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Week Ahead Preview: highlights include UK GDP, Chinese inflation

By Newsquawk Voice Ltd (Ryan Anderson)Market OverviewNov 05, 2021 15:02
uk.investing.com/analysis/week-ahead-preview-highlights-include-uk-gdp-chinese-inflation-200501671
Week Ahead Preview: highlights include UK GDP, Chinese inflation
By Newsquawk Voice Ltd (Ryan Anderson)   |  Nov 05, 2021 15:02
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  • MON: BoJ SOO (Oct), Eurogroup Meeting; Swiss Unemployment (Oct), EZ Sentix (Nov)
  • TUE: Norges Bank Financial Stability Report (2021), EIA STEO; Australian NAB Business Conditions/Confidence (Oct), German Trade Balance (Sep), German ZEW (Nov), EZ ZEW (Nov), US NFIB (Oct), Australian Consumer Sentiment (Nov)
  • WED: Riksbank Financial Stability Report (H2), Bank of Thailand Policy Announcement; German CPI Final (Oct), Turkish Unemployment (Sep), Norwegian CPI (Oct), US CPI (Oct), Initial Jobless Claims (w/e 1 Nov), Chinese CPI, M2/New Yuan Loans (Oct)
  • THU: US Veteran's Day Holiday, OPEC MOMR, Banxico Policy Announcement; Australian Employment (Oct), Swedish Unemployment (Oct), UK GDP Estimate (Sep)/Prelim. (Q3)
  • FRI: BoC Senior Loan Officer Survey; Norwegian GDP (Sep/Q3), EZ Industrial Production (Sep), US JOLTS (Sep), University of Michigan Prelim. (Nov)

NOTE: Previews are listed in day-order

CHINESE INFLATION (WED)

Markets expect an uptick in inflation metrics across the board, with the CPI Y/Y seen at 1.4% (prev. 0.7%), M/M at 0.6% (prev. 0.1%), whilst PPI Y/Y is expected to rise to 12.0% from 10.7% to the hottest thus far this year.

The Caixin PMI proxies support the expectations for hotter Chinese inflation. "Prices in the services sector kept rising. Input costs increased for the 16th month in a row and rose at a faster pace than the previous month due to rising labour and raw material costs", according to the Services release, "Solid demand allowed businesses to pass part of this rise in costs downstream, leading the gauge for prices charged by service providers to reach the highest in three months.".

Meanwhile, the Manufacturing release also echoed this sentiment, suggesting that "The rate of inflation was the steepest seen since December 2016 and rapid overall."

China will be faced with the task of cushioning the impact of rising costs on company margins and consumers. Participants should be cognizant of targeted RRR or interest rate moves and potential state reserve releases.

BANXICO POLICY ANNOUNCEMENT (THU)

The Bank of Mexico will likely continue their tightening cycle at next Thursday's meeting; analysts at Credit Suisse (SIX:CSGN) look for another 25bp hike to 5%. At the prior meeting, the bank raised rates 25bps to 4.75% in a 4-1 vote split to help with upside risks to inflation.

Known dove Esquivel suggested a higher rate would not resolve factors causing inflationary pressures, suggesting the inflation is driven by supply chain woes. Meanwhile, from the minutes one member suggested a more aggressive adjustment of policy may be required - showing a large range of views on the five person board, although all said global inflation pressures and bottlenecks in production are continuing to affect headline and core inflation.

The latest rate hike was conducted as recent shocks to inflation "may pose risks to the price formation process and to inflation expectations" and thus "it was deemed necessary to reinforce the monetary policy stance by adjusting it to the trajectory required for inflation to converge to its 3% target within the forecast horizon".

Analysts at Credit Suisse suggest this line signalled the "normalization process is ongoing, as the new overnight rate is along the path required for inflation convergence" and based on the desk's current inflation forecasts, they are looking for another 25bp hike at this meeting and the next (16th December).

AUSTRALIAN EMPLOYMENT (THU)

Markets expect the Employment Change for October to show the addition of 50k jobs (vs -138k), while the Unemployment Rate is seen ticking higher to 4.7% from 4.6% alongside an uptick in the Participation Rate to 64.8% from 64.5%. Desks noted last months job shedding was a function of the Victoria State lockdown, although the impact on the labour market was not as dire as some had feared. Westpac, however, forecasts another month of job losses in October (-50k) but aligns its unemployment rate view with the market.

The bank suggests that proxies such as job ads, unemployment expectations and business surveys all point towards a robust market in the face of the most recent lockdowns. "Our -50k forecast is balancing the start of a recovery in NSW vs ongoing lockdown drags in Vic. Risks are to the upside.", the bank says, "On current trends, it is very possible that unemployment remains below 5% through to the end of the year despite the recent lockdowns in NSW and Vic."

UK GDP (THU)

Expectations for Q3 Q/Q growth are for an expansion of 1.4% (vs. Q2 5.5%) with the Y/Y rate seen at 6.8% (Q2 23.6%). Ahead of the release, it is worth noting the lacklustre outturns for July and August of -0.1% and +0.4% M/M respectively. Subsequently, expectations for Q3 overall have been downgraded with the BoE cutting its projection for the quarter to just 1.5% from its August view of 3%.

On the growth front, the MPC cautioned at its latest policy announcement that the pace of GDP has been constrained by supply chain disruptions and will continue to do so in the near-term. Subsequently, the MPC doesn't expect the UK economy to return to its pre-COVID level until Q1 2022 (prev. view of Q4 2021).

From a policy perspective, if the 1.4% consensus is realised this will be pretty much in-line with the Bank's forecast and therefore not have too much sway on the likelihood of a December hike. Conversely, a firmer outcome might see rate hike expectations solidify for December. That said, such a release would likely need to be allied with some evidence of a firm labour market post-furlough with the first report encapsulating that time period not due until December 14th (BoE meets on December 16th).

Week Ahead Preview: highlights include UK GDP, Chinese inflation
 

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Week Ahead Preview: highlights include UK GDP, Chinese inflation

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Comments (1)
Jamie Smith
Jamie Smith Nov 07, 2021 10:23
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Always fibd thesexarrickes a goid insight to the week ahead. Thank you
 
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