Macroeconomics: The Week Ahead: 11 to 15 October 2021

A very busy week awaits, replete as it is with data from the US, UK and China; the annual IMF/World Bank meetings, September FOMC Minutes and a raft of central bank speakers; a plethora of key commodity market reports (WASDE & CASDE S&D and OPEC, EIA & IEA monthly oil market and ENTSOG winter NatGas supply), and jam packed with LME Week and other energy and commodity market conferences, as well as the start of US Q3 earnings season. However it may well be the overarching themes that continue to dominate: China’s regulatory clampdown, power crisis, tensions with Taiwan and the widening ripples from China Evergrande to its property sector; the UK’s power and logistics crisis; Europe and India’s power crises; and in the US the unresolved debt ceiling and budget impasse, along with the Fed’s internal governance woes as deputy chair Clarida becomes embroiled following Kaplan and Rosengren’s exits. The fact is that the pandemic’s fall-out in exposing so many weaknesses in the world’s economic and social modus operandi is proving to be brutal, and echoes how the pandemic has exposed the complacency about health security, as well as how the post-Cold War technology boom has in some ways been frittered away on the frippery of conveniences, rather than on reviving and revitalizing ageing and increasingly outdated infrastructure, in the very broadest sense. Central banks’ monetary ‘largesse to excess’ has doubtless exacerbated this (and fuelled inequality), as has the deep seated malaise of egotism and narcissism amongst the world’s political elites. Suffice it to say consumers in many countries are now staring down the barrel of a non-discretionary (food, energy, housing) inflation gun, which will be difficult to quell above all due to the myriad supply chain bottlenecks, and which central banks have no means to control without inducing likely brutal recessions, while politicians appear to have neither the mettle nor will to try and resolve.

Be that as it may, CPI and Retail Sales top a busy run of statistics in the US, with CPI seen up 0.3% m/m headline to leave the y/y rate unchanged at 5.3%, while core is expected to rise 0.2% m/m to edge the y/y rate up to 4.2%. Notably, the delta variant spread will again likely see re-opening components pulling inflation lower, but upward pressures on housing, household goods (due to rising transport costs) and a 1.4% m/m rise in petrol prices will more than offset this, and clearly pose a bigger challenge to the Fed’s ‘transitory inflation’ narrative, with the risks skewed to the upside of the consensus. While a further sharp fall in Auto Sales predicates expectations of -0.2% m/m for headline Retail Sales, core ex-Autos and Gas is seen rising 0.5% m/m following the unexpectedly strong 2.0% m/m rebound in August, but US Retail Sales are value not a volume based measure, as such the inflation adjusted readings may in fact be flat or even negative across the board, implying a weak quarter for the Private Consumption component measure of GDP. PPI is expected to post another relatively strong gain as commodity prices and supply chain bottlenecks continue to exercise pressure, with the recent easing in port and logistics bottlenecks perhaps exercising some downward pressure in the October readings. NFIB Small Business Optimism, JOLTS Job Openings, NY Fed Manufacturing and Michigan Sentiment will also be on tap.

China’s economy continues to be a key concern in terms of the global growth outlook (and this week’s IMF and World Bank forecast revisions will be closely watched in that respect, and also those for Asia more broadly), with the recent regional lockdowns, power crisis, property sector woes, and ongoing and wide-ranging regulatory clampdowns only adding to the palpable weakness in consumer spending. Monetary aggregates are expected to show a further deceleration in y/y terms, while credit measures are seen accelerating relative to August, on the back of a surge in local govt borrowing and the cut in bank reserve ratios (the PBOC will also announce changes to its key MTLF rate at the end of the week). Trade data remain heavily impacted by base effects, with both Exports and Imports both seen up around 14% y/y, and the focus as ever on the key commodity and energy components. Its inflation data are expected to reprise recent trends, with food price base effects and weak consumer demand weighing on CPI (0.9% y/y vs. prior 0.8%, despite upward pressure from base effects), while the latest jump in commodity prices is expected to push PPI up sharply to 10.5% y/y from 9.5%, with little or no base effect contribution, and taking PPI past its 2008 high (10.1%) to its high level in 26 years.

As for the UK, much of this week’s activity data (GDP, Production, Construction Output, Index of Services) is for August, and while GDP is likely to rebound from a soft 0.1% m/m in July to 0.5% m/m, with Service activity boosted by the full rollback of Covid-19 restrictions, the current mounting array of crises will likely weigh heavily on end Q3/start of Q4 data. While labour demand is ostensibly strong, above all in terms of Vacancies, it will be October and November data that offer the key insights into what impact the roll-off of the furlough scheme at the start of this month will have. RICS House Price Balance and BRC Retail Sales are also due. Elsewhere Germany’s ZEW survey is expected to see Expectations and Current Conditions drop further, as supply chain bottlenecks bite against an uncertain political backdrop. Japan’s Private Machinery Orders are projected to post another solid gain (1.5% m/m), though lockdown measures impart downside risks, while Australia’s labour data will again be hit hard by lockdown measures (Employment seen down 120K after a drop of 146.5K in August). Singapore’s Q3 GDP is projected to rebound 1.1% q/q as Q2 activity restrictions were lifted, but with fresh lockdown restrictions introduced on 27 September, the outlook for Q4 is not auspicious. (MAS also announces its policy decision at the same time, and is expected to maintain its current zero appreciation currency band).  Last but not least Indian CPI is expected to see a drop to 4.5% y/y from August’s 5.3%, on a combination of easing food prices and benign base effects, but core CPI is likely to accelerate from August’s 6.1% y/y, while expectations of a modest pick-up in Industrial Production to 11.8% y/y from July’s 11.5% look to be a tad optimistic given the m/m drops in exports and Infrastructure Industries output.

There are numerous central bank speakers on tap this week, in no small part due to the annual IMF, World Bank and IIF meetings, but in truth they will likely offer little in the way of fresh policy insights. However the latest IMF/World Bank forecasts are likely to echo the recent OECD update in signalling that risks to growth forecasts are on the downside, on a combination of supply chain issues and resultant inflation pressures. In the EM space, Chile’s BCC is likely to follow up last month’s aggressive initial rate hike with a further 75 bps hike to 2.25%, and maintain a tightening bias, while the Bank of Korea is seen holding rates at 0.75% after an initial 25 bps hike in August, but also indicate that further modest policy tightening is on the cards, primarily due to concerns about financial imbalances on the back of low rates.

In the commodity space, while the WASDE and China CASDE monthly reports will plenty of attention, it is the energy reports in the form of OPEC, EIA & IEA monthly oil market reports, IEA annual Energy outlook and the generally largely overlooked ENTSOG (European Network of Transmission Systems Operators for Gas) winter NatGas supply outlook, which will be front and centre. Of particular note will be how much the oil market reports revise up overall demand over the winter season, given a domino effect of the spike higher in natural gas price prompting energy providers to switch to oil; according to some industry estimates current NatGas prices in Europe equate roughly to a $200 oil price!

A busy week for govt bond supply is led by $120 Bln of US 3, 10 & 30-yr Treasuries, with demand metrics in focus after some weak recent auction results. The US Q3 earnings season kicks off with the usual run of reports from large money centre banks and Blackrock.  According to Factset, the consensus is for overall Q3 earnings growth to be up 27.6% y/y, but it will be forward earnings guidance that attracts most attention, with negative guidance climbing and positive having fallen for Q3. Bloomberg News suggest that the following companies will likely be among the highlights: ASOS, Bank of America, BlackRock, Citigroup, Delta Air Lines, Goldman Sachs Group, HCL Technologies, Infosys, JPMorgan Chase, Morgan Stanley, Qatar National Bank QPSC, TomTom, UnitedHealth Group, Walgreens Boots Alliance, Wells Fargo, Wipro, YouGov, Zijin and Australia’s Bank of Queensland.