Macroeconomics: The Day Ahead for 22 October

G7 ‘flash’ PMIs dominate a relatively busy run of statistics and events to end the week, with Japan’s national CPI, UK Retail Sales and GfK Consumer Confidence to digest ahead of Canada Retail Sales, Mexico mid-month CPI and Brazil Current Account. Central bank speakers are plentiful with ECB’s Villeroy and Fed’s Powell on hand amongst others, as BoE Chief Economist Pill’s warning of a spike in UK CPI to 5.0% y/y underlines the sense of panic that has engulfed the BoE. while Russia’s Bank Rossi holds its policy meeting. The run of US earnings will likely see Amex, Cleveland-Cliffs, Schlumberger and Seagate among those making the headlines. Russia’s Bank Rossi is expected to hike rates a further 25 bps to 7.0%, with inflation continuing to climb sharply (Sep Headline 7.4% y/y vs. Aug 6.7%, core 7.6% y/y vs Sep 7.1%) along with inflation expectations, per se a reversion to a 50 bps hike is a distinct possibility, with Nabiullina also likely to signal the likelihood of at least one more rate hike, if not more. There will be some relief at the news of China Evergrande meeting a coupon payment deadline to avoid an outright default, above all that this would appear to signal that a total property sector meltdown will be avoided. That said sector output will likely be heavily impaired for a protracted period, per se suggesting heavily reduced demand for raw materials, leaving aside considerations to do with the local power crisis. Otherwise the fact that equities in the US posted a fresh all-time high yesterday in the face of a growing array of uncertainty and instability around the world (notwithstanding better than expected US economic data) is testament to financial repression’s success in dislocating asset price performance from the real economy, in itself posing a further risk.

Next week brings month end as well as a very busy run of data and major central bank meetings, as the US earnings season moves into top gear with around 200 S&P 500 companies reporting. Advance Q3 GDP readings from the US, Eurozone, France, Germany, Italy, Spain, Mexico and South Korea top the schedule, which also has US Consumer Confidence, Durable Goods, House Prices, New & Pending Home Sales, Goods Trade Balance, Personal Income and PCE. October provisional CPI readings top the rest of the run of Eurozone data, with Germany look to the Ifo survey and Unemployment, the UK has mortgage and credit data to accompany Wednesday’s much anticipated Autumn Budget, while the usual month end of activity data and Tokyo CPI feature in Japan, Australia has Q3 CPI, Canada monthly GDP and Brazil IPCA-15 inflation. The Bank of Canada leads off the run of central bank meetings, that includes the BoJ and ECB, with the BoC expected to taper its QE purchases, while BoJ and ECB hold all policy variables, while Brazil’s BCB is seen hiking rates a further 100 bps to 7.25%.

U.K. – Sep Retail Sales

Even with a modest upward revision to the August decline, Sept Retail Sales were a lot weaker than expected, falling 0.6% m/m excluding the unsurprising boost to Auto Fuel sales (2.9% m/m). While one can attribute the fall in non-store (internet) retailing of -1.3% m/m (vs. prior -2.0%) to a switch to leisure and hospitality spending as the economy has re-opned, the collapse in Household Goods spending (-9.3% m/m -10.4% y/y) likely attests to consumer caution due to the spike in non-discretionary inflation pressures, and perhaps the very high infection rate levels, which have accelerated further in the past 2 weeks, and also reflected in the GfK Major Purchases Climate published today falling again to -10 from -6, having been as high as +12 in April. Along with the sharp declines in Orders and Optimism in yesterday’s CBI Industrial Trends survey (and more than 40-yr high in selling prices), which bodes poorly for today’s Manufacturing PMI, the data serve as a reminder that the BoE will be playing with fire by raising rates, and may ultimately be forced into a retreat if the economy stalls, in turn undermining the BoE’s already tattered credibility – ‘unreliable boyfriend’ may turn out to be a compliment with the hindsight of the opprobrium which emerge in such a scenario.

G7 – Oct ‘flash’ PMIs

These are expected to see the sharp rise in energy prices along with extant and longer-running supply chain constraints take their toll in the UK and Eurozone, above all on Manufacturing, especially in Germany, as reflected in the latest round of sharp cuts to 2021 GDP forecasts, but also on Services; Eurozone readings may however get a partial offset from the unexpectedly strong recovery in Italy, as reflected in a sharp upward revision over the weekend to business lobby Confindustria’s 2021 GDP forecast to 6.1%, as well as the better than expected French Business Confidence survey yesterday. By contrast, US PMIs are seen little changed vs. September at 60.5 Manufacturing and 55.2 Services.