Macroeconomics: The Day Ahead for 22 September

After Thursday’s central bank jamboree, the week ends with the no change BoJ policy meeting to digest, G7 ‘flash’ PMI, Japan’s national CPI and a hotch potch of UK reports: Retail Sales, GfK Consumer Confidence and CBI Industrial Trends surveys; with Mexican CPI and Canadian Retail Sales also on tap. There will also be a good number of central bank speakers, as markets start to grapple with likely quite divergent versions of ‘high for longer’ narratives, and the extent to which such divergences will drive volatility in FX cross rates. The question on the follow is not so much which DM central bank will cut first, but which one might be forced into a further rate hike, above all if the rise in wholesale energy prices prompts a rebound in inflation, which most if not all will obviously not want to term as ‘transitory’. While there had been some speculation that the BoJ might opt for a slightly more hawkish narrative on the policy outlook, given the continued pressure on the JPY and the recent Ueda comments on FX, in the end both the statement and Ueda’s press conference were a case of ‘move along, nothing to see here’, with Ueda merely observing that the ‘distance to ending negative rates has not changed much’.

Forecasters expect Manufacturing PMIs in the Eurozone and UK to remain firmly in contraction territory, but to edge up marginally from August levels, with Services readings seen little changed and also signalling contraction, though more modest. The initial results from France were particularly poor – Manufacturing 43.6 vs. expected 46.1, and Services 43.9 vs. expected 46.0, thus putting paid to any optimism prompted by the uptick seen in yesterday’s Business Confidence survey. The rebound in the German Services PMI to 49.8, looks to be more a reactive correction after the exaggerated August collapse to 47.3 from July’s 52.3, while Manufacturing remains deep in contractionary territory despite picking up from 39.1 to 39.8. Overall this still points to the Euro area slipping into recession in H2, as the summer holiday season boost fades. US Manufacturing is also seen contracting modestly, while Services remain just about in expansion, which would again underline the continued outperformace of the US economy above all relative to Europe.

** U.K. – August Retail Sales, September GfK Consumer Confidence **
– The rebound in Retail Sales after July’s poor weather related slide was tepid at 0.4% m/m, paced mainly by food and clothing, though the ex-Auto Fuel bounce of 0.6% was more encouraging, but the 3-mth annualized pace at -0.4% remains negative. GfK Consumer Confidence rose again to -21 against expectations of a marginal drop to -26, putting the index at its highest level since January 2022, and gradually approaching the longer term average of -10, with the Major Purchases Climate and 1-yr economy expectations both climbing. Overall it suggests private consumption is holding up relatively well in the face of the economic headwinds, but in trend terms doing little more than flatlining, which is also likely to be the message from the flash PMIs.