September retail sales data is out today

14 October, 2016

European Outlook: Asian stock markets are mixed, with Japanese markets and Hang Seng managing to move higher after yesterday’s dip, but investors continue to eye China nervously as weak trade data yesterday was followed by higher than expected inflation data on Friday. Oil prices moved higher and the front end WTI future is trading at USD 50.84 per barrel, which helped to underpin equity markets as the focus turns to Yellen’s speech at the Boston Fed conference. U.S. stock futures are little changed, while the FTSE 100 future is moving higher with Sterling weakness helping the index to outperform other European markets, while adding to Gilt underperformance as concerns about the inflation impact picks up. The EUR is down against all other currencies aside from GBP, which may also help to put a floor under stock markets despite tapering talk. The European calendar has final September inflation numbers from Spain and Italy as well as Eurozone trade data and Swiss PPI inflation.

China CPI & PPI Exceed Expectations: China Sep. CPI: 1.9% y/y (expected 1.6%) and PPI +0.1% (expected -0.3%). It’s the first time PPI has come in higher since January of 2012. Higher coal and steel prices a key factor in the positive result, and these could well be a signal of a diminishing of over-capacity problems.

US Data Reports: Revealed firmness in September trade prices and lean initial claims through the first two weeks of October that beat estimates, leaving upside risk for Q4 GDP and October payrolls that we peg at 2.5% and 170k respectively. For trade prices, we saw the expected 1.2% September oil import price bounce, but with a firm 0.3% export price rise. For claims, we saw a flat figure at the downwardly-revised 246k (was 249k) level from the first week of October that left a two-week stretch for claims at a new 42-year low. Claims are entering October well below already-lean September levels.

Fedspeak: Moderate Harker – the economy is doing “pretty well” and we have a strong labor market, he said, though the share of the population that wants to work makes it harder for the Fed to guide the economy. Harker also denied that the Fed is affected by the election cycle or influenced by politics. He also said a hike sooner than later would be his preference, though raising rates too quickly could have an impact on exports (USD index probed 98.0 7-month highs yesterday). He reiterates that he expects one rate hike by the end of 2016 and “at least two” next year. Kashkari – not forecasting a boom and not forecasting a recession for the US economy, but does expect more sluggish growth.

Main Macro Events Today                

US Retail Sales – September retail sales data is out today and should reveal a 0.6% headline with a 0.5% ex-autos increase. This would follow respective August figures which had the headline down 0.3% on the month with the ex-autos figure down 0.1% for that month. The release faces upside risk from firm chain store sales, stronger gasoline prices and an increase in auto sales.

US PPI – September PPI should reveal a  0.2% headline with a 0.1% increase for the core. This follows August figures which had the headline unchanged and the core up 0.1%. Oil prices managed to climb in September which could lend some upside risk to the release.

US Michigan Consumer Sentiment – The first release on Michigan Sentiment is out today too and should reveal a 92.0 headline from 91.2 in September and 89.8 in August. After some weakness in August the various measures of consumer confidence posted a rebound in September although they are still tracking below the highs seen last spring.

Yellen and Carney – Both the Fed Chair and the BOE Governor have speaking engagements scheduled for today. With Sterling under continued scrutiny and Fed members becoming increasingly hawkish; their respective speeches are to be followed closely.

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