What happened last week
Monday: Eurozone October Sentix investor confidence -38.3 vs -34.7 expected, level only reached in May 2020 and March 2009, in the wake of the covid recessions and GFC, respectively. Japan October current account balance -0.53T vs -0.47T expected, deepest deficit since 2014. Australia NAB business confidence 5 in Sept. vs 10 prior.
Tuesday: UK Aug. average earnings index + bonus 6.0% vs 5.9%e. UK Sept. claimant count 25.5k vs 4.2k change expected. UK Aug. unemployment rate 3.5% vs 3.6%e. US NFIB small business optimism 92.1 vs 91.2e, third consecutive month of increase. Brazil Sept. CPI 7.17% YoY vs 7.10%e, and down from 8.73% in August: Brazilian CPI looks like it is peaking. China, a very strong total social financing (TSF) number, led by loan growth, prior to the 20th National Congress: September TSF 3,530bn vs 2,725bn expected and outstanding loan growth 11.2% YoY vs 10.9%e.
Wednesday: UK Q2 GDP final estimate +0.2% QoQ real growth driven by services (vs +5.2% for GDP deflator, driven by an 8.2% increase in the implied price of household consumption !). UK Sept. RICS house price balance (% reporting house price increase) down to 35% from 51% prior, and vs 45%e. The US 30 yr mortgage rate keeps climbing to reach 6.81%. US housing MBA purchase index 170.5, lowest since 2016. US Sept. PPI 8.5% YoY vs 8.4%e, core PPI 7.2% vs 7.3%e: positive surprise driven by energy ex-gasoline and food; intermediate good inflation down and final demand good inflation flat. Japan Sept. PPI 9.7% YoY vs 8.8%e. India Sept. CPI 7.41% YoY vs 7.3%e.
Thursday: German Sept. CPI 10% YoY as expected. US continuous jobless claims 1,368k vs 1,365k expected, initial jobless claims 228k vs 225k expected. US core CPI 6.6% YoY vs 6.5%e, 0.6% MoM vs 0.5%e. US headline CPI 8.2% YoY vs 8.1%e, 0.4% MoM vs 0.2%e. Shelter (0.7% MoM, same as in August) and Owners’ equivalent rent (0.8% MoM in Sept. vs 0.7% in August) drove higher services inflation, and Food inflation was sticky at 0.8% MoM. Meanwhile Gasoline fell -4.9% MoM alleviating energy inflation and Apparel was down -0.3% MoM. China Sept. CPI 2.8% YoY as expected, and PPI 0.9% YoY vs 1% expected.
Friday: The market turmoil in Gilts led to the firing of the UK Finance minister and the backtracking over some of the announced fiscal measures: no cut in the top rate of personal tax and maintenance of the corporate tax hike of April 2023. The BoE’s support program expired with cumulative purchases amounting to GBP 19.5bn. UK 30yr rates were volatile and climbed again during PM Truss’s press conference, which is a sign that markets are not fully satisfied by the latest announcements. Indian Sept. wholesale price inflation 10.7% YoY vs 11.5%e. French Sept. CPI 5.6% YoY as expected. Spanish Sept CPI 8.9% YoY vs 9%e. US core retail sales 0.1% vs -0.1%e, retail sales control group 0.4% vs 0.3%e. US October Michigan survey: Sentiment 59.8 vs 59e, Expectations 56.2 vs 58.5e, 1yr inflation expectations up to 5.1% from 4.7%, 5 yr inflation expectations up to 2.9% from 2.7%.
Sunday: The 20th Party Congress of the Chinese Communist Party marked a continuation of the policies at the core of Xi Jinping’s prior mandate. Going against expectations, the zero-covid policy was maintained. Hong Kong and Taiwan figured prominently with the celebration of Hong Kong having been turned “from chaos to governance” and a more aggressive tone towards Taiwan: [we will] “strive for peaceful reunification [but] we will never promise to renounce the use of force and we reserve the option of taking all measures necessary.” There was also a repeated mention of the need for China to preserve “national security”.
What to pay attention to this week
Monday: China will publish its Q3 GDP and New Zealand its Q3 CPI. Tuesday: German ZEW survey is out (how low can it go?). Wednesday: UK and the Eurozone’s respective CPI figures are both expected to come at 10% YoY for September. US building permits are expected to show moderation. Australia employment report to be watched as well as China’s PBoC decision on loan prime rate. Thursday: EU leaders meet. US initial jobless claims (have had a short streak of positive surprises lately). The US Philadelphia Fed Survey for October will be published. US home sales are expected to fall further. Friday: UK retail sales to watch for a barometer of real growth.
Nansen’s take
US macro data, whether looking at retail sales (slowing but experiencing positive real growth), consumer surveys (Michigan confidence), business surveys (NFIB small business survey) do not argue for a hard landing just yet. Both consumers and businesses have turned more positive in the last few months, possibly as a consequence of easing gasoline prices and supply chain costs, respectively. US initial jobless claims, which lead the remaining labor market indicators, have surprised to the upside in the last two weeks, but do not form a clear trend yet. Finally, gasoline and oil prices have stopped falling in October and inflation expectations (Michigan survey) have ticked up. We know from the latest CPI report that food and shelter/rents are driving US inflation (see chart below). The latter components should cool in Q2 2023, but the trajectory of gasoline and energy prices must be monitored as the US enters winter. All these developments do not argue for a stabilization of Fed rate pricing yet. A 75bps rate hike is expected by markets for November and an additional 75bps hike is 70% in the price for December 2022. Markets then expect Fed rates to peak at ~5% in March 2023. The surprise could come from a resumption of energy prices strength that could drive this estimate higher.
For crypto and risk assets, this means that the fundamental conditions for a bottom are likely not quite there yet. We do note however that BTC and ETH are becoming less “reactive” in the wake of positive CPI surprises (see chart below). This is worth monitoring as a potential signal of exhausting selling power.
In traditional markets, AUD/USD ranks once again among the fiat currencies’ underperformers this week. We read this as a confirmation of 1) a sharp slowdown of global manufacturing and global growth, 2) Potential difficulty for the RBA to continue hiking in the context of highly levered households and sharply slowing housing prices (see last week’s newsletter).
In China, the National Party Congress’s outcome confirmed that geopolitics and war will remain at the forefront in the next few years. The next international conflict could very likely to center around Taiwan. Meanwhile, de-globalization is accelerating and will likely keep inflation residually high: ten days ago the US published a set of stringent export control rules to cut China off from US semiconductor innovation and products.These will be probably be volatile years for financial assets including crypto.
Charts that matter
