- Modest schedule to end the week features ECB speak including Draghi, US
Housing Starts and Canada CPI: solid Malaysia GDP & Singapore Exports
to be digested, along with divergent pull from US Mueller subpoena news
and House passage of Tax Reform bill
- US Housing Starts: solid rise expected for Starts & Permits, boosted by
post hurricane reconstruction
- Canada CPI: set to underline BoC's cautious view on timing of next rate
move
- Charts: BOC rate probabilities; USD index; WTI Oil future; JPM EMBI
spread; US HY Bond Option Adjusted Spread; US HY Bond ETF vs S&P500;
China 5 vs. 10 yr bond yields; Singapore Non-oil Domestic Exports
- Cen Banks - Various thoughts on Central banks and major economies
http://www.corelondon.tv/us-rate-hike-numbers-dont-add/
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** EVENTS PREVIEW **
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The week concludes with something of a whimper rather than a bang, even though the riptide that passed through 'risk assets' over the week through to Wednesday upset the 'normal' 'pinning' of equity indices ahead of today's monthly options expiry. The schedule of data and events is modest, with the day's run of ECB speak including Draghi perhaps being the highlight, particularly as it comes ahead of next week's 'account' of the October council meeting, which may well highlight that Signor Draghi was rather economical with the truth about how many council members wanted to signal a specific end point for the QE programme, as has been more than evident in speeches since. Statistically there is little more than US Housing Starts and Canadian CPI, neither of which are likely to shift the focus from the overarching namely political themes of the moment, namely Brexit, which sees PM May meet EU President Tusk today in Sweden amid talk that 'stage 2' Trade talks will start after the December 14/15 EU leaders' summit, and the overplayed spectacle of negotiations around the US Congress' tax reform plan bills. Today is also the self-imposed Merkel deadline for concluding the first round of talks related to a Jamaica 'coalition', which are set to extend into Saturday with very deep divisions all too plain to observe, even if the prospect of fresh elections will hardly suit any of the involved parties. Of the overnight run of news, it is interesting to note the divergence between the performance of the USD, which has taken umbrage at the subpoenas issued by Mueller in respect of the investigation into alleged links between the Trump election campaign managers and Russia, and Equity & Credit markets, which have yet gain been given a lift by US tax reform hopes, following the successful House vote on its tax reform bill. Asian markets also showed clear divergence between the downturn in China's equities as authorities step up their efforts to try and sort out some of China's credit woes (with the moves to liquidate Huishan Dairy the most visible) element, and the boost from the US tax news and indeed two very positive economic data points, via way of a solid beat on Malaysia's Q3 GDP, and a partly base effect related surge in Singapore's Non-oil Domestic Exports (see chart). A couple of other charts are attached which underline the solid momentum in the US economy, these are a) Truck Tonnage and b) Air Freight volumes.
** U.S.A. - October Housing Starts **
- Today's Housing Starts and Building Permits will inevitably be seen as distorted by the start of what will be a period of distortions due to post-hurricane rebuilding effects, which almost certainly help in pushing yesterday's November NAHB Housing Market Index up to 70, just shy of the post GFC cyclical high of 71 seen in March. Starts are seen up 5.6% to a 1.19 Mln SAAR pace, still short of October 2016's 1.328 Mln cyclical high, and Building Permits are forecast to rise to 1.25 Mln, again just short of January's 1.30 Mln cyclical high. For all that the renewed push higher may be seen as somewhat artificial and transient due to those hurricane effects, it will (if realized) boost Construction investment's contribution to Q4 GDP.
** Canada - October CPI **
- Today's CPI data is expected to underline why the BoC has been leaning quite hard against markets' BoC rate trajectory. Forecasts looks for a modest 0.1% m/m rise, which thanks to energy price base effects would see the y/y rate drip to 1.2%, though core measures will likely remain little changed ('Common Core CPI' & 'Trimmed Mean' last both 1.5% y/y). Comments from deputy governor Wilkins mid-week were at best ambivalent, she noted "Another reason for caution - in this case more of a 'wait and see' approach - is related to a desire to avoid having to reverse policy direction abruptly in the future." She went on to note "It's not really about running the economy hot or not, it's just what happens when you get the virtuous circle of growth," adding "It's not something you would want to build in your base case because if it doesn't happen then you've got risks on the upside to inflation but it's something you want to take on board and watch in terms of your assessment of the risks around your inflation forecast." She did add that, like many other G7 central banks, the BoC is particularly focused on how wages and potential output are progressing, without offering any view on whether the BoC saw upside or downside risks. Per se, today's report will probably not be that decisive, given that markets are unsurprisingly not discounting a December rate move (see table).
from Marc Ostwald
