ON DECK FOR MONDAY, OCTOBER 20
KEY POINTS:
- Stocks mildly higher, sovereign bonds mildly lower
- Chinese GDP beats with a minor downward revision…
- …but it masked tumbling investment and a weak consumer…
- …as some strength in industrial output goes to inventories
- French markets nonplussed by S&P’s downgrade
- Canada to update producer prices before tomorrow’s CPI…
- …and BoC surveys will focus upon inflation expectations…
- …with BoC’s Macklem indicating next week’s decision hangs in the balance
- Colombian markets to react to US tariff threat
- Global Week Ahead — Fear the Credit Cycle? (reminder here)
A fresh trading week is starting off with a mildly constructive tone. Equities are broadly higher—outside of a small dip in France—and sovereign bonds have only a slight cheapening bias overall. The dollar is mixed. China’s macro data was soft beneath the hood, French markets are nonplussed by S&P’s downgrade and watch CAD and the Colombian peso today.
CHINA’S MISLEADING GDP BEAT
China’s economy beat consensus expectations, but this masked the fact that investment is tumbling, factory output is significantly going to inventories, and the consumer sector is weak.
GDP grew by 4½% q/q SAAR in Q3 (about 3¼% consensus) but the prior quarter was revised slightly lower to 4.1% from about 4½% (chart 1). So far so good.
The quarter ended mixed, however, as industrial output grew faster than expected (0.6% m/m SA, 6.5% y/y, 5.0% consensus), but retail sales fell again (-0.2% m/m SA, 3% y/y matching consensus). Charts 2 and 3. That’s the third drop in four months for retail sales while industrial output has remained buoyant throughout the US-initiated trade wars.
Some of the industrial output continues to go into inventories that have been expanding throughout the trade wars (chart 4).
Further, investment in China’s economy continues to hit the skids. Fixed asset investment is down -0.5% ytd and led by property investment (-13.9% ytd). Chart 5. Fixed asset investment has fallen for eight consecutive months in m/m SA terms.
MARKETS SHRUG ABOUT FRANCE’S DOWNGRADE
France’s downgrade by S&P late Friday is having little effect on French bonds. The 10s spread over German bunds is only about 1bp wider this morning. The CAC40 is underperforming other equity benchmarks.
CANADIAN INFLATION UPDATES START TODAY
Canada refreshes two out of three inflation gauges that are expected this week but the main one will be tomorrow’s CPI. Producer prices—both raw materials and industrial prices—will be updated this morning with September data and there is no meaningful consensus (8:30amET). Then we’ll get the BoC’s quarterly lagging business and consumer surveys including measures of inflation expectations and other soft data (10:30amET).
COLOMBIAN MARKETS TO REACT TO TARIFFS
Trump accused Colombian President Gustavo Petro of being an “illegal drug leader” and said he will impose tariffs upon Colombia today and stop aid to the country.
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