Week in Review
After much anticipation of last week’s events, the Fed, the global macro data, and the US voting public delivered a set of results that were broadly market friendly. The Fed embarked on a second round of quantitative easing that, in terms of size, speed and conditionality, is about in line with our expectations. The Republicans seized the House and eroded the Democratic hold on the Senate a bit, also as expected. The US and global industrial data showed some pockets of unexpected strength and GLI momentum has now turned decidedly positive. The week ended with stronger-than-expected payrolls, especially taking into account upward revisions to August and September. Though the household survey had a weaker tone – the unemployment rate held constant only because labor force participation dropped – on balance the labor market data were quite encouraging.
In G10 FX, NZD and AUD were the best performers against USD, as better-than-expected labor market data in New Zealand and a surprise hike by the RBA gave both currencies an extra lift, above and beyond that from QE2. EUR/$ ended the week only slightly higher, as the cross gave back almost all its QE2 gains on Friday as sovereign fears on the periphery once again became a focus point. Equities unambiguously embraced QE2, with the SPX ending the week 3.6% higher. The VIX ended the week down three points at 18.3.
This week brings the China trade balance for October, where a widening in the trade surplus is expected. Given the G-20 summit this week and the discussion over indicative target ranges for current account surplus countries, this number will be widely watched. We also get the usual activity and inflation indicators. We expect IP growth to pick up against a year ago, at a slightly stronger pace than consensus, and are looking for inflation to rise also above consensus. Overall, we are looking for confirmation that activity remains strong, while inflation continues to push upward. With inflation dynamics a reason for the recent rate hike, there will be particular focus on this point.
Following the G-20 ministerial meeting, which started a discussion over indicative targets for current account surplus and deficit countries, the key thing to look for is whether the G-20 summit further formalizes this discussion, by setting actual ranges for current account positions and by discussing steps to be taken in the event that such ranges are breached. We think any meaningful progress in this direction is unlikely.
Turkey IP (Sep) We forecast that IP grew 11.0% yoy in September, a touch below consensus of 11.2% yoy, and unchanged from the August reading.
German IP (Sep) We forecast growth of 0.2% mom, below consensus of 0.4% mom, and down from 1.7% mom in August.
Brazil IPCA inflation (Oct) We forecast 0.68% mom inflation in October, essentially in line with consensus of 0.67% mom, and up from 0.45% mom in September.
Mexico INPC inflation (Oct) We forecast 0.56% mom for headline inflation, close to consensus of 0.59% mom, and up from 0.52% mom in September. We think core will come in at 0.25% mom, in line with consensus, following 0.38% mom in September.
China trade balance (Oct) Consensus is looking for export growth to slow to 23.0% yoy, down from 25.1% yoy in September, while it is looking for imports to rise to 28.1% yoy, up from 24.1% yoy. Consensus is looking for a trade balance of $25.5 bn, up from $16.9 bn in September.
China CPI and IP (Oct) CPI inflation is likely to edge up to 4.1% yoy in October from 3.6% yoy in September. Consensus is looking for a slightly smaller rise to 4.0% yoy. We think the pick up in inflation is not just about base effects, but a genuine pick up in inflation.We think IP growth will rise to 13.7% yoy, above consensus of 13.5% yoy and up from 13.3% yoy in September.
Bank of England inflation report
United States trade balance (Sep) Consensus is looking for a trade deficit of -$45 bn, a slight narrowing from -$46.3 bn in August. We think the trade deficit will be -$44 bn, slightly narrower than consensus.
United States initial claims (Nov 6) Consensus is looking for initial claims of 450k, down slightly from last week’s reading of 457k.
Turkey central bank meeting We expect the CBRT to keep the policy rate on hold at 7.0%, in line with consensus.
Australia employment report (Oct) Consensus expects the unemployment rate to drift down to 5.0% from 5.1% in September.
Malaysia central bank meeting We expect Bank Negara Malaysia to stay pat in the upcoming policy meeting. We believe they can afford to pause for longer, recognizing a slower second half external environment while inflation remains moderate.
Euro zone GDP (Q3) We forecast growth of 0.4% qoq (not annualized), slightly below consensus of 0.5% qoq and down from the very strong pace of 1.0% qoq
United States U. of Michigan consumer confidence (Nov) Consensus is looking for a reading of 69.0, up from 67.7 in October.
Hong Kong GDP (Q3) We expect GDP to grow 6.0% yoy after rising 6.5% yoy in 2Q2010. This is in line with the consensus. This implies a flat qoq sequential growth path. We currently forecast GDP growth of 6.0% and 5.0% in 2010 and 2011 respectively.
From Goldman's Tom Stolper