Macroeconomics: The Day Ahead for 10 November
- US CPI dominates data schedule; digesting UK RICS House Price Balance, strong rebound in Philippines GDP, US mid-term results, Fed, BoJ and RBA policy signals; also looking to US weekly jobless Claims, Brazil inflation; deluge of central bank speakers, Mexico & Peru decisions; energy providers head busy run of Europe earnings; UK 5 yr & US 30 yr
- US CPI: core CPI pressures in focus, services still sticky, upside push from housing should see offset from medical insurance; outcome unlikely to change Fed messaging, but financial conditions may well
The US CPI report for October will be front and centre today, as markets continue to digest the tighter-than-expected US mid-term election results, the meltdown in the crypto space triggered by FTX’s potential bankruptcy, a collapse in the UK RICS House Price Balance, and the prospect of a full lockdown in China’s Guangzhou as Covid cases surge, along with a very sharp rebound in Phillippines Q3 GDP, and Norwegian inflation. Brazil and Czechia also publish inflation data, which features alongside US weekly jobless claims and Treasury Budget on a relatively busy data schedule. Central bank speakers are very plentiful, with rate hikes expected in Mexico (+75 bps) and Peru (+25 bps), while the UN FAO publishes its semi-annual Food Outlook report. A busier day for corporate earnings has reports from Allianz, ArcelorMittal, Credit Agricole, Engie, Hapag Lloyd, National Grid, Siemens Gamesa, Snam and Tate & Lyle in Europe, while Brookfield Asset Management and Tapestry head the run in North America. Govt bond supply comes via way of UK 5-yr and US 30-yr, the latter following a very poor 10-yr sale yesterday, and with the US Treasury Market closed tomorrow for Veterans Day.
** U.S.A. – October CPI **
In terms of US CPI, it is m/m rates that matter more in the short-term than y/y rates, above all given base effects. Headline CPI is forecast to rise 0.6% m/m, which would see the y/y rate dip to 7.9%, while core is seen up 0.5% m/m to edge the y/y rate down 0.1 ppt to 6.5%; in 3-mth annualized terms this would take headline up to 4.0% from September’s 2.0% (though a lot better than the May-July pace of 9.2%), while core would be running at 6.8% (vs. May-July 6.4%). Rising Gasoline prices will add to headline, while core will continue to see pressure from OER (housing), though as previously noted this does not reflect current downward trends in house prices. Services will also continue to exercise upward pressure, but will see some restraint over the next year coming from Medical Insurance costs thanks to the anomalies of the BLS methodology for calculating this, based on Health Insurers’ retained earnings, which should help to start to bring down Services CPI ex-OER from a very high 11.4% y/y. Used vehicle prices should also be a drag, though New Car prices have offset much of this in recent months. The fact is that even with another CPI report before the next FOMC meeting, inflation is unlikely to come down at anything like the sort of pace needed to prompt a genuine volte face from the Fed. However, tightening financial conditions will weigh heavily in the Fed’s decision making, and as a quick look at the attached chart of the Fed’s Senior Loan Officer survey Loan Standards as compared with the Speculative Grade (HY) Default Rate highlights, the outlook does not look good, given that the former leads the latter by about 6-8 months.
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