Tokyo CPI and US PCE Deflators contend with further rash of corporate earnings, headlined by ‘big oil’, as another turbulent week concludes, fractious EU summit, Russia rate decision also in view, as attention turns to next week’s BoJ, Fed and BoE policy meetings, PMIs and run of US labour data
Tokyo CPI: energy and services prices pace stronger than expected gains on headline and core, puts even more focus on next week’s BoJ forecasts, heightens concern over fresh YCC tweak
US PCE Deflators: stronger m/m gain expected, but base effects still seen edging y/y rates, likely to keep Fed in ‘wait, watch and see’ mode
EVENTS PREVIEW
The week ends with another busy run of earnings, which accompany the overnight Tokyo CPI, Australia PPI and Spain Q3 GDP readings, with Italian Confidence surveys, Ireland’s ever volatile GDP, and most importantly the deflators in the US Personal Income & PCE report, which was otherwise pre-empted by yesterday’s better than expected Q3 GDP. The events schedule is light with the second day of the EU Summit, the ECB’s Survey of Professional Forecasters, an expected 100 bps rate hike in Russia and a speech by Fed’s Barr which will not touch on monetary policy. given the usual purdah period ahead of next week’s FOMC meeting. The earnings run has the rush of China bank earnings, LG Electronics and Zijin Mining from Asia, a barrage of major energy earnings – Chevron, Equinor, Exxon Mobil, Philipps 66; along with Colgate-Palmolive, CBRE and Minas Gerais; that said it may be the better than expected Amazon and Intel results which rule the roost over the day, above all with US Treasury yields easing further.
The upside surprises on Japan’s Tokyo CPI, with energy driving headline up sharply to 3.3% from 2.8%, while ex-Fresh Food (2.7% y/y vs. expected 2.5%) and ex-Fresh Food & Energy slipped to 3.8% y/y from 3.9% were pressured by Services, will make for very uncomfortable reading for the BoJ ahead of its Monday/Tuesday policy meeting, and force an upward revision to its inflation forecasts. But the bigger question is whether it tweaks the 1.0% 10-yr JGB yield ceiling (yet again), as it faces a stark choice between continuing to defend that level and possibly intervening to stem JPY weakness, and expanding its balance sheet, and preparing for an exit from ultra- easy policy as it acknowledges that inflation may well be close to target in the medium-term. The recent easing of upward pressure on govt bond yields may offer it a short-term reprieve, and allow it to defer a decision to Q1 2024, when it will start to have a better picture on the next year’s potentially pivotal wage trends. in the meantime, today’s US PCE deflators will be closely watched, with the consensus looking for a 0.3% m/m increase for headline and core (vs. Aug 0.4% and 0.1%), which would see y/y rates dip to 3.4% and 3.7% respectively, and as such reinforcing the Fed’s ‘wait, watch and see’ and ‘high for longer narrative at next week’s meeting.
Next week’s busy schedule has month end, Fed, BoJ, BoE and Brazil BCB policy meetings, with Eurozone advance Q3 GDP and October CPI readings, ahead of the usual start of month run of Manufacturing & Services PMIs, US labour reports (JOLTS Job Openings, ADP and week ending Payrolls), UK credit aggregates and BRC Shop Prices, Japanese Industrial Production and Retail Sales among the statistical highlights, while Apple headlines the peaks week for US S&P 500 earnings. US PCE deflators will be closely watched, with the consensus looking for a 0.3% m/m increase for headline and core (vs. Aug 0.4% and 0.1%), which would see y/y rates dip to 3.4% and 3.7% respectively, and as such reinforcing the Fed’s ‘wait, watch and see’ and ‘high for longer narrative.
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