ON DECK FOR FRIDAY, OCTOBER 1
KEY POINTS:
- October starts off with mild risk-off sentiment
- Canadian GDP: start of the soft-patch rebound?
- US vehicle sales could drop to weakest since pandemic’s start
- US ISM-mfrg: more downside than upside
- US PCE inflation to follow CPI lower
- US income growth to shake off child benefit effect
- US consumption to follow retail sales higher
- Eurozone inflation landed on the screws
Happy Friday. Welcome to October. Markets are not such a happy place today mind you. Global market sentiment is in mild risk-off mode with mainland China and HK on holiday. S&P futures were down earlier but have clawed their way back to almost flat at the time of publishing while TSX futures are still in the red and European cash markets are down by either side of -½%. European and Canadian yields are outperforming US Ts this morning and across the board at that and partly as catch up to late yesterday’s US moves with Canada coming back from holiday. The most powerful moves are in EGB 10s where yields are down by 3–4bps, while 10 year gilts are 1–2bps lower. Front-ends are a tad richer as well across Europe. The USD is little changed overall.
As for specific catalysts, I don’t see anything fresh that stands out this morning. The same concerns are being recycled and overnight releases were relatively light. Take your pick of forward looking risks now with the US Congress still in turmoil around stimulus plans and only punting the issues down the road with a temporary funding agreement. China is entering an awkward period of silence with holidays through next Thursday in the context of Evergrande’s issues and a soft economy. Even though eurozone inflation didn’t surprise, it’s still running hotter than anyone anticipated and creating uncertainty toward its longevity and how the ECB may react over time. I think next Friday’s nonfarm payrolls face downside risk and will write about why in the week ahead later today.
Eurozone inflation was in the ballpark of expectations. 1.9% y/y for core that matched consensus and 3.4% y/y for headline (3.3% consensus) with total prices up 0.5% m/m and matching consensus.
German retail sales landed pretty much on the screws including revisions. They were up 1.1% m/m in August (1.5% consensus) and the prior month’s decline was revised to be a milder -4.5% m/m hit (from -5.1%).
CANADA
This morning we’ll get Canadian GDP for July but more importantly advance guidance for August (8:30amET). StatCan had advised that July fell by 0.4% m/m but most within consensus figure that the final estimate will land a touch better (less bad?). My estimate is -0.3%.
More important than a refresher on the July figures that also put details to the composition will be the first estimate for August GDP (sans details) that could be the start of a rebound. This is based upon tracking across a suite of preliminary indicators such as flash guidance for retail sales (+2.1% m/m), wholesale trade (+0.5% m/m), manufacturing sales (+0.5%), hours worked (+0.1%) and with only housing starts (-3.9%) and home sales (-0.5%) putting in soft numbers. Beyond that, mobility picked up along with indicators like restaurant reservations and so the services side of the picture could add upside.
UNITED STATES
There are several US releases on tap today. The new information will likely place the most emphasis upon fresh readings on supply chain issues across manufacturing and particularly autos. The consumption and inflation figures have enough advance through CPI and retail sales that they are unlikely to present the same risk of surprises.
PCE inflation during August (8:30amET) should largely follow what we already saw in the softer CPI print for August notwithstanding methodological differences and as only the first month we’ve seen milder inflation since the start of the year. Personal income growth (8:30amET) should largely shake off the prior month’s introduction of child benefit payments while consumer spending should follow higher the already known gain in retail sales.
ISM-manufacturing for September (10amET) is expected to soften a bit following mixed regional surveys (Empire and Philly up, Richmond, KC and Dallas down) and with ongoing supply chain issues particularly in transportation. As usual, watch the prices component.
US vehicle sales will round it all out as company figures arrive throughout the day leading up to the industry tally toward day’s end. I wouldn’t be surprised to see a figure in the 11–12 million annualized range (consensus 13 million) based upon industry guidance. That risks taking us back to the weakest sales figures since April 2020 (chart 1) when the pandemic broke out with maximum effect but this time around it’s messed up supply chains that are to blame.
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