- Deluge of statistics accompanies very busy day for central bank speakers,
including Draghi, Yellen, Kuroda & Carney panel at ECB conference; Brexit
legislation parliament debate; Germany and Netherlands kick off EUR 30 Bn
week of govt bond supply in the Eurozone
- China: small misses on Retail Sales and Industrial Production need to be
seen in context of National Day holidays and Singles Day: FAI not bad
given curbs
- Europe GDP: German outturn implies upward revision for Eurozone, CEE
growth underlines need for gradual policy tightening
- UK CPI: petrol prices set to contain pressures from Food, clothing,
utilities and airfares/holidays, risks to the upside
- US PPI: energy pull back to dampen headline rise, core measures in focus
- Charts: German GDP, China GDP vs FAI and 1-yr Cross-Currency Basis Swaps
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** EVENTS PREVIEW **
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After yesterday's "nothing burger" follows today's data and central bank speaker deluge, which may all of often in market paralysis rather than inspiration, given the dizzying array of inputs. That said, all of that may prove to be flotsam and jetsam as USD money markets start to tighten up (see attached chart) ahead of year end. Having absorbed the run of Chinese monthly indicators, attention then turns to the rush of continental European GDP readings, Swedish CPI and the gamut of UK inflation indicators and the meaningless ephemera that is the German ZEW survey, while the US sees PPI and NFIB Small Business Optimism. But in the category 'not to be upstaged' there is the ECB conference which features as its highlight a pane with Draghi, Yellen, Kuroda and Carney opining on 'central bank communication', and there is absolutely no shortage of other central bank speakers. Politics rarely strays far from centre stage, with the UK parliament set to commence another debate on Brexit legislation, as the UK government teeters on the brink of self-immolation. Govt bond supply comes via way of a German 2-yr and Dutch 10-yr, while Infineon, Vodafone and Home Depot will likely be among the headline grabbers in terms of corporate earnings.
** China - Oct Retail Sales, Industrial Production, FAI **
- Inevitably there will be some disappointment at the undershoot on Retail Sales (10.0% vs. expected 10.5%) and Industrial Production (6.2% y/y vs. expected 6.3%), though in the case of the latter this looks to be a case of a modest correction to front loading of output ahead of the week long National Day/Autumn Festival holidays. As for Retail Sales, the question is whether consumers held back some spending in anticipation of 'Singles Day', which seems likely given that Alibaba's sales were up 39% y/y relative to 2016. Fixed Asset Investment was in line with forecasts at 7.2% y/y, and continues to be propped up by govt spending (up 10.0% y/y) on infrastructure, though Private Sector is holding up reasonably well given the curbs on property investment (which unsurprisingly continued to lose momentum), pollution and those sectors suffering from over capacity.
** U.K. - October CPI, RPI, PPI, House Prices **
- CPI is forecast to rise 0.2% m/m, which would bump the y/y rate up to 3.1% and thus prompt a letter from BoE governor to Chancellor to explain the breach of the 2.0% plus/minus 1.0% CPI target range, though it would be a shade below the BoE's Inflation Report projection that CPI would peak in October at 3.2%, and thereafter start to decelerate. Food and other non-discretionary items such as Utilities and Clothing & Footwear are likely to exercise further upward pressure, with airfares / holidays potentially a further upside wild card, while a marginal dip in petrol prices this year compares with a 2.3% m/m rise in October 2016, and provide an offset. PPI is forecast to show a relatively sizeable 0.8% m/m jump due to rising commodity and energy prices, however these will be considerably less than the 4.4% m/m surge seen in October 2016, therefore base effects are seen driving down the y/y rate to just 4.8%, the lowest level since August 2016, and it is this that also predicates expectations that October will be the peak for CPI, though the relationship is rather more complex. PPI Output is expected to be well behaved with a rise of 0.3% m/m, which again due to base effects would see the y/y rate drop to 2.9% from 3.3%. ONS House Prices have defied signals from other house price measures, but seem likely to decelerate from a still very elevated 5.0% in August.
** Europe - Q3 prov. GDP **
- German GDP handsomely best expectations of 0.6% with a rise of 0.8% q/q 2.8% y/y (WDA), and therefore implies that Eurozone GDP will be revised up to at least 0.7% q/q from 0.6% q/q, but (whisper it quietly) the headlines today may be from Greece, where a Eurozone best for the quarter of 1.3% q/q (1.3% y/y) is expected, and by contrast with Q4 2015 this will not be all about nominal/real statistical quirks. However and as ever, the other key points of interest will be the signals from non-Eurozone countries, with Romania smashing expectations of 1.1% q/q with a rise of 2.6% q/q, while ahead lies Poland with the risk to the upside of expected 0.8% q/q, with Hungary just beating forecasts of 0.7% q/q with 0.8% q/q, while the Czech Rep. saw a mean reversion of 0.5% q/q (vs. forecast 0.3% q/q) following a storming 2.5% q/q in Q2, which serves to keep the y/y rate very high at 5.0%. All in all this is likely to underline that with solid momentum in the Eurozone, the pressure for the ECB to taper its QE programme very rapidly in Q4 next year (say 15.0 Bln for 3 months and then stop) is likely to mount, and that the likes of Romania (most acutely) and Poland really need to follow the Czech central bank in gently push up rates.
** U.S.A. - October PPI **
- Energy prices (above all gasoline) are likely to weigh at the headline level, reversing some of September's Hurricane jump of 0.4% m/m, with a modest 0.1% m/m rise, core measures should show a slightly stronger rise of 0.2% m/m. As ever the key elements in the core measure will likely be the volatile Trade Services, and Autos, where prices have been subdued for a protracted period (last -2.4% m/m -1.5% y/y). A closer eye also needs to be kept on Machinery & Equipment, which saw a 1.2% m/m in September to jump the y/y rate up to 4.7%, which fits with survey indications of some emergent pricing power in the sector.
from Marc Ostwald