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Global Macro and Markets

• Global markets: Very strong retail sales numbers from the US have raised thoughts of a 4% GDP number for 3Q23 (see more below), and pushed 5% 10Y Treasury yields back onto the radar. The 10Y Treasury now yields 4.83% after rising 12.8bp yesterday. The Gaza conflict and the possibility of an escalation remains an existential threat that could see yields rapidly reverse, and the explosion at a Gaza hospital in the last 24 hours has seen parts of President Biden’s diplomatic push unravel. But the macro story is still firmly pointing to higher yields. 2Y yields also rose, though not quite so much, gaining 11.1bp to 5.209%. This hasn’t had much of a beneficial impact on the USD, though. EURUSD has edged slightly higher to 1.0575. The G-10 FX picture was quite mixed. Cable lost a little ground overall, though it was a choppy session. The JPY is still sitting under 150, though looks as if would rather go higher than lower. The AUD tracked the EUR and made small gains. There was very little happening in the Asian FX space on Tuesday. Stocks don’t seem to know how to respond to the stronger US macro figures. Do they gain because the earnings outlook is brighter, or decline because the rate outlook is higher and the risk outlook is deteriorating? In the end, they did nothing. The S&P 500 was 0.01% lower on the day. The NASDAQ dropped just 0.25%. Chinese stocks put in a better performance. The Hang Seng rose 0.75% while the CSI 300 rose 0.35%.
• G-7 macro: As mentioned, US retail sales were far stronger than expected. Here’s James Knightley’s response to the data. But to summarise, big upside beats on the headline retail sales figure (0.7% MoM against expectations for +0.3%, and upward revisions to past data too), and the core and control group figures were also a lot stronger (both 0.6% MoM). There is some contribution from higher gasoline prices, but not very much, and the net result of all of this is that 3Q23 GDP looks like it will come in close to 4%. Recession…what recession? Though to be fair, recessions do have a habit of springing out of nowhere, and often follow hard on the heels of strong growth, so don’t get too complacent. Today is not nearly so exciting for macro, with only US September housing starts and building permits worth a quick look.
• China: It is China’s data deluge day today. From 10:00(HKT/SGT) we get 3Q23 GDP, September Industrial production, retail sales, and a variety of investment metrics as well as property sales. We have a slightly lower (but low conviction) forecast for GDP than consensus, which anticipates a 4.5% YoY rise, based on a slightly stronger 0.9% QoQ gain. This consensus view mainly springs from the slight firming we saw in the data in August, and expectations that this continued in September. Better growth numbers may pare thoughts of a significant change to central government fiscal policy. But it could put 5% full-year 2023 GDP growth back on track.

What to look out for: China activity data

• China data GDP, retail sales industrial production (18 October)

• US building permits and housing starts (18 October)

• Japan trade balance (19 October)

• Australia labor data (19 October)

• Bank Indonesia policy (19 October)

• Bank of Korea policy (19 October)

• US initial jobless claims and existing home sales (19 October)

• China loan prime rates (20 October)

• Japan CPI inflation (20 October)

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