Digesting China inflation data and S&P report on China local govt debt,
looking to UK labour data, German ZEW survey and US Industrial
Production, NAHB survye and JOLTs Job Openings; politics still to the
fore, Germany to sell 2-yr, more US corporate earnings
- China inflation: CPI in line, but divergent undercurrents, PPI still
seeing few if any signs of impact from trade tensions or weaker CNY
- UK labour data, totally subordinate to Brexit negotiations, and most
measures seen little changed on the month
- US Industrial Production: drip in manufacturing hours predicates
more modest expected gain, underlying trend still robust
- Chart: World Steel demand
..........................................................................
********************
** EVENTS PREVIEW **
********************
A much busier day awaits in terms of the data schedule, though whether this can displace anxiety about markets' current internal dynamics, and the ever present disruption of political and trade tensions related headlines remains to be seen. Be that as it may, there are China's CPI and PPI to digest ahead of UK labour market reading, Germany's market sensitive, but redundant ZEW survey and the run of US Industrial Production, JOLTS Job Openings and NAHB Housing Market Index, with a cursory eye needing to be cast in the direction of Italian Orders and Polish Employment & Wages. US corporate earnings are roughly balanced between financial and real economy reports, the former features amongst others: Blackrock, Goldman Sachs and Morgan Stanley, while the latter has IBM, Johnson & Johnson and Netflix. Govt bond supply has Germany selling 2-yr, and the US debuting its 2-mth Bill auction along with the usual 1-mth Bill. As an aside to the charts on Cross Currency Basis swaps that we sent out yesterday, this new Liberty Street Economics (i.e. NY Fed) suggests that regulation continues to impair market liquidity
http://libertystreeteconomics.newyo...subject-to-lcr-reduce-liquidity-creation.html ; above all items such as the Fed's capital surcharge rule for the eight US global systemically important banks (G-SIBs) which can raise post-stress test minimum capital requirements (despite overall better levels of capitalization, and in turn may be prompting such banks to pass this on (i.e. recoup the cost) via wider spreads, higher premiums. On Chinese inflation data, CPI was as expected at 2.5% y/y from 2.3%, though this masked sharply divergent trends, with Food Prices which leapt higher to 3.6% y/y from 1.7% on pork price base effects, but offset by the drop in Non-Food Prices to 2.2% y/y from 2.5%, while PPI was broadly in line with forecasts at 3.6% y/y from August's 4.1%, despite upward pressure from the cumulative drop in the CNY and energy prices. This will however be more than overshadowed by the S&P report suggesting that China's local govt 'hidden debt' (hiding on Local Govt financing vehicles) may be as much as a whopping $5.8 Trln, which underlines that central govt efforts to clean up local govt balance sheets is as yet having little impact.
** U.K. - Aug/Sept Labour data **
- Political developments render incoming data somewhat moot at the current juncture. But the labour market report is projected to show Employment growth remains modest (+11K vs. prior +3K) to leave the Unemployment Rate unchanged at its multi-decade low of 4.0%, the former being as unsurprising given all the uncertainties, as the latter is a reminder that the labour market is tight. However Average Weekly Earnings continue to suggest very little in the way of significant wage pressures, and are seen holding the higher than expected pace seen in July - headline 2.6% y/y, ex-Bonus 2.9%. If forecasts for tomorrow's CPI are correct, that would imply real wages remain flat in y/y terms, per se the suggestion by a number of BoE speakers of a meaningful pick-up in wage growth looks to both elusive and by extension illusive.
** U.S.A. - Sept Industrial Production **
- Following on from a very quirky Retail Sales report, in which the core 'Control Group' measure was robust at 0.5%, but other measures missed forecasts by a considerable margin, such that 3-mth annualized measures now have headline sales 3.1%, ex-Autos at 3.6%, but ex-Autos, Gasoline & Building materials at 4.8%, today brings Industrial Production. This is forecast to rise a modest 0.2% m/m after gains of 0.4% m/m in the first two months of the quarter, and thus underlining business spending will again make a solid contribution to Q3 GDP (due at the end of the month). As surveys (including yesterday's NY Fed 21.1 vs. Sept 19.0) underline optimism in the sector remains high despite complaints about higher input prices, skills shortages, transport bottlenecks & costs and trade tensions/tariffs, thus the main driver for slightly subdued expectations was the modest fall (-0.1% m/m) in Manufacturing Hours in the labour report. As for JOLTS Job Openings, these are seen slightly lower at 6.90 Mln relative to July's all-time record of 6.939 Mln, which again mostly underlines that employer labour demand remains very high, but skills shortages and lack of availability continue to impede hirings.
From Marc Ostwald
