ON DECK FOR FRIDAY, OCTOBER 31
KEY POINTS:
- Tech earnings buoy US equities while other markets stumble
- Canada’s economy is fumbling along in Q3
- China’s economy weakened, weighing on Chinese equities
- Tokyo core CPI soars, reinforces BoJ hike expectations
- Firm Eurozone core CPI with a pick-up in services
- Cautious German consumers
- BanRep expected to hold
Ghoulish little fiends are causing a bit of mischief across global markets. Risk appetite is soft to end the month with the stand out being a modest gain in US equity futures after solid showings from Apple and Amazon in yesterday’s after-market. European cash markets are broadly lower except for Italy. Stocks fell in China with signs the economy is weakening further. Sovereign bonds are little changed. The dollar is mixed. Overnight data focused on China’s economy, hot Japanese core inflation, and warmer than usual Eurozone core CPI. On tap are Canadian GDP and BanRep’s latest decision.
CHINA’S ECONOMY SOFTENED
China’s state PMIs softened (chart 1). The October composite slipped 0.6 points to 50.0 on the button which signals an economy neither growing nor contracting at the margin. Manufacturing shrank at a slightly quicker pace (49.0, 49.8 prior) with non-manufacturing holding firm (50.1, 50.0 prior).
TOKYO CORE CPI POSTS BIGGEST GAIN IN 11 YEARS
Japanese data was generally buoyant. Tokyo core CPI for October registered the strongest m/m gain since 2014. Core CPI was up by 0.7% m/m SA, or 8.7% m/m SAAR (chart 2). Further, activity readings were mixed as industrial output grew by more than expected (2.2% m/m, 1.5% consensus) and retail sales grew by less than expected (0.3% m/m, 0.8% consensus) but partly due to upward revisions.
EUROZONE CORE CPI SLIGHTLY FIRMER THAN TYPICAL
Eurozone CPI matched expectations at 0.2% m/m SA but core CPI was slightly firmer at 2.4% y/y (2.3% consensus). That’s because the month-over-month NSA core CPI reading was slightly firmer than a typical month of October at 0.3% m/m compared to the average at 0.2 (chart 3). Services inflation picked up (chart 4).
CAUTIOUS GERMAN CONSUMERS
German consumers were more cautious in September. Sales volumes were up by only 0.2% m/m SA which matched consensus, but the prior month was revised lower (-0.5% m/m instead of -0.2%).
CANADA’S ECONOMY
We’ll get a more complete picture of the performance of the Canadian economy when GDP figures arrive this morning (8:30amET). August and September estimates will firm up estimates for overall Q3 GDP.
The August figures will include revisions to the initial guidance from Statcan that the economy was “essentially unchanged” that month. My tracking points toward a mild dip of -0.1% m/m SA. The figures for August will also include sector details. Statcan had said that “Increases in wholesale trade and retail trade were offset by decreases in mining, quarrying, and oil and gas extraction, manufacturing, and transportation and warehousing.”
Key, however, may be the first estimate for September sans details. There is very little information available for the month. We know that hours worked dipped by -0.2% m/m SA and since GDP is hours times labour productivity this points to downside risk. Retail sales also reversed August’s gain while existing home sales also dipped but vehicle sales accelerated.
The overall picture is one of an economy that may be posting very little growth in Q3. Based on monthly GDP estimates, growth could be around ¾% q/q SAAR after GDP contracted in Q2 despite strong consumption and strong final domestic demand.
As a consequence, Canada’s economy continues to open up a modest amount of slack but don’t get carried away with that argument. As the BoC has emphasized, developments are destroying productive capacity.
BANREP TO HOLD
Colombia’s central bank is widely expected to remain on hold at an overnight lending rate of 9¼% this afternoon (2pmET). It has been on hold since its last rate reduction in April. Inflation remains too high to contemplate further easing at this juncture. CPI is running at 5.2% y/y with core inflation just a hair beneath 5%. Inflation expectations also remain elevated.
And let’s not forget Game 6 tonight. Sorry kids, trick or treating is over now, it’s game time!
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.