given the boost from SPR releases. This week’s WASDE could prove to be pivotal for agricultural markets, which have seen a very wide range forecasts for grains and oilseeds production, with particular focus on Corn due to the impact of extreme weather. Notably the WASDE report will incorporate actual data from crop tours, rather than just model based estimates; there are also China’s CASDE and France’s Agriculture Ministry Production monthly reports. The metals sector has an array of conferences : International Aluminium in Barcelona, Brasil’s Exposibram Mining, China Base Metal Mining Resources and Steel Development Forum; while the agricultural sector has the World  Dairy Summit and UkrAgroConsult’s Agro & Food Security Forum.

 As noted, the corporate earnings schedule is again very light this week, with Bloomberg News highlighting the following as likely to be among the headline makers: Adobe, FirstRand, InDiTex, Kobe Bussan and Oracle.

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