Flash October PMIs & Japan's lower house election take centre stage

21 October 2024

Emily Nicol
Euro area: October business surveys to remain downbeat, contrasting greater optimism among consumers

* The main focus in the euro area this week will be the results of various October business and consumer sentiment surveys. After ECB President Lagarde last week flagged the softening growth momentum implied by the September PMIs as a key cause of the Governing Council’s more dovish tone, most attention will be on the flash October PMIs (Thursday). Given ongoing weakness in new orders, the headline euro area composite PMI is expected to have moved broadly sideways at September’s 49.6, signalling ongoing stagnation at the start of Q4. National business sentiment surveys will include the German ifo (Friday), French INSEE (Thursday) and Italian ISTAT reports (Friday), which in addition to the services and manufacturing sectors covered by the PMIs will include updates on conditions in construction and retail. Contrasting the relative pessimism among businesses, the Commission’s preliminary consumer confidence indicator (Wednesday) is expected to rise for a second successive month and the eighth this year, to its highest level since February 2022, supported by the recent decline in inflation and cut in interest rates.

* The PMIs and national business surveys will provide an update on price pressures in October too. With the services input price index having fallen back below the long-run average in September, the prices charged component might also maintain a downwards trend this month. Meanwhile, the ECB’s consumer expectations survey for September (Friday) should show that medium-term inflation expectations remained well-anchored. Finally, the ECB’s monetary figures for September are also due (Friday). With interest rates still in restrictive territory, these are expected to show that bank lending remained relatively subdued at the end of Q3. But in line with last week’s Bank Lending Survey we might well see a more noticeable pickup in mortgage lending.

UK: Flash October PMIs and public finance figures in focus

* Like in the euro area, Thursday’s flash October PMIs will be the UK data highlight this week. While the composite index declined in September (by 1.2pts to 52.6), business expectations of future output remained above their long-run average. Overall, the composite PMI is expected to be broadly unchanged this month, consistent with ongoing moderate expansion supported by services and manufacturing growth. In terms of the PMI price indices, particular focus will be on whether services price pressures continue to dissipate, with the recent output price PMI having declined to a 20-month low (54.7) in September. Having seen manufacturing input costs (57.5) rise over recent months, we might see a modest uptick in the manufacturing output price index this month too. The CBI industrial trends survey (also Thursday) will include the quarterly survey indicators on investment and employment intentions for the coming year.

* Ahead of the new government’s first Budget announcement on 30 October, attention will be also on the latest public sector finance statistics (tomorrow), which will provide context on the current fiscal situation and existing borrowing overshoot. In August, public sector net borrowing (FYTD £64.1bn) was some £6.3bn above the OBR’s forecast (FYTD £57.8bn), which was based on the previous government’s spending plans. That gap is expected to have widened slightly in September. Separately, ahead of the BoE’s MPC meeting on 7 November, a number of MPC members – including BoE Governor Bailey, Deputy Governor Breeden, and external members Greene and Mann – will speak publicly at the IMF Autumn meetings in Washington.

Japan: Outcome of Sunday’s Lower House election uncertain; Tokyo CPI set to moderate on lower energy inflation

* A key focus in Japan will be the result of the House of Representatives (Lower House) election on Sunday, with polls suggesting that the outcome could be the closest since 2009 when the LDP lost power to the DPJ. Admittedly, polls suggest that the ruling LDP will still take the largest share of the vote, but the lead over its main opposition CDPJ has narrowed somewhat over recent weeks, as the funding scandal that led to previous Prime Minister Kishida’s downfall continues to take a toll. As such, the LDP will fail to match the number of seats it held before the Lower House was dissolved (247) and seems likely to fall short of a sole majority (233). Indeed, the Asahi Shimbun’s poll over the weekend – which offered a good guide to the previous election in 2021 – suggested that the LDP could well lose around 50 seats. And so, with polls also suggesting that the LDP’s junior partner Komeito is on track to lose seats (from 32 previously), it is far from certain that the ruling coalition will garner a simple majority, which would be a massive hinderance to Ishiba and the government’s ability to push through legislation and would seriously wound the PM.

* In terms of economic data, the end of the week will bring Tokyo CPI figures for October (Friday). Headline inflation is expected to moderate slightly from 2.1%Y/Y to a six-month low of 1.8%Y/Y, with the core measure excluding fresh foods similarly down 0.3ppt to 1.7%Y/Y. But this will largely reflect lower energy prices. Indeed, when excluding fresh foods and energy, the BoJ’s preferred core measure is expected to move sideways at 1.6%Y/Y for a third consecutive month. Meanwhile, the flash October PMIs (Thursday) are likely to point to ongoing expansion led by the services sector.

US: Fed’s Beige Book, flash October PMIs and advance durable goods orders in focus

* It will be a relatively quiet week for top-tier US releases, kicking off later today with the Conference Board leading indicators for September, followed by the Fed’s Beige Book (Wednesday) and the flash October PMIs and Kansas City manufacturing survey (Thursday). In terms of hard economic data, September existing and new home sales figures (Wednesday and Thursday respectively) are expected to report only a modest increase following a sharp decline in August as borrowing rates remain extremely elevated and demand remains weak. Meanwhile, durable goods orders data (Friday) are expected to report a decline of 1.0%M/M due principally to a drop in the transportation sector. Indeed, excluding such items, durable goods orders are expected to have moved sideways in September.

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