Macroeconomics: The Day Ahead – 30 September 2020

Good Morning: The Long & the Short of it and The Bigger Picture

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

  • Deluge of statistics and ECB conference dominates schedule as acrimonious  presidential TV debate is mulled; China PMIs, Japan Production and Retail  Sales, German & French spending, UK GDP revision to digest; Italy & South  Africa CPI, US ADP and Chicago PMI ahead; BoE, Fed and Riksbank speakers;  German and Canada debt auctions; month / quarter end to subdue activity
  • China PMIs suggest continued solid recovery momentum; Services likely to  get further boost from Golden Week; strength in Manufacturing Orders  worth noting
  • Eurozone: better than expected German Retail Sales and French Consumer  Spending encouraging…. perhaps getting boost from weak, negative CPI?
  • ECB conference likely to highlight renewed north/south, hawk/dove  divisions over policy outlook
  • US ADP Employment: seen picking up from weak August, details on trends in hiring by company size of most interest


The Day & Week Ahead

A rather tempestuous Q3 draws to an end, and as is often the case at month end, the data schedule is akin to a flood. Much of this may be overlooked and/or ignored outside of the overnight China PMIs, Japan monthly activity data & French HICP and upcoming US ADP Employment, Chicago PMI and Canada monthly GDP, given some typical month/quarter end stasis and the ongoing overhang of political risk events, as was well evidenced by the non-reaction to the much better than expected US Consumer Confidence. In event terms, there is the overnight US Presidential TV debate to consider, while ahead lies a deluge of ECB speakers (mostly at the annual ‘ECB and its Watchers’ conference), with plenty of Fed, BoE and Riksbank speakers also on tap. A quieter day for bond sales, with German selling 5-yr and Canada 2-yr. BoE’s Haldane’s speech will be primarily watched for any comments on the possibility of negative rates, with governor Bailey yesterday setting a relatively high bar (sharp Q4 downturn) for further policy action, and emphasizing that there remains a lot of technical work to be done if negative rates were to be implemented, and implying that the BoE is unlikely to be in a position to deploy negative rates any time soon. It will also be interesting to see if Haldane remains optimistic about the strength of the upturn.

The Presidential debate turned out to be a slagging match, which very unsurprisingly offered little in the way fo fresh insight to either candidates policies, and the pugnacious tone will only serve to harden supporter views, and do nothing to change or form the opinions of the undecided.

In terms of the overnight data run, Japan’s Retail Sales were notably better than expected in m/m terms at 4.6% vs. forecast 2.0%, they remain somewhat lower than a year ago at -1.9% (Jul -2.9%), underscoring the impression of a slow recovery above all in Consumer Spending. By contrast as China heads into its ‘Golden Week’ holiday (re-opening 9 October), its PMIs were better than across the board, most notably Services NBS PMI at 55.9 vs. prior 55.2, with further improvement likely in October thanks to the holiday, if high frequency data indicating a surge in airline and rail bookings for the holiday period are anything to go by. Also notable on the Manufacturing side was the jump in both New Orders (best since January 2011) and New Export Orders (best reading for 3 years), the latter suggesting that the early Q3 bounce was not just a function of a pent-up demand catch-up after lockdown measures were eased in Europe and North America. But it is still likely that the recovery in China will prove less beneficial to the global economy than prior recoveries, as it focuses on boosting domestic demand and greater self-sufficiency. German Retail Sales data are notoriously unreliable and subject to often huge revisions, but the 3.1% m.m jump (vs. forecast 0.4%) coming along ide the better than expected French Consumer Spending at 2.3% m/m does imply a stronger recovery in personal consumption, though with inflation readings for both in negative territory, one is reminded of Draghi’s quip from 2013 ‘with low inflation, you can buy more stuff’… even if he clearly did not mean disinflation or deflation.


Eurozone – ECB and its Watchers Conference

– The day’s run of ECB speakers (there are more tomorrow at another ECB hosted conference) will offer some insight into how much the rift between the hawks and doves has re-opened, undoing much of the work Lagarde had done to heal the divisions that Draghi’s final easing package had provoked. It is as such unsurprising that the September policy message was ‘wait and see’, effectively a compromise between the likes of Weidmann warning that asset purchases must not become permanent and must be unwound, and Mersch suggesting that given current data, there may be no need to exhaust of the PEPP QE, while on the other side there are the likes of Panetta suggesting that the ECB should take further steps very soon given the low level of inflation (more than well evidenced by yesterday’s downside miss on German HICP and today’s French HICP).


U.S.A. – Sept ADP Employment

– If the ADP data was an unreliable predictor of Private Payrolls ahead of the pandemic, it now appears to be largely dissociated; it is forecast to rebound modestly to 625K from August’s 428K (compared to Private Payrolls at 1.027 Mln). However the breakdown in terms of employment by company size remains a useful insight into trends, and unsurprisingly showing weak growth in small company employment (which has a hefty of proportion of restaurants, bars and other many recreation & leisure companies), whereas large (>500 plus employees) were hiring at double the pace of small. That said, the overnight news that Disney plans to lay off 28,000 staff at its parks serves a reminder that the protracted restrictions on movement and social distancing measures is taking its toll on even the largest companies in the services sector.

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