Macroeconomics: The Week Ahead: 13 Sep to 17 Sep 2021

It will be a busy week for major data out of the US, China, UK and Japan, as markets attempt to grapple with a continued rise in infection rates thanks to the delta variant, some questions about vaccine efficacy, and some fairly obvious signs that supply chain disruptions will persist well into 2022. While it is clear that the world will have to find a way to live with the pandemic, the political fraternity continue to focus on a ‘holy grail’ return to an old normal, which is pretty much precluded by the shock that the pandemic has delivered, above all economically and psychologically. There is some danger of an inflection point being reached, where the hopes and optimism of businesses and consumers wither away, undermined by the back and forth between opening up and the imposition of restrictions. The fact is that there is little spirit of political co-operation in the world amid so many bilateral and multilateral tensions, and by extension countries and regional groupings are often working at cross purposes. This ‘G zero’ moment for global politics was a work in progress that pre-dates the pandemic, and like so much else has only been accelerated by the pandemic… sadly.

On the central banking front, the Fed goes into its ‘purdah’ period ahead of next week’s FOMC meeting, though there will be plenty of ECB, BoE and RBA speakers. There are a good number of EM central bank meetings in Africa, as well as central Asia, where further rate hikes seem likely, as inflation pressures mount, and also due to spill-over effects from the aggressive policy tightening in Russia.

On the political agenda, parliamentary elections in Norway and Russia bookend the week, with the California ‘recall’ election on Tuesday, while the September 26 German elections draw ever closer – see https://cfuat.admisi.com/macro-insights-merkel-legacy-ii-un-ordnungspolitik/ for some thoughts on that topic. The incoherent policies of the UK government, above all in respect of the large array of supply chain disruptions, above all in transport, agri-food and staffing, are clearly starting to see a perhaps overdue drop in support. It should be added that this phenomenon of rising public dissatisfaction is anything but unique to the UK, either in Europe or the rest of the world, however the decision to raise taxes to provide a much needed boost to social care funding has clearly exacerbated it. Last but certainly not least, the increasing gridlock in Congress in getting the infrastructure spending bills passed, and also raising the debt ceiling, will also be getting ever more attention.

The corporate earnings schedule will remain light, while the UK and Eurozone (Germany, France, Italy, Spain and Netherlands) dominate the govt bond auction calendar, with no coupon supply in the US this week. An eye will also need to be kept on China with CNY 90 Bln of govt supply and, more importantly a whopping CNY 223 Bln of municipal issuance on tap, as well as on Investment Grade corporate bond issuance, after a bumper $81.0 Bn of USD IG supply last week.

In the commodity space, the OPEC and IEA monthly oil market reports will be closely watched, with the OPEC report also set to address the longer-term evolution of supply and demand for oil in the context of climate change related measures. Skyrocketing UK and European Power and Natural Gas prices will continue to be a major talking point, above all as it highlights that renewables and power grid capacity will need a major upgrade if the region is to get anywhere close to the emission cut targets that it has set. There are crop reports in France (Agricultural Ministry & Agrimer) and Australia (Abares), as well as Unica’s cane crush and sugar output report, with a raft of conferences also scheduled – e.g. Denver Gold Forum, Las Vegas MINExpo mining conference and UBS Global Energy Transition.

As far as the economic agenda goes, the focus in the US will be on CPI and Retail Sales, with Industrial Production, NFIB, NY and Philly Fed Manufacturing and preliminary Michigan Sentiment also on tap. Headline (0.4% m/m 5.3% y/y) and core (0.3% m/m 4.3% y/y) CPI are expected to ease very slightly, as re-opening pressures ease and/or are checked by rising infection rates, but with storm damage and chip shortages likely to continue pressure energy and new auto prices, and housing prices also weighing more heavily in the equation over the next 12 months, the Fed’s transitory ‘narrative’ is going to face some quite severe challenges. As for Retail Sales, the collapse in Auto Sales is forecast to see another sharp (-0.9% m/m. vs. July -1.1%) in the headline measure, with all core measures seen falling -0.1% m/m, which to a certain extent reflects an expected rebalancing of personal consumption from goods to services, the latter component being largely absent from the retail spending data outside of spending in restaurants and bars. Nevertheless another downside surprise would only add to concerns about the US economic outlook. As for Industrial Production, unseasonal re-tooling patterns (above all in Autos) gave a hefty boost to July (+0.9% m/m, Manufacturing 1.4% m/m), but seasonal adjustment will weigh heavily in August, with continued supply chain disruptions (very evident in ISM and other manufacturing surveys), output curbs in the energy sector due to Hurricane Ida implying downside risks, even if warmer than normal weather should see a boost to utilities output.

China’s activity data are expected to show a marked slowdown due to the slew of localized lockdown measures (very evident in the NBS and Caixing PMIs), as well as increasing disruption from Beijing’s array of regulatory interventions. Retail Sales are forecast to slow to just 7.0% y/y from 8.5%, while Industrial Production is seen at 5.8% y/y from 6.4%, and FAI at 9.0% y/y from 10.3%. Given Evergrande’s woes and an array of curbs on investment, the housing data will get more attention with Property Investment seen slowing to 11.3% y/y from 12.7%, and New Home Prices also likely to slow, amid anecdotal reports of very sharp falls in property sales. All of which, if correct, will only serve to exacerbate concerns that relying on China as a mainstay for global growth may prove to be a recipe for disappointment.

In the UK, the anecdotal evidence points to a strong labour report, with May-July Employment seen posting a rise of 199K and the ILO Unemployment Rate dipping to 4.6% from 4.7%, while the more timely August Claimant Count and HMRC Payrolls should also paint a picture of solid labour demand, notwithstanding chronic skills shortages and pingdemic effects. But the fact remains that there were still 1.6 Mln people on the furlough scheme in July, and when the scheme ends at the end of this month, there are still expected to be 1.0 Mln on it, suggesting Q4 may see a less propitious trend. Given that BoE governor Bailey admitted last week that the MPC was evenly split (4-4) at its August meeting on whether minimum conditions for a rate hike had been met, this week’s inflation data will be very closely watched. Very adverse base effects (with -0.4% m/m in August 2020 dropping out of the calculus) were always going to give CPI a big boost this month, and with the consensus looking for a robust 0.5% m/m increase, the y/y CPI rate appears set to jump to 2.9% for both headline and core vs. July’s 2.1% and 1.9%, with RPI seen jumping to 4.7% from 3.8%. PPI is expected to show some easing in m/m terms with Input prices seen up just 0.2% m/m (July 0.8%) and Output Prices up 0.4% m/m (July 0.6%), but with adverse base effects this would still see y/y rates rise to 10.3% and 5.4% respectively. Last but not least, Retail Sales are expected to recover 0.8% m/m after an unexpectedly sharp -2.5% m/m slide in July, which would continue to support the view that there is not a great deal of recovery momentum in personal consumption on the back of re-opening.

Elsewhere Japan looks to Private Machinery Orders, Trade, Q3 BSI survey and PPI, Canada awaits CPI and Manufacturing Sales, Australia has labour data long with Business and Consumer Confidence surveys, and New Zealand sees Q2 GDP, though the latter will eminently be viewed as very historical in light of the Q3 lockdown measures.

This week’s Apple annual new product event will as ever be a focal point, perhaps even more so after the app store ruling last week. Otherwise as noted, the corporate earnings run is seasonally light, with Bloomberg News identifying the following as likely to be among the highlights: Abcam, Ashtead Group, Believe, Industria de Diseno Textil, Fevertree Drinks, Kobe Bussan, Helvetia Holdings, JD Sports Fashion, Mediaset, Oracle, Park24, Premier Anti-Aging, Peugeot Invest, Restaurant Group, Rothschild & Co., S4 Capital, Top Glove and Trustpilot.