Macroeconomics: The Week Ahead: 28 October – 1 November

The new week will be a colossal barrage of risk events, be that political, statistical, monetary or the deluge of corporate earnings, as well as bringing month end and some public holidays, as the following week’s US elections and FOMC meeting casts a very long shadow. Statistically, there are the gamut of advance Q3 GDP report in the US, Eurozone/EU and some from Asia, US labour indicators (including Q3 ECI)  and Personal Income/PCE, Eurozone and Australian inflation, Japan activity data, and Manufacturing PMIs worldwide to absorb. There are 169 S&P 500 companies reporting this week, and a very busy run elsewhere, with tech sector ‘Megacaps’ (Alphabet, Amazon, Apple, Meta Platforms and Microsoft) along with Foxconn, Intel and Samsung Electronics, and energy behemoths (BP, Chevron, CNOOC, ConocoPhillips, Exxon Mobil, PetroChina, Shell, Sinopec, TotalEnergies) dominating, as well as European and Chinese banks and Japanese trading houses. Aside from digesting Japan’s weekend election results, the UK has a much anticipated and potentially decade defining Budget, with Japan also looking to the BoJ policy meeting and forecast update. In commodities markets, the initial question will be how oil markets react to the Israeli bombing of Iranian military targets, and then digesting a raft of major companies across all sectors reporting earnings, as well as Glencore publishing its Q3 production report, with a number of conferences also slated. All of this looks to be a recipe for a good deal of volatility, though what may prove to be key is whether traders and investors continue to reduce positions or ‘de-risk’ their books and portfolios ahead of the US election.

– U.S.A.: given the run of data this week and the election, there is a lot of water to go under the bridge before the FOMC decision on Thursday 7 November, where a 25 bps cut is largely (94%) discounted. Consumer Confidence is seen edging up to 99.3 from 98.7, with the sometimes large revisions a consideration, but all eyes are likely to be on the Labour Differential which fell back to 2017 levels (ignoring pandemic period distortions) in September (see chart). JOLTS Job Openings are expected to continue to their saw tooth descent, dropping back to 7.935 Mln from 8.04 Mln, though still above July’s cyclical low of 7.711 Mln, while ADP Employment is seen up 110K (vs. Sep 143K), and the Q3 Employment Cost Index expected to hold at 0.9% q/q. Wednesday’s Q3 GDP is forecast to post a robust rise of 3.0% SAAR, paced by a pick-up in Personal Consumption to 3.2% from Q2’s 2.8%, as well as strength in non-residential construction and business equipment, while housing investment acts as a small drag, and both net exports and inventories seen having little impact. Per se this would underline the impression that US economy is in robust health. The focus then turns to Thursday’s PCE deflators, with headline and core expected to accelerate in m/m terms to 0.2% and 0.3% respectively from 0.1%, but edge lower by 0.1 ppt in y/y terms to 2.1% and 2.6% – the latter reinforcing the caution expressed by many Fed speakers about the pace of further rate cuts. Friday’s Payrolls are also seen up 110K (vs. September’s much stronger than expected 254K), with forecasts ranging from -10K to +165K. Leaving aside a potentially large revision to September, the questions being how much impact did Hurricane Milton have, given that it hit during the establishment survey? Was their a lingering impacts from Hurricane Helene, and how much impact will there be from the Boeing strike on Manufacturing Payrolls (median -21K)? The Unemployment Rate is forecast to be unchanged at 4.1%, while Average Hourly Earnings are expected to be moderate in m/m terms to 0.3%, but hold at 4.0% y/y. Auto Sales are also due Friday, with little change expected (15.80 Mln vs. prior 15.77 Mln).

– U.K.: Ahead of the Budget on Wednesday, there are credit aggregates (both seen little changed vs. August at solid levels), the BRC’s Shop Price index that is forecast to edge up 0.1 ppt to -0.5% y/y, the CBI’s Retailing Survey with Sales seen -4 from +10, and perhaps most interestingly Monday’s Lloyds Business Barometer, which may suffer a setback due to Budget concerns, though this would follow a period of protracted strength; Nationwide House Prices are also due on Friday. Wednesday’s Budget will be pivotal, not only in the very short-term, but also to long-term expectations for the UK economy, as well as the overall credibility of the new Labour government. There are essentially three big questions: how will the already heavily trailed changes to the fiscal rules, which looks to switch to targeting bringing down Public Sector Net Financial Liabilities (PSNFL), i.e. current (as opposed to total) govt spending relative to revenues over the usual 5-yr horizon, and thus freeing up investment spending, be achieved. Media reports suggest that among other things this will be achieved by extending the freeze on income tax thresholds, adjustments to Capital Gains and Inheritance Tax, mostly through scrapping exemptions, and by making employer contributions to private pension plans subject to National Insurance. Labour has stated that it wants to scrap the previous government’s planned reduction in Capital Spending from 2.4% to 1.7% of GDP, above all to encourage more investment spending. While plans to improve Child care and reform the NHS will be watched, markets will be focussed on the OBR’s (Office for Budget Responsibility) assessment of the budget plans, which will to an extent depend on its judgement on these will impact inflation. In turn this will feed into how the BoE assesses the impact of fiscal policy and its likely rate trajectory, with many forecasters expecting this to mean a slower rate cut path, and an end point that is perhaps 25-50 bps higher for Base Rate than had been assumed.

– Eurozone: With October inflation and Q3 GDP tabled for release, this will be an important week in terms of market expectations for ECB rates. In terms of Q3 GDP, pan Eurozone growth is expected to be unchanged at a still sluggish, though widely assumed trend rate 0.2% q/q, which thanks to base effects would see the y/y rate pick up 0.2 ppt to an unimpressive 0.8%. But this will mask a lot of divergence between the four major economies, with Spain likely to maintain its pole position with a solid 0.6% q/q, France to benefit from an Olympics boost posting a still rather unimpressive 0.3% q/q, Italy to hold steady at 0.2% q/q, while Germany again contracts modestly (-0.1% q/q). The risks look to be very much skewed to the downside, above all for Germany, and even if France sees a larger than expected boost from the Olympics, most will expect a sharper payback in Q4. In terms of CPI, higher road fuel costs and adverse base effects are expected to see headline up 0.2% m/m, which would push up the y/y rate to 1.9% from last month’s cyclical low of 1.7%. However, a further small moderation in Services CPI (last a still lofty 3.9% y/y) should allow core CPI to ease to 2.6% y/y, the lowest level since January 2022, which would argue against a more aggressive 50 bps cut in December, obviously still depending on the November outturn.

– Japan: at the time of writing, the outcome of the election remains unclear, other than the LDP being on course to lose its majority, though whether it might still cling onto a majority with its partner party Komeito is still very unclear. While the BoJ has not made any reference to domestic political uncertainty in terms of its policy outlook, it should be obvious that if a broader coalition would need to be fashioned, then the BoJ would likely stay its hand. However, with the JPY very much front and centre in policy terms, it may find itself in the unenviable position of judging how to fashion a policy path against the backdrop of politics related pressure on the JPY. Be that as it may, Ueda has made it clear that rates will be held at this week’s meeting, above all as it seeks to gauge the outlook for the US economy, and by extension Fed policy, an as well as assessing the extent to which higher domestic wages settlements are helping to revive household consumption. The accompanying forecast update for GDP and CPI will also be watched closely, with the prior forecast seeing headline CPI at 2.1% and 1.9% in the coming two years, and core CPI at 1.9% and 2.1%, both implying further policy tightening. This weeks’ data points are expected to see Industrial Production post a modest 0.8% m/m rebound in September from an auto sector related slide of -3.3% in August, while Retail Sales are seen at -0.3% m/m.

– Last but not least China’s NBS PMIs are expected to see an improvement to 49.9 (+0.1) Manufacturing and 50.5 (+0.5) Services, per se only getting a small boost from the latest fiscal and monetary policy measures, and the National Day holidays. Australia’s Q3 CPI is expected to see significant falls at both headline (0.3% q/q 2.9% y/y, vs. Q2 3.8%) and core tt 3.5% and 3.6% y/y respectively from 3.8% & 3.9%, which the RBA will consider to be still much too high, above all with q/q gains (0.7%/0.8%) little changed from Q2.

– Aside from being peak week for US earnings, there are also a raft of earnings in Asia and Europe, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: AbbVie, Adani Ports & Special Economic Zone, Adani Power, Adidas, ADP, Advanced Info Service, Advantest, Aena SME, Aflac, Agnico Eagle Mines, Agricultural Bank of China, Airbus, Allstate, Alnylam Pharmaceuticals, Alphabet, Altria Group, Amazon, Ambev, AMD, American Tower, American Water Works, Ametek, Amgen, Anheuser-Busch InBev, Apple, Arch Capital, Ares Management, Argenx, ASM International, Atlassian, BBVA, Banco Bradesco, Banco Santander, Bank of China, Bank of Communications, Bank Rakyat Indonesia Persero, BASF, Beijing-Shanghai High Speed Railway, Bharti Airtel, Biogen, Blue Owl Capital, BNP Paribas, Booking, BP, Bristol-Myers Squibb, Brown & Brown, BYD, Cadence Design Systems, CaixaBank, Cambricon Technologies, Canadian Natural Resources, Cardinal Health, Carvana, Caterpillar, CDW, Cenovus Energy, Charter Communications, Cheniere Energy, Chevron, China Citic Bank, China Construction Bank, China Everbright Bank, China Life Insurance, China Merchants Bank, China National Nuclear Power, China Pacific Insurance Group, China Petroleum & Chemical, China State Construction Engineering, China Yangtze Power, Chipotle Mexican Grill, Chubb, Church & Dwight, Cigna Group, Citic Securities, Cnooc, Cognizant Technology Solutions, Coinbase Global, Comcast, ConocoPhillips, Corning, Cosco Shipping, CRRC, CSC Financial, Daiichi Sankyo, Delta Electronics, Denso, Dominion Energy, DoorDash, DR Horton, Dr Ing hc F. Porsche, Eaton, EBay, Ecolab, Edison International, Electronic Arts, Eli Lilly, Emirates Telecommunications, Enbridge, Entergy, Enterprise Products Partners, Equinix, Equity Residential, Erie Indemnity, Estee Lauder, Exelon, Extra Space Storage, Exxon Mobil, Ferrovial, FirstEnergy, Fomento Economico Mexicano, Ford Motor, Fortive, Foshan Haitian Flavouring & Food, Foxconn Industrial Internet, Fujitsu, Garmin, GE HealthCare Technologies, Global Payments, Gree Electric Appliances of Zhuhai, GSK, Haier Smart Home, Haleon, Hess, Hitachi, Hoya, HSBC, Huaneng Lancang River Hydropower, Humana, ICICI Bank, Idexx Laboratories, Illinois Tool Works, Imperial Oil, Indian Oil, Industrial & Commercial Bank of China, Industrial Bank, ING, Ingersoll Rand, Intel, ICE, Intesa Sanpaolo, Iqvia, Japan Tobacco, KDDI, Kellanova, Keyence, KLA, Komatsu, Kraft Heinz, Larsen & Toubro, LG Energy Solution, Li Auto, Linde, Luzhou Laojiao, LyondellBasell, Macquarie, Martin Marietta Materials, Marubeni, Maruti Suzuki India, Mastercard, McDonald’s, MediaTek, Merck, Meta Platforms, MetLife, Microsoft, MicroStrategy, Midea Group, Mitsubishi, Mitsubishi Electric, Mitsui, Mondelez International, Monolithic Power Systems, MSCI, Murata Manufacturing, Muyuan Foods, Nari Technology, Naura Technology, Novartis, On Semiconductor, Oneok, Oriental Land, Otis Worldwide, Otsuka Holdings, PayPal, People’s Insurance Group of China, PetroChina, Pfizer, Philips, Phillips 66, PICC Property & Casualty, Postal Savings Bank of China, Prudential Financial, Public Storage, Quanta Services, Regeneron Pharmaceuticals, Renesas Electronics, Republic Services, Roblox, Royal Caribbean Cruises, Samsung Electronics, SBA Communications, SF Holding, Shaanxi Coal Industry, Shanghai Pudong Development Bank, Shanxi Xinghuacun Fen Wine Factory, Shell, Shenzhen Mindray Bio-Medical Electronics, Southern Company, Standard Chartered, Starbucks, STMicroelectronics, Stryker, Sumitomo, Sun Pharmaceutical, Sungrow Power Supply, Swisscom, Sysco, T. Rowe Price, Takeda Pharmaceutical, TE Connectivity, TotalEnergies, Tradeweb Markets, Trane Technologies, Uber Technologies, UBS Group, Universal Music, Ventas, Verisk Analytics, Vici Properties, Visa, Volkswagen, Vulcan Materials, Wanhua Chemical Group, Waste Management, WEC Energy, WEG, Welltower, Willis Towers Watson, Wuliangye Yibin, WW Grainger, Xcel Energy, Xylem, Yihai Kerry Arawana