- Data bonanza dominates schedule: digesting UK inflation, China liquidity# boost, activity and property sector indicators, Japan Q3 GDP and# Australia wages; awaiting Eurozone Production and Trade, US Retail Sales,# PPI, NY Fed Manufacturing and Business Inventories; smattering of central# bank speakers, UK 20 yr, German 30 yr, busier day for corporate earnings
- UK CPI: utility prices pace expected sharp fall in headline; core and# Services CPI fall modest, underlining still very long path back to 2.0%
- China: larger than expected PBOC liquidity injection more testament to# last week’s money rates surge; Retail Sales jump to be welcomed, but# heavily flattered by base effects; steeper decline in Property Investment# and Sales imply mortgage rules changes having minimal impact
- Japan Q3 GDP highlights domestic and external demand weakness, likely# to reinforce BoJ resistance to full exit from ultra-easy policy
- US Retail Sales: autos and gas price to weigh on headline, core measures# seen eking out small gain; anecdotal evidence offers conflicting signals;# PPI set to echo CPI, signal minimal pipeline pressures, but also suggest# downward inflation momentum fading##
EVENTS PREVIEW
A veritable statistical bonanza from around the world awaits, accompanied by a smattering of central bank speakers and corporate earnings headlined by Tencent, Siemens Energy, SSE and TJX. There are Japan’s Q3 GDP, China’s monthly activity & property sector data, the PBOC’s 1-yr MTRL operation, Australian Wages, UK CPI and PPI to digest, while ahead lie Eurozone Industrial Production and Trade, US Retail Sales, PPI, NY Fed Manufacturing & Business Inventories. The UK will reopen its 20-yr benchmark Gilt via Syndication, while Germany auctions 30-yr. In the commodities space the EIA publishes its weekly oil inventories after yesterday’s IEA monthly report underlined that supply dynamics are a good deal better than had been expected, mainly thanks to non-OPEC output. Two of this week’s major commodity conferences also get under way: CRU World Copper Asia and Goldman Sachs Global Metals & Mining. As can be seen from the attached charts markets have now priced out any risk of a further Fed rate hike, and while US Treasury yields again fell very sharply, some caution is required both from the aspect that this loosening of financial conditions will not be welcomed by the Fed, and just as importantly may to a large extent represent a further rush to cover record levels of Treasury shorts in what remains a market with thin underlying liquidity.
** U.K. – October CPI, PPI **
– The slightly larger than expected fall in yr/yr CPI rate to 4.6% had been very flagged by the BOE, and was primarily paced by a -0.25 ppt contribution from household utility bills, though a nearly flat contribution from Food (0.02 ppt) also helped, along with the drop in road fuel. There were smaller falls in Core CPI and Services to 5.7% and 6.6% y/y from September’s 6.1% and 6.9%, and as BoE Chief Economist Pill noted yesterday inflation remain “much too high”. The data serve to confirm that the path back to 2.0% is going to be a long and arduous one, and that BoE rates will remain at current levels for a protracted period. Markets will likely be more focussed on the bellicose comments from sacked Home Secretary Braverman yesterday, in what looks like all out civil war in the ruling Conservative party; it remains to be seen if the right wing of the party opts for US Republican party Freedom Caucus type tactics of obstructing legislation in order to undermine PM Sunak.
** China – 1-yr MTLF, Oct Retail Sales, Industrial Production, FAI & Property Investment **
– The very large CNY 600 Bln net injection at the monthly 1-yr MTLF operation will be welcomed by markets as a sign of additional stimulus measures, but it also follows last week’s surge in term money rates, which highlighted just how problematic market liquidity headwinds have become; a further cut in Reserve Requirement Ratios seems more than likely, while the lack of a rate cut at today’s operation suggests concerns about the weakness of the CNY remain. Be that as it may, the better than expected jump in Retail Sales to 7.6% y/y was paced by strength in auto and restaurant sales, but very much flattered by base effects from last year’s lockdowns, while Industrial Production was in line with forecasts at 4.6% y/y. Property sector woes are for choice deepening, with the fall in Property Investment accelerating to -9.3% y/y, which in turn accounts for the weaker than expected 2.9% y/y rise in Fixed Asset Investment, and the sharper decline in Property Sales (-3.7% y/y vs. Sept -3.2%) suggests the relaxation in mortgage rules has done little to ‘stop the rot’ in the sector.
** Japan – Q3 GDP **
– The much larger than expected -0.5% q/q fall in GDP was paced by continued inflation related weakness in Personal Consumption (flat q/q after a downwardly revised -0.9% q/q in Q2), a drop of -0.6% in Business Capex against expectations of +0.1% q/q, with Inventories deducting 0.3 ppt and Net Exports deducting 0.1 ppt, as the Q2 exports boost from autos and tourism faded rapidly. The data paints a very downbeat picture of both domestic and external demand, and per se will only reinforce the BoJ’s well documented reticence to fully exit its ultra-easy policy stance, while also suggesting that with so little growth momentum, Q4 GDP may well also contract.
** U.S.A. – Oct Retail Sales & PPI, Nov NY Fed Manufacturing **
– Yesterday’s slightly weaker than expected CPI data put the wind back in the sails of bond and equity market bulls, with a sharper than expected fall in used car prices, a sharp reversal (-2.5% m/m) in ‘Shelter away from home (i.e. hotels), adding to the downward drag from energy (above all gasoline and airfares) prices, and less upward pressure from housing (OER) being key contributors. But at 3.2% y/y and 4.0% y/y on headline and core, and with Services CPI rising 5.1% y/y and at 5.2% 3-mth annualized, it basically suggests that rates are ‘sufficiently restrictive’, but is a far cry from suggesting the inflation battle has largely been won. For today forecasts for m/m PPI readings (0.1% and 0.3%) echo those for CPI, and while this would again confirm a lack of pipeline pressures, it also implies the downward momentum in inflation has largely dissipated. As for Retail Sales, anecdotal evidence suggests that after a strong rise in Q3 Personal Consumption, lower income households have heavily reined in spending in Q4, even if the expected -0.3% m/m headline drop will be paced by new auto and gasoline (price dictated in part) sales, with the ex-Autos & Gas and the core ‘Control group’ measures seen up 0.2%. That said travel and event ticket bookings companies are suggesting a very limited drop in demand.
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