- Busy day for central banks, via BoE Agents Reports, speeches from Fed's
Williams and BoE's Haldane, Fed Beige Book, Canada / Brazil policy
meetings; digesting China data ahead of UK labour data & US Housing
Starts; UK 10 yr & German 30-yr sales; US Corporate Earnings and EIA
oil inventories also in focus
- China: Industrial Production miss primarily a function of drag from
Iron & Steel sectors; in line GDP above govt target, but still leaves
plenty of questions on sustainability given credit headwinds
- UK Labour data: focus in LFS Employment, Vacancies and Wages
- US Housing Starts: seen rebounding, some upside risks
- US Beige Book: no expected to signal major shift in sector performance,
but relative outlook optimism likely to be key element
- Bank of Canada: more dovish tilt expected, likely to tweak growth and
inflation forecasts lower
..........................................................................
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** EVENTS PREVIEW **
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Once the overnight run of Chinese data have been digested, central banks top the day's agenda, with policy meetings
in Canada and Brazil, the Bank of England's monthly Agents' reports are accompanied by the Fed's Beige Book, while SF
Fed's Williams and BoE's Haldane top the day's list of central bank speakers. Statistically the UK has monthly jobs
and wages data, while the US sees Housing Starts, and Poland follows up yesterday's strong labour data (Employment
+3.2% y/y, Gross Wages 3.9% y/y) with Retail Sales, Industrial Production and Construction Output. Outside of the
final pricing for the Saudi Arabia multi-tranche USD issuance, there are also an as ever tiny 30-yr German Bund
auction, and a re-opening of the current benchmark 10-yr UK Gilt. Brazil's COPOM is expected to embark on a modest
initial 25 bps rate cut to 14.0%, facilitated by some ebbing of inflation pressures, a firmer BRL and fiscal
austerity. It will also be a busy day for earnings, with Morgan Stanley, Amex, eBay, Mattel and Valeant topping the
schedule in the USA. Last but not least there are the EIA oil inventories statistics, which follow a mixed set of API
statistics - crude stocks falling more than expected, while gasoline stocks rose modestly against expectations of a
draw.
** China - Q3 GDP, Industrial Production, Retail Sales, FAI **
- Q3 GDP was exactly as expected at 1.8% q/q 6.7% y/y, and per se above the authorities' 6.5% target, with nominal
GDP once again accelerating modestly; the monthly data underlined however just how reliant growth remains on
construction output and property investment, in turn powered by rapid credit growth and elevated levels of govt
spending, with a continued drag from the export sector. Industrial production growth missed expectations at 6.1% y/y
vs. forecast 6.4%, though the details underline extent of the drag from the iron & steel sector (Sep -3.1% vs. Aug -
1.7%), a slowdown in Telecoms/Computer (8.6% y/y vs. Aug 10.6%), while seeing continued strength in Power/Heat (7.1%
vs. 6.8%), which had been flagged in last week's Electricity Consumption. Retail sales and Fixed Asset Investment
both improved as expected, the latter with some signs of a modest pick-up in Private Sector FAI. But overall none of
these data points changes the fact that there remain enormous challenges in resolving capacity issues in a number of
sectors, and the sustainability of growth in the medium-term without a high level of fiscal stimulus, and given the
rapidly accumulating debt overhang, which shows little sign of abating.
** U.K. - August/September Unemployment/Average Earnings **
- The labour market, as is well known, is THE lagging indicator, and per se it will be some time before any proper
assessment can be made of what impact Brexit related uncertainty is having an impact. Be that as it may, today's
report is expected to see a marginal 3.2K rise in the Claimant Count, following prior readings of +2.4K and -3.6K.
The rather more significant ILO Unemployment Rate is seen unchanged at its cylical low of 4.9%, however a sharp
slowdown in Jun-Aug Employment to 76K vs. prior +174K is expected, though this would still be above the pace seen in
February through April, and an eye needs to be kept on Vacancies which remain close to all-time highs. No changes are
expected on Average Earnings (headline 2.3% y/y, ex-Bonus 2.1%), though the upward creep in inflation will
increasingly return the focus to real earnings, which remain well below their pre-crisis levels. On the policy side
of the equation, BoE chief economist and arch dove will offer his thoughts on "QE - the story so far", which will
doubtless extol its virtues and the need for QE at the current juncture, even if he will probably acknowledge its
limitations. It is to be hoped that he does not again try and argue that banning cash would be a possible further
extension of the process, as this really is one of the most feckless and fascist ideas that has ever been proposed,
above all the inherent arrogance that the theory underlying it is riddled with a myriad of dubious assumptions, which
only an ivory tower economist would really lend credence to.
** Canada - BoC rate decision **
- Unsurprisingly rates are seen on hold at 0.50%, though an increasingly dovish tone is expected, with particular
focus on the assessment of the weakness in non-energy exports, which appeared to be a key concern at the last
meeting, along with business investment and slower household spending. The Monetary Policy Report's growth forecasts
are expected to be revised somewhat lower, and it will be interesting to see what, if any reassessment is made of the
much vaunted, but thus far rather tentative fiscal stimulus. The press conference will doubtless also see
considerable discussion about the impact of the latest round of measures to rein in the housing market.
** U.S.A - Housing Starts / Fed Beige Book **
- Yesterday's modest slip in the NAHB Housing Market Index from a post GFC high of 65 to 63, continues to suggest a
solid performance from the sector. Today's Housing Starts will be closely watched after an unexpectedly sharp -5.8%
drop in August, with a 2.7% m/m rebound expected to a robust 1.173 Mln pace, with risks seemingly skewed to the
upside of forecasts, given the ever more palpable shortage of homes for sale, and the always elevated risk of often
very substantial revisions. Based on the readings for July and August, the Atlanta GDPnow forecast assumes another
sharp 8.5% drop in Housing Investment, which follows a similar drop in Q2 GDP, and appears rather at odds with other
indicators of sector performance. Be that as it may, the Fed will also publish its Beige Book, which will as ever
provide the most comprehensive overview of the economy. It is assumed that it will likely characterize growth as
modest or moderate, though there will be rather more focus on relative levels of optimism on the outlook, above all
in the context of the uncertainty surrounding the economy. It seems unlikely that it will offer any specific insights
that might favour the doves or the hawks on the FOMC, above all given the deep divisions on the committee reflect
divergent opinions about the need to be more pre-emptive rather than reactive in policy implementation terms.
As a reminder, the September 7 Beige Book summarized the economy as follows:
* Reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand at a
modest pace on balance during the reporting period of July through late August.
* Most Districts reported a "modest" or "moderate" pace of overall growth. However, Kansas City and New York
reported no change in activity, and Philadelphia and Richmond noted that, while still expanding, activity slowed from
the previous period.
* Contacts across the twelve Districts generally expect moderate economic growth in coming months.
* Overall consumer spending was little changed in most Districts, and auto sales declined somewhat but remained at
high levels.
* Tourism activity was flat from the previous report but above year-earlier levels.
* Sales of nonfinancial services gained further momentum.
* Manufacturing activity rose slightly in most Districts.
* Activity in residential real estate markets grew at a moderate pace, but the pace of sales was constrained in a
few Districts by shortages of available homes.
* Commercial real estate activity expanded further.
* Demand for business and consumer credit varied across Districts but appeared to expand at a moderate pace overall,
with stable credit quality.
* Agricultural conditions were mixed, with price declines largely offsetting growing volumes.
* Overall demand for energy-related products and services weakened.
* Labor market conditions remained tight in most Districts, with moderate payroll growth noted in general.
* Upward wage pressures increased further and were moderate on balance, with more rapid gains reported for workers
with selected specialized skill sets.
* Price increases remained slight overall.
from Marc Ostwald