- PMIs, FOMC meeting and busy run of US data dominate All Saints Day schedule; digesting weak/weaker Asia PMIs, South Korea Trade turnaround, unexpected jump in UK House Prices; US ADP Employment, JOLTS, Auto Sales and Construction Spending, Brazil rate decision ahead; busy run of corporate earnings, UK and German debt auctions; EIA oil inventories
- Manufacturing PMIs: pervasive weakness in Asia; Ireland and Netherlands echo weakness in Eurozone flash PMIs, UK also seen contracting; US ISM seen little changed, flatlining
- Fed expected to hold rates, retain tightening bias, may tweak inflation and labour market language; Powell comments on ‘term premium’ in focus
- USA: ADP seen rebounding, JOLTS expected to ease but stay high, Auto Sales to hold at solid levels, Construction Spending likely to see continued support from CHIPS and IRA measures
EVENTS PREVIEW
The All Saints Day holiday will thin trading in Europe as the new month gets underway, with the FOMC meeting and usual array of Manufacturing PMIs/ISM as the headline items, accompanied by South Korean Trade and UK Nationwide House Prices, US ADP Employment, JOLTS Job Openings, Auto Sales and Construction Spending. Brazil’s BCB is expected to cut rates a further 50 bps to 12.25%, while the US Treasury will announce its quarterly refunding schedule, after it announced on Monday that Q4 borrowing will total $776 Bln, ($76 Bln less than it expected in July) which offered some relief to the beleaguered Treasury market, but today much depends on how much coupon auction sizes are increased, above all for long-dated maturities, which have obviously paced the rise in the ‘term premium’. US corporate earnings are plentiful, with AIG, Albemarle, CVS Health, Estee Lauder, Marathon Oil, MetLife, Mondelez, Qualcomm and Zillow likely to be among the highlights. The sheer unfathomable horror of the Israel Hamas War continues to cast a very long shadow, but for the time being oil markets are assuming less risk of a widening conflict and potential for supply disruption, with the rise in response to the initial attack now almost completely unwound (see chart), with the focus turning to the weekly EIA inventories today, after last night’s API report showed a 1.35 Mln build in inventories, though products saw a further drawdown: Gasoline -357K and Distillates -2.484 Mln.
** World – Oct Manufacturing PMIs/ISM **
The overnight run of Asian PMIs were downbeat, with China’s Caixin PMI dropping unexpectedly to 49.5 (vs. f’cast 50.8) echoing the official NBS PMI, and only India and Indonesia registering readings above 50.0, whereby India’s PMI dropped to 55.5 from 57.5, the weakest reading since February. Many Eurozone readings will not be published until tomorrow due to the All Saints Day holiday, but readings from Ireland and Netherlands confirm what was already seen in the ‘flash’ readings, and the UK reading is seen unrevised at 45.2. The US Manufacturing ISM is expected to be unchanged at 49.0, with Prices Paid and New Orders somewhat higher, but Employment lower.
** U.S.A. – FOMC Meeting **
The Fed is expected again to hold rates at 5.25%-5.50%, but still leave the door open for a further rates hike. The statement will acknowledge the strength of Q3 GDP, but likely note the array of risks to the outlook. Of particular note will be any nuanced changes to the descriptions of employment and inflation, potentially seeing labour demand described as solid or robust as against the prior ‘slowed in recent months’, while noting that inflation remains above the Fed’s target, as against ‘elevated’ in recent statements. There will be no updated forecasts or ‘dot plot’, but the statement and Powell will stick to the ‘wait, watch and see’ mantra, and after the higher than expected Q3 Employment Cost Index (1.1% q/q vs. expected/prior 1.0%) note that ongoing wage pressures remain a risk to the inflation outlook, while also acknowledging that y/y rates continue to ease. Markets will be focussed on what is said about the rise in long-term bond yields, and the extent to which Powell acknowledges that the rise in the ‘term premium’ obviates the need for further rate hike(s), while perhaps countering this with the observation that it remains unclear whether rates are ‘sufficiently restrictive’ to bring inflation back to target in a timely manner.
** U.S.A. – ADP Employment, JOLTS Job Openings, Construction Spending & Auto Sales **
As was again amply demonstrated in September’s report, the ADP report is a very poor predictor of Payrolls, and expected to rebound from 89K to 150K, with markets likely to focus more on JOLTS Job Openings, which are seen falling to a still very robust 9.265 Mln after an unexpected jump in August to 9.61 Mln from July’s recent low of 8.92 Mln. As with yesterday’s ECI, and the low level of weekly jobless claims, the underlying picture of the labour market remains one of still very solid labour demand, leaving aside the more complex aspect of continued skills mismatches. Construction Spending is seen posting another solid gain of 0.4% m/m (vs. Aug 0.5%), with continued strength in Power (last 55.0% y/y) and Manufacturing (65.9% y/y) construction, underpinned by the CHIPS and IRA tax credits. Despite the now ended UAW strike, Auto Sales are expected to be little changed at a 15.6 Mln SAAR pace as against September’s 15.67 Mln, with some industry analytical services suggesting a slightly higher pace of 15.8 Mln, as continued pent-up post-Covid demand continues to underpin sales.
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