Week ahead: G20, US retail sales, UK Autumn Statement, China activity data

  • MON: OPEC MOMR, EZ Industrial
    Production (Sep), Japanese GDP (Q3).
  • TUE: RBA Minutes (Nov), IEA OMR;
    Chinese Retail Sales (Oct), UK Unemployment Rate (Sep), Claimant Count (Oct),
    Swedish CPIF (Oct), EZ Trade Balance (Sep), GDP Flash Estimate (Q3), US PPI
    Final Demand (Oct).
  • WED: UK CPI (Oct), US Export/Import
    Prices (Oct), US Retail Sales (Oct), Industrial Production (Oct), Canadian CPI
    (Oct), Japanese Trade Balance (Oct).
  • THU: UK Autumn Statement; Australian
    Employment (Oct), EZ CPI Final (Oct), US Building Permits/Housing Starts (Oct),
    Japanese CPI (Oct).
  • FRI: UK Retail Sales (Oct), Swedish
    Unemployment (Oct), US Existing Home Sales (Oct), Leading Index (Oct).

Japanese GDP (Mon):

Japanese preliminary Q3 GDP data
is due early next week, with the Q/Q reading expected to slow to 0.3% from a
previous 0.9% pace and annualised growth forecast to decelerate to 1.1% from
3.5% in Q2. The final Q/Q and annualised growth figures in Q2 both topped
forecasts and were upgraded from the preliminary readings of 0.5% and 2.2%,
respectively, with the rebound in the economy spearheaded by a boost in
consumer and business spending after Japan eased COVID restrictions in late
March. This was evident in Private Consumption, which rose by 1.2% and accounts
for more than half of Japan’s GDP, while Capital Expenditure increased by 2.0%.
Nonetheless, expectations are for the economy to have cooled down in Q3 as
households felt the pinch and adjusted spending due to higher inflation and with
the recent rapid weakening of the JPY also a headwind for domestic demand, as
this increases the costs of imports including energy with Japan reliant on
imports for more than 90% of its primary energy supply.

RBA Minutes (Tue):

Traders will be looking out for
more meat on the bones as to why the RBA opted for a 25bps hike as opposed to
50bps following the latest Aussie CPI metrics. Furthermore, markets will be on
the watch for any hints as to whether an additional 25bps will be needed this
year given the aforementioned inflation developments. To recap, on November
4th, the RBA lifted its Cash Rate Target by 25bps, taking it to 2.85%, as
expected, but against some outside bets for a 50bps increase. The central bank
said that the Board remains resolute in its determination to return inflation
to target and expects to increase rates further over the period ahead. It also
reiterated that the size and timing of future rate adjustments will continue to
be determined by the incoming data and the Board’s assessment of the outlook
for inflation and the labour market. It noted that the central forecast for GDP
has been revised down a little, with growth of around 3% expected this year and
1.5% in 2023 and 2024, while inflation is now forecast to peak at around 8%
later this year, while the central forecast is for CPI to be around 4.75% over
2023 and a little above 3% in 2024. RBA Governor Lowe said the Board judged it
appropriate to raise rates at a lower magnitude, but would return to larger
increments if necessary. He also suggested they will hold the rate if the
situation requires, and that rates were not on a pre-set path. Following the
decision, analysts at ING said, “it looks more probable now that the RBA will
simply stick to a 25bps rate increase pace until it believes it has taken rates
high enough.”

China Retail Sales, Industrial
Production (Tue):

Retail Sales and IP for October
are expected to have slowed from the prior month, with the former seen at 0.9%
(prev. 2.5%) and the latter at 5.2% (prev. 6.3%). The month saw a string of
lockdowns in the run-up to the National Congress of the Chinese Communist
Party. Note, since then, China’s Politburo Standing Committee hosted its first
meeting. Top leadership was urged to stick with COVID zero policy, state media
reported, with more precise control, and stressed the need to minimise impacts
on the economy. On Saturday 5th Nov, a China health commission spokesman said
China will not waver in preventing a pandemic rebound and continue the dynamic
clearing of cases as soon as they emerge, while it did not make adjustments to
anti-COVID protocols, and a China disease control official said they are to
guide localities to continue strengthening vaccinations of the elderly.
Furthermore, a Peking University infectious disease expert said the current
prevention strategy is still able to control COVID despite the high
transmissibility of variants and asymptomatic carriers, although an Education
Ministry official noted that it is necessary to prevent excessive epidemic
prevention and not add extra layers of measures, according to Reuters.

UK Jobs Data (Tue):

Expectations are for the
unemployment rate in the three months to September to remain at 3.5%,
employment to decline by 155k and headline wage growth to slip to 5.9% from 6%,
with the ex-bonus metric seen dipping to 5.3% from 5.4%. The prior report saw
the unemployment rate slip to another post-1970’s trough, of 3.5% and a pick-up
in wage growth. Additionally, ING highlighted that “despite all the concerns about
recession… there are few signs of it in the jobs market just yet. Redundancies
are low and stable, even if vacancy levels have begun to gradually tail off.”
This time around, analysts at Investec who are in line with consensus in
expecting the unemployment rate to remain at 3.5%, say it is too early for a
substantive increase in unemployment. Investec suggests that where possible
“firms are initially likely to resort to hiring freezes ahead of letting staff
go considering re-hiring is both challenging and expensive”. With regards to
wage growth, the desk notes that wage pressures are likely to remain strong on
account of the tight labour market and lack of letup in inflation, which will
reinforce the MPC’s collective judgement that it is too soon to pause rate
hikes for now. In terms of guidance further out from the MPC, the November MPR
forecast the unemployment rate rising to 5% in 2023 before advancing to 6.5% by
2025, whilst the Committee also noted that there have been continuing signs
that wage growth could see greater persistence. From a policy perspective, any
signs of softening in the labour market could see some bets for a more
aggressive rate path in 2023 pulled back, however, the release will need to be
framed in the context of the inflation report the following day.

EZ GDP Flash (Tue):

Analysts expect the advanced Q3
Eurozone GDP metrics to be confirmed at 0.2% Q/Q and 2.1% Y/Y. ING’s analysts
were pleasantly surprised by the upside surprise in the advanced data, noting
that while cracks are appearing, the economy continued to expand in Q3; “In
Germany, it looks like this was mainly due to the last legs of the consumer
rebound, while in France consumption growth had already stalled,” the bank
says. But overall, the picture remains bleak, it says: “consumer confidence is
near historical lows as real wage growth is at a multiple-decade low at the
moment, weighing substantially on the consumption outlook, as retail sales have
already been trending down over recent quarters,” while the reopening of
services sectors is beginning to fade as interest rates are rising amid an
uncertain outlook, and investment expectations are softening too. Accordingly,
ING still expects the economy to contract over the coming quarters.

G20 (Tue-Wed):

The G20 summit is poised to take
place between November 15-16th. The focus from a market perspective will likely
be on geopolitics, with a potential meeting flagged between US President Biden
and Chinese President Xi, whilst Russian President Putin will not be partaking
in the event in person, but Russian Foreign Minister Lavrov will represent the
country instead, according to Al Jazeera. Back to US-China, US President Biden
said he is not willing to make any fundamental concessions when he meets with
Chinese President Xi and he wants them to lay out what each of their red lines
are. Biden added that they will discuss Taiwan and fair trade, as well as
relationships with other countries, according to Reuters. On a meeting between
the two presidents, China’s Foreign Ministry said China is committed to
realising peaceful co-existence with the US, but the Taiwan question remains at
the core of China’s interests, and the US needs to stop weaponizing trade
issues. All-in-all, the tone of the meetings between world leaders will be
noted, but it is difficult to envisage any meaningful updates from the G20.

UK CPI (Wed):

Expectations are for Y/Y CPI to
rise to 10.8% from 10.1% with the core Y/Y rate seen falling to 6.4% from 6.5%.
The prior report saw Y/Y CPI move back into double-digits and reach its highest
level in 40 years amid advances in food prices, whilst the core rate rose to
6.5% from 6.4% as price pressures spread into other categories. This time
around, analysts at Oxford Economics state that “inflation almost certainly
jumped sharply in October, as consumers transitioned from the energy price cap
to the temporary – and much higher – energy price guarantee”. The consultancy
adds that “there should be some mitigation from a lower reading for core
inflation, given that last October’s outturn was boosted by the VAT rate for
the hospitality sector returning to 20% after it had been temporarily cut at
the height of the pandemic”. From a policy perspective, the release could have
some follow-through to the December rate decision, which currently prices a
50bps increase at an 81% probability with 75bps priced at 19%. That said, the
inflationary outlook is subject to great uncertainty given that the Energy
Price Guarantee (which will provide some reprieve for inflation in the
short-term) will be under review in April. As a reminder, the MPC currently
projects that “CPI inflation starts to fall back from early next year as
previous increases in energy prices drop out of the annual comparison. Domestic
inflationary pressures remain strong in coming quarters and then subside. CPI
inflation is projected to fall sharply to some way below the 2% target in two
years’ time, and further below the target in three years’ time”.

US Retail Sales (Wed):

Analysts expect US retail sales
to rise 0.8% M/M in October (vs 0.0% M/M in September); the ex-autos measure is
seen rising 0.4% M/M (prev. +0.1%), and the ex-gas and autos measure is seen
rising 0.2% (prev. 0.2%). Credit Suisse estimates the deflator at 0.2%, which
it says could imply retail sales growth of 1.0% in the month. The bank says
auto sales will support the headline after unit vehicle sales rose strongly,
while gasoline prices also ticked higher. Many analysts will be keeping an eye
on the components relating to real estate activity, given the downside seen in
home sales of late, which is likely to weigh on components relating to building
materials and household durables. “High-frequency card spending data suggest
consumer spending remained solid in October,” CS writes, “healthy balance
sheets and excess savings should support consumption,” and adds that “results
in-line with our expectation [for 1.2% M/M headline] suggest real sales remain
above trend.”

UK Autumn Statement (Thu):

After the disastrous
“mini-budget” in September and the subsequent removal of PM Truss and
Chancellor Kwarteng, Chancellor Hunt will be presenting a full Autumn Statement
on November 17th. Despite short-term UK borrowing costs stabilising since the
bloodbath seen in late September and early October, the Chancellor will need to
present plans to address the GBP 50bln “black hole” in Government finances.
Accordingly, Hunt will need to embark on a programme of tax hikes and spending
reductions. In terms of the split between spending and taxation, reporting from
the FT (7th Nov) stated that the Chancellor currently intends to cut GBP 33bln
from public spending, while raising taxes by about GBP 21bln. It’s worth noting
that Hunt has already scrapped Truss’ plan to hold corporation tax at 19%, with
the rate set to climb to 25%, whilst the basic rate of income tax is to remain
at 20% (vs. 19% proposed by Truss). Elsewhere, Hunt previously declared he
would not reverse the scrapping of the National Insurance increase. In terms of
other taxes that Hunt could look at, The Times reported that he could opt to
“maximise revenues from the windfall tax by increasing the rate from 25% to
30%, extending the levy until 2028 and expanding the scheme to cover
electricity generators”. Pantheon Macroeconomics suggests that the Treasury
could raise GBP 20bln by hiking VAT, however, this is an unlikely route given
that it would further fan the flames of inflation. As such, Pantheon suggests
that a bulk of the hole will need to be filled by income taxes. Recent
reporting in the Telegraph stated that the Government could raise the 45% top
rate or lower the GBP 150k annual income threshold at which it kicks in. Given
that higher earners will likely have savings which they can draw on to maintain
consumption, this could be one of the more favourable options for the Chancellor.
Elsewhere, other measures touted include inheritance tax and reducing the
tax-free allowance for dividend income. From a spending perspective, Pantheon
Macroeconomics suggests lowering public sector investment would be the easiest
option for the Government, however, this would have negative implications for
the economy given the multiplier effect of such investment. Elsewhere, Hunt
could opt to tweak the overseas aid budget and find additional reductions in
day-to-day department spending. For the accompanying projections, Capital
Economics expects “the OBR will pencil in a peak-to-trough fall in GDP of 2.0%,
it will assume little in the way of catch-up growth and that it will leave its
medium-term forecast for real GDP growth unchanged at 1.7%”.

Australian Employment (Thu):

The Employment Change is expected
at 25k (prev. 0.9K), whilst the Unemployment rate is expected to remain at 3.5%
and the participation rate is also seen steady at 66.6%. Desks note signs that
employment momentum is easing, with September’s paltry 900 payrolls rise
representing the third consecutive disappointing release, with the 3-month
average around 200. “it does appear that the Australian labour market stalled
heading into the last quarter of the year”, Westpac says. The bank asks whether
Australia is at full employment given the upbeat business surveys and
historically high vacancies “We can’t be sure if that is the case but we do
know that the lack of suitable labour is a critical constraint on activity.”
Westpac says. “We see there is a risk of a softer gain in employment in October
while participation can remain robust, hence we see upside risk to our
unemployment rate,” the bank concludes.

Japanese CPI (Thu):

National CPI is expected to move
higher, to 3.5% in October from September’s 3.0%. The prior month’s reading
came as the rise in underlying inflation was offset by a sharp fall in the cost
of fresh food. However, analysts at CapEco highlight that food import prices
will likely remain consistent with high food inflation over the coming months,
whilst electricity inflation still has a bit more to climb. “We no longer think
that inflation has peaked in August and September and suspect the headline
figure will rise to 3.5% for October whilst underlying inflation will rise to
2.3% [from 1.8%]”. CapEco also expects core inflation to rise from 3.0% to 3.3%
in October. In recent remarks, BoJ Governor Kuroda said the Y/Y increase in
core consumer inflation is likely to slow from around the middle of the next
fiscal year. Nonetheless from a policy perspective, the BoJ has reiterated its
super-dovish stance several times in recent weeks.

UK Retail Sales (Fri):

Expectations are for October
retail sales to contract 0.5% on a M/M basis with the Y/Y rate seen at -6.5%.
Ahead of the release, analysts at Moody’s note “although the unemployment rate
is low, consumer confidence is dismal, and inflation is rising fast, which has
and will continue to weigh heavily on goods spending”. In terms of recent
retail indicators, the latest BRC Retail Sales Monitor observed “As the cost of
living for consumers continued to rise, retail sales slowed in October. With
November Black Friday sales just around the corner, many people look to be
delaying spending, particularly on bigger purchases. Clothing and footwear,
which saw stronger sales this year, declined as the mild weather meant
customers held back on buying winter outfits.”. Elsewhere, the Barclaycard
Spending Report for October noted “overall Retail spending grew 0.5% when
compared to the same period last year as consumers spend more on Grocery
(+4.0%), and at Discount Stores (+2.7%).” Adding, “This indicates an
inflationary effect as 67% of Brits tell us they are looking for ways to reduce
the cost of their weekly shop, with 48% of these shoppers paying closer
attention to price rises of specific items they buy regularly, and buying
budget or own-brand goods over branded goods”.

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