- Digesting of weaker than expected Europe Q3 GDP readings, awaiting UK
inflation run, ZEW, US Retail Sales, NY Fed & Import Prices; Carney testimony,
Fed speak from Fischer and Rosengren all offering some distractions from
"Trump thump"
- UK CPI/PPI: CPI expected to edge higher, but offer few headaches for BoE,
but PPI Input seen jumping sharply higher, focus on Import Prices
- Carney testimony: unlikely to stray from Inflation Report press
conference narrative
- US Retail Sales: autos and gasoline to pace further solid headline gain,
core measures seen picking up after sluggish September, underlying
trend seen improving sharply
- US NY Fed Manufacturing: survey responses straddled election, outlier
outcome risk high
- Charts: US and Japan 10-yr Yields, WTI, Copper, HY and EM Bond ETFs
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** EVENTS PREVIEW **
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If markets actually want some macroeconomic distractions from the "Trump Thump" (in bonds), then there should be more than enough on today's schedule of data and events. There is testimony from Carney accompanied by Fed speak from Fischer and Rosengren, as the rather unsurprising policy on hold message from the November RBA minutes and speech from new RBA governor Lowe are digested. The statistical schedule offers provisional Q3 GDP from Germany (missing forecasts primarily due to a drag from net exports), Czech Republic, Netherlands, Norway (mainland just missing forecasts), Poland, Romania and Slovakia, the gamut of UK inflation indicators, the German ZEW survey and Swedish CPI, ahead of US Retail Sales, Import Prices, NY Fed Manufacturing and Business Inventories, with a cursory glance in the direction of Canadian Existing Home Sales for an indication on how much of an impact the latest "cooling" measures have had. A close eye will continue to be kept on bond and credit markets, with US Treasuries finally showing some signs of resilience yesterday, after the 10 yr touched 2.30% (highest since late December 2015), aided and abetted rate lock hedging and the ensuing unwind following the 'jumbo' $6.0 Bln of 3, 5, 10 & 30-yr issuance from Pfizer, with the High Yield Bond ETF also finding a modest bid, in contrast to the EM bond ETF (see charts). Commodity markets continue to show divergent and choppy performances, with oil (WTI) finally catching something of a bid, after an initial rout yesterday, though comments from BP CEO Dudley expressing pessimism on any sort of OPEC production deal underline that near-term risks remain to the downside. Rather more worrying after the parabolic rise in Copper was the news that Codelco cut its China Copper premium to the lowest level since 2009, which suggests that the recent rally (accompanied by a jump in net long position in the US Copper future to a record level) has little or no substance to it.
** U.K. - October CPI, RPI, PPI; Carney testimony **
- Today's CPI data should be the least problematic or the BoE, IF forecasts prove correct for a 0.3% m/m rise, which would edge up the y/y rate to 1.1% from 1.0%, while core CPI is seen slipping to 1.4% y/y from 1.5% y/y - which appears reasonable in terms of the inputs from the BRC Shop Price Index, with petrol prices likely to be a key driver, along with restaurants and bars. RPI is seen up a more modest 0.2% m/m, but base effects would dictate that the y/y rate jumps to 2.3% from 2.0%, the highest since October 2014. Far more problematic will be PPI Input, where the latest slide in the GBP and a generally higher trend in commodity prices, is expected to result in a 2.0% m/m rise, which would propel the y/y rate up from 7.0% to 9.3%, the highest since December 2011, with a particularly close set to be kept on Import Prices. There will be the one or the other of the Treasury Select Committee who may take Mr Carney to task about anything at or above expectations. The hearing may well be short on fresh insights, with a number of members of the committee often too keen to spend hours discussing house prices, while others attack Mr Carney for being partisan and / or too pessimistic on the economic outlook. As noted after the Q4 inflation report press conference, the BoE's updated forecasts "best described as being less divorced from likely outcomes than in August, though the risks in terms of the outlook CPI look to be far above 2.7% for 2017, and to a slightly smaller extent for 2018. One might suggest that they can be construed as a rough guide as to how much of an inflation overshoot the BoE is likely to tolerate, before it would be forced to think about tightening policy. Eminently, the latter would be much less of a trigger, if growth were to slow in a more marked fashion, and / or Unemployment to rise, than current projections assume, as Carney underlined. It seems safe to opine that prior experience, above all the 2008-2011 period, suggests that the MPC may suggest that policy could move in either direction depending on how the inflation picture evolves. But in reality they will be quicker to respond to any weakness in growth or a rise in unemployment by easing policy, than they will be to tighten policy in the event of a clear overshoot. This is the asymmetric bias to central bank policy which BIS Claudio Borio has frequently referred (see various speeches here:
http://www.bis.org/author/claudio_borio.htm). Eminently this still represents a significant revision to the outlook from August, but really does little to change an overall uncertain outlook in the medium to long-term, or indeed the likelihood that there was always likely to be little major immediate impact on the economy, until Brexit negotiations get under way. Perhaps the more so, given that sluggish business investment was in evidence long before the referendum, and is evident in most developed economies."
** U.S.A. - October Retail Sales **
- Retail Sales are forecast to post another very solid 0.6% m/m rise, paced by the strength of auto sales and gasoline prices, though the core 'Control group' measure, which was soft in September at just 0.1% m/m, is expected to pick up to a solid 0.4%, which would be the best reading since May. In trend terms, if forecasts prove correct, the 3-mth annualized headline rate of sales would accelerate sharply to 3.9% from 2.1%, while the ex-Autos & Gas measure would jump to 2.4% from 0.4%, and the 'Control group' would rise to 1.6% from -0.8%, and thus imply a solid contribution to Q4 GDP from Private Consumption, after a somewhat lacklustre Q3 performance. The NY Fed Manufacturing has shown little sign of improvement in recent months in contrast to many regional and national surveys, and is only expected to improve to -2.5 from a weaker than expected -6.8 in October. It should be added that both this and Thursday's Philly Fed could produce some large misses relative to forecasts given the survey response period straddled the election, all the more so given that headline readings in both cases are not composites of their components, but a reflection of regional business sentiment. Import Prices kick off this week's run of inflation data, and are expected to post a 0.4% m/m rise paced largely by energy prices, with non-petroleum prices likely to rise little more than 0.1% m/m, though that would also put the y/y rate on the latter in positive territory for the first time in 22 months.
from Marc Ostwald