Macroeconomics: The Day Ahead for 23 November

The day’s statistical schedule is all about the G7/Australia ‘flash’ PMIs, with little else on the schedule other than the rarely market moving US Richmond Fed surveys, while the central bank speaker schedule features BoE’s Haskel, ECB’s de Guindos and BoC’s Beaudry. A much busier day for corporate earnings has results from Xiaomi and Xpeng, along with Dell, Dollar Tree, Gap, HP and Nordstrom, while the govt bond sale schedule has Dutch 8 yr and US 7-yr auctions, and the syndicated sale of a new UK 2073 I-L Gilt. Market trading volumes and activity does appear to be showing signs of moving into holiday season mode, which is likely to heighten the risk of spikey bouts of volatility. Overall sentiment (for which Crude Oil futures appears to be the best proxy currently) is clearly in thrall to European govt measures to contain the surge in infection rates, and will likely remain so until high frequency data can shed some light on the actual impact on activity. While equity markets continue to show little sign of purging its Pavlovian ‘buy the dip’ mentality, the continued gradual shift higher in in govt bond yields is pressuring credit spreads wider (see chart), and requires careful monitoring, given the generally quite solid correlation between HY spreads and the performance of the S&P 500.

G7- November ‘flash’ PMIs

The consensus for US ‘flash’ PMIs looks for a pick-up on both Manufacturing and Services, in contrast to the UK and Eurozone, which were forecast to decelerate modestly across the board, even if remaining at solid levels in historical terms. In the event, while German Manufacturing activity continued to decelerate very modestly (57.6 vs. f’cast 56.9, oct 57.8), it was better than expected, with Services unexpectedly rebounding, and both French PMIs also rising against expectations of a fall, even if some caution is required given that the surveys will only likely to capture reaction to restrictions and lockdown measures in December. Be that as it may, and as has been the case with a wide array of US data, the reports defy the downbeat view on Eurozone activity levels. In all case, the focus will above all be on Prices Paid and Received, along with Orders and Supplier Deliveries, wherein the word to the wise on the latter is not to jump all over any small drops as signalling an easing of supply chain disruptions, as been the case on too many occasions. Then again that is what happens when reaction is determined by headline readings algos that are in many cases at the caveman stage of so called AI.