Macroeconomics: The Day Ahead for 20 October

A much busier day for statistics, dominated above all by inflation data from the UK, South Africa and Canada, with Japan’s Trade and China Home Prices on the ‘to digest’ list, while ahead lie Taiwan’s Export Orders, Eurozone final Sep CPI and Current Account. While there is yet another deluge of central bank speakers, there are rather more talking about monetary policy: Fed’s Quarles, ECB’s Villeroy, Norges Bank’s Olsen and Riksbank’s Jansson, with the fed’s Beige Book also on tap. Tesla leads a busy day for US corporate earnings, which also features Anthem, Baker Hughes, IBM, NextEra Energy, Tenet Healthcare and Verizon. Govt bond supply takes the form of UK and German 10-yr, and US 20-yr. Among the overnight items, the fall in China’s New Home Prices (-0.08% m/m, taking the y/y rate down to 3.8% from 4.2%) was wholly unsurprising, and probably understates a far more malign trend in reality. The stand out item was however another seismic and much larger than expected 2.3% m/m rise in German PPI pushing the y/y even further into territory not seen since the mid-1970s at 14.2%, unsurprisingly Electricity (23.0% y/y) and Gas Prices (63.2% y/y) were the villains in the detail.

U.K. – September CPI & PPI

As was expected base effects from last year’s ending of the ‘eat out to help’ out proved to be enough to edge CPI down to 3.0% y/y, as restaurants & hotels CPI slid to 5.1% y/y from August’s 5.6%, with some help from Clothing & Footwear (0.6% y/y vs. 1.3%). But the upward pressures elsewhere underline that this was nothing more than a statistical quirk – Transport 8.4% y/y vs. 7.8%; Household 4.5% y/y vs. 3.7%; Education’; 2.9% vs. 2.1%; Food & Alcohol 0.8% y/y vs. 0.3% (NB this was -1.3% y/y in May). Per se the BoE’s MPC are unlikely to take any solace from this reading, particularly as the much disparaged RPI measure pushed up to 4.9% y/y from 4.7%. That said, while PPI remains very elevated, it is somewhat surprisingly not seeing the sort of upward pressure on Input Prices which might be expected given the vast array of UK supply chain disruptions, with Input prices rising just 0.4% m/m against forecasts of 1.0%, with the y/y up to 11.3% from 11.2%, though PPI Output continues to see clear pass through pressures, rising as expected 0.5% m/m to jump the y/y rate to 6.7% from 6.0%. All of which is well and good, but is in many peripheral to the key criticism of the BoE, i.e. a spectacular failure of its forward guidance, which will now have to be stepped up in a very coherent and cogent fashion, if already out of control market pricing of the UK’s rate trajectory is not to pose an even bigger threat.

U.S.A. – Fed Beige Book

Today’s Fed Beige Book will get plenty of attention, after the September edition noted: “Economic growth downshifted slightly to a moderate pace in early July through August. The stronger sectors of the economy of late included manufacturing, transportation, nonfinancial services, and residential real estate. The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions. The other sectors of the economy where growth slowed or activity declined were those constrained by supply disruptions and labour shortages, as opposed to softening demand.” The easing in the delta variant spread should provide a boost, but anecdotal evidence suggests that supply chain disruption constraints have not eased, and in some cases got somewhat worse. How the labour shortages are playing out in terms of wages, and above all whether businesses remain overall optimistic on outlooks will be further focal points.

Canada – September CPI

While headline CPI is expected to post a modest 0.1% m/m gain, which would thanks to base effects see the headline y/y rate rise to 4.3% from 4.1%, core CPI measures are seen broadly unchanged at relatively elevated levels (Common 1.9% y/y, Median 2.6%, Mean 3.3%), and unlikely to shift expectations that the BoC will hold its policy rate at 0.25% when it meets on 27 October, and signal that a rate hike is not imminent, though it is expected to resume tapering its QE programme (from the current C$2.0 Bln pace). The BoC has like many other central banks sounded a little more cautious in its stated belief that inflation pressures will be transitory, though Monday’s Q3 Business Outlook survey noted that businesses see inflation pressures rising, and unlikely to ease in the near future. That said, the BoC has put as much emphasis on there being a broad based recovery in the labour market, which it continues to describe as ‘uneven’, before it considers hiking rates.