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Week Ahead
Global PMIs and Decoupling We get the usual round of PMI readings from across the globe for the latest read on the global cyclical momentum as well as for further stock updates on the ‘decoupling’ thesis. China’s PMI reading will no doubt be in focus—we expect the September reading to continue to rise, as does consensus, which is looking for the PMI to rise to 52.8 in September from 51.7. Our China economists think that although production and electricity supply restrictions since early-September have put downward pressure on activity, this should be counter-balanced by the loosening in monetary, fiscal, and investment related policies since July. On the US ISM, we are expecting moderation to 54.0, below consensus of 54.5. More generally, firmer signs of decoupling will be supportive to risk sentiment and Dollar weakness overall, given that the risk vs USD correlations remain strong.
EM central bank meetings We’ll also get central bank meetings in Hungary, Israel, Russia, Poland and Taiwan this week. We expect all to remain on hold, except Taiwan, where we expect a 12.5bps hike to 1.5%, in-line with consensus. In Israel, our expectation is for no change to rates, which is contrary to consensus expectations for a 25bps hike. Our Israel economist view is that the BoI will not accelerate the pace of rate hikes against a backdrop of softening demand conditions and the increased likelihood of further monetary easing in the US.
NJA intervention We continue to keep a close eye on NJA intervention behavior in the next few months in the leadup to key political events such as the US November mid-term elections and the G20 Summit in Seoul. The global focus on Asian FX will likely remain intense next week, as many Asian markets were close for parts of last week. Consistently lower CNY fixes over the last few weeks set the stage for other currencies to follow. Our trade recommendation of long CNY via longer dated NDFs continues to benefit and we think there is further upside until the 1yr forwards price something closer to 6.40 in $/CNY NDFs. Korea we think will increasingly come under the spotlight as well and the trade data this week will be interesting, where are expecting a stronger than consensus outcome, which will add to fundamentally driven KRW appreciation pressure. We expect a higher than consensus export growth of 20% yoy (consensus +13.3%) and a wider trade surplus of US$5 billion, above consensus at around US$4 billion.
Monday 27th
Hungary central bank meeting In line with consensus, we expect the central bank to remain on hold at 5.25%.
Israel central bank meeting We expect the central bank to remain on hold at 1.75%, in contrast to consensus which expects a 25 bps hike to 2.00%.
Tuesday 28th
Russia central bank meeting We expect the central bank to remain on hold in line with consensus.
US Case & Shiller home prices (Jul) Consensus expects a small decline of -0.15% mom, after a small rise of 0.28% mom in June.
US consumer confidence (Sep) Consumer confidence probably slipped a bit further in October, based on the decline in the University of Michigan Index. We are expecting a 2 point drop to 51.5, below consensus at 52.3.
Chile IP (Aug) Consensus is looking for a rise of 4.3% yoy, slightly above our 4.0% yoy forecast and up from 3.3% yoy in July.
Wednesday 29th
Japan BOJ Tankan (Sep) The focus is on the degree of improvement in the present conditions DI and the future DI. Up to this time, signs have pointed toward improvement, fueled by government stimulus and export growth. The future outlook, however, is for conditions to deteriorate due to the disappearance of these boosts.
Poland central bank meeting We see no change in policy stance from the NBP, with the policy rate remaining on hold at 3.50%, in line with consensus.
Euro zone business & consumer confidence (Sep) We expect a reading of -5.5 for business confidence, down from a reading of -3.9 in August. We are slightly below consensus. For consumer confidence, we are similarly slightly below consensus as well, and are looking for a reading of -13 against the previous reading of -11.4.
Switzerland KOF (Sep) Consensus is looking for further slight moderation to 2.11 from 2.18 in the previous reading, which would still leave this index at very elevated levels relative to its history.
Thursday 30th
Taiwan central bank meeting We expect – in line with consensus – that the Taiwan central bank will raise its policy rate by 12.5 bps to 1.50% from 1.375% in the upcoming policy meeting. We also believe the central bank will continue to absorb excess liquidity via negotiable certificates of deposit (NCD) issuances.
Korea IP (Aug) We expect industrial output to grow double digits yoy on robust exports, but the sequential pace is likely going to moderate. Consensus expects a decline of -1.4% mom, down from +1.1% growth in July.
Euro zone CPI (Sep) We expect inflation to rise to 1.8% yoy, in line with consensus, up from 1.6% yoy in August.
United States initial claims (Aug) Consensus expects initial claims to be 460k, down from 465k the previous week.
US 2Q GDP (third estimate) We and consensus expect a third reading of 1.6% qoq, which would be unchanged from the second reading and down from 3.7% qoq in the first quarter.
Chicago PMI (Sep) We expect a slight moderation to 56.0 from 56.7, in-line with consensus
Friday 1st
Global PMIs (Sep) We get the usual round of PMI readings from across the globe for the latest read on the global cyclical momentum as well as for further updates on the ‘decoupling’ thesis.
China PMI (Sep) We expect September PMI to continue to rise, as does consensus, which is looking for the PMI to rise to 52.8 in September from 51.7 in August. Though production and electricity supply restrictions since early-September have put downward pressure on activity, we believe they were counter-balanced by the loosening in monetary, fiscal, and investment related policies since July.
Korea CPI (Sep) We expect a high print of around 3.0% yoy, above consensus which is looking for a 2.8% yoy and is up from 2.6% yoy in August. This will likely be a catalyst for a rate hike in the October central bank policy meeting.
Korea trade balance (Sep) We expect September exports to show solid double-digit growth of around 20% yoy, while consensus expects a lower pace of growth at 13.3% yoy. The trade surplus is likely to be around US$5 billion. Again, we are above consensus which is around US$4 billion.
Japan CPI (Aug) The CPI trend remains unchanged. We estimate that core CPI declined again by 1.0% yoy in August, after falling 1.1% in July. We forecast the core-core CPI to remain negative as well, falling 1.3% yoy after falling 1.5% yoy in July.Consensus expects CPI to be -0.9% yoy, a slightly lesser pace of deflation than the -1.0% yoy reading in August. We expect deflation to remain firmly entrenched, and are looking for a reading of -1.1% yoy.
United States ISM (Sep) Our preliminary estimate is a drop from 56.3 to 54.0 (below consensus at 54.5), but we may revisit this based on the other business surveys–Richmond, Chicago, and the GS Analyst Index that will be released this week.
United States PCE core inflation (Aug) We expect the core PCE reading at +0.14% mom, a bit higher than the 0.04% core CPI in August, in part because the very low readings for rent and owners equivalent rent receive lower weights in the PCE index. Consensus expects a reading of 0.1% mom.
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