Macroeconomics: The Day Ahead for 21 October

There is no disputing that today sees a busy schedule of data and events, and indeed corporate earnings and government bond sales, the question is whether there is anything that can jar markets out of a bout of paralysis due to high levels of uncertainty about the global economic outlook, inflation pressures and political tensions, both national and geopolitical. Statistically there are very robust South Korea Oct 1-20 Trade, French Business Confidence and UK PSNB to digest, while ahead lie the monthly and quarterly UK CBI Industrial Trends survey, US weekly jobless claims, Philly Fed Manufacturing and Existing Home Sales. On the central bank front the focus will be on the Turkey’s TCMB policy meeting, while Fed’s Waller and SEC’s Gensler top the run of speakers, with Ukraine’s NBP set to keep rates unchanged, while Paraguay’s BCP follows in the footsteps of many Latin American central banks with another aggressive rate hike of 50-75 bps to 2.0-2.25%, as it rushes to catch up with ballooning inflation pressures. Turkey’s TCMB is expected to cut rates a further 100 bps to 17.0%, and all the more so given Erdogan’s latest firings and and hirings, and despite a deteriorating inflation outlook, both due to energy prices, as well as a further slide in the TRY in reaction to Erdogan’ interventions. EU leaders start a two-day summit that will likely see a good deal of tensions on many fronts: Poland challenging the EU constitution, Covid-19 recovery pact funds dispersal, the energy crisis, migration, and external relations (above all Russia and China), with many of the issues intertwined in complex ways. A busy day for US (and other) corporate earnings will likely see the following among the headline makers: AT&T, Dow, Freeport-McMoRan, Intel, Mattel, Nucor, Snap and Union Pacific, along with the Q3 Production update from Anglo American. The delayed syndication of the UK 32-yr ‘Green Gilt’ will likely accompany multi-tranche auctions in France and Spain, and 5-yr TIPS in the US.

** France / UK – Oct Business Confidence / CBI Industrial Trends **

– French Business Confidence defied forecasts of a further setback rising to 113 vs. September’s 111, powered in equal measure by Manufacturing and Services, with the Production Outlook indicator dipping to 21 vs. expected 17, and along with data and surveys from Italy highlighting that Germany’s supply chain woes are not a good proxy at the current juncture for the rest of the Eurozone. Forecasts for the UK CBI Industrial Trends survey anticipate a drop to a still solid 17 from 21, with Selling Prices seen high and little changed at 40 (Sept 41). However the main point of interest may be the quarterly Business Optimism survey which is seen dropping again to 20 from 27, after hitting a 48 year high of 38 in Q2, and much depending on whether businesses perceive the current array of UK supply chain and infrastructure woes to be a largely transitory or a longer-term headwind to activity.

** U.S.A. – Jobless Claims, Philly Fed Manufacturing & Existing Home Sales **

– US labour data has been offering a goodly volume of conflicting signals of late, above all the contrast between steadily falling initial and continued claims and the seemingly tepid Payrolls growth of the past two months. This week’s Initial Claims has the additional wrinkle of including the Columbus day holiday, which heightens the risk of an outlier, with little change seen at 297K after posting a pandemic era low of 293K last week. It does appear that some Fed officials are starting to realize that general health concerns due to the pandemic, school disruptions, childcare availability challenges, and perhaps most importantly the fact that the pandemic appears to be prompting many baby boomers close to retirement age to leave the workforce early. Per se achieving prior labour force participation rates as is the Fed’s apparent aim may be very unrealistic. The Philly Fed Manufacturing survey is forecast to drop back to a still very solid 25.0, after a sharper than expected rebound in September to 30.7, though with the region having a high proportion of oil refiners, the recovery from Hurricane Ida disruption may give a boost; however it will be the outlook indices which will get particular attention, after softening in recent months. Last but least Existing Home Sales are expected to post a robust 3.4% m/m rebound after falling 2.0% in August, with recent strength in Pending Home Sales and a rebound in MBA Mortgage Applications suggesting that low levels of inventories and an associated degree of FOMO is outweighing the headwinds from sharply rising prices and resultant affordability issues.