The Week Ahead

During the US holiday shortened week ahead, US retail sales and corporate earnings will be scrutinised for more clues on the health of the economy. On Tuesday eurozone industrial production, Germany’s ZEW survey expectations, UK employment data and US Empire manufacturing will attract market focus. UK CPI takes centre stage on Wednesday. Eurozone CPI and the ECB’s rate decisions will garner market interest - the ECB is widely expected to cut rates - and later we have US retail sales, jobless claims, industrial production prints. China GDP will be of key interest on Friday, as will the nation’s industrial production and home prices readings. Japan CPI, UK retail sales and US housing starts are also due on Friday. This week we will hear from the Fed’s Waller, BoE’s Dhingra and ECB’s Galhau later today, and the Fed’s Daly speaks on Tuesday.  

A mixed week for asset classes saw the 10-year US Treasury yield rise 13 bps to 4.10%. Meanwhile, solid bank earnings supported equity markets, and the S&P Index soared 1.11% to an all-time high. The dollar, measured by the DXY Index, rose 0.36%, boosted by higher-than-expected inflation data. Oil gained a further 1.27% last week, closing at $79.04pb amid supply distributions given heightened geopolitics.  

The key focus was on US inflation, CPI marginally surprised to the upside in September with the headline and core prints rising 2.4%yoy and 3.3%yoy, respectively. Real average hourly earnings also overshot expectations at 1.5%yoy. The Fed’s Williams said he expects it will be appropriate to “continue the process of moving the stance of monetary policy to a more neutral setting over time.” Meanwhile his more hawkish counterpart Bostic said he is willing to skip a meeting if underlying data suggests as much. We then had relatively benign US PPI readings on Friday. The ex. trade, transportation and warehousing reading feeds into the Fed’s favoured core PCE deflator reading. At 4.1%yoy it was the lowest reading since February, however it remains sticky. As a reference, the Cleveland Fed’s Nowcast model is forecasting a headline September PCE at 2.1% (from 2.2%). The week ended with the Uni. of Michigan sentiment falling below expectations, while the 1-year inflation forecast accelerated to 2.9% and the 5-10-year inflation expectations eased to 3.0%. 

This morning China’s trade data underwhelmed with exports missing expectations for a 6.0%yoy rise, coming in at 2.4%yoy as global demand cooled. Imports also disappointed at +0.3% (exp. 0.8%). Over the weekend deflation pressures in China mounted as PPI fell at its fastest pace in six months, down 2.8%yoy in September, and CPI unexpectedly eased to 0.4%yoy, versus expectations for 0.6%yoy. At the same time, China's Ministry of Finance signalled a strong commitment to tackling deflation and supporting economic growth through increased fiscal measures. The press conference highlighted four major initiatives: a large-scale debt restructuring for local governments, special bond issuance to bolster state-owned banks' capital, the use of special bonds and other tools to stabilise the property market and expanded student aid for higher education. Whilst specific figures weren't disclosed, the overall tone suggested substantial fiscal support. The Ministry also indicated significant room for increased central government borrowing and a higher fiscal deficit.