Macroeconomics: The Day Ahead for 25 November

The US Thanksgiving holiday will inevitably thin market trading volumes today and tomorrow, though the data and events schedule has plenty to mull over. The statistical calendar is quite heavily front loaded with Australia’s Q3 CapEx, the detailed breakdown of German Q3 GDP and GfK Consumer Confidence to digest ahead of Brazil’s IPCA-15 inflation, Canada’s CFIB Business Barometer and tonight’s Tokyo CPI. A busy day for central bank rate decisions has seen the Bank of Korea hiking rates a further 25 bps as expected, Sri Lanka’s CBSL holding rates, with Sweden’s Riksbank also seen holding rates at 0%, and continue to signal no rate hikes over the next two years, while Hungary’s MNB is expected to hike its increasing key 1-week Depo Rate by 10 bps to 2.60%. The November ECB minutes (‘account) should offer some hints on the debate on how hard to push back on market rate expectations, as well as how the battle lines are being drawn on how to adapt its QE programme, given that the PEPP programme will have to be transitioned into the APP in some form or another by the end of Q1 2022. ECB speakers will be out in force today, and follow on from arch dove Panetta’s thought provoking speech yesterday, in which he put enormous emphasis on ‘patience’, and interestingly opined that “Bad inflation, acting as a “tax” on demand, […] might require an easing of monetary policy”, adding “We should not exacerbate the risk of supply shocks morphing into a demand shock and threatening the recovery by prematurely tightening monetary policy – or by passively tolerating an undesirable tightening in financing conditions.” See here. Rather less surprising were yesterday’s comments from Schnabel and the departing Weidmann, though it should be noted that even the ECB’s hawks continue to push back hard on market rate expectations. Italy will also hold auctions of 2-yr & I=L 9-yr.

Germany – Q3 GDP details

– The marginal downward revision to 1.7% from 1.8% q/q, which still left the y/y rate at 2.5% is of less interest than the details, which saw a much stronger contribution from Private Consumption(6.2% q/q) than had been anticipated, and was all the more impressive given the upward revision to Q2 to 3.8% from 3.2%. By contrast both Private CapEx and Govt Consumption fell 2.2% q/q against expectations of flat q/q and 0.4% q/q, but mitigated by quite sharp upward revisions for Q2 for Govt Spending 4.6% q/q vs. prior 1.8%, and Private CapEx 1.2% from 0.5%. The strength of Private Consumption owes everything to the re-opening of the Services sector, while the slide in CapEx underlines the scale of the headwinds from supply chain bottlenecks, as was highlighted in Monday’s semi-annual DIHK survey. The drop in government spending is largely accounted for by less expenditure on ‘short-time working’. The scale of the revisions to Q2 does however serve as a reminder of how much preliminary readings for any set of monthly and quarterly data are in fact no more than ‘guesstimates’. Eminently the outlook for Q4 suggests more “stop and go” given the rapid escalation in infection rates, and a likely quite sharp mean reversion for Private Consumption even without the impairment of rising infection rates.

Japan – November Tokyo CPI

– Inflation risks are all too obvious around the world, but much less so in Japan for the time being, given that while Tokyo CPI is forecast to pick up to 0.4% y/y from 0.1% on the back of energy price pressures, the core ex-Fresh Food & Energy is still seen falling 0.3% y/y, barely changed from October’s -0.4%.