Macroeconomics: The Week Ahead: 15 to 19 November 2021

The new week starts off with a bang statistically and is something of a blockbuster week for data overall, even if markets remain rather more in thrall to the dovish pronouncements of major central bankers, in what can only be described as self-interest, and very much blithe to the real (as opposed to financial) economy realities, despite the volatility in commodity, energy and related freight markets. There will also be a deluge of central bank speakers, a virtual meeting of the US and Chinese presidents (following on from their role in cobbling together the UN COP26 agreement), a more modest run of corporate earnings dominated by some of the world’s largest retailers, numerous monthly commodity market reports as well as a slew of major commodity & energy conferences. It will also be a fairly busy week for govt bond supply: US 20 & TIPS 10-yr, German 30-yr, French medium-term conventionals and I-L, with Spain and Finland also holding multi-tranche sales, while the Uk sells 25-yr and Japan offers 5 & 20-yr, and there is also the annual Fed et al US Treasury Market Conference

Monday kicks off with China’s run of monthly activity data, which are largely expected to slow modestly from September’s pace, with Retail Sales seen at 3.8% y/y from 4.4%, and perhaps getting a bigger than expected boost from autos and the Golden Week holiday. Industrial Production is forecast to edge lower to 3.0% y/y from 3.1%, with falling Steel output still a major drag along with construction, but utilities and by extension broader manufacturing should recover a little after the September power shortages. But FAI and Property Investment are seen slowing sharply to 6.2% y/y (from 7.3%) and 7.8% y/y (vs 8.8%) respectively, as property developer woes continue to bite. Japan’s Q3 GDP is likely to confirm all the anecdotal evidence and post a relatively modest (given the numerous headwinds from extended lockdowns and supply chain bottlenecks to CapEx, Private Consumption and Exports) decline of 0.2% q/q (vs. Q2 +0.5%), with the risks looking to be to the downside. The same factors suggest that the expected 1.7% m/m rebound in Private Machinery Orders (due Wednesday) may prove to be rather optimistic, with another negative reading possible, while Exports are seen slowing to 10.5% y/y, with Imports forecast to rise 31.9% y/y, above all due to higher energy prices, as well as a softer JPY and weaker demand from China. But ultimately all of these indicators are unlikely to change views that Chinese authorities are unwilling to opt for any further substantial fiscal and/or monetary stimulus, while there is rightly a good deal of scepticism about whether Japan Kishida’s big spending plans will deliver anything more than Abe- & Kuroda-nomics have achieved.

Retail Sales will be the headline item of a busy run of US statistics, with a modest recovery in Auto Sales and higher gasoline prices seen pacing a headline increase of 1.3% and an ex-Autos gain of 1.0%, while the core ‘control group’ measure forecast to rise 0.9% m/m. But as this is a value not a volume measure, and with last week’s 0.9% m/m headline and 0.6% m/m core rise in CPI ringing in everyone’s ears, the simple point that much of these optically strong expected gains will be price rather demand related. Industrial Production is forecast to bounce back 0.8% m/m after and unexpectedly sharp 1.3% m/m drop in September, on the back of storm and supply chain disruptions, as well a normalization in utilities output. The various regional Fed (PNY, Philly and KC) manufacturing surveys are expected to be little changed or slightly higher than October readings, and still pointing to a robust pace of activity in the sector, the NAHB’s Housing Market Index is also seen unchanged at a very strong 80.

In the UK, the lifting of energy regulator OFGEM’s price cap (exacerbated by adverse base effects) and to a lesser extent rising petrol prices are likely to be the key contributors to a 0.8% m/m jump in CPI that would see the y/y vault higher to 3.9% from 3.1%, with further increases to around 5.0% y/y anticipated in the period through to the end of Q1. Anything higher than expected would doubtless harden market rate pricing, which is once again anticipating a rate hike in December. That said, the MPC wanted more evidence on the labour market following the end of the furlough scheme, which this week’s run of labour data (mostly September, with some indications on October) will not really provide. A further slip in the Sep/Q3 Unemployment Rate to 4.4% from 4.5% is expected, with Employment expected to post a solid 190K rise, though the more timely Oct HMRC payrolls data will be of more interest. Base effects will weigh on Average Weekly Earnings, which are seen slowing to 5.0% y/y ex-Bonus vs. prior 6.0%. Last but not least, the week ends with Retail Sales seen rebounding 0.6% m/m ex-Auto Fuel, after falling 0.6% m/m in September, the question is how much a return to office work gives a boost to clothing and lunchtime spending, and perhaps early Christmas shopping (trying to beat potential supply shortages), as consumers shift their spending to non-retail leisure and hospitality activities as restrictions have bene lifted. A close eye needs to be kept on larger ticket durables spending, both in the Retail Sales data and the GfK Consumer Confidence survey, which is expected to dip again to -18 from -17 as the inflation pressure on incomes starts to bite.

Elsewhere Australia’s Q3 Wage Price index is expected to pick up to 0.6% q/q and 2.2% y/y vs. Q2 0.4%/1.7%, but remain at levels which the RBA considers sub-optimal in terms of monetary policy. By contrast with the US, Canada’s CPI is expected to post a largely energy related rise of 0.7% m/m to push the y/y rate up to 4.7% from 4.4%, but core CPI measures are expected to be unchanged or up 0.1 ppt in y/y terms relative to September. Canada also has Manufacturing and Retail Sales, Teranet House Prices and Housing Starts.

On the central bank front, Fed, ECB and to a lesser extent BoE speakers will be out in full force this week, though it is doubtful that any of this cacophony will offer any substantive changes in narratives, with the minutes of the RBA’s November policy meeting also due. in the EM space, the focus will again be on how much Turkey’s TCMB will continue to bow to political pressure, with the consensus looking for a further 100 bps cut to 15.0%, following the 300 bps of cuts at the two preceding meetings. As a reminder, October CPI posted a higher than expected rise of 20.35% y/y, while core CPI edge down to 16.82% (vs. 16.98%), per se the expected cut will push real rates even further into negative territory, with a weak TRY and higher oil prices likely to offset much of the previously anticipated benefits of what should have been benign base effects. Hungary’s MNB is expected to revert to a faster pace of still gradual rate hikes (above all compared to Czechia’s CNB and Poland’s NBP) with a 30 bps hike to 2.1%, while an overheated housing market will likely prompt a further 25 bps hike to 1.7% from Iceland’s Sedlabanki. By contrast both Bank Indonesia (3.50%) and Philippines BSP (2.0%) are likely to hold rates, with the former still looking at very benign inflation (1.66% y/y), and the latter likely to take some comfort from some easing in CPI (4.6% y/y vs. 4.8%), above all given the rise in Unemployment to 8.9%, and despite the better than expected Q3 GDP (7.1% y/y vs. forecast 4.9%).

In the commodity space, freight rates will remain a major talking point after the spectacular falls in freight indices, after an equally impressive surge, with all the indications suggesting that the ‘paper’ derivatives tail has contributed very heavily to the fall, and underlining that the boost to market liquidity from greater financial sector participation is very much a double edged sword. In report terms, there are the EIA’s Drilling Productivity, International Grains Council monthly, Sugar data from the USDA FAS and Brazil’s Unica amongst others. A busy week for major conferences has ADIPEC (Abu Dhabi International Petroleum Exhibition and Conference), Singapore’s Agri-Food Week, RBC Mining and Materials, Global Grain, China Global Low-Carbon Metallurgical Innovation Forum, along with Bloomberg New Economy Forum.

While Japan and South Korea see a busy week for major corporate earnings, it is, as noted, Retailers that dominate the overall schedule. Bloomberg News highlight the following as likely to be among the headline makers: Alibaba, Applied Materials, Baidu, Cisco, Gazprom, Home Depot, JD.com, Lowe’s, Mitsubishi UFJ Financial, Nvidia, Target, TJX, Tokio Marine, Tyson Foods, Vodafone and Walmart.