Week In Focus: OPEC/Non-OPEC Summit & Canadian Data Provide This Week’s Focal Points
Key Events: -
Tuesday: BoC Financial System Review
Thursday: OPEC/Non-OPEC Summit, US Core PCE (Oct)
Friday: Canadian GDP (Q3), Labour Market Report (Nov)
North America: -
Wednesday will bring the release of the second Q3 US GDP estimate, with analysts looking for the annualised Q/Q rate edge up to 3.2% from the 3.0% seen in the initial release. Most expect inventory investment to be the main contributor to the upward revision, while those above consensuses seem to be looking for a small upward revision to consumer spending.
Thursday will bring the latest personal income and spending data. Personal income is expected to have risen by 0.3% M/M in October while personal spending is expected to have risen by 0.2 M/M, against previous readings of 0.4% and 1.0% respectively. The data will, as ever, be accompanied by the core PCE price index, with the median estimate looking for a 1.4% Y/Y rise in October, against the 1.3% seen in September. This release could come under more scrutiny than usual as outgoing FOMC Chair Janet Yellen recently noted that “inflation is surprisingly low, which is likely due to temporary factors,” although she did acknowledge that the “Fed is not certain that low inflation is transitory.”
Across the border in Canada, traders will eye the BoC’s Financial System Review on Tuesday. Attention will be on how conditions have fared following the two rate hikes the central bank fired in Q3. The Bank’s Governor Poloz will also deliver a press conference after the release of the report, which is the last scheduled appearance by a BoC policymaker ahead of the December monetary policy decision. “Signs are that the myriad of macroprudential policies and the two hikes have had an impact, with Greater Toronto re-sale prices down ~6.5% seasonally adjusted from May to October and unit sales down 27% y/y in the region,” RBC says. “Contrasted with this is a resurgence in Vancouver prices/activity after late 2016 declines and some modest pick-up in other major urban centres. Recent BOC statements on the housing market have emphasized that they expect supply and demand dynamics to dominate over the medium-term,” RBC says. In terms of other articles that the BOC may release alongside the report, RBC is on the look-out for potential analysis on macroprudential measures and the demographic composition of debtors.
Focus will then move to Friday’s Q3 GDP release, with consensus looking for 1.6% on a Q/Q annualised basis, notably slower than Q2’s 4.5% (albeit expectedly so). HSBC notes that “weak exports are seen as a key factor in the GDP growth slowdown, and consumer spending should also slow growth to slow. As a result, consumption’s contribution to GDP should slow.” The BoC has already conceded that growth is set to slow, but have noted that the output gap has now practically closed. The BoC will remain data dependent, as it has stressed in recent addresses, with January’s meeting seen as the next ‘live decision’, and markets pricing a circa 30% chance of a hike at that meeting.
Friday also brings the release of the latest Canadian labour market report. Analysts look for 10.0K payrolls to be added, slowing from the 35.3K seen in October, while the unemployment rate is expected to fall to 6.2% from 6.3%. The Canadian labour market has experienced a hot streak in 2017 thus far, but RBC expects it to slow as “gains earlier in 2017 came alongside strong GDP growth, the more recent gain looks outsized as GDP growth has slowed in H2-2017 and we expect more trend-like gains going forward.”
Other releases of note during the week: Monday US New Home Sales (Oct) Wednesday US Pending Home Sales (Oct) Thursday Canadian Current Account (Q3) Friday USM ISM Manufacturing Survey (Nov)
With a lack of scheduled central bank activity and a light data docket in the Eurozone, focus for the region could instead be placed upon political developments. Last week saw the breakdown of coalition talks in Germany with the FDP walking away from Merkel’s CDU/CSU union and the Green Party due to irreconcilable differences. This cast a shadow of uncertainty over the German political space, with doubts over Merkel’s capability to scrape together a coalition. If she fails, the German electorate will be required to return to the polls. However, it has become increasingly likely that internal pressures within the SPD will force party leader Martin Schulz to come to the table with Merkel, although the final decision will most likely be left to a party vote. That said, even if Schulz got the green light for talks to go ahead, striking a ‘Grand Coalition’ deal will not be an easy task with the SPD most likely wanting to play more of an influential role in government; a potential stumbling block for Merkel as she tries to maintain power after losing her trusted Finance Minister Schaeuble in the wake of September’s election.
Elsewhere in the Eurozone, Ireland is the latest nation to fall victim to political uncertainty. Reports have suggested that the country could face a general election after the second largest political party, Fianna Fail, said it would table a motion of no confidence against Deputy PM Fitzgerald related to miss-handling in a police whistle-blower incident. According to reports, if Fitzgerald does not resign before the motion debate which will be scheduled for Tuesday, the government will fall, resulting in a December election. The latest developments should not pose too much of a tspaneat to the broader Eurozone economy, However, it could generate additional uncertainty around the Brexit negotiations with Irish PM Varadkar due in Brussels to discuss the Northern Irish border on 14th December.
Other releases of note during the week: Thursday Eurozone CPI (Nov, P) Eurozone Unemployment Rate (Oct) Friday Eurozone Manufacturing PMI (Nov, F)
Friday’s manufacturing PMI release dominates the docket, with analysts expecting the survey to tick up to 56.5 from the 56.3 seen in October. Last month’s release saw output and new order growth remaining robust, as input costs and output price inflation accelerated. Survey collators IHS-Markit noted that “UK manufacturing made an impressive start to the final quarter of 2017 as increased inflows of new work encouraged firms to ramp up production once again. The sector looks to be achieving a quarterly rate of expansion close to 1%, therefore sustaining the solid pace of growth signalled by the official ONS estimate for the third quarter. The continued robust health of manufacturing and rising price pressures will help cement expectations of the Bank of England hiking interest rates for the first time in a decade as Thursday’s announcement approaches.”
Other releases of note during the week: Tuesday Bank of England Financial Stability Report Wednesday Money & Credit Data (Oct)
China’s official November PMI surveys will hit at the back-end of the week. The Manufacturing survey will hit on Thursday, and is expected to come in at 51.5 against October’s 51.6. Last month’s increase was exclusively driven by the production and new orders sub-indices, while the raw material costs, employment and lead time indices were in a state of contraction. The non-manufacturing PMI will be released on Friday; October’s survey came in at 54.3. In terms of the breakdown, it was only the employment sub-index was in contractionary territory, with the NBS suggesting that “the non-manufacturing industry kept steady and fast growth momentum.”
Friday will bring a deluge of Japanese data. October’s headline CPI is expected to print at 0.8%, while the labour market is expected to show a steady 2.8% unemployment rate, while the job-to-applicant ratio is seen nudging up to 1.53 from 1.52. Despite the presence of the tightest labour market seen in decades alongside ultra-loose BoJ policy, notable inflation remains just a pipedream in Japan.
In Australia focus will fall on Thursday’s Q3 capital expenditure release which feeds into the national accounts data. Consensus looks for a 1.0% Q/Q rise, although ANZ are looking for a negative print owing to “declines in the engineering sector, as mining projects in Western Australia get closer to completion,” although they do note that “the key input to GDP, plant and machinery spending, is expected to have increased in line with strong capital imports in the quarter.” There will also be a degree of focus on the 2017-18 capital expenditure estimate accompanying the release, with the latest estimate sitting at AUD 101.8bln.
Across the Tasman in New Zealand, Wednesday brings the release of the latest semi-annual RBNZ Financial Stability Report. Few fireworks are expected, with Westpac opining that “banks are well capitalised, loan impairments remain low, and mortgage lending growth has slowed.” It is worth noting that the Reserve Bank has said that it is reviewing the criteria for easing the loan-to-value ratio restrictions on mortgage lending, so this could be one area that garners interest. Thursday will see ANZ release its November business confidence survey. October’s survey stood at -10.1, with business confidence on the wane since August, owing to uncertainty heading into and in lieu of September’s general election. Most expect this to continue in the short term, owing to worry over the newly instated coalition government’s policy.
Other releases of note during the week: Wednesday Japanese Retail Sales (Oct) Thursday Japanese Industrial Production (Nov) Australian Housing Finance Data (Oct) Friday Japanese Capital Expenditure (Q3)
OPEC/Non-OPEC Vienna Summit: -
OPEC and non-OPEC oil ministers will convene on 30th November for the 173rd OPEC and 3rd non-OPEC ministerial meeting. Heading into the meeting, the consensus looks for the current output pact, that is set to expire March 2018, to be extended.
An extension of 9-months is seemingly the most likely outcome, with recent source reports supporting this view, noting that Saudi Arabia has been pushing OPEC to extend the pact by 9-months, while a second OPEC source stated that there is a 90% chance that a 9-month extension will be announced.
OPEC has also asked an additional 20 non-OPEC nations to attend the meeting to increase the global efforts to balance the oil market and reduce global oil inventories back towards the 5-year average. Since the beginning of the year the excess overhang has fallen considerably with the differential to the 5-year average falling to 154mln bpd. The Brent curve and more the recently the WTI curve have shifted into backwardation, implying stronger demand and tighter supplies, which OPEC will view as positive.