Macroeconomics: The Day Ahead for 3 November

The US monthly labour report heads up the end of week agenda, with German Trade, French Industrial Production and Turkish CPI to digest ahead of Services PMIs/ISM (excluding the Eurozone) and Canadian Unemployment & Wages, with a busy run of BoE, ECB and BoE speakers and just a few corporate earnings reports. Regardless of the US labour data outturn, it will be interesting to see how much further this week’s sharp retracement in long term G7 bond yields has to go, and the extent to which it is more a case of short covering, as against ‘real money’ accounts extending duration in the belief that the peak in yields has passed, the sharp snap tighter in credit spreads (see charts) would appear to suggest the latter, though the lack of underlying market liquidity doubtless exaggerated the size of the move. Next week’s statistical agenda is quite thin, with the US only having Michigan Sentiment, though a busy week for the UK has Q3 advance GDP, monthly activity indicators, BRC Retail Sales and RICS House Price Balance, while the Eurozone awaits German Orders and Production, and China looks to CPI, PPI and Trade. Australia’s RBA is expected to buck the rate pause/peak messaging from G7 central banks with a 25 bps rate hike to 4.35%, and there will again be plenty of corporate earnings, while the US holds its quarterly refunding sale of $113 Bln of 3, 10 & 30-yr.

** World – Oct Services PMIs/ISM **

– The overnight readings from Asia were mixed, with China’s PMI edging up 0.2 pt tp 50.4 in contrast to the fall in the official NBS reading (50.6 vs. prior 51.7), but still indicative of very sluggish momentum, while India’s PMI dropped back quite sharply to 584 from September’s record 61.0, but obviously still remains very strong, with exports continuing to show enormous strength. European and Japan readings will be published on Monday due to this week’s holiday, leaving the focus on the UK and US, with the former expected to be confirmed at 49.2, but the focus will inevitably be on the US Services ISM, with a modest setback to a still respectable 53.0 from 53.6 seen, though there will be concern about a sharper fall after the unexpectedly sharp drop in the Manufacturing ISM to 46.7 from 49.0.

** U.S.A. – Oct Labour report **

– The week’s run of labour data thus far has been mixed, with lower than expected ADP at 113, a steady Consumer Confidence Labour differential (26.3 vs. 25.5), stronger than expected JOLTS Job Openings (9.553 Mln), but weak ISM Manufacturing Employment (46.8 vs. Sept 51.2). In Payrolls survey week, Initial Claims low ticked to 200K, and this has been a rather better guide to up/downside risks for Payrolls than the ADP, with today’s Payrolls seen dropping back to a still very solid 180K from the much stronger than expected 336K, and Private Payrolls expected to slow to 145K from 263K, with a modest drag expected from the UAW autoworkers strike on Manufacturing Payrolls. The soft ADP report suggests the Unemployment Rate will be unchanged at 3.8% as expected, with the Participation Rate also forecast to be unchanged at 62.8%, still short of the 63.3% prior to the pandemic. Overall the labour demand components will have to stray quite far from the consensus to shift the focus from Average Hourly Earnings, which are forecast to tick up to 0.3% from August and September readings of 0.2%, but still allowing the y/y rate to dip to 4.0% from 4.2%, lowest June 2021, though still above the Fed’s comfort zone. All of which would definitely suggest the Fed will stick with the ‘high for longer’ narrative, given that as Powell said, there will remain a still substantial ‘need to see some slower growth and some softening in the labor market … to fully restore price stability’.