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Macroeconomics: The Day Ahead for 22 November

  • UK Autumn Budget Statement, Dutch elections accompany UK CBI Industrial Trends, US Durable Goods Orders and Eurozone Consumer Confidence as FOMC minutes, Nvidia results digested; Deere tops earnings; German 12 & 15-yr
  • UK Autumn Statement: National Insurance and Inheritance tax cuts mooted; but fiscal headroom very limited; unlikely to be electoral or economic game changer
  • US FOMC minutes: clear message, emergent ‘two-sided’ risks to outlook to cap rates, but warning inflation battle not won to preserve ‘high for longer’ narrative
  • US Durable Goods: aircraft to swing from boost to drag; core measures expected to eke out further modest gain

EVENTS PREVIEW

As US markets close early ahead of the Thanksgiving holiday, there is a relatively light run of data, a smattering of central bank speakers, and most significantly the UK Autumn Budget Statement and the very tightly contested general election in the Netherlands, and there is also a joint German/Italian Cabinet meeting. Statistically, the UK CBI Industrial Trends lies ahead along with US Durable Goods, weekly Jobless Claims and final Michigan Sentiment, and advance Eurozone Consumer Confidence. Deere & Co and VMware headline a small run of corporate earnings, while Germany sells 12 & 15-yr Bunds.

** U.K. ** 

Despite the slightly than expected PSNB data yesterday, it is highly doubtful that UK Chancellor Hunt can offer anything in the way of tax cuts, outside of some tweaks to National Insurance and inheritance tax, at today’s Autumn (budget) Statement, as there is little or nothing in the way of fiscal ‘headroom’, and possibly even less if the OBR were to modestly reduce its estimate of the UK’s potential growth rate (which it has consistently overestimated). Measures to stimulate growth will likely be fiscally neutral (primarily extending existing measures such as 100% expensing of business investment spending, and largely a case of smoke and mirrors ‘tinkering’, with the idea of departmental spending cuts to finance tax cuts being anything other than a cause for outrage given the pace of inflation, even if the hallmark of successive UK governments in the past 25 years has been to be exemplary in their fecklessness. Beware the age-old trick of touting what is being given with one hand, and burying what is being taken away in the fine print of the detailed release.

** U.S.A. ** 

In terms of yesterday’s FOMC minutes, two messages were very clear: the bar to a further rate hike has clearly been lifted with the risks to the economic outlook described as ‘more two-sided’; but there was no change in the commitment to ‘high for longer’, the latter predicated on the view that ‘progress toward the Committee’s inflation objective was insufficient’. The loosening of US financial conditions (see chart) only reinforces ‘higher for longer’, and the Fed will continue to keep a sharp focus on 10-yr real yields as a quasi-proxy guide for ‘sufficiently restrictive’. Today’s Durable Goods are forecast to decline 3.2% m/m on the back of aircraft orders (reversing the aircraft orders led surge in September), but continue to post modest core Orders gains, while weekly jobless claims are expected to slip to 227K from a 3-month high of 231K last week, but they de facto remain very low on any historical comparison.

GS US Financial Conditions Index

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