Macroeconomics: The Day Ahead for 24 November

Ahead of tomorrow’s Thanksgiving holiday, today brings a deluge of US statistics, which follow the overnight Japan flash PMIs, Australia’s Q3 Construction Output, and French Business Confidence ahead of Germany’s Ifo Business Climate, UK CBI Industrial Trends and Mexico’s mid-month CPI. In event terms, there are the as expected 25bps rate hike to 0.75% from the BZN to digest and ahead lie the FOMC minutes, and speeches from BoE’s Tenreyro and various ECB members. Deere & Co tops the run of corporate earnings, which also sees results from Lukoil and Norilsk Nickel, while Germany sells EUR 2.0 Bln of 15-yr. Energy markets will inevitably remain in focus, after markets greeted the heavily flagged co-ordinated release of SPR reserves from US, China, Japan and India with a two fingered salute, in what was a classic ‘sell the rumour, buy the fact’ move, even if one could argue that the move at least checked what seemed to be a relentless move to $100/bbl. Eminently it did not have any impact on the other key energy price pressure area, European electricity prices (see graphic), as NatGas prices surged yet again. Precious Metals by contrast took a bath as perceptions of less central bank accommodation hit hard, above all as evidenced by a further modest upward shift in bond yields, which left the US 10-yr (1.65%) not far short of the year’s closing high of 1.74% (see charts).

UK/Europe – November business surveys

– Following on from the run of better than expected PMIs, it will be interesting to see if the generally more reliable national surveys offer any counters. Germany’s Ifo Business Climate is seen posting a fifth consecutive drop to 96.6 from 97.6, leaving the headline index back at March levels, and follow on from the semi-annual DIHK survey yesterday, which saw some 50% of companies reporting severe supply chain disruptions, up from just 14% in its spring survey. They also highlighted having to shift production for trade with both China and the UK due to sourcing requirements for intermediate goods, with the DIHK noting that “Rising global demand is currently coupled with insufficient production capacities and transport problems”. The UK CBI Industrial Trends survey was notable for painting a much less upbeat picture of UK manufacturing than the PMI in October, with Orders sliding back to 9 from September’s 22, and a marginal further dip to 8 seen this month, with Price pressures expected to remain extremely high at 57, after hitting their high level (59) since March 1980 in October.

U.S.A. – November FOMC minutes

These are somewhat historical, given that even the most dovish FOMC members concede that the policy tightening timetable (pace of QE taper and first rate hike) may have to be moved up. Be that as it may, they wil likely highlight that both hawks and doves saw considerable risks to the ‘transitory inflation’ narrative, with the hawks suggesting that there is much less slack in the labour market than official labour data would suggest, while doves remained of the view that labour force participation rates can get back to pre-pandemic levels, though Bostic and others have now conceded that full employment may come rather sooner.

** U.S.A. – PCE, Personal Income, Durable Goods, Trade, Q3 GDP **

– It’s probable that the Personal Income and PCE data will get most attention, above all the deflators. The headline PCE deflator is seen up 0.7% m/m and core 0.4%, to jump y/y rates to 5.1% (from 4.4%) and 4.1% (from 3.6%) respectively, underlining the pressure on the Fed. The accompanying Personal Income and PCE are expected to see a tepid 0.2% m/m bounce in Personal Income from the -1.0% m/m drop in September (due to the ending of enhanced benefits), while PCE is seen up 1.0% m/m, with the focus on whether the jump in goods spending (as per the Retail Sales data), tempered services (leisure, hospitality, health care) spending. Outside of these, Durable Goods Orders are anticipated to see a drag on headline (exp. 0.2% m/m) from aircraft, but to continue to see solid gains in core measures (0.5% m/m), as signalled by manufacturing surveys, and perhaps also reflecting an element of ‘hoarding’ given supply chain bottlenecks. The first revision to Q3 GDP is expected to be modestly higher (2.2% SAAR vs. advance 2.0%) on the back of upward revisions to trade, inventories and construction output, but is now rather historical, above all given the upside surprise on early Q4 activity data in recent weeks. New Home Sales will likely remain very robust, and are seen unchanged at 800K, despite surging 14.0% m/m in September, while the Goods Trade Balance is expected to narrow very modestly to $-95.0 Bln after widening sharply the previous month, and implying a potential drag from net exports on Q4 GDP, though port disruptions give scope for an outlier.