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Macroeconomics: The Day Ahead for 31 October

  • Further barrage of data and earnings as October ends; digesting BoJ meeting, Japan activity data, China PMIs, Australia Retail Sales and French CPI; awaiting Eurozone CPI, Canada monthly GDP, US ECI, Personal Income, PCE and Chicago PMI; Amazon and Apple earnings; UK 29-yr and Canada 3-yr auctions
  • China PMIs: modest improvement offers some hope, but greater evidence of stimulus traction needed, unlikely to dispel calls for more measures
  • Japan: BoJ sticks with hawkish hold: JPY and domestic & US political developments key to further rate hike
  • Eurozone CPI: German and Spanish data point to stubborn Services inflation resulting in higher than expected outturn, some mitigation from France
  • USA: Employment Cost Index seen holding Q2 pace, anecdotal evidence hints small downside risk relative to forecasts
  • USA: Q3 GDP Personal Consumption blow-out points to higher than expected PCE; deflators to pick up m/m, but ease y/y

EVENTS PREVIEW

The week thus far has been a point lesson in not assuming anything is stable or ‘a known known’, with the Japan election stalemate, a barrage of mostly stronger than expected US data, the ostensibly better than expected Eurozone GDP and uncomfortable rebound in German CPI, and a UK Budget which taken as a whole will be more inflationary than many had expected, and potentially have a very negative impact on small businesses, given the hikes in employer National Insurance contributions, and above all the hike in minimum wages. The primary conclusion is that rate cut expectations need to be (and are being)  tempered in the Eurozone and UK, though perhaps not to the extent that they have been in the US, all the more so given an apparently much more buoyant labour market (as per the ADP) and the strength of Final Sales to Domestic Buyers (3.5% SAAR vs. Q2 2.8%)

On today’s menu, there are the as expected BoJ no change rate decision and forecast update, Japan and South Korea Industrial Production, China’s official NBS PMIs, Japan and Australia Retail Sales, and French CPI to digest, along with Amazon, Apple, Intel and Samsung Electronics Q3 earnings, following on from Meta and Microsoft. Ahead lie Eurozone and Italian CPI, Turkey’s TCMB Inflation Report, and a further raft of US data: Q3 ECI, Personal Income & PCE, weekly jobless claims and Chicago PMI. Corporate earnings highlights for the day outside of the tech behemoths has Europe looking to Anheuser-Busch InBev, AP Moller-Maersk, BNP Paribas, ING, Intesa Sanpaolo, Repsol, Shell, STMicroelectronics, TotalEnergies, as the US also looks at Altria, Cheniere Energy, Cigna, ConocoPhillips, Estee Lauder, Regeneron and Xylem amongst others. Govt bond supply takes the form of UK 29-yr and Canada 3-yr.

** Japan – BoJ policy meeting **

– There were no surprises in the no change rate decision, and the forecast tweaks for CPI and GDP still point to the need for further policy tightening, as was the relatively hawkish messaging from Ueda. He was clearly mindful of the added complexity of domestic political uncertainty, but continued to stress the importance of the JPY in policy terms, and the outlook for the US economy, though seemingly at pains that the latter was very much contingent on the election outcome, and a little dismissive of the run of better than expected US data. A December rate hike remains on the table, though no real guidance was offered, and is primarily contingent on how the political landscape in Japan and the US evolves over coming weeks, and how this impacts the JPY.

** China – October NBS PMIs **

– The modest beat for the Manufacturing PMI (50.1 vs. forecast 49.9, Sep 49.8) and an equally marginal rise in the Non-manufacturing PMI (50.2 vs. forecast 50.3, Sep 50.0) will not impress anybody, though it should be noted that seasonal trend at this time of the year acts as a sizeable drag, due to the National Day holidays. The data will leave markets taking some comfort that stimulus measures are getting some traction, but definitely expecting both more stimulus, and rather more convincing signals of a turnaround.

** Eurozone – October CPI **

– Germany’s stronger than expected 0.4% m/m HICP rise, and a higher than expected Spanish core CPI imply readings for the Eurozone above the consensus for 0.2% m/m 1.9% y/y headline and 2.6% y/y core, though the as expected French HICP readings should help to temper upward pressures. While road fuel price rises were a key contributor to the German rises, there were also upward pressures from food and Services, with the latter likely to make the ECB very wary about cutting rates at a faster pace.

** U.S.A. – Q3 Employment Cost Index & Sep Personal Income/PCE **

– Outside of the slide in JOLTS Job Openings, this week’s US labour market indicators have been robust, with today’s Q3 ECI expected to post an unchanged 0.9% q/q rise, which would see the y/y rate ease to 3.9% from 4.1%. in Q2 Wages & Salaries ease below 1.0% q/q for the first time since Q2 2021 and may ease a little more if the dips in Average Hourly Earnings and Atlanta Fed Wage Tracker are any guide. The Personal Income and PCE data have been pre-empted by yesterday’s blow-out 3.7% SAAR rise in Q3 Personal Consumption, which points to PCE beating the consensus for 0.4% m/m. As for the PCE deflators, headline and core are 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, despite this anticipated dip.

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