Macroeconomics: The Week Ahead: 13 to 17 November

The Week Ahead – Brief Preview:

It will be a big week for major economic data in the US, UK, China, Japan and India as markets continue to struggle to shake off a Pavlovian instinct (developed since LTCM and above all through the zero rates period) to react to a peak in most major economy interest rates not being a cue for a rate pivot, and this despite all the clear central bank messaging about ‘high for longer’ or ‘table mountain’ type analogies. I would humbly suggest that those suggesting central bank messaging has recently become ambiguous are indulging in ‘wishful seeing’ (a very typical phenomenon in financial markets), with another deluge of central bank speakers on hand this week. The Q3 earnings season is winding down, but there are results from numerous major US retailers (Walmart, Home Depot, Target inter alia), China tech behemoths (Alibaba, JD.com and Tencent) and Japanese financials, along with the likes of Cisco, Infineon, RWE and Siemens. There is no US Treasury coupon issuance this week, but a busy week in Europe will see syndicated sales from the UK and EU, and auctions in Germany, France and Spain, while Friday will bring a potentially very significant Moody’s rating review for Italy (currently Baa3, negative watch). The commodity and energy sector awaits IEA and OPEC oil market reports (watching for any demand projection revisions), crop reports in Europe, and a slew of conferences including Asia Copper Week, Goldman Sachs Metals & Mining and Wood Mackenzie Gas & LNG. On the political side, the war in Gaza will continue to dominate, as Saudi Arabia convenes emergency meetings of the Arab League and Organization of Islamic Cooperation, while Presidents Biden and Xi are expected to speak on the sidelines of the APEC Summit, and the US Congress should pass another stopgap funding bill. Last but not least, anecdotal evidence on spending trends from China’s “Singles Day” shopping event will also be in focus, along with the woes of the stricken property sector.

CPI tops the run of data in US, with lower gasoline and utility prices set to keep headline in check with a 0.1% m/m rise to bring the y/y rate back down to 3.3% (from 3.7%), but core set to remain rather ‘sticky’ with a 0.3% m/m rise to leave the y/y rate unchanged at 4.1%, boosted above all by medical services (primarily due to idiosyncrasies around medical insurance), and thus reinforcing the Fed’s tightening bias; m/m readings for PPI are expected to mirror CPI, and again suggest the downward momentum for inflation has largely dissipated. Anecdotal evidence suggests that after a strong rise in Q3 Personal Consumption, lower income households have heavily reined in spending in Q4, even if the expected -0.3% m/m headline drop in Retail Sales will be paced by new auto and gasoline (price dictated in part) sales, with the ex-Autos & Gas and the core ‘Control group’ measures are seen up 0.2%. That said travel and event ticket bookings companies are suggesting a very limited drop in demand. Industrial Production and Manufacturing Output are both forecast to decline -0.3% m/m, with the now ended UAW strike having taken its toll, and some offset from higher utilities output due to unseasonably warm weather. The Philly Fed Manufacturing is seen fractionally lower at -10.3 and the NY Fed slightly higher at -3.0, but as ever it will be the details on Orders, Output and 6-month Outlook which matter more. Meanwhile the NAHB Housing Market Index is forecast to slip a little further to 39 from 40, with a modest decline in Mortgage Rates to a still high 7.61% offsetting structural demand for New Homes, due to low Existing Home inventories, and Housing Starts are seen edging down 0.7% m/m after an unexpected 7.0% m/m jump in September.

In the UK, this week’s labour market and CPI data should offer further support to the MPC majority’s decision to pause rate hikes. Tuesday’s labour data are projected to show HMRC Payrolls falling for a fifth month (-20K vs. prior -11K), with headline Average Earnings seen decelerating sharply to a still high 7.4% from 8.1% y/y, though core earnings only modestly to 7.7% from 7.8%. This will again be only a partial set of data, excluding the Labour Force Survey readings, though accompanied by the new ‘experimental’ data. The BoE has already flagged a large drop in headline CPI, with the consensus estimate of 4.8% y/y from September’s 6.7% matching the BoE’s estimate, and paced by household energy bills (with the drop of 7.0% this year, aided by the base effect of last year’s 24.7% rise), though a further easing in food, services and core goods prices should also contribute. But Core CPI and Services are only seen dropping to 5.8% and 6.7% y/y from September’s 6.1% and 6.9%, underlining that the path back down to 2.0% will be long and rather arduous. After a sharper than expected -0.9% m/m drop in September, Retail Sales are projected to bounce 0.4% m/m, though the wet October weather suggests some downside risks. Rightmove House Prices will be closely watched after an unexpected but deceptive 0.5% m/m rebound in October, echoed by other price measures, but reflecting demand for low priced housing, and a long-standing shortage of affordable homes.

This week’s run of China activity data will be preceded by Credit Aggregates and the PBOC’s 1-yr MTLF operation. A steep decline in Aggregate Financing (CNY 1.83 Trln vs Sep 4.13 Trln) and New Yuan Loans (CNY 650 Bln vs. Sep 2.31 Trln) are forecast, mostly reflecting seasonal factors as well as a mean reversion after two months of strength, though probably holding up better than would be seasonally typical thanks to the array of stimulus measures. The consensus looks for no change in the 1-yr MTLF rate at 2.50%, but with negative inflation data and some clear signs of liquidity stress in China’s rates markets, another small 10 bps cut looks a distinct possibility. In terms of the activity data, Retail Sales are expected to accelerate to 7.0% from 5.5% y/y, though base effects from last year’s lockdowns will account for much of the boost rather than the October holidays, while Industrial Production is seen unchanged at 4.5% y/y, as are Fixed Asset Investment (3.1% y/y), Property Investment (-9.1% y/y) and the surveyed Unemployment Rate (5.0%).

Japan’s Q3 GDP is expected to contract -0.1% q/q after a strong 1.2% q/q gain in Q2, with modest rebounds in Personal Consumption (0.3%) and Business CapEx (0.1%), offset by drags from Net Exports (-0.2 ppt, after +1.8 ppt in Q2) and Inventories (-0.1 ppt), with many forecasters also looking for another small contraction in Q4, given that external demand is expected to remain weak. Private Machinery Orders are forecast to rebound 0.9% m/m after contracting 0.5% m/m in August, while Export growth is seen slowing to just 1.1% y/y, with the upturn in oil prices likely to moderate the decline in Imports to -12.8% y/y. Overall the data are likely to reinforce the BoJ’s very gradualist approach to exiting from ultra-easy monetary policy.

India’s CPI should slow to 4.8% y/y from 5.0%, but in contrast to September’s steep decline from 5.8%, base effects are modestly adverse this month, with government measures to curb food exports and subsidies for cooking fuels, as well as a drop in freight costs likely to help ease inflation further, especially as the rise in crude oil prices is not being passed through. Given that growth remains robust (RBI’s Das has flagged Q3 GDP as likely to surprise on the upside), the RBI will continue to retain its hawkish rates rhetoric. Trade data will likely show a wider deficit (exp. $-20.8 Bln), as a seasonal rise in overall imports ahead of the Diwali festival and a rise in oil prices boosted imports, with exports falling due to holidays. Elsewhere Australian Employment growth is expected to pick up to 20K, but with the participation rate seen rising to 66.8% thanks to strong migration flows, the Unemployment Rate is anticipated to rise 0.1 ppt to 3.7%.

Earnings highlights for the week are likely to include the following according to Bloomberg News: Adnoc Gas, Alcon, Alibaba Group Holding, ANZ Group, Applied Materials, Assicurazioni Generali, Cisco Systems, Experian, Home Depot, Hon Hai Precision Industry, Infineon Technologies, Japan Post, Japan Post Bank, JD.com, Loblaw, Mitsubishi UFJ Financial, Mizuho Financial, NetEase, Nu Holdings/Cayman Islands, Palo Alto Networks, Ross Stores, RWE, Sea, Siemens, SMC, Sumitomo Mitsui Financial, Sun Life Financial, Target, Tencent, TJX, Tokio Marine, Vodafone, Walmart.