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The week ahead: breakdown of key events - Nomura


Analysts at Nomura offered a break down of the key events for the week ahead.

Key Quotes:

"United States | Data preview

We expect an above-trend 3.5% increase for the BEA’s second estimate of Q3 real GDP growth, reflecting resilient growth in inventories, equipment investment, and PCE.

New home sales (Monday): New home sales jumped 18.9% m-o-m to an annualized pace of 667k in September driven by a post-hurricane rebound in the South. As the replacement demand in the hurricane-affected regions cools gradually, we expect new home sales to return to their trend. Thus, we forecast a 4.9% decline to a 634k pace. Looking through increased volatility caused by the recent hurricanes, the underlying pace of new home sales appears to be an annual rate of 580-600k. We think that higher prices due to supply constraints will continue to weigh on demand, making the pace of growth very gradual.

Advance goods trade balance (Tuesday): Based on incoming container shipping data at major US ports, we expect a slight widening in trade deficit to $64.2bn in October. Net exports showed steady improvement in Q3, adding a decent 0.4pp to real GDP growth. With healthy global demand, we expect steady increases in goods exports in coming months. Further, consistent with healthy domestic activity, we expect continued increases in goods imports as well.

Case-Shiller home price index (Tuesday): Home prices have been rising steadily as buyers compete for a limited supply of homes for sale, worsening home affordability. Case-Shiller 20-city composite index rose 5.92% y-o-y in August, but the number of listings for sale remains low by historical standards. With strong demand from consumers, pressure on home prices likely persisted in September. We expect continued y-o-y rise in the Case-Shiller 20-city composite index.

Consumer confidence (Tuesday): We expect the Conference Board’s consumer confidence index to improve slightly to 126.5 in November, following a 5.3 index point jump in October. Consumer confidence remained high on the back of a strong pace of job creation and low unemployment. Despite the damages from the recent hurricanes and increased policy uncertainty from ongoing debates on tax cuts, consumer sentiment has been firm. In October, consumer confidence in the regions affected by the hurricanes largely recovered. Further, incoming data continue to point to healthy labor market improvement going into Q4, with the Conference Board’s labor market differential index (“jobs plentiful” minus “jobs hard to get”) at its highest level since the global financial crisis. 

Q3 GDP, second estimate (Wednesday): In the second estimate of Q3 real GDP, we expect the BEA to report growth of 3.5% q-o-q saar, which would translate to a 0.5pp upward revision from its advance estimate of 3.0%. Despite the hurricanes, the economy grew at a solid pace in Q3. Incoming data since the advance estimate of GDP point to solid growth in business inventories, improved business equipment investment, and resilient advance in PCE. Further, the advance estimate of Quarterly Services Survey suggests that there may be some upside risk on software investment, a component of investment intellectual properties, although relevant components for household spending on services were weak on balance. 

Pending home sales (Wednesday): Pending home sales could show some transitory boost in October, driven by a potential rebound in contract signings in the South, a region adversely affected in September by hurricane activity. However, contract signings overall in the South showed material weakness as early as April of this year, so any rebound in October could be temporary. Overall, the housing market continues to experience demand that easily outstrips supply, adding some headwinds to pending home sales going forward. 

Fed Beige Book (Wednesday): In preparation for the 12-13 December FOMC meeting, we expect the November Beige Book to report anecdotal evidence consistent with healthy incoming data. The October Beige Book reported growth “split between modest and moderate” and that, while labor markets remain tight across most of the 12 districts, overall wage pressures remained subdued. October’s report was partially distorted by hurricane-related disruptions in the Richmond, Atlanta and Dallas Reserve Districts. The Beige Book prepared for the December meeting could provide useful anecdotal evidence on the rebuilding and recovery efforts from local business and community leaders. Overall, incoming economic data has been consistent with healthy momentum in Q4 and we expect the Beige Book’s regional color to largely reflect these developments.

Initial jobless claims (Thursday): Overall, accompanying strong economic momentum in Q4, the labor market continues to remain in healthy territory. Initial jobless claims decreased 10k to 239k during the week ending 18 November. Continuing claims increased 36k to 1904k for the week ending 11 November while the four-week moving average only increased marginally to 1890k. 

PCE deflators (Thursday): We forecast a 0.2% (0.179%) m-o-m increase in October core PCE inflation, which would push up the 12-month change rate to 1.4% (1.389%) from 1.328% in September. Considering the strong increase in core CPI and unexpected strength of healthcare related prices of PPI in October (which is used for estimating the corresponding components of core PCE price index), we think that core PCE inflation should show a decent increase in the month. In particular, a strong pick-up in CPI rent inflation would likely boost core PCE although a smaller weight is assigned to rents in PCE than in CPI. Moreover, air passenger fares (a part of import price index) which is used for estimating the price index of PCE foreign travel by the US residents jumped strongly by 6.6% m-o-m in October, which will likely contribute solidly to core PCE inflation. In the medium term, we maintain our view that core PCE inflation will accelerate very gradually. 

Among noncore components, the price index for PCE food will likely be soft considering only modest CPI food inflation due to continued muted inflation in food-at-home prices. For price index for PCE energy, we expect about 1% decline considering the decline in CPI energy. Given the increased volatility in crude oil prices, the future path of gasoline prices looks more uncertain. However, we expect moderate increases in energy prices in the next couple of months. Altogether, we expect a 0.1% (0.121%) m-o-m increase for the price index for the aggregate PCE. This forecast translates to a 1.5% (1.541%) y-o-y increase.

Personal income and spending (Thursday): We expect a trend-like 0.3% m-o-m increase in personal income in October, following a steady 0.4% rise in September. For personal spending, we expect an increase of 0.4%. Although we expect lower gasoline prices in October to have reduced spending on gasoline and other fuels, personal outlay on ex-gasoline categories was likely healthy, offsetting the drag from PCE gasoline. October retail sales suggest that consumer spending on durable goods increased at a steady pace across most product lines, while sales of autos slowed slightly from September. Elsewhere, we expect higher consumption of electric and gas utilities to drive up spending on services. Despite adverse weather, consumer spending remained solid in Q3. Considering strong consumer fundamentals, we expect this momentum to continue in Q4.

Chicago PMI (Thursday): We expect a slight pullback in November’s Chicago PMI reading to 64.0, a still-elevated level of business sentiment consistent with continued momentum in Q4. Relevant components of the Philly Fed and Empire State surveys, on net, showed some slight deterioration during November. Moreover, at 66.2, October’s reading marked the highest since March 2011. Given other regional surveys as well as Chicago PMI’s relative volatility recently, a slight pullback in November would still be consistent with continued economic momentum.

ISM manufacturing (Friday): We expect some moderation in ISM manufacturing sentiment in November to 58.4 from 58.7. As disrupted supply chains get restored, we expect continued decline in the supplier deliveries index. This indicator jumped 7.3pp to 64.4 in September after Hurricanes Harvey and Irma caused widespread supply chain disruptions, the largest month-to-month increase since September 2005 after the landfall of Hurricane Katrina. As this measure returns to its previous trend, we expect gradual drag on the topline index. The manufacturing sector appears to have mostly recovered from disruptions caused by the hurricanes. Incoming data such as the Empire State and Philly Fed surveys point to healthy expansion in activity. We expect this momentum to continue in Q4. 

Construction spending (Friday): October’s construction report could highlight continued weakness in certain categories for construction spending. While topline construction spending increased 0.3% m-o-m in September, private nonresidential construction expenditure continues to pose a downside risk to firming economic growth. Private nonresidential construction spending for commercial, power, manufacturing and office structures remained soft in September. Increases in online shopping at the expense of brick and mortar stores, a slowdown in revenue growth in the hotel industry, and tighter lending standards for commercial real estate loans could continue to negatively affect private nonresidential construction spending over the medium term. Moreover, an unusually large increase in public construction expenditures in September offset other weakness in private residential construction, which remained flat during the month.

Vehicle sales (Friday): Residual demand for replacement vehicles after hurricanes Harvey and Irma added some transitory boost to both September and October’s vehicle sales, at 18.4mn saar and 18.0mn saar, respectively. We expect sales to decelerate to 17.7mn saar in November, closer to the underlying trend which we estimate to be somewhere around 16.7mn saar. The majority of replacement buying activity has likely run its course, although some spillover into November is possible.

Euro area | Data preview

The week ahead Euro area inflation data and the UK manufacturing PMI are in focus this week. 

Germany, preliminary November inflation (Weds): We expect the flash reading of German HICP inflation to remain unchanged at 1.5% y-o-y in November. We expect core inflation to increase to 1.2% y-o-y in November from 1.1% in October.

UK Household borrowing (Weds): The key numbers to watch in this report include net mortgage lending, consumer credit and mortgage approvals. Bear in mind that the monthly BBA report published at the end of this week (i.e. after we go to press) will provide some useful direction for these figures.

Euro area preliminary November inflation (Thurs): We forecast the flash estimate of euro area HICP inflation to remain unchanged in November from October at 1.4% y-o-y. Following three consecutive monthly increases in the energy component, we expect energy price inflation to fall modestly, weighing on headline inflation. In contrast, we expect core inflation to climb to 1.0% y-o-y in November (after 0.9% in October) thanks to a likely roll-back in the volatile packaged holiday component.

UK Manufacturing PMI (Fri): The headline index of this survey has remained broadly stable at around 56 since the spring. We expect a small 0.2 point increase between October and November – supported by strong survey evidence in Europe and also the UK’s CBI monthly trends survey (which this week reported increasing orders).

Japan | Data preview

We expect the October all-Japan core inflation rate to be 0.8% y-o-y, up from September. We forecast a one-time easing in the November Tokyo core inflation rate.

October industrial production (Thursday): We expect the October industrial production index to rise 2.2% m-o-m. The survey of manufacturers' production forecasts calls for output to increase 4.7% m-o-m in October. That said, this is largely supported by sectors that tend to report actual production figures that are conspicuously short of previous production forecasts, such as the general-purpose, production and business oriented machinery, electronic parts and devices, and electrical machinery sectors. We think the potential that actual production in October undershot production plans should be taken into consideration. Another factor that could see actual production in October fall short of the production plan is the suspension of production and shipments of passenger cars for sale in Japan by Nissan Motor. According to its press release, the company halted production in Japan for about three weeks from 20 October to 6 November 2017. As the deadline for submission of responses for the survey of manufacturers' production forecasts for October was 10 October, the production plan for October most likely does not reflect this suspension of production by Nissan. Many indicators related to the production index were strong in October. An improvement in corporate sentiment was indicated by the Japanese manufacturing PMI output index rising 0.1 point m-o-m to 53.3 and the current conditions DI for manufacturers in the Economy Watchers Survey (seasonally adjusted) rising 3.5 points m-o-m to 56.1. Also, manufacturers likely boosted production in October as real exports from Japan, which have a strong correlation with industrial production (estimated by Nomura), rose 2.0% m-o-m. We thus think October production fell short of production plans, but rose relative to September. 

October all-Japan core CPI (all items ex fresh food) (Friday): We expect October allJapan core CPI (all items, ex-fresh food) to rise 0.8% y-o-y, 0.1pp stronger than the September reading. We think the effect of cost increases stemming from recovery in energy prices and yen depreciation will show up in a broad range of items. We expect the October all-Japan core core CPI (all items, ex energy and food, except alcoholic beverages) to rise 0.1% y-o-y, a 0.1pp improvement from September, and the so-called BOJ-version of core core CPI (all items, ex energy and fresh food) to rise 0.3% y-o-y, also a 0.1pp improvement from September. We forecast November Tokyo core CPI to rise 0.6% y-o-y, unchanged from October. We think growth in prices related to higher crude oil prices and the weak yen will pause. We expect November Tokyo core core CPI will be 0.0% y-o-y, unchanged from October. We expect November Tokyo CPI less fresh food and energy (the BOJ version of core core CPI) to rise 0.1% y-o-y, unchanged from October.

October Labour Force Survey (Friday): We forecast an unemployment rate of 2.8% for October, flat m-o-m, and a job openings-to-applicants ratio of 1.53x, up 0.01pp m-o-m. The job openings-to-applicants ratio, which tends to lead the unemployment rate, was flat month-on-month in September, and we expect unemployment to be flat month-on-month as well. The six-month moving average of the new job openings-to-applicants ratio, which has a strong correlation to the job openings-to-applicants ratio, has been on an uptrend and the new job openings-to-applicants ratio rose 0.05 point m-o-m in September. We expect the October job openings-to-applicants ratio to rise month-on-month.

October Family Income and Expenditure Survey, real household consumption expenditure (all households) (Friday): We estimate October real household spending (per household) fell 0.3% y-o-y and 1.0% m-o-m. The October Consumer Confidence Index rose 0.6 point m-o-m, indicating an improvement in consumer sentiment. However, in the Economy Watchers Survey for the same month, the household activity-related current conditions DI (seasonally adjusted) fell 1.5 points m-o-m, indicating household  and corporate sentiment are at odds. Among sales data, October all-Japan department store sales fell 0.5% m-o-m (seasonally adjusted by Nomura), as customer traffic fell owing to unfavorable weather. October new auto sales volume (passenger car total) fell 6.3% m-o-m (seasonally adjusted by Nomura), likely largely affected by the suspension of shipments by Nissan. Based on such considerations, we think household sentiment is solid, but is not leading to expenditures, thus we expect October household spending to fall month-on-month.

Asia | Data preview

The week ahead We expect the Bank of Korea to hike rates, China’s official PMI to continue moderating in November, and Q3 GDP growth to rebound in India.

China: We expect the official PMI to fall to 51.4 in November from 51.6 in October, as growth momentum continues to weaken as suggested by high-frequency data such as growth of coal consumption by six major power plants and steel output."



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