- All eyes on Eurozone national CPI and GDP readings, as Israel Hamas war continues to cast a long shadow; digesting Australia sales; US Dallas Fed Manufacturing also ahead; Zoom, FMC, On Semiconductor and Tenet Healthcare headline modest run of US earnings
- Eurozone/EU: slightly smaller than expected German GDP contraction of little comfort given weakness in Sweden and Austria; Spanish and German CPI point to sizeable Eurozone downside miss
- BoJ: no change expected, array of risks suggest modest forecast tweaks, and no 10-yr yield cap tweak, but cannot be ruled out
EVENTS PREVIEW
The Israel Hamas War will continue to cast a very long shadow, as markets bed down for this week’s major central bank another busy week for earnings, with the day’s focus in statistical terms on national Eurozone readings on CPI (Germany & Spain) and Q3 GDP (Germany, Austria and Belgium), along with UK credit aggregates, Swedish monthly & Q3 GDP and EC Confidence surveys, with the US only having the Dallas Fed Manufacturing survey.
The run of European data thus far makes for better news in terms of inflation, but sends some ominous signals on the growth outlook, which question the general view that the looming recession will be shallow. A flat q/q reading for Swedish Q3 GDP missed expectations of a modest 0.3% q/q rebound, with September GDP falling 0.5% q/q, thus confirming very negative momentum going into Q4. Austria’s WIFO estimates that Q3 GDP contracted a further 0.6% q/q, after sliding a revised 0.8% q/q in Q2, confirming a rather sharper than expected recession. Germany at least reported a smaller than expected provisional 0.1% q/q contraction, with Q2 revised up to 0.1% q/q; the advance reading does not provide any deatils, but the statistics office noted Household Spending as the primary drag, and in y/y terms the contraction accelerated from -0.4% to -0.8%. Spanish HICP at 0.3% m/m 3.5% y/y was below forecasts 0.5%/3.8%, with the national core CPI dropping sharply to 5.2% from September’s 5.8% and expectations of 5.6%, while German state CPI readings at -0.1% or flat m/m were well below forecasts of 0.2% for national CPI, and suggest that HICP will also come in below a forecast of 0.1% m/m 3.3% y/y (vs. Septmeber 4.3% y/y), per se offering a further post hoc justification for the ECB halting its rate hike cycle.
Attention now turns to tomorrow’s BoJ rate decision, with no change expected in either its Call Rate or 10-yr JGB Yield targets, with many expecting the BoJ to exit its east monetary policy in early 2024, and some speculation about a further tweak to the 10-yr yield cap currently at 1.0%, given that with 10-yr yields already at 0.89%, further intervention to defend the cap will likely be necessary, per se expanding its balance sheet even further. CPI forecasts are expected to be adjusted up for both the current and next fiscal year (prior estimates 2.5% and 1.9%), but it is likely to warn that risks to the growth outlook have increased, above all due to the Israel Hamas war.
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