Macroeconomics: The Day Ahead for 25 October

There is a reasonable volume of data today, and there will be a lot of earnings from companies representing a broad cross-section of the economy, and there are also the ECB’s Bank Lending Survey and a speech by BoE chief economist Pill, but the fire that is raging in FX markets and numerous political crises are likely to be the focal points. To be sure, the UK Gilt market has regained some poise following the installation of Sunak as the new PM, but Japan has burnt $10s of billions to prop up its currency, the collapse in Chinese equities and the CNH in reaction to the very authoritarian turn in China, and Vietnam yesterday was forced to hike rates 100 bps to try and stem the fall in the VND and inflation all serve as a reminder that we are in the middle of a very big crisis, which it would appear that many in financial markets want to ignore. Wilful blindness is always a bad strategy, and almost always presages a sharp shock, which should under no circumstances be explained away as a ‘Black Swan event. Let us also not pretend that an even stronger attempt to pivot away from China as the key source of manufactured goods will be very, very expensive, quite possibly even hyperinflationary for some countries. There is more than a good deal of irony that we appear to have gone full circle back to the first instance of the modern ‘Fed put’, which was ushered in by the 1997/98 Asian Currency crisis, with the obvious difference that both China and Russia are in a very different place to where they were then.

Today’s run of surveys features Germany’s Ifo Business Climate, UK CBI Industrial Trends and US Consumer Confidence, which follow on from a dismal set of PMIs in the Eurozone, UK and US; there are also Brazil’s IBGE Inflation IPCA-15 and US House Prices. The earnings run features HSBC, Novartis, Orange, Randstad, SAP, SKF and UBS in Europe, while the US features 3M, ADM, Cleveland-Cliffs, Coca-Cola, GE, GM, Halliburton, Raytheon, Texas Instruments, UPS, Valero Energy and Visa amongst others.

Germany’s Ifo Business Climate is forecast to drop to 84.5 from 85.3, on the back of a sharp drop in the Current Assessment to 92.4 from 94.5. Both US FHFA and CoreLogic House Prices are expected to post sizeable m/m falls, while rising mortgage rates and the upturn in gasoline prices are expected to see Consumer Confidence dip to 105.5 after bouncing quite sharply from July’s low. UK CBI Industrial Trends Orders are seen sliding to -12 from -2, though the quarterly Business Optimism may be the element to watch, with a drop from an already down at heel -21 at the start of Q3 pre-programmed given the government crisis.