Original insights into market moving news

Week Ahead 11-15th October: FOMC minutes; US CPI, retail sales; China CPI; Aussie, UK jobs

  • MON: US Columbus Day.
  • TUE: BoK Policy Decision; UK Jobs Report (Aug); German ZEW Survey (Oct).
  • WED: FOMC Minutes; UK GDP Estimate (Aug); US CPI (Sep); Chinese Trade Balance (Sep); OPEC MOMR; EIA STEO.
  • THU: Australian Labour Force Report (Sep); Chinese Inflation (Sep); US PPI (Sep); IEA OMR; Hong Kong Holiday (Chung Yeung Festival).
  • FRI: Retail Sales (Sep); US Uni of Michigan Prelim (Oct).

NOTE: Previews are listed in day-order

BOK POLICY (TUE): The Bank of Korea is to announce its latest policy decision on Tuesday where the central bank is expected to maintain the 7-Day Repo Rate at the current level of 0.75% according to 29 out of 31 economists surveyed. As a reminder, the BoK became the first major APAC central bank to hike rates post-pandemic during its last meeting in August where most board members agreed a rate hike was required to curb the build-up of financial imbalances, although the decision was not unanimous with board member Joo the dissenter who suggested that a hike was not a fundamental solution to tackle issues around household debt. The BoK also stated that it will gradually adjust monetary policy amid inflationary pressures and that increasing policy rates will help reduce household debt, while Governor Lee noted that the timing for an additional rate hike depends on COVID-19 and debt growth pace. Therefore, given the short timing since the last hike, as well as increases in virus infections following the Chuseok holidays and recent extended weekend, it is unlikely for the central bank to deliver an immediate back-to-back hike. However, continued above target inflation, with South Korean CPI Y/Y at 2.5% vs exp. 2.3% and Core CPI at its fastest pace of growth since October 2017, has supported the case for another hike this year and 79% of respondents to major newswire survey anticipate a 25bps at the November meeting.

UK JOBS REPORT (TUE): UK labour market data may become relevant once again in the months ahead; RBC explains that the Bank of England is becoming less confident that the current labour market situation will resolve itself, at a time when the closure of the government’s furlough scheme presents uncertainties for the labour market outlook. "The two main labour market support measures, the Coronavirus Job Retention Scheme (CJRS) and Self-Employment Income Support Scheme (SEIS) both closed on September 30th," and "the lag in labour market availability means that the first monthly labour market statistics covering the period after that closure won’t be available until mid-December." That said, the next two months’ of labour market data will begin to capture the period during which the CJRS was being unwound.

CHINESE TRADE BALANCE (WED): The latest Chinese trade figures are scheduled for release on Wednesday in which exports data for September is expected to continue its double-digit percentage growth with expectations at 21.8%, although this would still be a slight slowdown from the surprisingly fast pace in August of 25.7% vs exp. 17.1% that was driven by strong global demand. The firm reading in August provided some relief for those fearing a slowdown for the world’s second largest economy due to headwinds from several factors including sporadic COVID-19 outbreaks, rising commodity prices and Beijing’s tightening regulatory grip, while expectations are for exports to continue to benefit from firm demand leading up to Christmas season and with Oxford Economics anticipating Chinese exports to remain underpinned next year, citing the global economic recovery. In terms of the other components of the release, imports are anticipated to slow to 18.7% from 33.1% and Trade Balance is forecast at USD 50bln vs. prev. USD 58.3bln.

AUSTRALIAN LABOUR FORCE (WED): The street looks for employment to decline by 120k in September, after falling 146k in August, as lockdowns continued in Victoria (analysts note that this labour data will not include the construction lockdown), though NSW was reportedly showing some signs of stability. Westpac notes that the fortnightly payrolls data showed a decline of 0.7% in the two weeks through 11/Sep, after a prior decline of 1.5%; comparing the first two weeks in September to the first two weeks in August payrolls fell 2.0%, the bank says. "Our current forecast for -200k on employment, this seems appropriate compared to the larger fall in payrolls given payrolls measures those paid in the week while the Labour Force Survey measures those employed," it writes. Meanwhile, the unemployment rate is seen ticking up to 4.8% in September from 4.5% in August. "As we saw through 2020 the labour market can be very responsive to lockdowns with many deciding not to look for work given the lack of demand, inability to leave the house and/or increased childcare demands," Westpac explains. As a gauge for the health of the overall labour market, Westpac cautions about reading too much into the jobless rates, and argues that hours worked are a better measure -- these decreased 3.7% in August relative to the 1.1% decline reported in the employment stats. The Aussie bank sees participation slipping further this month -- by 0.9ppts to 64.2% -- which would see a 190k fall in the labour force mostly offsetting the 200k loss in employment, limiting the rise of the jobless rate to 4.7%.

UK GDP ESTIMATE (WED): Analysts expect the August GDP data to show 3m/3m growth of +3.0% after a prior +3.6%, with the M/M reading expected to show growth of +0.5%, picking up from +0.1% in July. The recovery stalled in July as COVID cases ticked higher, requiring more Britons to self-isolate, but the August data should bring better news, Oxford Economics says. "Covid-related disruption will have fallen, given the drop in cases and the introduction of less-stringent rules on self-isolating, and social consumption sectors should see strong pickups in activity in response to the lifting of most of the remaining Covid restrictions in late-July," it says, forecasting that GDP will rise by an above-consensus +0.6% M/MN in the month.

US CPI (WED): Analysts at UBS are expecting the September CPI data to register a solid increase on the back of strong food and energy prices; as a proxy, the bank cites strong Scanner data, which signals a rise of approximately 0.5% for food prices in the month, while pump prices suggest that the CPI for energy commodities could rise by over 1%. The core metrics are seen rising more moderately, given declines seen in airfares, lodging away from home and used car prices in the month, UBS says, which is likely to offset strong increases in shelter rents and core goods ex-used cars. On used car prices, the bank says that the "declining retail used car prices for September is a reflection of the slowdown in wholesale prices in the late summer following the booming price increases from April to June," however, "an upward movement in the most recent wholesale data suggest CPI used car prices likely will rise in next month's release." The bank says the larger issue is continued problems with the production of new cars, which is pushing up prices, and pushing buyers into used vehicles; "as new vehicle production increases later this year, and early next year, we expect slowly easing supply constraints to become a negative pressure on inflation, though it will likely take into late next year or 2023 before vehicle inventories are completely rebuilt." While UBS looks for the annual rate of inflation to stay at 5.25%, it foresees a tick higher to 6.0% before paring back to around 5.0% in the Spring. For core prices, the bank sees the annual measure easing to 3.95% in September, but spiking up to 5.25% next year.

FOMC MINUTES (WED): The meeting minutes will be scanned for clues on the Fed's tapering of asset purchases, which analysts expect will be formally announced at the November 3rd FOMC. The September FOMC effectively gave the market notice that if progress on its economic goals continues as expected, a reduction in the pace of asset purchases may soon be warranted; analysts expect this will be officially announced at the November 3rd FOMC. Updated economic projections saw the Fed now forecast seven rate hikes over its forecast horizon (previously two), although the terminal rate view was unchanged at 2.50%. The 2022 dots now foresee at least one rate hike. Other forecasts saw the Fed raise near-term inflation forecasts for this year, and the 2022 inflation view was raised, although the Fed continues to see core inflation falling back to just above 2% by the end of its projection horizon; the Fed continues to frame the inflation upside as ‘transitory’. The Central Bank broadly maintained its labour market view, and sees the jobless rate falling to 3.50% in 2023 (full employment area), and expected to remain around that level by the end of 2024, before picking up to 4.0% in the long-term. Decisions were unanimous. At his press conference, Chair Powell provided hints of the possible parameters of the upcoming taper, and stated that if the economy remains on track, tapering of asset purchases could be concluded by the middle of next year; he also suggested that there was broad support on the Committee for the timing and pace of the taper. Additionally, Powell suggested that the bar for tapering in November is low, given that he does not need to see a very strong jobs report to start, he’d only need to see a ‘decent’ jobs report. Any further details on the parameters or timing of the taper will be of note within the minutes, particularly, any commentary about the Fed potentially changing the speed of the taper as appropriate. The Fed has attempted to break the link between rate hikes and the conclusion of asset purchase tapering - this is expected to be reiterated in the minutes.

CHINESE INFLATION (THU): There will be particular focus on the PPI metrics following months of elevated factory-gate prices, and against the backdrop of rising oil prices which fed into the metric last month and prompted an oil reserve release by the Chinese state. PPI is forecast a to ease to +9.0% Y/Y in September from +9.5% in August, while the CPI is seen at +1.0% Y/Y rising from +0.8% in August. The metrics also come amid the electricity crisis in the region, with elevated coal prices said to have led to energy suppliers losing money on electricity produced. Using the Caixin PMIs as a proxy for the release, the surveys suggested sharp increases in both input costs and output prices – largely owed to supply chain delays, with the “rate of inflation the quickest seen for four months, amid reports of greater energy and raw material costs. This, in turn, led to a solid increase in prices charged”. The measure for output prices hit its highest in three months, whilst “the pressure of rising costs was partly transmitted downstream to consumers, as the demand was not weak.” As had been the case during the past few months, another set of high PPIs may prompt further state-reserve releases of raw materials alongside jawboning in a bid to keep prices at bay.

US RETAIL SALES (FRI): Following a striong showing in August, US retail sales are seen falling 0.2% M/M in September, and the core ex-auto measure is seen rising +0.4% M/M, although there is downside risks to the latter given that unit vehicle sales fell to an annualised rate of 12.3mln in the month, from 13.1mln prior, as the global chip shortage weighs. "With the current Delta wave of COVID seeming to have peaked in the US, high-frequency card spending data from the BEA and Opportunity Insights both show a meaningful pickup in consumption," Credit Suisse notes, while "restaurant spending, which lost momentum after five months of catch-up growth, should resume its increase in September," the bank says. CS notes that the level of goods spending is above the pre-pandemic trend rates, and therefore, some weakenss is not to be unexpected. "However, labour income is growing strongly and household finances are in good shape," CS writes, "these should help support a gradual moderation in goods consumption rather than a sharp contraction."