Macroeconomics: The Week Ahead: 23 to 27 October

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

The Week Ahead – Brief Preview:

The complexity of the large volume of event risks, be that geopolitical, macro- or microeconomic which markets are confronted with at the current juncture borders on the mind-boggling. The fact that volatility has not picked up even more than it has probably attests to an element of ‘being rabbits in front of the headlights’, as well as the fact that a good many traditional ‘safe haven’ or defensive assets’ are anything but; be that the JPY, govt bonds, utilities, consumer staples or healthcare, which in turn has created ‘bubble’ like flows into the CHF and Gold, with the sharp rise in interest rates and central bank balance sheet reductions only adding a further layer of complexity. Per se, the overarching themes of the conflict in the Middle East and Ukraine, the ongoing US House Speaker election debacle, China’s property woes, US/China tensions allied with concerns about the level of public sector debt in the US, developed and EM countries, are likely to continue to provide key prompts for markets to react to, in what will remain choppy trading conditions.

Be that all as it may, the new week sees the pace of US and worldwide corporate earnings pick up sharply, with many tech, commodity, energy and numerous other real economy behemoths reporting, as well as ECB and Bank of Canada policy meetings, and there will also be Sunday’s elections in Argentina to digest, while EU holds a two day leaders summit at the end of the week. The statistical schedule will be light in numerical terms, but has a number of first division data points including advance Q3 GDP readings in the US, South Korea and Spain, UK labour data (part II), G7 flash PMIs and German Ifo survey, China Industrial Profits, CPI readings for Japan (Tokyo), Australia, Brazil and Mexico, as well as US Personal Income, PCE, Durable Goods, New and Pending Home Sales.

In the commodity and energy space, the risks of supply disruption from the Middle East conflict will remain front and centre, though the IEA’s annual World Energy Outlook will also demand attention, particularly in how it contrasts with OPEC’s recent World Oil Outlook. Corporate earnings are also very plentiful featuring energy companies such as Chevron, CNOOC, Eni, Equinor, Exxon Mobil, Halliburton, Iberdrola, Sinopec and TotalEnergies, in the agricultural space ADM and Bunge, and in metals/mining: Chalco, Cleveland Cliffs, Minas Gerais, Newmont, Posco, Vale and Zijin Mining Group. The EU’s MARS crop conditions report, Singapore International Energy Week, Saudi Arabia’s Future Investment Initiative, China’s International Nickel & Cobalt Week and the European Biogas and European Commission ‘Climate Stocktake’ conferences are also on tap.

In terms of the statistical run, Thursday’s US Q3 advance GDP is expected to rise 4.3% SAAR, paced by a 4.0% rise in Personal Consumption (above all Services), a swing to small positive contributions from Net Exports (mostly due to a drop in Imports) and indeed Housing Investment, as well as Retail Inventories. In terms of risks, it’s a case of which of the Fed GDP now estimates one wants to go with the Atlanta Fed measure at 5.4%, and NY Fed at 2.5%! the GDP data will largely pre-empt Friday’s monthly Personal Income & PCE data, though the PCE deflators will be closely watched, with the consensus looking for a 0.3% m/m increase for headline and core (vs. Aug 0.4% and 0.1%), which would see y/y rates dip to 3.4% and 3.7% respectively, and as such reinforcing the Fed’s ‘wait, watch and see’ and ‘high for longer narrative. Durable Goods Orders are forecast to post a headline rise of 1.5% m/n on strong Boeing Orders, but core measures are seen at tepid levels: ex-Transport 0.3% m/m, and Non-defence Capital Goods ex-Aircraft flat m/m. Pending Home Sales are expected to post another 1.7% m/m fall, while New Home Sales are seen up 1.3% m/m, after sliding 8.7% m/m in August.

G7 ‘flash’ PMIs and Germany’s Ifo survey are the highlights of the first half of the week, though forecasts look for little or no change relative to September for the Eurozone, UK and USA, and per se confirming expectations of a slip into a shallow recession in the Eurozone and the UK, and implying the strength expected in US Q3 GDP will prove to be an exaggerated one-off. That said in respect of the US, surveys have proven to be a rather poor guide to official data, with the exception of Consumer Confidence, whose Q3 surge captured the strength seen in Consumer Spending. The second tranche of the UK labour data is expected to show the Unemployment Rate levelling out at 4.3%, after rising for 5 of the past 6 months, but Employment is seen contracting -198K vs. prior -207K. Ahead of the ECB meeting, the ECB’s Bank Lending Survey (Tuesday) and Wednesday’s M3 (forecast -1.8% y/y) and Private Sector Credit data are likely to underline the scale of the tightening in financing conditions, with the credit impulse in the Euro area already at worse levels than during the height of the Euro crisis. Coming just ahead of the following week’s BoJ meeting, Friday’s Tokyo CPI are expected to see inflation ease further: headline 3.7% y/y vs. prior 3.9%, ex-Fresh Food 2.7% vs. 2.8%, but remaining well above target, and with perhaps some upside risks as Japan’s corporates tend to implement mid-year price reviews during the month, which will, of course, be impacted by the weakness of the JPY. It should also be noted that PM Kishida will make a key economic policy speech to the Diet (parliament) on Monday. Australia has both monthly and Q3 CPI data, and while headline and core Q3 data are expected to slow quite sharply to 5.3% and 5.1% in y/y terms, q/q reading at 1.1% and 1.0% respectively, and a primarily energy related rise for September to 5.4% y/y from August’s 5.2% will likely ensure the RBA retains tightening bias. Inflation data from Brazil are expected to be little changed at 5.03% y/y, while base effects will be the driver of a fall in Mexican headline and core CPI to 4.3% and 5.5% respectively, the latter probably still not enough for Banxico to join in with the rate cuts being seen in many major Latin American economies, with Chile’s BCC seen cutting a further 75 bps to 8.75%.

ECB messaging has made it very clear that it will leave rates unchanged for the first time since June 2020, and it will likely signal that with financing conditions clearly tightening, and the economy slowing, rates are now on hold for a protracted period (at a minimum until the end of H1 2024), while still leaving another rate hike on the table, if the inflation picture unexpectedly deteriorates. The statement will probably note risks to inflation on the upside and downside, justifying the high for longer message. There will be a debate on whether to stop PEPP reinvestment, but with so much uncertainty about the global economic outlook, a decision on that is likely to be kicked into Q1 2024. The Bank of Canada is expected to hold rates at 5.0%, and pointing to a clear softening in demand due to prior hikes (as was all too palpable in another weak Retail Sales report on Friday) as justification, while still leaving the door open to a further hike, if inflation does not continue its downward trend. Turkey’s TCMB is expected to opt for another aggressive rate hike of 500 bps to 35.0%, particularly given the upturn in both headline and core CPI, and still plenty of pipeline pressure from the slide in the TRY, and indeed the rise in oil prices.

Govt bond supply is quite plentiful this week, led by the US with $141 Bln total of 2, 5 & 7-yr, while there are also auctions of UK, EU, German, Italian, Dutch and Belgian debt.

The deluge of earnings worldwide is headlined by the US with 158 S&P 500 companies reporting, including four of the Big Tech megacaps: Alphabet, Amazon, Meta and Microsoft. The focus will be on how margins and profits are being impacted by increases in wages and other costs, and of course higher interest, and intentions on prices, as well as the implementation of AI solutions. The highlights for the week, as compiled by Bloomberg News: 3M, AbbVie, ADM, ADP, Agricultural Bank of China, Alphabet, Altria Group, Amazon, American Tower, Ameriprise Financial, Amphenol, Aon, Arthur J. Gallagher, Asian Paints, Atlas Copco, AvalonBay Communities, Axis Bank, Bajaj Finserv, Baker Hughes, Banco Santander, Bank of China, Bank of Communications, Barclays, BNP Paribas, Boeing, Boston Scientific, Bristol-Myers Squibb, Cadence Design Systems, CaixaBank, Canadian National Railway, Canadian Pacific Kansas City, Canon, Capital One Financial, Carrier Global, Centene, Charter Communications, Chevron, China Citic Bank, China Construction Bank, China Life Insurance, China Merchants Bank, China Pacific Insurance Group, China Petroleum & Chemical aka Sinopec, China Shenhua Energy, China Tourism Group Duty Free, Chipotle Mexican Grill, Chubb, Chugai Pharmaceutical, CME Group, CNOOC, Coca-Cola, Colgate-Palmolive, Comcast, CoStar Group, Danaher, Dassault Systemes, Dexcom, Digital Realty Trust, Dow, DSV, East Money Information, Edwards Lifesciences, Emirates NBD Bank, Eni, Equinix, Equinor, Exxon Mobil, Fiserv, Ford Motor, Fortive, General Dynamics, General Electric, General Motors, Great Wall Motor, Halliburton, HCA Healthcare, Heineken, Hershey, Hess, Hilton Worldwide, Hitachi, Honeywell International, Iberdrola, IBM, ICICI Bank, Illinois Tool Works, Imperial Oil, Intel, Jiangsu Hengrui Pharmaceuticals, Kenvue, Keurig Dr Pepper, Keyence, Kimberly-Clark, KLA, Kotak Mahindra Bank, Kuehne + Nagel International, L3Harris Technologies, Linde, Lloyds Banking Group, LyondellBasell, Maruti Suzuki India, Mastercard, MediaTek, Mercedes-Benz, Merck, Meta Platforms, Microsoft, Mobileye Global, Moody’s, Newmont, NextEra Energy, Nidec, Norfolk Southern, Northrop Grumman, Novartis, Nucor, O’Reilly Automotive, Old Dominion Freight Line, Orange, Otis Worldwide, Paccar, PG&E, Phillips 66, Ping An Bank, Ping An Insurance Group, Porsche, Posco Holdings, Postal Savings Bank of China, Renesas Electronics, Republic Services, Roper Technologies, RTX, Samsung Biologics, Samsung SDI, Sanofi, ServiceNow, Shanxi Xinghuacun Fen Wine Factory, Sherwin-Williams, Shin-Etsu Chemical, SK Hynix, Skandinaviska Enskilda Banken, Spotify Technology, STMicroelectronics, T-Mobile US, Takeda Pharmaceutical, Texas Instruments, Thermo Fisher Scientific, TotalEnergies, UniCredit, United Overseas Bank, United Rentals, Universal Music, UPS, Vale, Valero Energy, Verizon Communications, Vici Properties, Visa, Volkswagen, Vulcan Materials, Wal-Mart de Mexico, Waste Connections, Waste Management, WEG, West Pharmaceutical Services, Wuliangye Yibin, WW Grainger, Xcel Energy, Zijin Mining Group.

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