US
The ISM manufacturing and non-manufacturing indexes reversed weak August readings in September, suggesting that weakness was more likely the result of seasonal quirks than a material slowdown. The manufacturing index returned to expansion territory, adding 2 points to 51.5 in September. The picture improved in most of the subcomponents. The most notable was the 6-point jump in the new orders index to 55.1, which, if sustained, will support factory production, and employment in coming months. The production index also returned to positive territory in September, rising 3.2 points to 52.8. Sustained production growth should bolster the employment gauge, which improved in September but remained just south of the break-even point.
The US September payroll gain was solid, though below consensus, as the economy averaged 192,000 new jobs over the last three months. Current economic conditions may support a rate hike in 2016, with mounting inflation pressures and rising average hourly earnings. The US labor market churned out 156,000 jobs in September after adding a revised 167,000 jobs in August. The work-week extended to 34.4 hours and average hourly earnings increased 0.2% on continued wage pressure. While the unemployment rate ticked up to 5.0% from 4.9%, so too did the labor force participation rate, suggesting that the labor market continues to pull in Americans from the sidelines.
On Friday, the retail sales figures for September will be made available. While growth in core retail sales was strong in Q2, it was slightly negative in both July and August. It is the first time there has been negative growth for two successive months post crisis. In September, the estimate for core retail sales increased 0.4% (month-on-month). Even though 0.4% (month-on-month) is quite strong looking at a single month, it will still leave the average monthly growth rate in Q3 below 0.1% (month-on-month), which is a weak signal for the Q3 GDP growth.
The preliminary consumer confidence figures from the University of Michigan for October are expected to stay in the current range. In September, both the Michigan and the Conference Board measures of consumer confidence increased underpinning that consumers are still optimistic.
UK
The industrial production fell by 0.4% in August and was much weaker than the consensus expectation of +0.1%. However, the drop was largely driven by a 3.7% decrease in mining and quarrying due in part to maintenance of North Sea oil fields. Manufacturing production was much better and increased by 0.2% in August after falling by 0.9% in July, but was still lower than the consensus expectation of +0.4%.
According to the Markit/CIPS survey, the manufacturing PMI for September increased to 55.4 in September from 53.3 in August. The consensus expectation was 52.1. The weaker pound is clearly helping the manufacturing sector, with new export orders increasing at the fastest pace since September 2014. Domestic orders also improved. The output balance rose from 57.1 to 60.2, taking the average for Q3 to 55.2. On the basis of past form, this points to quarterly growth in the official measure of manufacturing output of around 0.5% in Q3, down from 1.6% in Q2.
The construction output in August, due on Friday, will be interesting since construction seems to be the sector hit most by Brexit. It is important to note that the output data is very volatile on a monthly basis so it may be difficult to interpret.
EU
In the euro area the focus will be on ECB speeches as the central bank is considering QE tapering options once the programme ends. The news about tapering came as a surprise, as Draghi had previously said the ECB has not discussed these topics and the ECB’s head of communication also quickly denied the story on Twitter. Based on this, Draghi is likely to reiterate that the ECB has not discussed QE exit strategies but that the focus is on ensuring a smooth implementation of the programme. It is too early to discuss tapering and the ECB is expected to announce an extension of the QE purchases by six months at the meeting in December as core inflation remains too low.
The Sentix Investor Confidence is released on Monday. In September, Sentix rose to 5.6 from 4.2 in August and another increase is expected in financial risk sentiment despite some turmoil regarding Deutsche Bank. The rise should be supported by the general state of the economy, which remains solid as reflected in the resilient PMIs and the strong business expectations in Germany.
On Tuesday, the German ZEW expectations will be released. ZEW expectations remained unchanged at 0.5 between August and September, but in line with Sentix, ZEW is expected to increase supported by a recent surge in business expectations. However, the DAX index has remained flat in the latest month, suggesting ZEW expectations are likely to remain close to the current figure of 0.5.
China
The main release will be credit and money growth. Total Social Financing (TSF) has shown a declining trend recently after the surge in early 2015. The credit impulse indicator has come down quite a bit which may be an indicator that credit-financed infrastructure investment has come off the highs. This is part of the reason why moderation of growth momentum is likely in 2017.
Sources: Danske Bank, Haendelsbank, Wells Fargo.