As we start October, DB's Jim Reid asks whether we can power out of the gravitational pull of bad September seasonals. He notes that September 2023 was the 4th year in a row that the S&P 500 and the STOXX 600 were down for the month, as well as the 7th year in a row that Bloomberg’s global bond aggregate was down for the month. The damage in bonds has been more severe and more sustained than for equities and you can’t help wondering where the real damage is. The bottom line as the strategist puts it, is that "you can’t have this much value destruction in bonds without there being some stress somewhere. However, it’s near impossible to work out where exactly it might come to the surface."
One thing that is certain is that it will, just give it time.
The good news as we start the week and the new business month is that the US averted a shutdown just before the deadline on Saturday night which will keep the government running until November 17th. This gives negotiators more time to pass something more long standing. We will see if we’re in the same position in six weeks' time though.
For now no shutdown means that US data will get published on time this week. The highlight is clearly Friday’s payrolls. Before that, the JOLTS (tomorrow) and ADP (Wednesday) data will give us some early clues. The former is a month behind but is obviously a key report to assess labour market tightness by looking at the quits rate, hirings and vacancies etc.
The highlights for the rest of the week are the US ISM and a Powell roundtable discussion today, an expected hold from the RBA tomorrow, US services PMI, Euro Zone retail sales, Euro Zone PPI and a Lagarde speech on Wednesday, French IP on Thursday with German factory orders on Friday. The full week ahead is at the end, including a bevy of central bank speakers, but we’ll quickly preview today’s ISM and Friday’s payrolls below.
Going back to the main events, DB's economists and the consensus are expecting +165k for headline payrolls (+187k previously) with the unemployment rate expected to dip back down a tenth to 3.7% after surprisingly increasing three tenths last month. A reminder that every headline payroll number has now been revised lower in 2023. In early summer we were on a run of 13 successive beats but some of that has now gone with revisions.
Today’s US manufacturing ISM (47.5 expected at DB vs. 47.6 last) and Wednesday's services ISM (54.1 vs. 54.5) are expected to be fairly stable. For the former our economists’ models suggest an uptick but the UAW strikes could offset that as perhaps foretold by a weak Chicago PMI last week. Note that it’s likely too early for this strike to impact payrolls but it could make a sizeable impact next month. For services watch for the employment index as this surprisingly soared 4 points to 54.7 last month.
Talking of such indices, the official China manufacturing PMI edged up to 50.2 (50.1 expected) over the weekend from 49.7 in August. Services also beat by a tenth to 51.7 from 51.0 in August. The private Caixin equivalents were at 50.6 and 50.2 respectively, below the 51.2 and 52.0 expected. So a mixed set of data as China starts a holiday week.
Courtesy of DB, here is a day-by-day calendar of events
Monday October 2
- Data: US September ISM index, August construction spending, UK September Nationwide house price index, Japan Q3 Tankan indices, Italy September manufacturing PMI, new car registrations, budget balance, August unemployment rate, Eurozone August unemployment rate, Canada September manufacturing PMI
- Central banks: Fed Powell, Harker and Williams speak, BoJ Summary of Opinions September MPM, ECB's Centeno and de Cos speak, BoE's Mann speaks
Tuesday October 3
- Data: US September total vehicle sales, August JOLTS, Japan September monetary base, France August budget balance
- Central banks: Fed's Mester and Bostic speak, ECB's Simkus, Lane and Villeroy speak, RBA decision
Wednesday October 4
- Data: US September ISM services, ADP report, August factory orders, UK September official reserves changes, Italy September services PMI, Q2 deficit to GDP, Eurozone August retail sales, PPI
- Central banks: Fed's Bowman and Goolsbee speak, ECB's Lagarde, Guindos, Centeno and Panetta speak
- Earnings: Tesco
Thursday October 5
- Data: US August trade balance, initial jobless claims, UK September construction PMI, new car registrations, Germany September construction PMI, August trade balance, France August industrial and manufacturing production, Canada August international merchandise trade
- Central banks: Fed's Daly, Barr and Mester speak, ECB's Nagel, Villeroy, Guindos and Lane speak, BoE DMP survey, Broadbent speaks
- Earnings: Constellation Brands
Friday October 6
- Data: US September jobs report, August consumer credit, Japan August leading and coincident indices, labor cash earnings, household spending, Italy August retail sales, Germany August factory orders, France August trade balance, current account balance, Canada September jobs report
- Central banks: Fed's Waller speaks
* * *
Turning to just the US, Goldman writes that the key economic data releases this week are JOLTS job openings on Tuesday, the ISM services report on Wednesday, and the employment report on Friday. There are many speaking engagements from Fed officials this week, including Chair Powell, governors Bowman and Waller, Vice Chair for Supervision Barr, and presidents Harker, Williams, Mester, Bostic, Goolsbee, and Daly.
Monday, October 2
- 10:00 AM Construction spending, August (GS +0.8%, consensus +0.6%, last +0.7%)
- 10:00 AM ISM manufacturing index, September (GS 48.5, consensus 47.7, last 47.6): We estimate the ISM manufacturing index rebounded by 0.9pt to 48.5 in September, reflecting the rebound in East Asian industrial activity and upward convergence towards other business surveys. Our GS manufacturing tracker was unchanged on net at 49.1.
- 11:00 AM Fed Chair Powell and Philadelphia Fed President Harker (FOMC non-voter) speak: Fed Chair Jerome Powell and Philadelphia Fed President Patrick Harker will participate in a roundtable discussion with workers, small business owners and community leaders in York, Pennsylvania. A Q&A is expected. On August 25 Harker said, “right now, I think that we’ve probably done enough… I’m in the camp of, let the restrictive stance work for a while… and that should bring inflation down.”
- 01:30 PM New York Fed President Williams (FOMC voter) moderates discussion: Federal Reserve Bank of New York President John Williams will moderate a discussion with Columbia University professor Joseph Stiglitz at 2023 Environmental Economics and Policy Conference: Measuring and Adapting to Climate Risk, hosted by the New York Fed and Columbia SIPA. Text is not expected. On September 29 Williams said, “my current assessment is that we are at, or near, the peak level of the target range for the federal funds rate. I expect we will need to maintain a restrictive stance of monetary policy for some time to fully restore balance to demand and supply and bring inflation back to our 2% longer-run goal.”
- 07:30 PM Cleveland Fed President Mester (FOMC non-voter) speaks: Federal Reserve Bank of Cleveland President Loretta Mester will speak on the economic outlook at the 50 Club of Cleveland monthly meeting. Text and audience Q&A are expected. On September 1 Mester said, “In the labor market, some progress is being made in bringing demand and supply into better balance, but the job market is still strong.”
Tuesday, October 3
- 08:00 AM Atlanta Fed President Bostic (FOMC non-voter) speaks: Federal Reserve Bank of Atlanta President Raphael Bostic will take part in a moderated conversation at Leadership Atlanta’s alumni roundtable. He will discuss the economic outlook for 2024, inflation, interest rates, the labor market, and sources of uncertainty. Audience Q&A is expected. On September 4 Bostic said, “I think that it’s appropriate to just be cautious at this stage. We don’t have to rush and we can let our policy do its work and continue to slow the economy down and continue us on that road to the 2% target.”
- 08:15 AM ADP employment change, September (GS +190k, consensus +158k, last +177k): We estimate a 190k rise in ADP payroll employment in September, reflecting stronger Big Data employment indicators.
- 10:00 AM JOLTS job openings, August (GS 8,800k, consensus 8,830K, last 8,827k)
- 05:00 PM Lightweight motor vehicle sales, September (GS 15.5mn, consensus 15.4mn, last 15.0mn)
Wednesday, October 4
- 10:00 AM Factory orders, August (GS +0.3%, consensus +0.3%, last -2.1%)
- 10:00 AM ISM services index, September (GS 53.5, consensus 53.5, last 54.5): We estimate that the ISM services index deletion declined to 53.5 in September. Our forecast reflects a net decline in business surveys (our nonmanufacturing tracker fell 0.4pt to 52.6) and our GSAI.
- 10:25 AM Fed Governor Bowman speaks: Fed Governor Michelle Bowman will deliver the keynote address at a community banking research conference at the St. Louis Fed. Text is expected. On September 22 Bowman said, “I expect it will likely be appropriate for the Committee to raise rates further and hold them at a restrictive level for some time to return inflation to our 2 percent goal in a timely way.”
- 10:30 AM Chicago Fed President Goolsbee (FOMC voter) speaks: Chicago Fed President Austan Goolsbee will deliver welcoming remarks at the Chicago Payments Symposium. On September 7 Goolsbee said, “we are very rapidly approaching the time when our argument is not going to be about how high should the rates go; it's going to be an argument about how long do we need to keep the rates at this position."
- 03:00 PM Chicago Fed President Goolsbee (FOMC voter) moderates discussion: Chicago Fed President Austan Goolsbee will moderate a discussion with former Reserve Bank of India Governor Raghuram Rajan, the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago's Booth School. Q&A is expected.
Thursday, October 5
- 08:30 AM Initial jobless claims, week ended September 30 (GS 210k, consensus 210k, last 204k): Continuing jobless claims, week ended September 23 (last 1,670k)
- 08:30 AM Trade balance, August (GS -$59.7bn, consensus -$64.3bn, last -$65.0bn)
- 09:00 Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Loretta Mester will introduce a keynote speaker presenting on cybersecurity trends at the Chicago Payments Symposium.
- 12:00 PM San Francisco Fed President Daly (FOMC non-voter) speaks: San Francisco Fed President Mary Daly will speak at the Economic Club of New York. Q&A is expected. On September 22 Daly said, “the thing that would be a problem is if we decided that we wanted to call it done we'd say we're done, we say definitely one more, when we actually don't know. Patience is a prudent strategy."
- 12:15 PM Fed Vice Chair for Supervision Barr speaks: Fed Vice Chair for Supervision Michael Barr will speak on cyber risk in the banking sector at the Cleveland Fed's Large and Foreign Banking Organizations Cyber Conference. Q&A and livestream are expected.
Friday, October 6
- 08:30 AM Nonfarm payroll employment, September (GS +200k, consensus +168k, last +187k); Private payroll employment, September (GS +180k, consensus +150k, last +179k); Average hourly earnings (mom), September (GS +0.30%, consensus +0.3%, last +0.2%); Average hourly earnings (yoy), September (GS +4.28%, consensus +4.3%, last +4.3%); Unemployment rate, September (GS 3.7%, consensus 3.7%, last 3.8%); Labor force participation rate, September (GS 62.8%, consensus 62.7%, last 62.8%): We estimate nonfarm payrolls rose by 200k in September (mom sa). Big Data indicators indicate strong job growth, consistent with the further decline in initial jobless claims and fewer end-of-summer layoffs than usual. We do not assume a drag from labor disputes, because the United Auto Workers strike started after the beginning of the survey week. On the negative side, September payrolls exhibit a negative bias in the initial prints, with payroll growth subsequently revised higher in eight of the last ten years (we assume a 40-50k headwind in Friday’s report). We estimate that the unemployment rate declined to 3.7%, reflecting a rise in household employment and unchanged labor force participation at 62.8% (we do not expect the August rise in the foreign-born labor force to reverse). We estimate a 0.30% increase in average hourly earnings (mom sa) that edges the year-on-year rate lower by 1bp to 4.28%, reflecting waning wage pressures but positive calendar effects (the latter worth +5bps month-over-month, on our estimates).
- 12:00 PM Fed Governor Waller speaks: Fed Governor Christopher Waller will participate in a moderated discussion about the payments system at a Brookings Institution event. Q&A is expected. On September 5 Waller said, “I don’t think one more hike would necessarily throw the economy into recession if we did feel that we needed to do one. It’s not obvious that we’re in real danger of doing a lot of damage to the job market, even if we raise rates one more time.”
Source: DB, Goldman. BofA