As DB's Jim Reid writes in his always entertaining weekly preview this morning, "If you’d have told anyone at the start of the year that annual US CPI would be 5.9% in the penultimate print of the year (as consensus expects on Wednesday) after already spending five months already above 5% then I don’t think you’d have got many predicting that there would be utter calm and buoyancy in the market." That's certainly the case, because while Goldman was - and still is - predicting buoyancy in the market, the bank's inflation forecast has been a total disaster as the following monthly forecast revisions so clearly show - in April, the bank saw year-end headline CPI at 2,77%; it is now 6.31%.
In any case, at the start of the year the forecast for the full year was 2%.
That said, it is a quieter week ahead after all the fun and games of central banks and payrolls Friday last week. The peak of earnings season is well behind us now, especially in the US with ‘only’ 13 and 76 companies reporting in the S&P 500 and Stoxx 600 respectively. Perhaps the report of most interest on the inflationary side of the debate is the US JOLTS job opening figures on Thursday. According to DB strategist Francis Yared, the quit rate in this report has been acting as if the labor market is already through full employment. So for the Fed and the market to be right on inflation, this needs to come down as covid employment supply shocks ease. This month will be too early for this and will likely still show a very tight labor market for the September survey period. Where NAiRU is, is anyone's guess at the moment but it feels higher than where it was pre-covid.
Other data will also provide further clues on inflation pressures this week, in particular the PPI reading tomorrow, as well as the inflation expectations in the University of Michigan’s index on Friday. Finally, China will be releasing their own CPI and PPI inflation figures on Wednesday too.
Previewing US CPI in more detail now, last month we had yet another upside surprise, which marked the 5th time in the last 7 months that the month-on-month figure has been above the median estimate on Bloomberg. Furthermore, we saw a number of fresh drivers behind inflation, with food inflation (+0.93%) seeing its biggest monthly increase since April 2020, whilst owners’ equivalent rent (+0.43%) saw its strongest increase since June 2006. These housing gauges are something that Fed officials have signposted as having the potential to provide more durable upward pressure on inflation. The part of inflation that accounts for around 40% of core CPI will be comfortably above 4% yoy next year. The used car component may also pick up again given the 2-3 month lag between actual price rises and it appearing in the CPI, although this spike may wait another month as the lag is not precise. In terms of Wednesday’s print in month on month terms, DB economists are at +0.47% (consensus +0.6%), which would be the strongest monthly reading since July. They think core will print at +0.37% mom (consensus +0.4%).
There’ll be less central bank action this week but a potential area to keep an eye on will be any developments on Fed appointments, with Chair Powell’s current four-year term coming to an end in early February. President Biden said last Tuesday that he would announce his nominees “fairly quickly”. The wires (including Bloomberg) reported that both Fed Chair Powell and Governor Brainard met Biden separately at the White House on Thursday. Brainard could be slated for a VP or bank supervision role so tough to read too much into it. Separately, Axios have also reported that the White House is asking Democratic senators to meet with Powell before Thanksgiving. Bear in mind that whoever is nominated would need to be confirmed by the Senate. We don’t have a formal date yet on when this might be announced, but at this point 4, 8 and 12 years’ ago, the decision of who would be nominated for Fed Chair had already been made public.
On the US political front, the House passed the $550 billion bi-partisan infrastructure bill late on Friday night, with 13 yes votes from House Republicans and 6 no votes from progressive Democrats. Outlays are slated for the next ten years, and the Congressional Budget Office estimated the bill will add $256 billion to the Federal budget deficit over that time. A vote for the Biden administration’s social and climate spending bill is now slated for after next week’s Congressional break. Biden’s party also had a poor showing in elections last week, losing the Virginia governorship, and seeing the race in New Jersey come down to the wire. Biden carried both states comfortably only a year ago, so much has been made about what this means for Democratic chances to retain their razor thin majority in Congress in next year’s midterm elections.
On the earnings front, the highlights include PayPal today, before we hear from Bayer and Porsche tomorrow. Then on Wednesday we’ll get releases from Disney, Allianz, Adidas, Credit Agricole and EDF. Thursday sees Siemens, Merck and ArcelorMittal report, before AstraZeneca and Deutsche Telekom release on Friday. The rest of the day by day calendar is at the end as usual. Remember Thursday is a US holiday.
Key Events this week, courtesy of Deutsche Bank:
Monday November 8
- Data: Japan preliminary September leading index
- Central Banks: Fed Chair Powell, Vice Chair Clarida and Fed’s Harker, Bowman and Evans, and ECB’s Lane speak
- Earnings: PayPal
Tuesday November 9
- Data: Germany November ZEW survey, US October PPI
- Central Banks: PBoC Governor Yi Gang, ECB President Lagarde, ECB’s Panetta, Rehn, Knot, Schnabel, Fed Chair Powell, Fed’s Bullard, Daly, Kashkari, BoE Governor Bailey, Deputy Governor Broadbent speak
- Earnings: Bayer, Porsche
Wednesday November 10
- Data: China October CPI, PPI, Italy September industrial production, US October CPI, weekly initial jobless claims, Japan October PPI (23:50 UK time)
- Central Banks: ECB’s Elderson speaks
- Earnings: Disney, Allianz, Adidas, Credit Agricole, EDF
Thursday November 11
- Data: UK preliminary Q3 GDP
- Central Banks: ECB publishes Economic Bulletin, ECB’s Schnabel speaks
- Earnings: Siemens, Merck, ArcelorMittal
- Other: EU Commission publishes economic forecasts, Veterans Day in the United States
Friday November 12
- Data: Euro Area September industrial production, US September JOLTS job openings, preliminary November University of Michigan consumer sentiment index
- Central Banks: Fed’s Williams, ECB’s Lane and BoE’s Haskel speak
- Earnings: AstraZeneca, Deutsche Telekom
- Other: UN Climate Change Conference (COP26) concludes in Glasgow
Finally, looking at just the US, the key economic data release this week is CPI on Wednesday. There are several scheduled speaking engagements from Fed officials this week, including a panel discussion on monetary policy with Vice Chair Clarida on Monday.
Monday, November 8
- There are no major economic data releases scheduled.
- 09:00 AM Fed Vice Chair Clarida (FOMC voter) speaks: Fed Vice Chair Richard Clarida will participate in a discussion on the new Fed and ECB monetary policy frameworks hosted by the Brookings Institution. Prepared text and moderated Q&A are expected.
- 10:30 AM Fed Chair Powell (FOMC voter) speaks: Fed Chair Jerome Powell will present opening remarks at a conference on diversity hosted by the Federal Reserve Board. Prepared text is expected.
- 12:00 PM Philadelphia Fed President Harker (FOMC non-voter) speaks: Philadelphia Fed President Patrick Harker will speak at the Economic Club of New York.
- 12:00 PM Fed Governor Bowman (FOMC voter) speaks: Fed Governor Michelle Bowman will discuss the housing market at a Women in Housing and Finance event. Prepared text and moderated Q&A are expected.
- 01:50 PM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will discuss the economy and monetary policy at an automotive supplier conference. Prepared text and Q&A are expected.
Tuesday, November 9
- 06:00 AM NFIB small business optimism, October (consensus 99.3, last 99.1)
- 08:30 AM PPI final demand, October (GS +0.7%, consensus +0.6%, last +0.5%); PPI ex-food and energy, October (GS +0.6%, consensus +0.5%, last +0.2%); PPI ex-food, energy, and trade, October (GS +0.3%, consensus +0.2%, last +0.1%): We estimate a 0.6% increase in PPI ex-food and energy, and a 0.3% increase in PPI ex-food and energy, and trade, reflecting a continued boost from supply chain bottlenecks, labor shortages, and commodity prices. We estimate that headline PPI increased by 0.7% in October.
- 09:00 AM St. Louis Fed President Bullard (FOMC non-voter) speaks: St. Louis Fed President James Bullard will participate in a discussion at a virtual investor conference.
- 09:00 AM Fed Chair Powell (FOMC voter) speaks: Fed Chair Jerome Powell will present opening remarks at a conference on diversity and inclusion jointly hosted by the Federal Reserve, European Central Bank, and Bank of Canada. Prepared text is expected.
- 11:35 AM San Francisco Fed President Daly (FOMC voter) speaks: San Francisco Fed President Mary Daly will participate in a virtual discussion hosted by the National Association for Business Economics. Moderated Q&A is expected.
- 01:30 PM Minneapolis Fed President Kashkari (FOMC non-voter) speaks: Minneapolis Fed President Neel Kashkari will speak at a townhall hosted by the University of Wisconsin-Eau Claire. Audience Q&A is expected.
Wednesday, November 10
- 08:30 AM CPI (mom), October (GS +0.68%, consensus +0.5%, last +0.4%); Core CPI (mom), October (GS +0.42%, consensus +0.4%, last +0.2%); CPI (yoy), October (GS +5.98%, consensus +5.8%, last +5.4%); Core CPI (yoy), October (GS +4.39%, consensus +4.3%, last +4.0%): We estimate a 0.42% increase in October core CPI (mom sa), which would boost the year-on-year by 0.4pp to 4.4%. Our forecast reflects a rebound in used car prices and another month of strong gains for new cars and auto parts. We believe supply chain bottlenecks and labor shortages boosted prices in several other categories as well, such household furnishings, recreation, and personal care. We also look for a rebound in hotel prices as Delta fears ebb, and we forecast a sizeable pickup in medical services inflation because the BLS will incorporate newly available annual source data for the health insurance subcategory. We estimate rent +0.40% and OER +0.35%, reflecting the strength in our shelter tracker but a drag from imputed utilities. We estimate a 0.68% increase in headline CPI (mom sa), reflecting higher restaurant, grocery, and energy prices.
- 08:30 AM Initial jobless claims, week ended November 6 (GS 250k, consensus 265k, last 269k); Continuing jobless claims, week ended October 30 (last 2,105k): We estimate initial jobless claims increased to 250k in the week ended November 6.
- 10:00 AM Wholesale inventories, September final (consensus +1.1%, last +1.1%)
Thursday, November 11
- There are no major economic data releases scheduled. SIFMA recommends bond markets close for Veterans Day Holiday. NYSE will remain open.
Friday, November 12
- 10:00 AM University of Michigan consumer sentiment, November preliminary (GS 72.2, consensus 72.4, last 71.7); We estimate the University of Michigan consumer sentiment index increased by 0.5pt to 72.2 in the preliminary November reading.
- 10:00 AM JOLTS Job Openings, September (last 10,439k)
- 12:10 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will give remarks at a conference on “Heterogeneity in Macroeconomics: Implications for Policy” hosted by his bank.
Source: DB, Goldman, BofA