UK Retail Sales misses consensus as BoE rate hikes beginning to stymie economic activity

Notes/observations

- UK Oct retail sales missed consensus, suggesting that previous BoE hikes are taking affect or that consumers are holding off ahead of festive season.

- Euro Zone CPI reading confirmed the 7th straight month that inflation in the region decelerated. Markets appeared to be dismissing the ECB rhetoric that rates would be kept ‘high for longer" narrative.

- JPY saw significant strength in morning trade, weighing on USD/JPY as news circulated that head of Japan’s largest trade union is seeking wage hikes beyond 2024, a key component to BoJ’s inflation expectations.

- Focus on Moody's possible decision on Italy sovereign rating. Currently the rating is only one notch above junk rating, with negative outlook.

- Asia closed mixed with Hang Seng under-performing at -1.9%. EU indices are +0.5-1.0%. US futures are 0.0% to +0.2%. Gold +0.5%, DXY -0.1%; Commodity: Brent +0.7%, WTI +0.9%, TTF -1.0%; Crypto: BTC -3.0%, ETH -3.7%.

Asia

- BOJ Gov Ueda reiterated its overall assessment that domestic economy has recovered moderately; and likely to continue its recovering moderately. Reiterated stance that would patiently maintain easy policy.

- Japan Dep Fin Min Akazawa reiterated that would not intervene in FX market just because JPY currency (yen) was weakening. Any FX intervention would be aimed at arresting excess volatility.

- China President Xi met with Japan PM Kishida. Noted that China and Japan supply chains were deeply intertwined. In no one’s interest to decouple and break chains.

- China Pres Xi: China will carry on improving foreign investment mechanisms; will unswervingly advance high standard of opening up.

- New Zealand Q3 PPI Input Q/Q: +1.2% v -0.2% prior; Output Q/Q: 0.8% v 0.2% prior.

Europe

- EU Commission Chief Von der Leyen said to urge member states to begin economic de-risking from China or face trouble. A failure to do so means they should prepare for their businesses to be steamrollered by unfair Chinese competition.

- Various speculation on possible actions to be taken in upcoming UK Autumn Statement. Fin Min Hunt said to plan unveil expanded role for UK’s pensions lifeboat fund. To consider cutting inheritance tax and business levies. One article noted that any room for tax cuts was squeezed by £15B-a-year losses on Bank of England bond sales.

Americas

- Fed's Mester (non-voter) stated that needed to see more evidence inflation on way to 2%. Have not decided whether another rate hike was still needed. Debate was now about how long to keep rates restrictive.

- Fed's Cook (voter): Hikes, runoff have tightened US financial conditions, helped reduce inflation. Believed that a soft-landing was possible. Attentive to risks of renewed global economic shocks; including geopolitical and muted growth in China, Europe.

- President Biden told business leaders that the US was de-risking and diversifying its economic relations with China] not decoupling.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.96% at 455.60, FTSE +0.87% at 7,475.49, DAX +0.74% at 15,903.15, CAC-40 +0.80% at 7,225.64, IBEX-35 +0.85% at 9,746.62, FTSE MIB +0.79% at 29,488.00, SMI +0.98% at 10,747.50, S&P 500 Futures +0.21%].

Market Focal Points/Key Themes: European indices open generally higher and advanced into the green as the session progressed; Czechia and Slovakia closed for holiday; better performing sectors include materials and health care; among underperforming sectors are technology and industrials; Norwegian competition authority halts NAS’s takeover of Wilderoe; earnings expected in the upcoming US session include Spectrum Brands.

Equities

- Consumer discretionary: H&M [HMB.SE] +2.5% (Gap earnings), FirstGroup [FGP.UK] +3.5% (strategic decarbonization partnership with Hitachi with anticipated cash savings).

- Consumer staples: Remy Cointreau [RCO.FR] +4.0% (analyst upgrade).

- Financials: Assicurazioni Generali [G.IT] -1.5% (earnings), London Stock Exchange [LSEG.UK] -1.5% (CMD), Natwest Group [NWG.UK] +1.5% (analyst upgrade)

- Healthcare: Fresenius Medical Care [FME.DE] +4.0% (analyst upgrade).

- Industrials: Aston Martin [AML.UK] +5.5% (F1 owner sells stake in unit), Volvo Cars [VOLCARB.SE] -10.5% (share block sale).

Speakers

- ECB’s Villeroy (France) noted that inflation had been reduced considerably and that its recent pause in policy tightening was justified. Policy now guided by patience and confidence.

- ECB’s Holzmann (Austria. hawk) caution that market should not think that the tightening cycle was over; Reiterates his stance ECB mightbe forced to raise rates further if inflation shocks occurred.

- President Biden formally signed stopgap funding bill into law (as expected).

- Japan Trade Union chief: sated that would seek wage hikes for workers beyond 2024.

Currencies/fixed income

- EUR/USD holding below the 1.0850 level. Oct CPI confirmed the 7th straight month that inflation in the region decelerated. Markets appeared to be dismissing the ECB rhetoric that rates would be kept ‘high for longer" narrative. Bond yield have moved lower during the week.

- GBP/USD was lower after UK Oct retail sales data missed consensus. Dealers noted that BOE rate hikes was beginning to stymie economic activity.

- USD/JPY edged further away from the key 152 resistance level during the session. Japan Trade Union chief: stated that would seek wage hikes for workers beyond 2024. Japanese govt officials have been stressing the need for higher wages to make inflation sustainably took root around the 2.0% target. Recent reports have circulated that Japan govt was considering offering corporate tax breaks for companies that provide 8%+ wage hikes.

Economic data

- (UK) Oct Retail Sales (ex-auto/fuel) M/M: -0.1% v 0.5%e; Y/Y: -2.4% v -1.5%e.

- (UK) Oct Retail Sales (including auto/fuel) M/M: -0.3% v +0.4%e; Y/Y: -2.7% v -1.6%e.

- (SE) Sweden Oct Unemployment Rate: 7.4% v 7.7% prior; Unemployment Rate (seasonally adj): 7.9% v 7.9%e; Trend Unemployment Rate: 8.0% v 7.9% prior.

- (TR) Turkey Central Bank (TCMB) Nov Inflation Expectation Survey: Next 12 Months: 43.9% v 45.3% prior.

- (CH) Swiss Q3 Industrial Output Y/Y:+2.0 % v -0.7% prior; Industry & Construction Output Y/Y: +1.6% v -1.5% prior.

- (TH) Thailand Nov Foreign Reserves w/e Nov 10th: $212.8B v $214.1B prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 31.0K v 34.9K tons prior.

- (ES) Spain Sept House transactions Y/Y: -23.7% v -14.4% prior.

- (RU) Russia Narrow Money Supply w/e Nov 10th(RUB): 18.43T v 18.48T prior.

- (AT) Austria Oct Final CPI M/M: 0.3% v 0.3% prelim; Y/Y: 5.4% v 5.4% prelim.

- (EU) Euro Zone Sept Current Account: €31.2B v €30.8B prior.

- (ES) Spain Sept Trade Balance: -€3.8B v -€4.4B prior.

- (IT) Italy Sept Current Account: €2.2B v €2.8B prior.

- (GR) Greece Sept Current Account: -€0.4B v €0.5B prior.

- (PT) Portugal Sept Current Account: €1.0B v €1.7B prior.

- (EU) Euro Zone Oct Final CPI Y/Y: 2.9% v 2.9% prelim; CPI Core Y/Y: 4.2% v 4.2% prelim; CPI M/M: 0.4% v 0.1% prelim.

- (CY) Cyprus Oct CPI Harmonized M/M: % v 0.2% prior; Y/Y: % v 4.3% prior.

Fixed income issuance

- (IN) India sold total INR300B vs. INR300B indicated in 2028, 2033 and 2053 bonds.

- (ZA) South Africa sold total ZAR1.0B vs. ZAR1.0B indicated in I/L 2038, 2046 and 2050 Bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 06:00 (BR) Brazil Nov FGV Inflation IGP-10 M/M: 0.5%e v 0.5% prior.

- 06:00 (UK) DMO to sell £5.5B in 1-month, 3-month and 6-month bills (£1.0B, £2.0B and £2.5B respectively).

- 06:30 (IN) India Weekly Forex Reserve w/e Nov 10th: No est v $590.8B prior.

- 6:30 (IN) India announces upcoming bill issuance (held on Wed).

- 06:30 (IS) Iceland to sell 2026 and 2035 RIKB Bonds.

- 07:00 (BR) Brazil Sept Economic Activity Index (Monthly GDP) M/M: +0.2%e v -0.8% prior; Y/Y: 0.8%e v 1.3% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (DE) ECB's Nagel (Germany) in Frankfurt.

- 08:10 (UK) BOE’s Ramsden.

- 08:15 (NL) ECB's Wunsch (Netherlands), BOE's Greene in Frankfurt.

- 08:30 (US) Oct Housing Starts: 1.35Me v 1.358M prior; Building Permits: 1.45Me v 1.471M prior (revised from 1.473M); Housing Starts M/M: -0.6%e v +7.0% prior; Building Permits M/M: -1.4%e v -4.5% prior (revised from -4.4%).

- 08:30 (CA) Canada Oct Industrial Product Price M/M: 0.0%e v 0.4% prior; Raw Materials Price Index M/M: No est v 3.5% prior.

- 08:30 (CA) Canada Sept Int’l Securities Transactions (CAD): No est v -8.5B prior.

- 08:45 (US) Fed’s Collins.

- 09:45 (US) Fed’s Goolsbee.

- 10:00 (US) Fed’s Daly.

- 10:00 (IT) ECB’s Cipollone (Italy).

- 11:00 (US) Nov Kansas City Fed Services Activity: No est v -1 prior.

- 11:00 (EU) Potential sovereign ratings after European close (Moody’s on Italy).

- 13:00 (US) Weekly Baker Hughes Rig Count.

- 14:00 (AR) Argentina Oct Trade Balance: -$0.3Be v -$0.8B prior.