Midterm elections brought some fleeting relief to the stock market after the expected split decision in Congress. Global growth remains precarious as the punch bowl of accommodative policy continues to be slowly with withdrawn.Europe remains fraught with risks as well, as the brinkmanship between Italy and the EU in terms of the budget continues to play out.
United States: US retail activity and inflation will take center stage in a holiday-shortened week. The economic calendar gets a late start (Tuesday) after the long Veteran’s Day break, relatively quietly with NFIB small business optimism and the Treasury budget gap seen widening to -$122 bln in October from -$119.1 bln. MBA mortgage data follows (Wednesday), along with headline CPI and core forecast to rise 0.2%, following a tepid 0.1% reading for both in September. EIA energy inventory data should continue to rise as well, helping keeping crude on the defensive. The October retail sales should rise by 0.6%, with a 0.5% ex-auto gain, for a firm start to Q4 (Thursday), along with a flat reading for October import prices and a -0.1% figure for export prices, after respective readings of 0.0% and 0.5% in September. A small decline in the Empire State index is forecast (Thursday), from 21.1 to 20.5, while the Philly Fed index is seen falling to 21.0 in November from 22.2 and initial jobless claims are estimated to decline 4k to 210k in the week ended November 10. Business inventories are set to rise 0.3% in September (Thursday), after a 0.5% gain in August and a 0.7% jump in July. The week rounds out with industrial production projected to rise 0.2% in October (Friday), after a 0.3% reading in September, while capacity utilization should be steady at 78.1% in October.
Fedspeak resumes with a couple of updates from Fed chairman Powell, who will be speaking at Dallas Fed Q&A session (Wednesday) and again before a Hurricane Harvey recovery session in Houston (Thursday).
Canada: The bond market is closed on Monday, November 12 for the Remembrance Day holiday. Equities are scheduled for a full session on Monday. The data and event docket is again lean this week. September manufacturing shipments (Friday) are expected to rise 0.3% following the 0.4% drop in August. International securities transactions for September are due on Friday. Existing home sales for October are expected on Thursday. The Teranet/National home price index for October is due Thursday. There is nothing scheduled from the BoC this week.
Europe: Italy’s escalating spat with the European Commission, Brexit talks and the ongoing battle for Merkel’s succession in Germany will continue to overshadow data releases this week.
There are plenty of ECB speakers this week, including Draghi, Weidmann, Lautenschlaeger and de Guindos, but while the hawks like Weidmann and more recently Nowotny have been dragging their feed on policy normalisation, the top brass at the ECB around Draghi remains cautious in the light of the multitude of risks. Indeed, whether the ECB really will confirm the phasing out of QE at the December will not just depend on data releases and the updated staff projections that will be available then, but also Brexit developments.
The focus on the data front will be on German GDP data for the third quarter (Wednesday); a backward looking number, but with the Eurozone’s largest economy expected to report a contraction of -0.2% q/q the data are likely to make headlines. More forward looking German ZEW investor confidence (Tuesday) is not expected to bring any better news, ongoing market volatility and marked corrections in equity markets coupled with pressure on Oil prices not designed to leave investors optimistic about the outlook. The rest of the calendar focuses mainly on final inflation readings for October, which are unlikely to hold any surprises. German HICP (Tuesday) is expected to be confirmed at 2.4% y/y, which should leave the Eurozone reading (Friday) on course to be confirmed at 2.2% y/y. Core inflation remains considerably lower at just 1.1% y/y, but as Draghi started to highlight underlying inflation is starting to move higher as wage growth is picking up amid very tight labour markets.
UK: While Friday’s release of preliminary Q3 GDP data produced by best q/q figure in two years, of 1.6%, growth was driven by a strong July while September data showed notable signs of weakness. Together with the underwhelming October PMI surveys, the data points an economy losing momentum, with Brexit uncertainty taking a toll.
The data calendar this week is highlighted by monthly labour numbers covering September and October (Tuesday), October inflation figures (Wednesday) and the October retail sales report (Thursday). The labour data is expected to show the unemployment rate holding unchanged at 4.0% , and average household income unchanged at 2.7% y/y in the three months to September. As for inflation, a slight tick higher in the headline CPI rate is anticipated, to 2.5% y/y after 2.4% in September. Retail sales are expected rising by 0.2% m/m .
Japan: Wednesday brings the preliminary Q3 GDP report, which is forecast at -1.0% q/q from 3.0% previously. Trade, consumption and capital spending are all expected to pull-growth lower in Q3. Natural disasters in September (typhoon in both Osaka and Japan, earthquake on Hokkaido) held back consumption in September. The September tertiary industry index (Wednesday) is penciled in at -0.5% m/m from up 0.5% previously. Revised September industrial production is also on deck Wednesday.
China: China reveals October industrial production (Wednesday) which is seen up 5.7% y/y from 5.8%. October retail sales (Wednesday) should ease to 9.1% y/y from 9.2%, while October fixed investment is forecast to pull back to 5.3% y/y from 5.4%.
Australia: The employment report (Thursday) is the main event. Widely, the projection is for a 25.0K gain in October employment after the 5.6k rise in September. The unemployment rate is expected at 5.1% from the 5.0% seen in September. The wage price index (Wednesday) is projected to rise 0.7% in Q3 (q/q, sa) after the 0.6% gain in Q2. Reserve Bank of Australia Deputy Governor Debelle participates in a panel at the FINSIA Signature Event: The Regulators, Melbourne (Thursday).
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Andria Pichidi
Market Analyst
HotForex
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