Macroeconomics: The Day Ahead for 6 October

The US labour report dominates a busier day for major statistics, with Japan’s Labour Cash Earnings. Household Spending, German Factory Orders (stronger than expected 3.9% m/m rebound, but still modest relative to July -11.1% m/m) and French Trade Balance to digest, with Canadian labour data and US Consumer Credit also ahead. There are the RBI’s as expected hawkish no change rate decision to digest (maintaining a tightening bias due to upside inflation risks, but effectively putting greater weight on continued liquidity withdrawal via OMO sales) ahead of some Fed and ECB speakers, the latter mainly at the annual Tatra Summit in Slovakia. EU leaders will hold an informal meeting of leaders, which will doubtless try and resolve differences on many thorny issues such as fiscal pact reforms, with funding for support Ukraine’s defence also at the top of the agenda. The violent gyrations of oil prices will remain in view, as the pendulum continues to swing sharply between longer term supply concerns, and shorter term demand worries, the latter getting the upper hand above all thanks due to the previously heavily skewed bullish positioning. Given high financing rates and so much uncertainty about the global economic outlook, further volatility looks to be baked in the cake. That said, the steep fall in US Gasoline futures this week, compounding a move that began in mid-September (see chart) also offers a robust counter to the hawkishness on US rates of the likes of Fed’s Bowman… if sustained.

Next week’s schedule of data puts the focus on inflation readings in the US (expected at 0.3% m/m on both headline and core, easing y/y rates to 3.6% and 4.1%) and China (CPI seen up fractionally at 0.2% y/y, PPI seen at -2.4% y/y vs. prior -3.0%), which are accompanied by China Trade(Imports and exports still seen falling sharply, but somewhat less than in August) and possibly credit aggregates, while the UK looks to monthly GDP, BRC Retail Sales and RICS House Price Balance, with German Industrial Production, Japanese Machinery Orders and PPI also on tap. Next week also brings the autumn IMF/World Bank meetings, and by extension an abundance of central bank speakers at associated events and elsewhere, with the minutes of the ECB and Fed September policy meetings also on tap. Expect the IMF/World Bank meetings also to focus on global debt levels, above all in the EM space, though the DM debt burden in a much higher interest rate environment is clearly also a major headwind, not only to economies, but also to financing the energy transition. In the commodity space, it will be monthly report time, with the EIA, IEA and OPEC publishing Oil Market Reports, which accompany the USDA’s WASDE, China CASDE and Brazil CONAB S&D reports for grains and oilseeds.

** U.S.A. – September Non-farm Payrolls & labour data **

Payrolls are expected to post a slightly slower 170K increase vs. August’s 187K, though with quite sharp downward revisions to June and July in the August report, there will be particular focus on this month’s revisions. While markets took comfort from the much weaker than expected ADP report, its read across to the official data is very poor, and the sharp increase in JOLTS Job Openings, and the fact that weekly jobless claims hit their recent low of 202K in the survey week for Payrolls advise even more caution, and do bear in mind that Powell’s neutral rate for Payrolls is 100K (i.e. the rate at which the Unemployment Rate remains steady). After spiking 0.3 ppt higher to 3.8% in August due to a sharp increase (736K) in the labour force, the Unemployment Rate is seen dipping to 3.7%, and the Underemployment should likewise dip after rising 0.4 ppt to 7.1% in August. There will be continued focus on Average Hourly Earnings, which is seen picking up to 0.3% m/m, after slipping from 0.4% to 0.2% in August, which implies an unchanged 4.3% y/y, though the 3-mth annualized rate would drop to 3.6% (from 4.0%) if the consensus is correct.