Drivers for the Week of November 14, 2021

November 14, 2021
Here's a look at the main drivers in Developed Markets this week.
  • As per the November 2-3 FOMC meeting, tapering begins this week; thus begins the removal of the giant wave of pandemic liquidity; Fed speakers will be plentiful; October retail sales will be the data highlight this week; regional Fed manufacturing surveys for November will start rolling out; Canada reports some key data this week
  • Eurozone has a quiet week; ECB officials will be out in force; U.K. reports some key data; WIRP suggests BOE liftoff December 16 remains 50-50; Brexit talks continue this Friday
  • Japan has a busy data week; Prime Minister Kishida is expected to unveil a fiscal package topping JPY40 trln sometime this week; RBA releases its minutes Tuesday


As per the November 2-3 FOMC meeting, tapering begins this week. The New York Fed last week released an updated purchase schedule that will result in total purchases of $70 bln in USTS and $35 bln of MBS this month, $15 bln less than peak QE. The Fed plans to reduce its purchases every month by the same amount until June, when QE will have ended. While the Fed has reserved the right to change the speed of tapering, we believe the bar to any changes is quite high.

Thus begins the removal of the giant wave of pandemic liquidity. Are markets fully prepared for speed tapering? It has been widely telegraphed but we are not sure that the full implications have been priced in yet, especially for the riskier asset classes. The U.S. 10-year yield is currently trading near 1.56%, below the 1.70% peak from October 21 but up from last week’s trough near 1.41%. This should head higher. At the short end, heightened Fed liftoff expectations pushed the 2-year yield up to 0.51% currently from last week’s trough near 0.39%. Fed Funds futures see nearly two thirds odds of Q2 liftoff, which seems too soon, while Q3 liftoff is fully priced in. Strong data and rising inflation are likely to keep upward pressure on U.S. rates, which in turn should keep the dollar rally going.

Fed speakers will be plentiful. Barkin, Bostic, George, and Daly speak Tuesday. Williams, Bowman, Mester, Waller, Daly, Evans, and Bostic speak Wednesday. Bostic, Williams, Evans, and Daly speak Thursday, followed by Waller and Clarida Friday. Bullard has been the most hawkish and has penciled in two hikes for 2022, and the September Dot Plots suggest two other Fed officials think likewise. Six saw only one hike and nine saw no hike, but we suspect this will drift more hawkish in the December Dots.

October retail sales will be the data highlight this week. Headline sales are expected to rise 1.3% m/m vs. 0.7% in September, while sales ex-autos are expected to rise 1.0% m/m vs. 0.8% in September. The so-called control group used for GDP calculations is expected to rise 0.9% m/m vs. 0.8% in September. Last week, University of Michigan consumer sentiment fell to 66.8, a 10-year low. Yet so far, this weak sentiment has not weighed on consumption, with retail sales posting big upside surprises for both August and September. Will we get another upside surprise this week? Stay tuned.

Weekly jobless claims will be of interest this week. That’s because initial claims data will be for the BLS survey week containing the 12th of the month. These are expected at 260k vs. 267k the previous week. Continuing claims are reported with a one-week lag and so next week’s reading will be for the BLR survey week. These are expected at 2.123 mln vs. 2.16 mln the previous week. September JOLTS data Friday support the notion that lack of stronger hiring is still a labor supply problem, not demand.

Regional Fed manufacturing surveys for November will start rolling out. Empire survey kicks things off Monday and is expected at 21.2 vs. 19.8 in October. Both Philly Fed and Kansas City Fed report Thursday and are expected at 24.0 and 30 vs. 23.8 and 31 in October, respectively. In between, October IP will be reported Tuesday and is expected to rise 0.8% m/m vs. -1.3% in September.

Other minor data are expected to show ongoing strength in the economy. October import/export prices, September business inventories (0.6% m/m expected), and September TIC data will be reported Tuesday. October building permits (2.8% m/m expected) and housing starts (1.6% m/m expected) will be reported Wednesday. Leading index (0.8% m/m expected) will be reported Thursday.

Canada reports some key data this week. October CPI will be reported Wednesday. Headline inflation is expected to pick up three ticks to 4.7% y/y, while common core is expected to pick up a tick to 1.9% y/y. If so, headline would be the highest since February 2003 and further above the 1-3% target range. September retail sales will be reported Friday. Headline sales are expected at -1.9% m/m vs. 2.1% in August, while sales ex-auto are expected at -1.0% m/m vs. 2.8% in August. Ahead of those, September manufacturing, sales (-3.1% m/m expected), wholesale trade sales (1.1% m/m expected), and October existing home sales will all be reported Monday. October housing starts will be reported Tuesday.

Bank of Canada liftoff expectations have risen after it moved its forward guidance to Q2 from H2 2022 previously at its last meeting. WIRP suggests 50-50 odds of a hike January 26, moving up to fully priced in March 2. This seems too aggressive to us and so we expect the BOC to push back a bit at its next meeting December 8. Last week, Governor Macklem said the bank was “in control” of inflation and sees it slowing to 2% by end-2022, suggesting little urgency to start hiking rates soon.


Eurozone has a quiet week. September trade will be reported Monday. Q3 employment and GDP will be reported Tuesday. Final October CPI and September construction output will be reported Wednesday. October new car registrations will be reported Thursday, followed by September current account data Friday. Of the member countries, October German PPI Friday is likely to be watched closely and is expected to pick up two full percentage points to 16.2% y/y.

ECB officials will be out in force this week. Lagarde and Guindos speak Monday. Lagarde speaks again Tuesday, followed by Schnabel Wednesday. The ECB also publishes its Financial Stability Review Wednesday. Centeno, Panetta, and Lane speak Thursday, followed by Lagarde, and Weidmann Friday. Policymakers should be very concerned about rising virus numbers across Europe. It’s gotten so bad in Germany that the military has been put on standby to help the overburdened healthcare system and to aid in the rollout of vaccine boosters.  Reports also suggest authorities are drafting plans for a return to work from home, which was lifted at the beginning of July. With the eurozone economy already softening before this fourth wave, it’s clear to us that policymakers will have to remain in dovish mode for the foreseeable future. Next ECB meeting December 16 should see some sort of extension of QE, as the risks of removing accommodation are rising significantly.

U.K. reports some key data this week. Labor market data will be reported Tuesday. Unemployment for the three months ending September is expected to fall a tick to 4.4%, driven by an expected 190k gain in employment. October CPI will be reported Wednesday. Headline inflation is expected to pick up to 3.9% y/y from 3.1% in September, while CPIH is expected to pick up to 3.6% y/y from 2.9% in September. If so, headline would be the highest since December 2011 and further above the 2% target. October retail sales and public sector net borrowing data will be reported Friday. Headline sales are expected to rise 0.5% m/m vs. -0.2% in September, while sales ex-auto fuel are expected to rise 0.6% m/m vs. -0.6% in September.

WIRP suggests Bank of England liftoff December 16 remains 50-50. However, February 3 liftoff is fully priced in. The data out last week suggest the U.K. economy is losing momentum, while the BOE’s messaging fiasco hasn’t helped matters. Haskel speaks Monday, while Bailey, Pill, Mann, and Saunders testify before Parliament. Mann speaks Wednesday, followed by Pill Friday.

Brexit talks continue this Friday. Last Friday’s meeting netted nothing new, though EU chief Brexit negotiator Sefcovic said there was an improved tone in the talks. He noted that “I acknowledge and welcome the change in tone of the discussion with David Frost today and I hope this will lead to tangible results for the people in Northern Ireland. I raised forcefully that we need to make serious headway in the course of next week.” On the other hand, Frost said “there remained significant gaps to be bridged” and added that “it was important to bring new energy and impetus to the discussions.”


Japan has a busy data week. Q3 GDP will be reported Monday. The economy is expected to have contracted -0.2% q/q vs. 0.5% growth in Q2. October trade and September core machine orders data will be reported Wednesday. Export are expected to rise 10.5% y/y vs. 13.0% in September, while imports are expected to rise 31.9% y/y vs. 38.2% in September. Orders are expected to rise 1.7% m/m vs. -2.4% in August. October national CPI will be reported Friday. Headline inflation is expected to remain steady at 0.2% y/y, while core (ex-fresh food) is expected to remain steady at 0.1% y/y.

It truly is astounding how Japan stands out as the only major economy not to be experiencing sharply higher inflation. Much of that is due to the culture of deflation that has held for decades, with firms having little to no pricing power with consumers. With PPI rising sharply, that means profit margins are getting squeezed.

Prime Minister Kishida is expected to unveil a fiscal package topping JPY40 trln sometime this week. Many details have already been leaked, including JPY100,000 payouts to youth and families. Separately, reports suggest the government is preparing a bill that would grant financial aid to companies to increase local chip production.

Reserve Bank of Australia releases its minutes Tuesday. At that meeting, the bank abandoned Yield Curve Control but retained a dovish slant. Indeed, the subsequent Statement of Monetary Policy continues to target 2024 for liftoff. Last week, October jobs data came in very weak, posting the third straight month of losses despite the reopening of the economy. Next policy meeting is December 7 and no change is expected then. The RBA said it will review its QE policy at the February 1 meeting but we see no hurry to removing accommodation until the economy is on firmer footing.

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