The Week In Review – Week Ended October 2, 2022

• US – Durable Goods (Tue)

• US – Consumer Confidence (Tue)
• US – Personal Income and Spending (Fri)
• China – PMIs (Fri)
• UK – Q2 GDP (Fri)
• Eurozone – Consumer Prices (Fri)
 US – Durable Goods (Tue)
• New orders for manufactured durable goods posted their second
consecutive monthly decline in August, decreasing by -0.2% to
$272.7 billion, after the -0.1% dip in July. Excluding transportation,
new orders increased 0.2%, while Excluding defense, new orders
fell by -0.9%. Transportation equipment was the primary driver of
the softer number, falling by -1.1%, or $1.0 billion to $92.0 billion.
• Shipments increased $2.0 billion or 0.7% to $272.1 billion, and
have now been up fifteen of the last sixteen months, with
transportation equipment, up ten of the last eleven months,
leading the charge with a $1.7 billion (or 1.9%) increase to $88.0
billion.
• Unfilled orders have consistently risen due to lingering global
supply shortages, and August was no different as a 0.5% increase
marked the twenty fourth consecutive month of increases.
Transportation equipment was again a leader, now up eighteen of
the last nineteen months, with the most recent $4.0 billion jump
bringing it to $659.1 billion, or 0.6% higher than a month earlier.
• Despite the increases in unfilled orders, inventories have also
steadily increased, up for nineteen consecutive months, and the
most recent print saw them increase $1.0 billion or 0.2%, MoM,
to $487.2 billion. This followed a 0.2% July increase. Machinery
led the increase, up $0.4 billion (or 0.5%) to $84.3 billion.
 US – Consumer Confidence (Tue)
• The Conference Board Consumer Confidence Index increased in
September for the second consecutive month, and now stands at
108.0, up from 103.6 in August.
• The Present Situation Index - based on consumers' assessment of
current business and labor market conditions - rose to 149.6 from
145.3 last month.
• The Expectations Index, which is based on consumers' short-term
outlook for income, business, and labor market conditions, increased
to 80.3 from 75.8.
• In terms of the present situation, consumers' appraisal of current
business conditions was more favorable in September against August:
• 20.8% of consumers said business conditions were "good," up
from 19.0%.
• 21.2% of consumers said business conditions were "bad," down
from 22.6%.
• For future expectations (i.e., six months hence) consumers were
more positive about the short-term business conditions outlook
in September:
• 19.3% of consumers expect business conditions to improve, up
from 17.3%.
• 21.0% expect business conditions to worsen, down from
21.7%.
 US – Personal Income and Spending (Fri)
• Personal income increased $71.6 billion, or 0.3% in
August, according to estimates released last Friday
by the Bureau of Economic Analysis (BEA).
• Disposable personal income (DPI) increased $67.6
billion (0.4%), primarily reflecting increases in
compensation, proprietors' income, and government
social benefits that were partly offset by a decrease
in personal interest income.
• Personal consumption expenditures (PCE) increased
$67.5 billion (0.4%) with a tilt toward services at the
expense of goods.
• The headline PCE price index increased 0.3%.
• Excluding food and energy, the core PCE price index
(most closely watched by the Fed) increased 0.6%,
MoM and 4.9%, YoY.
• Real DPI increased 0.1% in August and Real PCE
increased 0.1%, with goods sliding -0.2% and
services offsetting the drop by climbing 0.2%.
 China – PMIs (Fri)
• The official National Bureau of Statistics (NBS) Manufacturing PMI for
China increased to 50.1 in September 2022 from 49.4 in the previous
month, exceeding market forecasts of 49.6. This was the first
expansion in factory activity in three months, amid a series of stimulus
packages from the government and an easing of COVID restrictions in
some cities.
• Both output (51.5 vs 49.8 in August) and buying activity (50.2 vs 49.2)
grew for the first time in three months, while new orders shrank the
least since June (49.8 vs 49.2).
• Both export sales (47.0 vs 48.1) and employment (49.0 vs 48.9)
continued to decline.
• Delivery time lengthened the most in four months (48.7 vs 49.5).
• Input costs rose for the first time in three months (51.3 vs 44.3), while
output charges fell their smallest amount since May (47.1 vs 44.5).
• Business sentiment improved to a three-month high (53.4 vs 52.3).
• To cloud the issue, the Caixin PMI unexpectedly fell to 48.1 in
September 2022 from 49.5 in the previous month, amid the impact of
COVID controls. This was the lowest reading since May, as output fell
for the first time in four months, new orders shrank the most since
April, and export sales declined at the steepest rate in four months.
• The official NBS Non-Manufacturing PMI slid to 50.6 from a previous
52.6; significantly shy of the 52 number expected by the market.
 UK – Q2 GDP (Fri)
• In a marvelous example of the tail wagging the dog, Q2 GDP
numbers were recalculated eight ways from Sunday until
the revised (due to “methodological changes”) number of
0.2% QoQ growth was revealed on Friday; much better than
the -0.1% previously revealed by the former methodology,
and closer to the narrative it was created to fit.
• This boosted YoY growth to 4.4% from a previous 2.9% and
expectations that had also sat at 2.9%, although those
expectations had failed to factor in both mirrors and smoke.
• The statistical sleight of hand wasn’t able to cure all
ailments, however. In the three months to June, UK gross
domestic product was -0.2% below the level seen in the
final quarter of 2019, before the pandemic.
• This was shy of the 0.6% increase above pre-pandemic
levels sought by analysts, meaning the UK is the only G7
nation that has failed to recover to its pre-pandemic levels.
• By contrast, the US and Eurozone now stand at levels that
are up 3.5% and 1.8% from their pre-pandemic readings,
respectively.
 Eurozone – Consumer Prices (Fri)
• Headline Euro area annual inflation came in at
10.0% in September, up from 9.1% in August
according to a flash estimate from Eurostat,
the statistical office of the European Union.
• Within the headline number, energy prices
rose 40.8%, compared with 38.6% in August,
followed by food, alcohol & tobacco at 11.8%,
compared with 10.6% in August, non-energy
industrial goods (5.6%, compared with 5.1%
in August) and services (4.3%, compared with
3.8% in August).
• At the core (that is, the ‘ex-FEAT’ number),
inflation posted in at a level of 4.8%, up from
4.3% on the previous month and a shade
ahead of the 4.7% expected by analysts.
 The Week Ahead – Week of October 3,
2022
• US – ISM Manufacturing PMI (Mon)
• US – ISM Services PMI (Wed)
• US – Nonfarm Payroll Employment (Fri)
• Japan – Tankan Business Sentiment (Mon)
• Australia – RBA Rate Decision (Tue)
• New Zealand – RBNZ Rate Decision (Wed)
 US – ISM Manufacturing PMI (Mon)
• The ISM manufacturing index has pointed to a clear
slowdown of late in the manufacturing sector
against year-ago comps, with the August reading of
52.8 being the lowest since June 2020.
• Despite this, there were still some encouraging signs
in the August report. The index remained in
expansionary territory above the 50 level, while
some key components such as current production
and new orders actually increased last month.
• In addition, welcome news could be found in the
prices paid component falling to more than a two-
year low.
• Monetary policymakers at the Fed likely will be
hoping for a similar print in this week's report; the
Goldilocks scenario would be a cooling - but still
ongoing – expansion, paired with a slowing pace of
upward price pressure.
• Market consensus forecasts are looking for a flat
print of 52.8 on the headline index.
 US – ISM Services PMI (Wed)
• The manufacturing sector PMI garners more attention than its
services counterpart, due to both its timing at the start of the
month making it a very timely piece of data and because it
exhibits more volatility than the services PMI.
• The service sector may be less cyclical, but services account for a
much larger share of the US economy, and thus as its fortunes go
so too does the economy as a whole.
• The ISM services index rose 0.2 points in August to 56.9, marking
the fastest pace of expansion in the sector in four months. Most
of the underlying components of the survey moved in the right
direction and the headline index was supported by upticks in
both business activity and new orders.
• In the previous recessions of 2001 and 2008-2009, the ISM
services index showed clear signs of rolling over, eventually falling
below the key 50 level that separates expansion from
contraction. Clearly, we are some way off the dip into contraction
during this current cycle at this point in time, and expectations
are that September’s print will come in at 56.5, a shade weaker
than August’s level, but nonetheless handily above the 50 level.
• That said, Fed attempts to tackle persistently high inflation will
likely bring about an economic slowdown, and a further slide in
the index over the next few quarters seems very much on the
cards.
 US – Nonfarm Payroll Employment (Fri)
• The consensus expectations are seeking a nonfarm
payrolls increase of 250k in September compared to
the prior month’s figure of 315k.
• The jobless rate is projected to be unchanged at
3.7%, while average hourly earnings are forecast to
have risen by 0.3%, MoM, and the average workweek
is likewise expected to have held steady at 34.5
hours.
• In most economic scenarios, a strong labor market
would aid in maintaining confidence in the economy,
and thus be very welcome. In the current
environment, however, investors would probably
welcome a slight cooling down at this point, as this
would then enable the Fed to downshift into a lower
gear, easing off on their hiking cycle and offering
some respite to the dollar’s recent advances.
• Another solid report on Friday heightens the risk that
the rout in bond and equity markets will gather
steam, as bets of a more aggressive Fed would be
ramped up, further strengthening the dollar.
 Japan – Tankan Business Sentiment (Mon)
• The Bank of Japan (BoJ) Tankan survey of business sentiment
released on Monday will provide early insight into how Japan's
economy fared during the third quarter of this year.
• Growth has been tepid so far in 2022, but key measures from the
Q3 Tankan survey are expected to show some measure of resilience
in sentiment.
• The consensus forecast is for the large manufacturing diffusion
index to improve two points to +11, while the large non-
manufacturing diffusion index is expected to hold steady at +13.
• Meanwhile, the large manufacturing outlook is poised to tack on a
point to +11, and the non-manufacturing outlook is set to go a point
better, posting in at +15, 2 points ahead of its previous reading.
• Against a backdrop of only moderate growth and slowing global
economic activity, the Bank of Japan remains comfortable with its
easy monetary policy stance, and expressed it will not hike rates for
the time being, and therefore any shift in the Bank of Japan's key
policy parameters - the policy rate and the 10-year government
bond yield target – seems highly unlikely for the foreseeable future.
• We’ve already seen the BoJ step in to defend the yen at around the
146 level against the greenback, though; a move described last
week as drawing a line in the sand, without simultaneously erecting
a tidal barrier. It remains to be seen if, when, and how often this
level is tested again in this turbulent forex environment.
 Australia – RBA Rate Decision (Tue)
• The Reserve Bank of Australia is widely expected to hike
interest rates on Tuesday, but after four straight increases
of 50 basis points apiece, it’s distinctly possible that
policymakers will opt for a smaller 25 basis point bump
this week.
• Governor Phillip Lowe previously signaled that the Bank
is getting closer to the point that it will not need to keep
hiking in 50 basis point increments, but just how close
we currently sit to that point will likely be determined at
the meeting. Given the rate of RBA tightening, and the
fact that it meets more regularly than other central
banks, a 25 basis point increase seems sensible.
• Despite this, the recent acceleration of the Australian
dollar’s slide and the general level of turmoil in the forex
markets of late, policymakers may wish to avoid sending
the signal that they are beginning to let up in their fight
against inflation.
• A slower pace of hikes is only a matter of time for the
RBA at this point, though, so even if it were to raise rates
by 50 basis points this week, such a move may do little to
support the Aussie dollar.
 New Zealand – RBNZ Rate Decision (Wed)
• On Wednesday, it will be the turn of the Reserve Bank of New
Zealand (RBNZ) to announce its policy decision. Investors are
widely expecting the cash rate to be hiked by 50 basis points,
in keeping with the pace of the last four meetings.
• Currently, however, the market has priced in a roughly 20%
probability of a 75 basis point hike, which seems unlikely
considering that rates in New Zealand are already among one
of the highest in the major advanced economies.
• Bolstering the view that this is unlikely are the recent
comments by Governor Adrian Orr who remarked that the
tightening cycle is “very mature”, although he did also stress
that it is not yet a fait accompli.
• At its last meeting, the RBNZ upped its forecast of the
terminal rate to 4.1%, suggesting there’s another 100 to 125
basis points of rate hikes to go by the middle of 2023.
• The recent dramatic fall in commodity currencies in general,
including the Kiwi dollar, may prompt policymakers to plump
for a bigger 75 basis point rate rise, but the country’s housing
market has shown signs of faltering, and that fact alone is
likely sufficient for the RBNZ to err on the side of caution and
maintain their current pace.