While political influences, be that Brexit, Italy/EU or US/China relations, will continue to provide much of the mood music for financial markets over the coming week, a busy schedule of major data (above all from the US, China and the UK) will offer plenty to consider, above all given concerns that the global economy is set for a period of considerably slower growth, and how that plays out against G3 central banks withdrawing liquidity from markets very gradually. In terms of politics, the crunch moment would appear to have arrived in terms of the Brexit negotiations, and sadly the Conservative government (though the opposition labour party is no better) continues to fritter away more time arguing with itself, underlining that the whole Brexit process has above all been a domestic political crisis that has in truth been in the making for many decades, and is above all a national identity crisis, the like of which has not really been seen since the English civil war. A crisis which is above all bereft of any political actors who might be capable of rising to the challenge of acting in the national interest, but instead continue to behave like a group of rival football hooligans. Be that as it may, Italy's budget struggles will also be very much front and centre, with a 'revised' budget proposal due to be sent to the European Commission.
- If last week was something of a desert in terms of US data, the schedule after Monday's Veterans' Day holiday is packed; pride of place naturally falls to CPI and Retail Sales. In terms of CPI, forecasts look for a very "average" 0.2% m/m on headline and core that would see headline y/y pick up to 2.5% from 2.3%, and leave core unchanged at 2.2%. While retail gasoline prices fell modestly on the month according to EIA data, the pointers from PPI were less auspicious with energy and food posting substantial m/m rises of 2.7% and 1.0%, and the overall Personal Consumption PPI sub-index up 0.8%, implying some upside risks for CPI, even if falling healthcare prices should provide some offset, while airfares continue to exercise upward pressure. Retail Sales were to say the least peculiar in September, posting weak readings of -0.1% to +0.1% on all measures except the core 'Control Group' measure that posted a robust 0.5%. For October, the consensus looks for a solid 0.5% m/m on headline and ex-Autos, with the core 'Control Group' seen up 0.3%. Industrial Production is forecast to rise 0.2% and Manufacturing Output 0.3% m/m, echoing the labour report's average weekly hours data, while the NY and Philly Fed Manufacturing surveys are both forecast little changed around a solid 20.0 level. NFIB Small Business Optimism, Business Inventories, Import Prices, Treasury Budget and TIC Portfolios are also due.
Following on from Friday's distinctly mixed run of UK activity data, this week kicks off with labour data, which are projected to show the Unemployment Rate unchanged at its more than 40 year low of 4.0%, with Employment expected to recover from summer weakness with a rise of 35K. But as ever, the focus will be on Average Weekly Earnings, where the headline is expected to play catch up with the ex-Bonus measure, rising to 3.0% y/y from 2.7%, and ex-Bonus to be unchanged at a nine year high of 3.1%. September's weaker than expected CPI was paced above all by Food, with a helping hand from Clothing, Household Goods and Transport. October CPI is seen up 0.2% m/m on headline and core, which would see y/y rates edge up to 2.0% and 2.5%, with food prices likely to rebound modestly, but clothing and household goods potentially acting as a restraint if BRC Shop Price data are a guide, with petrol prices little changed on the month. Retail Sales are seen posting a dead cat 0.2% m/m bounce after September's sharp 0.8% m/m decline, with the BRC and Barclaycard measures offering no grounds to expect anything more substantive.
China's Auto Sales slide of 11.7% y/y (in part due to base effects, y.t.d. only -0.1% y/y) and the PBOC and other officials' comments on Friday underlining that its economy is under pressure, along with the announcement of further measures to boost lending to SMEs do not bode well for this week's run of activity data, even if a fresh record for Alibaba's Single's Day Sales on Sunday (up more than 20% y/y according to initial reports) provides some offset. Consensus forecasts look for little or no change vs. September, with Retail Sales seen at 9.2%, Industrial Production at 5.8% and Urban Fixed Asset Investment (FAI) to edge up to 5.5% (from 5.4% y/y), whereby Private Sector FAI remains solid at 8.7%, but State Investment weak at just 1.2% y/y, in no small part due to delays in municipal spending approvals related to investigations into graft and wasteful spending, as well as environmental related curbs. Be that as it may, markets remain focussed on US/China Trade relations (with much seen resting on the Trump Xi meeting on the sidelines of the month ending G20 meeting in Buenos Aires), as well as the renewed CNY drop and ongoing weakness in China's equity market.
However the main talking points on the data schedule may prove to be the provisional Q3 GDP data from Germany and Japan, which are expected to show both economies contracted in Q3, -0.1% q/q and -0.3% q/q respectively. While both are expected to see a bounce in Q4, and the Japanese contraction owes much to the series of natural disasters and to a much lesser extent a small drag from Net Exports, they will only serve to heighten concerns about the global growth outlook. The German economy's stall during the summer does owe much to Auto sector woes related to adjusting production to meet tighter emissions curbs, as well as legacy issues due to the emissions cheating scandal (much of which remain unresolved), with a slowdown in Consumer Spending in the summer (despite robust wage growth), soft foreign demand due to trade tensions, offsetting the continued boom in the construction sector. The bulk of the remaining national Q3 GDP readings in the Eurozone along with Central and Eastern Europe are also due, with Poland seen posting another very robust 1.0% q/q and the Netherlands defying any chill winds from Germany with a very solid 0.6% q/q gain, which is also the consensus for Mainland GDP in Norway. Germany also has its meaningless, though market sensitive ZEW survey, and last but not least Swedish CPI is expected to hold above target on headline at 2.5% y/y and CPIF (core) 2.4%, continuing to put pressure on the Riksbank to finally start inching away from negative rates.
Elsewhere India has CPI, WPI and Industrial Production, though ongoing financial sector woes will remain the primary focal point. Australia has its monthly labour data, with a very average 20K increase in Employment forecast, that would leave the Unemployment Rate unchanged at its recent low 5.0%; however Q3 Wages (forecast 0.6% q/q 2.3% y/y vs. Q2 0.6%/2.1%) are again expected to underline that real wage growth is at best negligible, and per se keep the RBA 'on hold' for the foreseeable future. Turkey is expected to post a second consecutive Current Account surplus as the impact of the earlier TRY slide and sky high interest rates continue to weigh very heavily on domestic demand.
- There are no major developed world central bank meetings this week, but Powell and Draghi head a long list of Fed and ECB speakers, with Fed's Quarles' semi-annual testimony on banking supervision likely to get plenty of attention. In the EM space, opinions are divided on whether Philippines' BSP will hike rates following last week's weaker than expected Q3 GDP, though with official rates still far below headline and core CPI, the case for a further hike still looks to be strong. Elsewhere rates are seen on hold in Albania, Egypt, Indonesia, Jamaica, Mexico, Sri Lanka (where the focus is in any case on politics) and Thailand.
- Oil markets will be looking to the monthly OPEC Oil Market Report, following the OPEC+ technical meeting at the weekend, where Saudi Arabia floated the idea that it might cut production by up to 500K bpd in December, though Oil Minister al-Falih did make this very contingent on getting a clearer picture about the extent of the sanctions related drop in Iranian output. Otherwise there are a series of APEC and ASEAN summits throughout the week, and Sweden's Riksdag will debate a proposal to appoint Moderate Party Kristerson as Prime Minister.
- The corporate earnings season starts to wind down, with the focus on the US retail sector via way of reports from Walmart and Macy's due this week, with wage pressures in the sector under the microscope. The Eurozone dominates the govt bond auction schedule with a total of ca. EUR 12.0 Bln coming via way of 2 & 30-yr from Germany, a small re-opening of the Dutch 2042 DSL and 3, 7 & 20-yr Italian BTPs, while the UK re-opens its 2037 conventional Gilt.
This week is also the Global Grain Geneva 2018 conference, at which I will be speaking - http://www.globalgrainevents.com/geneva/agenda.html
- please do email, or DM me on Twitter @mostwald1 or via LinkedIn. if you would like to chat, have a coffee, etc.