- Politics and policy likely to trump modest statistical schedule:
flash PMIs & Canada CPI/Retail Sales; latest Nth Korea threat, May
Brexit speech, raft of Fed and other central bank speakers; run of
NZ & German, and Iraqi Kurdistan independence referendum loom in
headlight along with quarter end
- PMIs: Eurozone and US readings seen little changed at robust levels;
potential for hurricane drag in US, but strong Philly Fed offers
counter point
- Germany elections: high pct of undecided voters highlights potential
for surprises, even if Merkel still likely to emerge as clear "winner"
- Charts: Gold, Iron Ore, Steel Rebar, Coking Coal, Copper & Nickel
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** EVENTS PREVIEW **
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Another relatively modest calendar of data, featuring 'flash' PMIs for Eurozone and US, the UK CBI Industrial Trends survey and Canadian CPI and Retail Sales, will more than likely play second fiddle to policy and political events, from the latest threat from North Korea and May's key note speech on Brexit in Florence through a raft of Fed speakers (hawks and neutrals) to the ever thoughtful Claudio Borio's (from the BIS) OMFIF City lecture. Elections in New Zealand (tomorrow) and Germany (Sunday) and the highly divisive independence referendum in Iraqi Kurdistan on Monday also loom in the headlights, with month and quarter end also in view, the latter perhaps hampering a clearer view on asset price trends next week, though also perhaps raising the probability of a potential shift in sentiment once quarter end has passed.
** Eurozone / USA - September 'flash' PMIs **
- The consensus forecasts for both the Eurozone and US 'flash' PMIs perhaps take forecaster agnosticism to a new height. That said, the importance of these surveys as forward looking indicators remains chronically overstated in our view, both on a track record basis, and as a supposed reflection of business flows, as opposed to frequently hypersensitive and exaggerated fluctuations in the fluid world of business sentiment (cf. the swings seen in the UK PMIs immediately after the Brexit referendum). The US readings will be of more interest, even if market participants have a far stronger preference for the ISM surveys, given that they will cover the period after the hurricanes Harvey and Irma. That said, yesterday's very strong September Philadelphia Fed survey will need to be borne in mind. The latter saw Orders jump to 29.4 from 20.5, Prices Paid to 34.4 from 21.1, Prices Received to 22.8 from 13.5, and Expectations at 55.2 from 42.3 - those readings speak for themselves. As for the UK CBI Industrial Trends survey, orders are expected to holding at 13, close to the multi-decade high of 16 achieved in June. While BoE rate expectations, and by extension the GBP, may be sensitive to any surprises, manufacturing remains a very small contributor to UK GDP, as such the CPI and Retail Sales data remain far more important in terms of BoE policy.
** Germany - Bundestag election **
- First of all, as previously noted "Germany's election is being seen by most market participants as something of a non-event: "Merkel wins again, so what?" In truth while the CDU/CSU will beat the SPD by a very clear margin, the fact of the matter is that up to 20% of the vote may go to the extremes of the AfD and Die Linke, neither of whom would be considered as coalition partners for Merkel/CDU. At a push, there may be the chance of forming a CDU/FDP coalition, though Frau Merkel's distrust of the occasionally brash Christian Lindner is well documented, and it seems more likely that the two options will be either another grand coalition with the SPD, which will take a long time to thrash out, or the so-called Jamaica (Black, Green, Yellow) of 3-way coalition with the Greens and the FDP, where trying to find common policy initiatives will be extraordinarily challenging. In all likelihood, given these challenges, a new govt may only be formed in December, which obviously will put a brake on Brexit negotiations and M Macron's hopes of establishing a reform path for the EU and the Eurozone." Perhaps rather foolishly M Macron apparently hopes to influence the post election coalition negotiations with his key note speech next Tuesday on reforming the Eurozone / EU. Be that as it may, the final round of polls in Germany highlight that a) nearly 40% of voters remain undecided about whom they will vote for, which may see participation drop from the very low levels of the past 2 elections - 2009 a post WW II low of 70.8%, 2013 71.5% vs 2005 77.7%; b) considerable volatility in the vote for the four smaller parties, all of whom could poll anywhere between 7 and 12% of the vote, c) most of the drift to the smaller parties coming from SPD; d) the vote for the Volksparteien (CDU/CSU & SPD) likely to be between 55 and 60% as against 67% at the past two elections. As such a surprise outturn should not be underestimated, and in most cases (barring a surge in the CDU and / or FDP vote) may well be viewed by markets as a negative.
from Marc Ostwald