Macroeconomics: The Day Ahead for 23 September

There are no less than seven central bank policy meetings today, with a somewhat uncertain BoE MPC meeting headlining, though both Norges Bank and Turkey’s TCMB meetings will garner some attention, while Switzerland’s SNB, Philipppines BSP, South Africa’s SARB and Taiwan’s CBC meeting are all expected to hold policy rates. There is also the Fed post mortem to consider. The data schedule has some heft for the first time this week, there are Korean and Thai Trade and French Business Confidence to digest, but the focus will be on the G7 ‘flash’ PMI’s, with US weekly jobless claims, Mexico’s mid-month CPI and Canada’s Retail Sales also due. Outside of the run of central bank meetings, there are the UN Food Systems Summit and the final TV debate with all party leaders ahead of Sunday’s German Federal Elections. Costco and Nike top a slightly busier run of corporate earnings, with a rush of Chinese local govt Muni issuance and US 10-yr TIPS featuring in terms of govt bond auctions.

As expected the Fed opted for a conditional taper without providing a specific meeting, but the accompanying statement, forecasts and Powell press conference make it clear that it will be November. While stressing it retains flexibility to adjust the taper timetable, the indicated mid-year completion, implies a cut in QE volumes of $15 Bln / month from November. As was to be expected the dot plot now shows an initial rate hike coming in 2022, and while Powell said that they did not expect to hike rates before the taper was completed, this has not been cast in stone. Unsurprisingly GDP forecast projections were tweaked to show less 2021 growth (5.9% vs. prior 7.0), but slightly more in 2022 and 2023 (3.8% and 2.5%), while the 2023 core PCE deflator forecast was adjusted higher yet again to 2.1% (from 2.0%). The real surprise was the total lack of any mention of house prices and rents, and not even any questions at the press conference. Perhaps there is a collective desire to ignore the inconvenient truth that house prices are up ca. 20% y/y and rents are up more than 10%, which thrown in with price pressures in food and energy makes for a very toxic non-discretionary inflation pressures for households.

G7 – September ‘flash’ PMIs

– Consensus forecasts look for a further modest setback in Services PMIs, and a slightly more pronounced setback in Manufacturing PMIs, above all in the UK and Eurozone, though in all cases, actual levels would remain robust or very strong on any historical comparison. The risk on manufacturing readings above all in the UK and Eurozone is clearly to the downside, given supply chain bottlenecks and power / energy prices. Indeed the scale of auto output impairment across the globe due to semiconductor shortages does give plenty of reason to be very sceptical about the ostensible strength in these surveys, even if some of the “strength” is for the wrong reasons – supplier deliveries, low inventories and prices paid. Of particular note in the Eurozone surveys will be any indications on export demand, which other anecdotal evidence suggests has taken a sharp knock from the delta variant spread in China and East/SE Asia, and accompanying activity restrictions.

U.K. – BoE rate decision

There is perhaps even more uncertainty around the BoE’s MPC meeting, above all following Tuesday’s spike in the Citi/YouGov Inflation Expectations measures (1-yr 4.1% y/y vs. prior 3.1%, Long-term 3.8% y/y vs. prior 3.5%), which look distinctly “unanchored”. While no changes to Base Rate or QE volumes are expected, the CPI and labour data still leave the possibility that one or other MPC member (with new Chief Economist Huw Pill being touted as a hawk) joins Saunders in voting for a QE reduction. The MPC majority will likely remain very cautious about making any changes to policy until some data becomes available about the impact of the termination of the furlough scheme at the end of this month, despite labour market developments proving to be a lot better than many had feared. There will also be interest in how the MPC views the array of supply chain disruptions, above all to logistics, power and agri-food, and their potential impact on the inflation outlook, even if central bank policy can do precisely nothing to resolve any of these structural supply side issues.

Norway – Norges Bank rate decision

Norges Bank expected to initiate a rate hike cycle with a 25 bps rate hike to 0.25%, and signal further rate hikes in December and in 2022; it should be repeated that Norges Bank tightening policy is above all motivated not by inflation (core CPI is very low), but a solid recovery in growth and the labour market, as well as concerns about financial stability, above all due to a very frothy housing market.

EM rate decisions – Philippines, Turkey & South Africa

Philippines’ BSP is also expected to hold its Borrowing Rate at 2.0% and signal no near-term rate hike, even with above target inflation paced by food and energy prices, but very much with an eye on a weak labour market, given an Underemployment Rate of 20.9% gives the lie to an ostensibly much improved Unemployment rate of 6.9%. Turkey’s TCMB faces the very familiar political pressure to cut rates from the current 19.0% level, but with headline inflation at 19.25% y/y it should in fact be tightening policy, which it has attempted to avoid, both via tightening bank FX reserve requirements and shifting its focus to core CPI. Last but not least, South Africa’s SARB is also seen on hold at 3.5%, but may hint that if above target inflation continues to persist, then it might have to tighten policy by the end of the year.