talonia referendum violence, China PMIs and solid Japan Q3
Tankan; awaiting Eurozone, UK and USA PMIs/ISM
- Eurozone PMIs: Italy seen mirroring strength seen in Germany & France,
Spain expected to bounce modestly
- UK Manufacturing PMIs: slight dip expected, but painting a solid
profile of activity.... but Services still key in overall GDP terms
- US Manufacturing ISM: seen slipping after August surge, little evidence
from regional surveys of anything more than passing hurricane impact
- Week Ahead: politics, raft of Fed & ECB speakers, surveys and US labour
report dominate start of new quarter
- Charts: EUR, GBP and JPY CFTC commitment of traders net position
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** EVENTS PREVIEW **
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October kicks off with a rash of surveys, in the first instance being a case of digesting the generally positive run of China and more broadly PMIs, along with solid sentiment readings in Japan's Q3 Tankan (above all a continued pick-up in small company sentiment), even if the CapEx measure just missed forecasts
An eye also needs to be cast in the direction of Friday's CFTC FX data, in so far as the relatively sharp jump in the USD short appears to be counter to recent USD moves, even if there was considerable divergence between a sharp rebound in the JPY net short, a swing to a modest net Long in the GBP, and a jump in the EUR net long.
Ahead lie European and US PMIs, with the Spanish and Italian readings seen mirroring the strong readings from Germany and France, and the just report leap in the Swedish PMI. The UK Manufacturing PMI is forecast to dip to a still strong 56.2, after jumping to 56.9 in August, just shy of the 2017 and cyclical high at 57.0 set in April.
The US Markit Manufacturing PMI has, as previously noted, been in a tight range (52.0-53.3) for the past 6 months, and is seen unrevised at 53.0. By contrast the much more closely followed Manufacturing ISM has been strong for much of the year, 'surging' to 58.8 in August, its strongest reading since April 2011, and is only seen dipping marginally to 58.2. If the solid regional Fed surveys and the surging Chicago PMI (65.2 vs. Sept 58.9) reported on Friday, then the impact of the hurricanes on business sentiment and indeed activity looks to have been marginal, and very transitory. Today also sees the last 'clean' (i.e. not affected by hurricanes) reading for Construction Spending for at least the next 3 if not 6months, where a 0.4% m/m rebound is seen, after a choppy run of -1.4%, +1.6% and -1.8% m/m in prior months, with public sector spending proving very volatile.
Politically, the violence surrounding the Catalan referendum is a reminder that Spain remains a country where the tensions of the civil war 80 years ago and the ensuing Franco dictatorship continue to bubble under the surface, and the survival of the minority PP govt of Rajoy looks to be in question, given it depends on the support of the Basque separatist party to stay in power, and above all to pass the next budget.
Updated: The Week Ahead - Bullet point highlights: 2 to 6 October 2017
- A new quarter, but an all too familiar start to a new month with the data schedule dominated by the US labour report, while the week kicks off with the array of PMIs globally as well as the quarterly Tankan survey in Japan. Politics will cast as ever a long shadow, kicking off with the unconstitutional independence referendum in Catalonia, while the UK sees the annual party conference of the ruling Conservative Party, and markets will inevitably be keeping a close eye on developments on the latest Trump regime tax proposals potential for progress in Congress. The National Day / Full Moon Festival will keep China closed all week.
- Outside of the PMIs and the US labour data, there are US Auto Sales, expected to have been boosted by post Harvey sales, with Labour Cash Earnings in Japan, German Factory Orders, with Canadian labour data, Australian Retail Sales and Trade Balance providing the other data highlights. The US labour data will see some impact from the hurricanes, with ADP report on Wednesday seen at +143K vs. August's +237K, while Friday's Payrolls are expected to post an 85K rise, though that is likely no more than a best 'guesstimate', and if history is any guide, the extent of an expected upward revision to August's +156K may prove to be the more interesting aspect. Average Hourly Earnings may prove to be the more market sensitive item, with an expected 0.3% m/m gain leaving the y/y rate at a reasonably solid 2.5% y/y, though certainly not indicative of any material wage pressures.
- Fed and ECB speakers are plentiful throughout the week. Australia's RBA is expected to keep rates on hold and strike a very neutral tone on the policy outlook, and the ECB publishes the 'account' of the September policy meeting. There is likely to
- Govt bond supply is relatively light (see below), as is the corporate earnings schedule, with Costco, Lennar, Monsanto, Pepisco and Tesco among those likely to provide the highlights.
- In the commodity complex, there are some further high level conferences including the International Cocoa Conference in Singapore and Russia Energy Week, with oil and industrial metal price developments in particular focus, though the latter should be subdued due to the Chinese holidays.
from Marc Ostwald
