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Week ahead: Highlights include US CPI, China activity data, UK data

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Old 11-09-2022, 20:00
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Default Week ahead: Highlights include US CPI, China activity data, UK data

  • Sun: Swedish Elections.
  • Mon: Hong Kong Mid-autumn Fest; UK GDP Estimate (Jul), German Final CPI(Aug), Chinese M2 (Aug).
  • Tue: OPEC MOMR, Norges Bank Regional Network (Q3); Japanese Corporate GoodsPrice (Aug), Australian Consumer Sentiment (Sep), UK Jobs Data (Jul/Aug), EZZEW (Sep), US CPI (Aug), NFIB (Aug).
  • Wed: IEA OMR; UK CPI (Aug), Swedish CPIF (Aug), EZ Industrial Production(Jul), US PPI Final Demand (Aug).
  • Thu: RBA Bulletin, Shanghai Cooperation Organisation Summit (1/2); JapaneseTrade Balance (Aug), Australian Employment (Aug), US Export/Import Prices(Aug), IJC (w/e 5th Sep), NY Fed Manufacturing (Sep), Philadelphia Fed (Sep),Retail Sales (Aug), Industrial Production (Aug), New Zealand Manufacturing PMI(Aug).
  • Fri: CBR Policy Announcement, Shanghai Cooperation Organisation Summit(2/2), Quad Witching; Chinese Retail Sales (Aug), Industrial Output (Aug), UKRetail Sales (Aug), EZ Final CPI (Aug), US Uni. of Michigan Prelim. (Sep).
NOTE: Previews are listed in day-order

Swedish Elections (Sun):

Current PM Andersson’s Social Democrats (S) are leading the polls atpresent with around 30% support, though commentators point out that much ofthis is the personal appeal of Andersson rather than the broader party.However, another term for Andersson is far from certain despite the pollinglead, as once again, the Social Democrats are struggling to form a coalition.Her opposition is led by Kristersson’s Moderates (M) and supported by SwedenDemocrats’ (SD) Akesson and Christian Democrats’ (KD) Busch; parties which arepolling at 17%, 21% and 6% respectively. Interestingly, crime is being surveyedas a top election issue for the first time, an area which would generallybenefit the right-wing opposition parties. As it stands, PM Andersson runs aminority government that is formed solely by her party, her intention was toderive support from the Green Party (MP), but this proved challenging. Thistime around, Andersson’s Social Democrats are expected to try and find partnersin the Centre Party (C) and Left Party (V), among others – however, this couldonce again leave her shy of a parliamentary majority. As it stands, the pollsare too close to call and it remains to be seen if enough parties on eitherside of the aisle can function well enough together to form a working majority.Given political instability is nothing new for Sweden, market focus will likelyremain with the Riksbank which is expected to hike by 75bp in September andthen 50bp in November, according to SEB. For reference, market pricing is slightlymore hawkish than this implying around +80bp for both gatherings – albeit, thisis likely a function of hawkish ECB pricing influencing and a rollover ofpricing for an inter-meeting hike in August.

UK GDP (Mon):

At the time of writing, there is no consensus for July’s M/M GDP, whichwill follow on from the 0.1% contraction observed in June. Data in June wasdistorted by the additional bank holiday on account of the Queen’s Jubilee,with headline GDP throughout the quarter also dragged lower by the winding downof the government’s COVID-19 testing and vaccine measures. This time around,analysts at Pantheon Economics pencil in a 0.3% M/M expansion, with theconsultancy noting that given the distortions seen in May and June, theupcoming release will provide the first clean read of the economy's performancesince April. In terms of recent indicators, Pantheon notes that businesssurveys were still consistent with moderate growth in GDP before August, as theS&P Global/CIPS composite PMIs averaged 53.0 between May and July,consistent with GDP rising by 0.3% over those three months. Furthermore, “thebusiness confidence index of Lloyds' Business Barometer survey points to anidentical rate of growth, while the CBI's monthly growth indicator has pointed toslightly faster growth”. That said, Pantheon cautions that output in theimportant distribution and health care sectors was likely lower in July vs.April with the latter being a key driver of recent reports. Note, thebackwards-looking GDP metrics will likely be viewed in the context of thefindings of the BoE’s August MPR which looks for a five quarter recessioncommencing in Q4 this year.

UK Labour Market Report (Tue):

Expectations are for the 3M/3M unemployment rate for July to fall to3.7% from 3.8%, and the employment change to pick up to 256k from 160k, whilstheadline wage growth is forecast to rise to 5.2% from 5.1%. The prior reportwas characterised by a slowing down in the pace of employment growth alongsidean increase in the workforce amid an increase in foreign nationals, whilst thelevel of wage growth remained elevated. This time around, analysts at Investecanticipate a rebound in the participation rate given the incentives to returnto the workforce as real household incomes are most squeezed for those notworking and vacancies are plentiful. On pay growth, Investec expects wages toremain solid, albeit not keep pace with inflation. Further ahead though,analysts caution that “as headwinds to growth build, not just from higher inputcosts, but also from rising interest rates, firms’ labour demand may slacken indue course, limiting their ability to offer wage rises too”. As a reminder,guidance from the BoE notes that “the labour market is expected to remain tightover the next year. Unemployment only starts to rise above its current levelfrom mid-2023, but reaches 6.25% at the end of the forecast period”.

US CPI (Tue):

The consensus expects US headline inflation to decline in August by 0.1%M/M (vs a previous unchanged reading), which would be the first monthly declinein two years; the core rate of inflation, however, is seen accelerating to+0.4% M/M (prev. +0.3%). The data release will form a key part of buildingexpectations around the FOMC’s September 21st confab; a hot reading would likelytilt the central bank to act more aggressively, as it prioritises capping pricepressures over supporting growth, while a softer reading would give it licenseto opt for less aggression. After a solid jobs report for August, upsidesurprises in the influential ISM business surveys for the month, along withhawkish rhetoric from Fed officials, money markets are assigning an 85% chancethat the central bank will opt for the larger 75bps rate hike, rather than asmaller 50bps increment, though many have emphasised that their decision at theSeptember confab will hinge on incoming data. One of the more broader themestraders will be monitoring is the impact the data has on expectations of thecumulative amount of hikes the Fed will fire this cycle; the more constructivetone of macro indicators in Q3 has seen market expectations of the terminalrate rise from the 3.50-3.75% range when the quarter began, to the current3.75-4.00% range, where rates will likely be hiked to in Q1, and comes intoline with the Fed’s June forecasts (which will be updated in September), whereit envisaged a terminal rate at 3.8% in 2023. Analysts note that, historically,the Fed has typically stayed at terminal for between 3-15 months, with theaverage being around 6.5 months; the upshot is that if terminal is achieved inQ1 2023, it could imply a rate cutting cycle will begin in H2-2023.

UK CPI (Wed):

Expectations are for headline Y/Y CPI to advance to 10.4% in August from10.1% previously, with the core reading expected to climb to 6.3% from 6.2%.The July report saw CPI climb above 10% for the first time since 1980 with theheadline rate driven by a surge in food prices and the core metric underpinnedby housing costs, as noted by ING. For the upcoming release, Investec, who holdan against consensus view, look for a decline to 9.8%. Analysts anticipateprice pressures easing on account of declines in fuel and lubricant prices,with petrol prices falling 7% during August. That said, price pressureselsewhere, particularly for food will have remained “uncomfortably high”,whilst “soaring mortgage rates pushed up rental prices further, whilst alsoincreasing the wedge between the CPI and the RPI”. Up until this week, giventhe 80% increase in the October OFGEM price cap and further hefty hikesexpected in January and April, some desks had touted the possibility ofinflation peaking somewhere in the region of 15-20%. However, given the recentenergy price cap announcement from the government, the inflationary outlook hasnow been reassessed with the likes of Oxford Economics expecting CPI to peak at10.5% in October and average 5.4% in 2023 compared to a peak of 14-15% inJanuary and 10% average rate next year without any intervention from thegovernment.

US Retail Sales (Thu):

The consensus looks for retail sales to rise by 0.2% M/M in August(prev. 0%), while the ex-autos measure is also seen rising by 0.2% M/M (prev.0.4%). Credit Suisse says that "retail sales have been on a win-streak inrecent months, but we maintain a weak outlook for real goods demand over thenext few quarters," arguing that "sentiment is sour and financialconditions are tightening along the Fed’s explicit policy goal of slowinggrowth," and that "incremental shocks may put the US into a broader,unemployment-led slowdown, keeping risks to spending skewed to thedownside."

SCO Meeting (Thu-Fri):

The Shanghai Cooperation Organisation (SCO) members include China,Russia, India, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Uzbekistan, andIran. The focus of this summit is the touted meeting between Chinese PresidentXi and Russian President Putin – the first face-to-face between the leaderssince Russia’s invasion of Ukraine. Ties between the nations have been warming,with China refusing to condemn Russia for the commencement of the war, whilstRussia has been increasing its exposure to the Yuan via reserves and gas dealsin a bid to circumvent western sanctions. From a military perspective, reportsvia the Kremlin have also suggested Putin has attended large-scale militaryexercises involving Chinese forces and militaries of several Russian-friendlycountries, which comes at a time of heightened tensions between China andTaiwan. The two leaders will likely reaffirm their commitment to deepening tieswhilst criticising the West.

Chinese Retail Sales/IP (Fri):

The latest activity data from China is due next week with IndustrialProduction growth expected to increase to 4.0% from a previous of 3.8% andRetail Sales also forecast to rise to 4.0%, from the prior month’s 2.7%. As areminder, the data for July missed forecasts and also slowed from the monthbefore with the economy impacted by sporadic virus outbreaks and China’s strictzero-COVID policy, while a deterioration in the real estate sector and heatwavewere also headwinds for the economy. These economic pressures have persisted inAugust as many cities were briefly placed under full or partial lockdown duringthe month and the heatwave also persisted which was made worse by China’s worstdrought on record. This caused parts of the Yangtze River to dry up whichimpacted hydropower and the higher temperature boosted power consumption due toair-conditioning demand, resulting in a power crunch in Sichuan that forcedauthorities to cut power to industries and briefly shut all factories in theprovince. This doesn’t bode well for the incoming activity data, while otherkey releases for August have disappointed with inflation and trade data softerthan expected, and both official and Caixin manufacturing PMI figures printingin contraction territory.

UK Retail Sales (Fri):

Expectations are for M/M August retail sales to contract by 0.2%following the 0.3% expansion seen in July, whilst the Y/Y metric is seen at-3.3% vs. prev. -3.4%. Ahead of the release, analysts at Moody’s note (whoseM/M call is in line with consensus) “when households are spending, they arestill privileging services, and with inflation in double digit territory,disposable incomes are becoming increasingly squeezed”. Recent retailindicators have seen the BRC Y/Y sales metric slip to 0.5% in August vs. 1.6%in July with the consortium noting that growth slowed “as consumers reined inspending amidst the spiralling cost-of-living. While inflation in retail pricesis lower than general inflation at over 10%, this still represents asignificant drop in sales volumes.” Elsewhere, the latest consumer spendingreport from Barclaycard observed “consumer card spending grew 4.7 per centyear-on-year in August – the smallest uplift since March 2021 – as risingliving costs hampered the retail sector”.

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