Ostwald, Marc <
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Attachments07:49 (16 minutes ago)
to Marc
- US and UK dominate data schedule with UK Wages US CPI and Retail Sales,
central bank speakers again plentiful; EIA oil inventories under the
microscope after IEA monthly report and API Crude build; sour tone in
risk assets gets some traction; German to sell 10-yr
- UK Labour data: slower employment growth seen, wages expected to be little
changed
- US CPI: energy to reverse September hurricane related gains, PPI points
to some modest upside risks on core
- US Retail Sales: lower gasoline prices seen restraining headline, core
measures expected to post another solid gain
- Charts: WTI, Copper, Nickel, USD Libor OIS spread, 2-yr & 10-yr yield,
JPM EMBI spread, US HY Bonds OAS spread and Junk Bond ETF, VIX
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** EVENTS PREVIEW **
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The UK and US look likely to be very much 'front and central' today's proceedings, via way of the UK labour market and wages data, and US CPI and Retail Sales, with the overnight Japan prov. Q3 GDP (in line with forecasts) and Australia Q3 Wages (downside miss likely to harden RBA neutral policy stance) to be digested. The events schedule is rather less busy, with plenty more ECB speak and the fifth round of NAFTA talks set to get under way, though these will likely play second fiddle to the ongoing UK parliament debate on the Brexit legislation bill, as well as increasingly optimistic noises emerging from US Congress Republicans (i.e. both House and Senate) on passing some form of tax reform. On the govt auction front, Germany sells a modest EUR 3.0 Bln of 10-yr Bunds, while Tencent, Cisco and Target will be in the corporate earnings headlines. After yesterday's collapse, following the IEA's monthly report that cut global demand estimates by 100K bbls and, a large and unexpected API Crude inventory build (6.2 Mln bbs), oil prices will be very much under the microscope, as attention now shifts to the end of month OPEC meeting. A sour tone continues to develop in many risk markets (see various attached charts), and still appears to be a function of reducing risk ahead of year end, and despite the more optimistic noises out of Congress on tax reform, in what amounts to a substantive market 'volte face' relative to much of the past year.
** U.K. - September / October labour data **
- Following on from the slightly lower than expected CPI data, which were flattered by a drop in petrol prices that will likely see a reversal in November, markets will inevitably focus on the Average Hourly Earnings component of today's labour data. Average Weekly Earnings are seen barely changed at 2.1% y/y headline and 2.2% y/y ex-Bonus, per se confirming that real wages will remain firmly in negative territory. Survey evidence continues to suggest that outside of highly specialized areas, there are few signs that wage growth is showing any signs of getting any real traction.
** U.S.A - October CPI & Retail Sales **
- US CPI may perhaps be the more sensitive of these two items, as markets try to balance inflation data & their very low inflation expectations against increasingly less than accommodative central bank speak, even from the ECB and BoJ (see also
http://www.corelondon.tv/happening-risk-bond-markets/). The consensus looks for US CPI to post a very modest 0.1% m/m rise in headline that would drag the y/y rate back to 2.0%, with the risk perhaps to the downside due to the fall in gasoline prices, while core CPI is seen at a 'military medium' 0.2% m/m for an unchanged 1.7% y/y. While PPI is often a poor guide to CPI, the broad based upward pressures evident in yesterday's report, including a 0.4% m/m rise in Personal Consumption items, and the post hurricane rebuilding related pick-up in Construction materials, imply some upside risks for today's CPI. As previously noted, the key point here is that what is being witnessed is not any substantial pick-up in price pressures, but rather that market estimates of inflation are probably under-clubbing inflation assumptions by some 50 bps, which in a low short and long-term rate environment could prove rather costly in terms of portfolio performance. Retail Sales are likely to see a drag from both Autos and Gasoline, a reactive correction to similarly hurricane induced bump seen in September with the consensus looking for a flat m/m headline, a 0.2% ex-Autos and 0.3% m/m ex-Autos & Gasoline - the risk of quite revisions, and a larger correction appear quite large, but the core 'control group measure' is seen reprising last month's healthy 0.4% m/m rise, and per se indicate a healthy pece of personal spending
from Marc Ostwald