Macroeconomics: The Day Ahead – 14 October 2020

Good Morning: The Long & the Short of it and The Bigger Picture

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

• Digesting Singapore Q3 GDP, expected no change from BoK and MAS, awaiting US PPI, more US financials dominated earnings, deluge of central bank  speakers; UK, Germany and Portugal to sell debt
• Tuesday price action underlines markets unrealistic Panglossian obsession with Covid-19 vaccine
• US PPI: modest monthly rise seen across all measures, Trade Services once again the ‘wild card’, ISM prices index hints at upside risks

EVENTS PREVIEW

The day’s statistical schedule is very light, with Singapore Q3 advance GDP (slightly stronger than forecast) to digest ahead of US PPI. By contrast there will be a deluge of Fed, ECB and BoE speakers, though most of have spoken recently, as the IMF/World Bank annual meetings continue with their respective press conferences, as the Bank of Korea and MAS kept policy settings unchanged. Financials again dominate the US earnings run, with Bank of America, Goldman Sachs and Wells Fargo headlining, with Alcoa also reporting; while govt bond issuance sees UK selling 9-yr, Germany 30 yr, Portugal 8 & 17-yr and Canada 4-yr. Yesterday’s trading action was instructive, in so far as the much better than expected US NFIB Small Business Optimism, ‘big beats’ in results from Citi and JPM (details were less encouraging) and as expected CPI prove to be roadkill in the face of the suspension of the J&J and later the Eli Lilly Covid-19 vaccine trials. It does suggest that political risk (with Brexit news above all in focus today ahead of the EU summit tomorrow), fiscal and monetary policy, let alone incoming economic data are all subordinated to the apparent holy grail of a vaccine. This is symptomatic of Panglossian thinking which ignores lengthy timelines for mass vaccination production and distribution, let alone the point that such suspensions were always very likely to occur as part of the trials process; for example, there is as yet no reliably effective vaccine for SARS. Hope is always good, but in times of adversity confronting and dealing with reality in a very pragmatic way is of greater importance. That said, it may simply be that the biggest hurdle is the fact that overall Q3 S&P500 earnings estimates have been revised steadily higher since the end of Q2, leaving less scope for a positive reaction, and perhaps more scope for ‘sell the fact’ trades.

U.S.A. – September PPI

Yesterday’s CPI was something of a non-event, even if the divergences in food and services prices highlight the impact of the pandemic, both via bottlenecks and on the other hand sharp drops in demand. Today’s PPI is also likely to be little more than a footnote for markets, above all if in line with an across the board consensus for a rise of 0.2% m/m, with the summer pressure on energy prices having flattened out, also true of food prices. That again leaves the very volatile Trade Services component as having most potential for an ‘outlier’, after two months of strong readings (1.2% and 0.8% m/m), with strength in ISM Manufacturing Input Prices sub-index (62.8) implying continued strength.

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