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Week Ahead – All About Inflation Now

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After an impressive nonfarm payroll report and a successful avoidance of a Fed ‘taper tantrum’, the focus shifts to inflation.  Everything from earnings season, the regional Fed surveys, and the ISM reports suggest that global supply chain pressures remain intense, and that inflation will remain elevated.  The October inflation report is expected to show pricing pressures run to the hottest levels since 1990.

Given the broad-based inflation signs hitting both sides of the Atlantic, traders will look to see if the upcoming global inflation reports are able to unwind the surge in Treasuries and move forward expectations for the Fed to raise rates.

For the US, the upcoming week is filled with Fed speak, a couple of key Treasury auctions (3-year and 10-year), PPI and CPI reports, and consumer sentiment.  In Asia, the focus will fall on Chinese trade, credit, and inflation data.  In Europe, traders will eye the German ZEW survey, Russian GDP, UK GDP and Eurozone industrial production data.

US inflation about to hit hottest levels since the 90s

China property fears, trade and credit data in focus

When will the Biden administration tap the SPR?

 

Country


US
After an impressive nonfarm payroll report that included strong revisions to the prior two months, the US labor market recovery got its groove back.  It was a busy week that contained a dovish Fed taper announcement that triggered a major reset with Fed rate-hike expectations, Democrats inched closer to delivering on President Biden’s agenda, the US added 531,000 jobs in October, and promising data with Pfizer’s COVID pill.

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Wall Street will now fixate over the upcoming inflation report that could show the fastest increase since 1990.  Surging energy costs, persistent supply chain issues, and rising labor costs could have both the PPI and CPI reports run hotter-than-expected.

The majority of next week’s Fed speak will be before the inflation report but will still be closely watched.  On Monday, Fed’s Clarida speaks about the prospects for monetary policy, Fed Chair Powell will make opening remarks at the Fed Diversity Conference, Fed’s Harker speaks to the Economic Club of New York, Fed’s Bowman talks about the housing market, and Fed’s Evan’s talks about the economy.  On Tuesday, we will hear again from Powell, Fed’s Bullard, Fed’s Daly and Fed’s Kashkari.  On Friday Fed’s Williams speaks.

EU

 

Next week has little to offer from the EU. We’re in wait and see mode ahead of the December ECB meeting, at which point we may have a better idea of what will replace PEPP in March, if anything.

 

The only standout events come on Tuesday as we get the ZEW economic sentiment readings and hear from ECB President Christine Lagarde. Investors weren’t buying the “inflation is transitory” message last week. Maybe she’ll have more luck on Tuesday.

UK

After this week’s BoE meeting, it’s clear the MPC is uncertain on the path for inflation and interest rates and is hesitant to pull the trigger. Yet it knows it has backed itself into a corner and must now deliver in the coming months. Governor Bailey speaks on Tuesday and may be able to clear up some confusion.

Thursday then offers a selection of data including monthly and quarterly GDP readings.

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Russia

 

GDP data on Wednesday is the only release of note next week. The CBR has previously made clear that another large rate hike will likely be warranted before the end of the year in order to combat high inflation which is expected to reach almost double the central bank’s target.

South Africa

Finance Minister Enoch Godongwana will deliver the medium-term budget statement on Tuesday. No other notable data due next week.

Turkey

A couple of pieces of data due next week including unemployment and industrial production.

Inflation rose closer to 20% last month which will further fuel concerns about the policy direction of the central bank, under pressure from President Erdogan. The lira continues to suffer despite enjoying some rare reprieve over the last couple of weeks. It didn’t last long and could be headed for fresh record lows and a move above 10 to the dollar, a massive psychological blow.


China
China releases Inflation data on Wednesday but in the immediate term markets will be on tenterhooks over the coming weekend. A unit of Evergrande is due to make offshore coupon payments of just over $82.0 million Saturday. Property developer Kaisa’s shares were suspended on Friday in Hong Kong after it warned of liquidity issues and put circa $12 billion of developments on the sales block. Mainland and Hong Kong equities ended the week on a sour note as fears rose of deepening woes in the property sector. If Evergrande misses payment this weekend, and enters a 30-day grace period again, China and Hong Kong equities are likely to move sharply lower on Monday.

 

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Elsewhere, the China regulator has apparently asked some banks (mostly regional) to not increase wealth management assets from present levels. The shared prosperity interventions by China’s government appear to be moving into a new phase and are another potential headwind this week. These developments are overshadowing the Communist Party Central Committee meeting starting Monday, and new policy measures could emerge mid-week.

India

Holidays have shortened the trading week in India where a buoyant IPO market continues to suck in foreign inflows, keeping the INR firm. Much will depend on the US Non-Farm Payrolls where a high number could have the Fed tightening story back front and centre, and weigh on INR and other Asian currencies. India markets also stand to benefit from lower oil prices although Northern India still faces challenging energy conditions.

 

No significant data until Friday with the release of Manufacturing and Industrial Production, and Inflation. The former should confirm India is emerging from Covid slowdown. Inflation will be closely watched thanks to India’s stagflationary monetary conditions. A fall in inflation to near 4.0% should be enough to boost India equities into the end of next week.

 

Australia & New Zealand

The dovish hawkish unchanged RBA decision will continue to dominate Australian equities next week as local markets mark local bond yields lower in response to no signs of change in RBA guidance. Overall, price action in equity markets, and AUD, continues to be dominated by investor sentiment in the US. That said, another tumble in iron ore this week could weigh on both.

Australian employment data on Thursday will cause intra-day volatility, but even if the data is poor, markets will likely look through it to the domestic and international border reopening story and the expected consumer rebound.

NZ Business PMI is the only notable data point this week. The currency will be dominated by investor sentiment swings in international markets. Locally, markets remain laser-focused on RBNZ and how much it will hike later this month.

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Japan

Japan has no significant data this week. Local equities are alternating between following investor sentiment in New York, or wringing hands over the contents of the new government’s forthcoming stimulus package. Much of the recent rally in the Nikkei can be attributed to the stimulus hopes, and if the details disappoint, that will weigh on the Nikkei. It is likely to be a story for later in November though.

USD/JPY continues to range between 113.50 and 114.50, with its daily movements almost entirely correlated to the US/Japan interest rate differentials. Readers should watch the ebb and flow of those for direction, or have a good book to read while waiting.

Markets


Oil
Now that the OPEC+ is over with and COP26 is winding down, energy traders are in wait-and-see mode to see what will be the response from the Biden administration. It seems very likely the US will tap the strategic petroleum reserve and possibly unveil other actions.  The oil market deficit remains firmly in place but many traders are hesitant to scale back in until the US makes an announcement about an SPR release.

Gold

Both Fed and BOE rate-hike bets are getting pushed back and that has been great news for bullion.  Global bond yields have been tumbling quickly and that has revitalized the trade in gold.  Even as the US labor market gets back on track and stocks continue to make fresh records, gold is seeing steady support.  The Fed might be making a policy mistake and that is supporting gold prices.  Investors will closely follow the next round of Fed speak to see if policymakers’ confidence with the transitory narrative is waning.

Bitcoin

Bitcoin continues to consolidate as retail investors primarily focus on altcoins and institutional traders can’t pass up on the volatility in the bond and stock market.  Bitcoin continues to attract new investors and that should support the current consolidation pattern.

New York City Mayor-elect Eric Adams said, “NYC is going to be the center of the cryptocurrency industry and other fast-growing, innovative industries.”  Cryptocurrency traders will wait to see if anything of substance happens in New York.

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Key Economic Events

 

Saturday, Nov. 6

  • Berkshire Hathaway earnings.

Economic Data/Events:

  • Singapore foreign reserves

Sunday, Nov. 7

Economic Data/Events:

  • China Oct Trade Balance: $64.0Be v $66.8B prior, forex reserves: $3.201Te v $3.201T prior

Monday, Nov. 8

  • The U.S will lift restrictions for vaccinated travelers.
  • China’s Communist Party’s decision-making Central Committee 4-day event begins
  • ECB Chief Economist Lane speaks at ECB conference on money markets at an event hosted by The Hutchins Center on Fiscal & Monetary Policy at Brookings (along with Fed Vice Chair Clarida and former Fed chief Bernanke).
  • Eurogroup ministers meet in Brussels to discuss macro-economic developments and inflation.

Economic Data/Events:

  • Japan leading index, coincident index
  • South Africa gross and net reserves
  • Sweden house prices
  • Switzerland unemployment

Tuesday, Nov. 9

  • Virtual Conference on Diversity and Inclusion in Economics, Finance, and Central Banking speakers include Fed Chair Powell, BOE Governor Bailey, BOC Gov Macklem and ECB Executive Board member Schnabel.
  • Fed’s Daly speaks at NABE Tech Economics Conference.
  • US WASDE report on agricultural supply and demand.
  • EU finance ministers meet in Brussels.
  • ECB Executive Board members Panetta and Rehn, Bank of Russia Governor Nabiullina, People’s Bank of China Governor Yi Gang participate in a policy panel at the 30th anniversary conference of the Bank of Finland Institute for Emerging Economies.
  • ECB Forum on Banking Supervision two-day event featuring ECB President Lagarde, Executive Board member Elderson.
  • ECB Governing Council member Knot, Fed’s Bullard speak at a UBS conference.
  • Norges Bank releases financial stability report.

Economic Data/Events:

  • US Oct PPI Final Demand M/M: 0.6%e v 0.5% prior
  • Australia consumer confidence, NAB business confidence
  • China aggregate financing, money supply, new yuan loans
  • France trade
  • Germany trade, ZEW survey expectations
  • Japan labor cash earnings, bank lending, BoP, bankruptcies
  • Russia GDP
  • New Zealand ANC Truckometer, card spending
  • Mexico international reserves, CPI

Wednesday, Nov. 10

Economic Data/Events:

  • US Oct CPI M/M: 0.6%e v 0.4% prior; Y/Y: 5.8%e v 5.4% prior wholesale inventories, initial jobless claims
  • Australia weekly payroll, Westpac consumer confidence
  • Germany CPI
  • Denmark CPI
  • Norway CPI
  • Italy industrial production
  • Riksbank financial stability report
  • Japan M2 money stock, machine tool orders
  • China Oct PPI Y/Y: 12.3%e v 10.7% prior, CPI Y/Y: 1.3%e v 0.7% prior, FDI
  • New Zealand home sales
  • Thailand rate decision
  • France industrial sentiment
  • Turkey Unemployment
  • EIA Crude Oil Inventory Report

Thursday, Nov. 11

  • US bond market is closed in observance of Veterans Day.
  • European Commission publishes its updated economic forecasts.
  • EU trade ministers meet in Brussels to discuss World Trade Organization reforms.
  • South African Finance Minister Godongwana delivers his first budget.

Economic Data/Events:

  • UK industrial production, GDP
  • Australia unemployment, consumer inflation expectations
  • Japan PPI
  • Mexico central bank (Banxico) Rate Decision: Expected to raise overnight raise 25bps to 5.00%
  • Mexico industrial production
  • New Zealand food prices, ANZ business confidence
  • Russia Trade
  • South Africa manufacturing production, mining production, gold and platinum production
  • Turkey current account
  • Sweden unemployment

Friday, Nov. 12

  • Shanghai exchange weekly commodities inventory.
  • Final day of the UN COP26 Conference in Glasgow.
  • ECB’s Lane participates DG ECFIN’s workshop: “The future of the EU fiscal governance framework.”
  • BOE policy maker Jonathan Haskel delivers speech at the IARIW-ESCoE Conference “Measuring Intangible Assets and their Contributions to Growth.”

Economic Data/Events:

  • US Nov Prelim University of Michigan consumer sentiment: 72.5e v 71.7 prior
  • Eurozone Industrial production
  • Turkey Industrial production
  • India Industrial production
  • Norway GDP
  • Thailand foreign reserves, forward contracts
  • New Zealand manufacturing PMI
  • India CPI

Sovereign Rating Updates:

  • Portugal (Fitch)
  • Netherlands (S&P)    

 

Source: https://www.marketpulse.com/20211105/week-ahead-inflation-now/

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