Macroeconomics: The Day Ahead for 16 September

While the dual themes of Europe’s power crisis (see roller coaster 5-day chart of NYMEX vs ICE NatGas futures) and China Evergande’s debt woes remain the overarching themes, US Retail Sales are likely to dominate a reasonably busy statistical schedule. Otherwise there are Japan’s Trade and Australian Labour data along with EU27 auto sales to digest, with the US also looking to weekly jobless claims, Philly Fed Manufacturing and Business Inventories. The roster of central bank speakers has ECB’s Lagarde and Rehn and Norges Bank’s Olsen, with govt bond supply taking the form of multi-tranche auctions in France and Spain, and a 32-yr sale in Canada. In terms of those overarching themes, yesterday’s rollercoaster ride in NatGas prices was paced by news flow related to the fire at the Kent end of the interconnector between UK and France, ultimately implying some impairment to power delivery from France, but not a total outage. The volatility is also taking its toll on the UK utility sector, with two further small household energy providers forced to close yesterday (bringing the total to 7), and also prompting a major fertilizer manufacturer (CF Industries) to halt output at its two UK plants. Be that as it may, the broader disorder in European & UK NatGas and Power underlines a woeful underinvestment in power grid capacity across the region, which in turn begs the question: if this infrastructure is in such dreadful condition, how on earth can the ambitious plans to transition away from hydrocarbons to renewables be realized. As for China Evergrande, there are two questions: a) can the Chinese authorities fashion some sort of orderly restructuring, given that a Lehman style resolution will definitely not be permitted, and b) to what extent will this involve onshoring external liabilities, and will it involve liquidation of external assets, primarily USD, as was the case in the 2004/2005 bank recapitalization? Markets are largely making light of these issues, thanks to the suffocating blanket of central bank financial repression, but the water behind the dam of QE liquidity is building an ever larger pool of risk and potential threats to financial stability.

U.S.A. – August Retail Sales, Weekly Jobless Claims

For Retail Sales, the collapse in Auto Sales is forecast to see another sharp (-0.9% m/m. vs. July -1.1%) in the headline measure, with some offset from a price related boost from gasoline sales; while all core measures are seen flat or falling -0.1% m/m, which to a certain extent reflects an expected rebalancing of personal consumption from goods to services, the latter component being largely absent from the retail spending data outside of spending in restaurants and bars. The perspective point is that as much as Q3 Personal Consumption will slow sharply from Q2’s 12.2%, most of it will be a mean reversion after all the stimulus cheque bloating, rather than signalling a stall. As for weekly Jobless Claims, these have moved decisively lower in recent weeks, as the expiration of the PUA/PEUC benefits on September 6 passed (though there are still extended benefits available via $350 Bln of American Recovery Plan funds). A modest uptick in Initial Claims to 323K from 310K is expected, with some risk of a bigger rebound thanks to Hurricane Ida, if patterns that prevailed after Hurricanes Katrina and Sandy reprise themselves.  Yesterday’s sharp rebound in the NY Fed Manufacturing (34.3 vs. Aug 18.3) will doubtless have some anticipating an upside surprise in today’s Philly Fed survey, with the consensus looking for little change at 19.0 vs. 19.4, but the two surveys frequently diverge in m/m terms, though seasonal patterns do favour an upside surprise.