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Korean trade data show further signs of an easing in congested supply chains. Chinese policymakers turn more dovish, but no real relief for the property sector. Renminbi strength starts to bother the PBoC, but "two-way volatility" is more likely than devaluation.
Ms. Lagarde pushed back against rate expectations yesterday, but markets didn't listen. A deposit rate hike in 2022 would mean a swift end of QE next year; that won't happen. Eurozone inflation likely blew past the consensus again in October; we look for a headline of 4% y/y.
No change in policy settings from the BoJ, but a decided turn for the worse in the growth outlook. The coronavirus, coupled with supply-side issues, is weighing on the short-term outlook. Currency weakness is drawing greater attention, and we think the BoJ will need to act next year.
Rising rate expectations are at odds with the ECB's forward guidance; we expect a push-back today. We still think the PEPP will end in March, but don't look for a clear signal today either way. Mixed consumer confidence data in the core, and a slowdown in headline EZ money supply growth.
Euro area energy inflation will rise further in Q4, but we think the core rate has peaked. Risks are tilted towards persistently high core and headline inflation in the next 12 months... ...But that doesn't justify the leap in Eurozone rate expectations in the past few weeks.
EZ equity earnings have recovered handsomely this year, leaving valuations more attractive. Markets still expect strong earnings growth in the next 12 months; the macro data suggest otherwise. The pace of policy tightening implied by global rate expectations will soon be an issue for EZ equities.
We look for lower consensus growth forecasts in Q4, even as inflation forecasts advance further. Fiscal stimulus is a wildcard for 2022 GDP forecasts, but near-term risks remain tilted to the downside. Stagflation risks are real, warning of less potent fiscal stimulus and a more constrained ECB.
The BoK struck a hawkish note despite holding rates, strongly suggesting a November hike. Household debt remains the focus of policy, but there's a risk of complacency over growth. China is still deteriorating, and data over the next fortnight will be just a taste.
No cause for concern in foreign exchange reserves data. Capital outflow pressure appears modest and re- serves sufficient, for now. Property sector stress is growing, however, and cracks are appearing for key actors.
EZ inflation expectations don't predict inflation, but they're not entirely without value either. Industrial production in France rose again in August; Q3 as a whole likely was decent. We think the PMI surveys are underestimating actual GDP growth in Q3, especially in Spain.
Ms. Lagarde strikes a dovish tone at the ECB Forum, but sticks to the script that PEPP will end in Q1. Rate expectations have increased substantially in the EZ; we doubt the ECB is happy with this. Solid consumer sentiment data in France and Germany offer contrast to soft business surveys.
No one expects any changes at the SNB today, us included; we think policy will be on hold until 2024. The CHF will strengthen to the end of the year, but not enough to warrant significant FX intervention. Markets are worried about Evergrande--rightly--but contagion is limited, for now.
Our 2022 core inflation forecast signal that trouble is brewing for markets and the ECB. Core inflation will fall in Q1, but it will be back at just under 2% by spring, and through the summer. The ECB will stay dovish, but it will lift its inflation forecasts further; this will unsettle markets.
Growth in EZ hourly labour costs plunged in Q2, but other, more timely, data point to robust wage gains. Ms. Lagarde's comments last week suggest that we should watch negotiated wages closely in H2. We see few signs of accelerating wage growth in 2021 collective bargaining agreements, yet.
The trend in oil prices suggests energy inflation will soon fall and even turn negative next year in the EZ... ...But high, and rising, gas prices will offset this impact, keeping energy inflation sticky. We doubt this will lead the ECB to taper more quickly, particularly if some restrictions return in winter.
The ECB will slow the pace of PEPP in Q4, probably by around €20B, to €60-€70B per month. Bond yields fell as Ms. Lagarde spoke, but will the ECB's decision on PEPP in Q4 satisfy markets? The German trade surplus snapped back in July, as imports plunged; more of the same is coming.
The ECB will announce a slowdown in the pace of PEPP today, but markets likely won't flinch. The central bank's new forecasts will deliver upgrades to the outlook for growth and inflation. Trade data in France suggest that tourism is rebounding, but a full recovery is still a way off.
German industrial output rebounded at the start of Q3, but the trend likely is still flat. Consumers' spending propelled the EZ economy in Q2; a full recovery in GDP is possible in Q3. We are lifting our full-year forecasts for 2021, but this is mostly book-keeping; growth is now slowing.
Core inflation in the euro area rocketed in August, but we doubt that markets will notice. PEPP tapering is coming, but the overall tenor of the ECB's communication remains as dovish as ever. The EZ survey data are now softening, but that won't matter for GDP in Q3; for Q4, however, it might.
VAT base effects in core goods were the main driver of the July leap in German inflation. The yawning gap between national and HICP services inflation will close soon; the latter will rebound. We now see clear evidence of a reopening bump in hospitality prices; will it be sustained?
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