In the upcoming week markets will continue to focus on these fiscal issues in the US, now that a temporary Government shutdown past Tuesday is assured. Still on the fiscal side but outside the US, look forward to Prime Minister Abe announcing his final decision on the VAT hike as well as unveiling a widely anticipated economic stimulus package. Finally, fiscal policy also played a role in the Italian political instability with four ministers resigning from the coalition Government. The backdrop to these events is a rapid deterioration of the political climate after former PM Berlusconi was convicted of tax evasion by a High Court.
The upcoming week also brings the usual end-of-month spurt in key data releases globally and in particular in the US. Consensus expects payrolls to come in around 180K, though with a number of key labour market releases due before the NFP number, there is scope for forecast revisions. PMIs from the US, Europe and China, as well as the quarterly Tankan report from the BOJ are also on deck.
On the monetary policy side we have the ECB, BOJ, RBA and Poland MPC. It is likely that neither will announce changes to the current policy stance. There are more Fed speeches on the schedule this week, including from Chairman Bernanke.
Finally, high frequency data suggest that the dovish Fed surprise two weeks ago has not provided much of a relief in terms of additional capital inflows into EM. With a bunch of trade and current account deficit releases from several EM countries, including India, Turkey, Brazil, South Africa, Indonesia, we will hopefully be able to gauge if the funding needs have been reduced. Overall, we remain concerned about the size of external imbalances in these countries and expect further FX weakness.
Monday, Sep 30
- US Chicago PMI (Sep): Consensus 54.0, previous 53.0
- Japan IP (Aug): consensus +0.4%yoy, previous +1.8%yoy
- South Korea IP (Aug): Consensus +2.1%yoy, previous +0.9%yoy
- Euro Area Harmonized Inflation (Sep): consensus +1.2%yoy, previous +1.3%yoy
- Canada GDP (Q2)
- India CA Balance (Q2): Consensus USD-23.00bn, previous USD-18.08bn
- Turkey Trade Balance (Aug): Consensus USD-8.4bn, previous USD-9.8bn
- South Africa Trade Balance (Aug): Consensus ZAR-13.5bn, ZAR-14.2bn
- Thailand CA Balance (Aug): Consensus USD+653mn, previous USD-709mn yoy
- Poland CA Balance (Q2): Consensus EUR+1.45bn, previous EUR-2.05bn
- Also interesting: United Kingdom Mortgage Approvals (Aug) and Consumer Credit (Aug), Australia Private Sector Credit (Aug)
Tuesday, Oct 1
- Japan Watch for final decision on VAT hike and economic stimulus. We expect attention to focus on the latter. Several media outlets have reported that the government will unveil the outline of its ¥5tn stimulus package, mainly consisting of corporate tax reductions, with the termination of the reconstruction tax a year ahead of schedule and tax incentives to facilitate capital expenditures and salary hikes (a total corporate tax reduction of about ¥1.4tn). The package is expected to include budgetary measures such as cash benefits for house buyers and low-income earners as well as additional public investment.
- Japan Tankan and Household Surveys (Aug)
- Japan Wage Statistics (Aug)
- US ISM Survey (Sep): Consensus 55.1, previous 55.7
- China Manufacturing PMI (Sep): Consensus 51.6yoy, previous 51.0yoy
- European Manufacturing PMIs (Sep)
- Brazil Trade Balance (Sep): Consensus USD+2.06bn, previous USD+1.23bn
- Russia CA Balance (Q3): Previous USD+6.7bn
- Indonesia Trade Balance (Aug): previous USD-2.4bn
- South Korea Trade Balance (Sep): consensus USD+4.65bn, previous USD+4.85bn yoy
- Also interesting: US Construction Spending, Russia GDP (Q2 final)
Wednesday, Oct 2
- 3 Fed speakers: Bernanke (FOMC voter) on community banking at St Louis Fed Conference, Rosengren (FOMC voter) on economy, Bullard (FOMC voter)
- ECB meeting: Consensus has target rate unchanged at 0.5% and Deposit Facility rate unchanged at 0%. No change in policy rates is expected nor any indication that a rate cut is imminent.
- Poland MPC: Consensus has it unchanged at 2.50%.
- UK PMI - Construction (Sep): consensus 59.5, previous 59.1
- US ADP Employment Change (Aug): previous +176k
- Also interesting: Chile MPC meeting minutes (Sep), Brazil IP (Aug)
Thursday, Oct 3
- 4 Fed speakers: Powell (FOMC voter), Williams (non-voter), Fisher (non-voter), Lockhart (non-voter) on labor market
- US Initial Jobless Claims: consensus 314K, previous 305K
- US Non-Manufacturing ISM Survey (Sep): Consensus 57.0, previous 58.6
- Japan MPC (1st day out of 2)
- European Services PMIs (Sep)
- Brazil Inflation report: We expect projected inflation (under the updated reference scenario with Selic constant at 9.00% and BRL/USD likely at 2.20) to remain significantly misaligned from the target, which implies the Copom would have to continue to tighten monetary policy.
Also interesting: Indonesia FX Reserves (Sep), Sweden PMI, Turkey CPI
- Friday, Oct 4
- 4 Fed speakers: Dudley (FOMC voter), Stein (FOMC voter), Kocherlakota (non-voter) on monetary policy, Fisher (non-voter)
- Japan MPC (2nd day out of 2) with statement release and press conference. Expect the BOJ to maintain current stance. Recent statements by monetary policy board members led by BOJ Governor Kuroda indicate that the economy and prices are trending in line with the BOJ’s scenario, suggesting no significant impact on the long-term growth trend of Japan’s economy even if consumption tax were to be raised as planned. The possibility of the BOJ implementing additional monetary easing at its monetary policy meeting is extremely low.
- Malaysia Trade Balance (Aug): consensus RM+4.9bn, previous RM+2.9bn
- US Unemployment Rate (Sep): Consensus 7.3%, previous 7.3%
- US Non-Farm Payrolls (Sep): Consensus 180K, previous 169K
- Also interesting: Russia CPI (Sep), Taiwan FX Reserves
The above in chart format, via SocGen:
Key issues for the week ahead:
No monetary policy action, but that’s not the end of it
The ECB meets in Paris this week on Wednesday amid heightened interest in the level of the liquidity in the euro system. As we spell out in the ECB preview we expect a further LTRO to be announced early next year.
The BoJ is still on course to deliver the expansion in the monetary base that will see it reach Yen 270tn by the end of 2014. It has no reason to make any change to that policy target this week and we expect none. However, the BoJ needs to decide by no later than the end of Q2 2014 whether to change that target and extend it to the end of 2015. This decision will need to take into account the planned introduction of the consumption tax increase on 1 April; the BoJ may wish to offset the impact of that increase by a further relaxation of monetary policy. The main risk is of an earlier increase.
The RBA has confused the markets with its apparent change of heart on the possibility of a further rate cut. The strength of the exchange rate and the highly puzzling weakness of the labour market in apparent contradiction to the stronger GDP data should keep the door open to more easing. Nevertheless, that is an option for another day. At this week’s meeting, we and the market are firmly of the view that the cash rate will remain at 2.5%.
Abenomics still showing up in the Tankan
This week sees the release of the key business survey on Japan, the Tankan. The Q2 survey readings responded rapidly to the new policy approach. In the Q3 survey we expect less dramatic news. The impact of the policies of course will continue to be felt but since the initial burst of excitement, the yen has stabilised. It has, however, stabilised in a range of 96 to 101, a higher level than companies were assuming (just over 91 in FY 2013). Thus profits should be stronger than companies were anticipating, which might also help investment plans.
US unemployment approaching the not-so-magic 7%
The latest initial jobless claims data, backed up by the gentle start to the Atlantic storm season augur well for a substantial increase in non-farm payrolls of 240k after 169k in August. We also predict that the unemployment rate will fall from 7.3% to 7.1%. That is within striking distance of the supposed 7% Fed threshold but, of course, after the latest FOMC meeting, we now know that this is no longer sufficient to act as a trigger for tapering to commence. We now expect that in December but Bernanke’s seeming contradiction of the earlier guidance imparts a high degree of uncertainty into any new forecast of a tapering date.
Source: Goldman, SocGen