Trading with point and figure

Dow

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All eyes on US labour data; Japan Wages/Spending, Korea CPI, German
Orders to be digested; UK Labour Costs, Canada jobs, US/Canada
Trade to be digested; RBI rate decision and Fed speak from Bostic

- India RBI: rate hike expected given weak INR, rising CPI and strong
growth, but banking sector woes leave it with much 'bigger fish to fry'

- German Orders: sharp rebound in Capital Goods Orders powers better
than expected outturn; now better aligned with anecdotal evidence,
but judgement on trend turn signal best postponed

- US Payrolls: strong ADP, Powell comments suggest Street whisper
estimate well above consensus; Hurricane Florence the wild card

- US Average Hourly Earnings: seen posting another relatively strong
m/m rise, but dipping due to base effects in y/y terms


**** The latest edition of The Ghost in The Machine is out !
https://content.yudu.com/web/400wi/0A400wk/Sept-Oct2018/html/index.html


..........................................................................

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** EVENTS PREVIEW **
********************

A busy day for statistics across the globe, even if the US labour report will clearly be the primary (only?) point of focus, above all given this week's belated market realization that the Fed is serious about maintaining its policy tightening, and that US economic growth remains very robust, thus powering a relatively sharp rise in US Treasury yields. Even if those with memories of the 1994 US Treasuries sell-off will probably be digging into their playlists for yesteryear to find a copy of Bachmann Turner Overdrive's 'You Ain't See Nothing Yet'. Be that as it may, there are the better than expected Japan Household Spending, but disappointing Real Wages to digest along with Korean CPI which jumped on rising petrol prices, while core CPI remained subdued, and a welcome rebound in German Factory Orders. The latter was only the second m/m rise this year, and unsurprisingly given the protracted weakness in prior months was powered by a rebound in Capital Goods Orders, above all non-Eurozone which surged 13.7% m/m; whether this signals a more sustained rebound remains to be seen, even if anecdotal evidence, above all from the Ifo survey, VDMA orders and Bundesbank monthly reports, would tend to suggest that this should be the case. Ahead lie UK Q2 Unit Labour Costs, US and Canadian Trade, and Canadian labour data, some Fed speak from Bostic and an expected rate hike in India. The RBI is seen hiking rates by 25 bps to 6.50% (Reverse Repo) and 6.75% (Repo), while keep the Cash Reserve Ratio at 4.0%, with higher oil prices, a weak INR and a solid pace of growth offering a sound rationale. That said, the default woes of infrastructure lender IL&FS, which has been taken into govt administration, which follows hot on the heels of the PNB fraud imply that there will be more interest in what measures the RBI continues to undertake to ensure liquidity in its banking sector and bond market, as well as its and the Finance Ministry's efforts to stem the fall in the INR.

** U.S.A. - September Labour Report **
- Consensus forecasts for today's labour data have a rather familiar feel to them with Payrolls seen up 188K, the Unemployment Rate projected to dip back down to its cyclical low of 3.8%, though as ever it will be Average Hourly Earnings that gets top billing, and all the more so after the 0.4% m/m jump to 2.9% y/y in August, with the consensus looking for 0.3% m/m, which thanks to base effects would edge the y/y rate lower to 2.8% y/y. However with the ADP report beating expectations, and Fed chair Powell extolling the 'extraordinary' performance of the US economy, the whisper estimate on the Street will doubtless be north of 200K. The one potential drag could be the impact of Hurricane Florence, with some suggesting that this could drag headline Payrolls down by ca. 30K; the BLS will doubtless offer its own estimate of the impact. Overall this will make for another strong report, though with few signs that wage pressures (above all in real terms) are really building up, as yet, despite plenty of signs of skills shortages in many sectors. One area that requires particular attention will be trade services, above all transport, given clear signals from last week's goods trade data that the trade war with China is starting to have an impact on volumes, above all in Food, Feed & Beverages. In market reaction terms, pumped up expectations for today's data could garner something of a 'sell the rumour, buy the fact' reaction (perhaps above all in FX), above all with the usual round of Friday book squaring. But with 3, 10 & 30-yr UST auctions, primary dealers will likely be cautious in removing too much of the concession that has been carved out for those sales.
From Marc Ostwald
 
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