Analysts at Nomura offered their preview for the week ahead.
United States | Data preview
"We forecast 0.2% (0.244%) m-o-m increase in core CPI inflation for September."
"NY Fed Survey of Consumer Expectations (Tuesday): Consumer inflation expectations have remained within a steady range. The NY Fed’s Survey of Consumer Expectations reported that inflation expectations at the one-year horizon were unchanged at 2.98% in July from the previous month’s estimate. Over the three-year horizon, inflation expectations dropped modestly to 2.88% from 3.00%. Overall, survey measured inflation expectations remain stable.
PPI (Wednesday): The PPI fell 0.1% m-o-m in August. Excluding volatile food, energy and trade services, core PPI advanced only a modest 0.1% m-o-m. For September, we expect continued modest acceleration in prices for goods and services provided by domestic businesses. Although wage growth has picked up somewhat in the August employment report, producer price indices have not accelerated notably. Note that our forecasts for the August CPI report may be revised based on relevant components of the PPI report.
Wholesale inventories (Wednesday): The Census Bureau’s advance estimates indicate a solid 0.8% m-o-m gain in August’s wholesale inventories led by both durable and nondurable goods. Firm increases in inventory investment will likely contribute strongly to overall real GDP growth in Q3.
Initial jobless claims (Thursday): Low initial and continuing jobless claims remain consistent with labor market strength. Much of the increase in initial claims in mid September appears to be from North Carolina and South Carolina, which together experienced a 10k increase, likely due to disruptions from Hurricane Florence. Remaining effects from flooding in the affected area could add to volatility in claims data in coming weeks.
CPI (Thursday): We forecast 0.2% (0.244%) m-o-m increase in core CPI inflation for September following a 0.082% advance in August. On a 12-month change basis, our forecast would be equivalent to 2.304% advance in September, up slightly from a 2.190% pace in August. The relative softness in core CPI inflation in August was mostly concentrated certain volatile core goods prices. Thus, we think the core CPI inflation will likely return to its underlying pace that seems consistent with core inflation running slightly above 2% y-o-y. We expect a rebound in core goods prices following a 0.3% mo-m decline in August. Used vehicle prices likely rose at a solid pace based on a leading industry indicator of the used car market. Moreover, we think that a sharp 1.6% m-o-m drop in apparel prices in August was likely transitory and could rebound in September. The sample response rate of apparel prices appears to have declined in recent months, leading to high volatility of this metric. Considering relatively low pass-through of exchange rates to imported consumer goods, we do not think sharp declines in apparel prices were driven by the recent appreciation in dollars. On services, we expect a stable increase. We expect rent inflation to rise at a steady pace, which has averaged around 0.29% m-o-m for the past six months. The medical care commodity prices, mostly prescription drugs, likely rebounded following unusual two consecutive months of declines. At the moment, we think the recent declines were likely a one-off event. In addition, lodging-away-from-home prices likely advanced at a solid pace. The landfall of hurricane in September raises some uncertainty on this component, but we do not think the impact will be material at the moment.
Among noncore components, we expect a modest 0.1% m-o-m increase in food prices. Food-at-home prices likely slowed based on incoming data on agricultural products and lowered the aggregate CPI food prices. Energy prices including retail gasoline and natural gas prices were mixed in September, and we expect a slight decline in CPI energy prices. Altogether, we expect 0.2% (0.192%) m-o-m increase in the headline CPI inflation.
US budget (Thursday): The US budget deficit widened in August to $214.1b, pushing fiscal-year-to-date (FYTD) deficit to $898.1bn, up $224.4bn from this time last year. Firm increases in spending on Medicare and veterans programs appear to have contributed to a pickup in spending in August while noticeably lower corporate tax receipts, consistent with the corporate tax cut passed in December 2017, have also contributed to a widening deficit. In addition, net defense outlays jumped sharply in August following a sharp decline in July. Spending so far has been higher than the previous fiscal year. Stronger government spending will likely boost Q3 real GDP growth.
Import prices (Friday): While the stronger dollar has likely exerted downward pressure on import prices, the pass-through to consumer goods prices remains subdued. In August, aggregate import prices declined 0.6% m-o-m, the largest decline since January 2016, driven by volatile petroleum goods prices. Excluding these products, import prices continued to fall by 0.2% m-o-m. In contrast, imported consumer goods prices remained stable. Non-auto consumer goods excluding food and energy remained unchanged in the month. Overall, incoming data suggest that the pass-through of exchange rate changes to imported consumer goods prices is limited and is likely lower than the passthrough to prices of industrial supplies. In addition, by locality of origin, import prices of goods from China continued to decline modestly by 0.1% m-o-m in August. Given that import prices do not include import duties, lower import prices for Chinese goods indicate that exporters are may be absorbing some of the impact from higher tariffs. In light of the second round of US tariffs, which were implemented this month, September data on import prices of Chinese goods will be of interest.
University of Michigan consumer sentiment (Friday): Consumer sentiment has been optimistic so far while consumers remain cognizant of tariff hikes by the US and its trading partners. In the final University of Michigan survey for September, the headline sentiment index rose to 100.1 from 96.2, previously. Consumers’ sanguine outlook was likely supported by steady income gains and solid improvements in the labor market. The median 12-month ahead inflation expectations fell to 2.7% in September from 3.0% last month, possibly reflecting some stabilization in gasoline prices. Median inflation expectations over the next 5-10 years fell to 2.5% vs. 2.6% last month. These readings are still within a steady range and we expect them to remain stable.
Euro area | Data preview
Germany’s September final HICP data and monthly UK GDP data will be in focus next week.
Germany and euro area Industrial production, Aug (Monday, Friday): After two consecutive months of negative m-o-m changes in industrial production, we expect industrial production to bounce back in Germany and more broadly in the euro area in August. This echoes the message sent by August survey data that saw manufacturing output growing in the month.
UK BRC retail sales, Sep (Tuesday): Retail sales on this measure (total values) have grown at an annual rate of 1.7% over the past three months – about half that of its longrun (20-year) average. Still, that rate remains around the same as that over the past five years. We generally see sales growth remaining robust thanks to low unemployment, rising nominal wages and expectations of lower inflation.
UK Trade, Aug (Wednesday): The goods trade deficit was at its narrowest in five months in July. The underlying deficit actually deteriorated during the month – rather it was a £1bn improvement in the oil and erratic balances that explained the headline narrowing. Given the volatility of these components we would not be surprised to see payback in the July improvement.
UK Industrial production, Aug (Wednesday): Manufacturing output fell in July, but both the PMI and CBI surveys point to growth. We look for some rebound in August, therefore, even if the PMI output index did fall to its weakest for over a year in during the month.
UK Monthly GDP, Aug (Wednesday): GDP grew by an outsized 0.3% m-o-m in July, taking the quarterly rate (in May-Jul relative to Feb-Apr) up to 0.6% – its strongest for a year. A further rise of 0.1% m-o-m in August would leave quarterly output growth unchanged at 0.6%.
UK BoE credit conditions survey, Q3 (Thursday): The availability balances of this survey are typically the most keenly watched. The message from recent surveys has been the deterioration in the unsecured balances (having turned negative for both the past and future balances). Look out also for the demand balances in this survey which had remained positive across almost all categories of lending in the Q2 survey.
China | Data preview
China: We expect M2 growth to remain unchanged from August, in line with largely stable interbank interest rates. New RMB loans and aggregate financing are likely to rise on seasonal effects and the People’s Bank of China’s favourable credit policies. We expect export growth to slow further as rising trade protectionism bites. One fewer working day this September could also add downside pressure on exports. Import growth is also expected to moderate due to the fading boost from July’s general tariff cuts and last September’s relatively high base.
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