Week In Focus

September 26th - 30th

EZ FLASH CPI (FRI): Headline consumer prices are forecast to rise higher to 9.6% Y/Y from 9.1%, while the super-core metric is seen picking up to 4.6% Y/Y from August's 4.3%. Anecdotal inflation commentary within the recently released flash PMI data was downbeat, with the general theme being supply-led price pressures being replaced by energyinduced inflation. "While easing raw material supply constraints helped alleviate some inflationary pressures, rising energy prices were widely blamed on a renewed acceleration of input cost inflation across both manufacturing and services. The overall increase in costs was the steepest since June", S&P Global said, adding that "the challenge facing policymakers of taming inflation while avoiding a hard landing for the economy is therefore becoming increasingly difficult." The ECB has said that the risks to the inflation outlook are primarily on the upside, while EUR depreciation does not help the situation, with EURUSD breaking below 0.9800 this week. The ECB itself raised its inflation projections at the recent policy meeting, with its 2022 estimate upped to 8.1% (prev. 6.8%), 2023 raised to 5.5% (prev. 3.5%), and 2024 lifted to 2.3% (prev. 2.1%). In wake of that meeting, sourced reports had suggested that the central bank could discuss a 75bps rate rise at the October 27th meeting if the inflation outlook warrants one.

CHINA PMI (FRI): China Manufacturing PMI is expected to fall a touch from 49.4 to 49.2; the Non-manufacturing PMI is seen easing to 52.3. ING's analysts say the PMI data is expected to follow the declining trajectory of the previous months. "The worrying amount of COVID cases in China led to the tightening of measures in multiple cities including in the tech hub of Shenzhen, as well as a weeks-long lockdown in Chengdu," the bank writes, "this could contribute to falls in orders, employment and business confidence, leading to the Caixin Manufacturing PMI and NBS non-manufacturing PMI falling for the fourth straight month." ING says "the impact of the economy might be cushioned for large-scale and state-owned firms surveyed in the NBS manufacturing PMI as orders and input costs for these companies are stable and business sentiment is less affected, contrary to that of private companies."

US PERSONAL INCOME, SPENDING, PCE (FRI): Analysts at Credit Suisse expect Core PCE to rise 0.5% M/M (prev. +0.1%), pushing the annual measure up to 4.8% Y/Y (prev. 4.6%). "Core PCE inflation likely reaccelerated in August," the bank says, arguing that "the strength in core inflation has been broad, with goods prices rebounding alongside persistent strength in labor-intensive services and housing." Ahead, CS expects that goods inflation will moderate, but overall core PCE will still remain above the Fed's 2.0% target into next year. This week, the Fed raised its forecasts for inflation; the central bank now sees core PCE at 4.5% by the end of this year (it previously projected 4.3%), moderating to 3.1% next year - the Fed sees core inflation at 2.1% at the end of its forecast horizon in 2025, but thinks that headline PCE prices will be at its 2% target by then. Meanwhile, personal income is expected to rise 0.3% M/M in August (prev. +0.2%), and personal consumption is seen rising 0.2% M/M (prev. +0.1%). CS thinks the report will paint a picture of flat real household spending; "goods demand continues to contract, with control group retail sales and unit auto sales negative for the month," it writes, "this continues to be offset by positive growth in services." In the near-term, CS argues that tightening financial conditions, slowing housing demand, and poor sentiment will continue to weigh on durable goods, but the bank sees overall consumer spending returning to positive growth in the months ahead.