US mid-term elections take centre stage next week. Opinion polls suggest the Republicans are under pressure, leaving the chance of congressional change more likely than not. We also have some key data we hope will shed some light onto the eurozone's disappointing third quarter
It is a key week for the US, with the midterm elections on Tuesday and the Federal Reserve’s FOMC meeting two days later. In terms of the election, opinion polls continue to suggest the Republicans are under pressure. The loss of Congressional control would make life increasingly difficult for President Trump and have major implications for policy. President Trump was already somewhat limited by congressional deadlock, but if the Republicans lose the House (but probably retain the Senate) it becomes even more challenging for him, i.e. he will struggle to pass major legislation.
Bi-partisan action may be possible in areas such as infrastructure spending, but for the most part, divisions between and within the two parties will remain material. Faced with this, President Trump will likely focus on areas where executive powers give him more leeway to set the agenda, such as trade policy. With China ramping up its fiscal stimulus, this hints that both sides will be “digging in” with little prospect of any meaningful easing of tensions.
As for the Federal Reserve meeting, while officials no longer describe monetary policy as “accommodative”, it is far from restrictive. A positive domestic story and rising inflation pressures mean the Federal Reserve will continue to signal “gradual” rate hikes ahead, setting us up for a December move.
It's a packed week ahead for EMEA and Latam, with key data on inflation and consumer spending along with several monetary policy decisions
In Hungary, the economic calendar for next week is very busy. We expect the manufacturing PMI survey to follow the lead of global indices, dropping closer to the key 50-threshold. On Wednesday, we see retail sales growth slowing down a bit, and industrial production will likely disappoint on Thursday due to issues in the automotive sector.
The October CPI reading might accelerate further to 3.7% year-on-year on the back of energy and food prices, with core inflation remaining roughly unchanged. We don’t expect the National Bank of Hungary to react. A busy week should close on a positive note, however, with an improvement in the budget balance.
Data on trade, inflation, and GDP, together with central bank policy meetings is likely to add to the market volatility, but concerns around the slowdown in China remain at the fore. Surprisingly, the consensus around the growth forecasts for Indonesia and the Philippines isn't that bad given the duo were the hardest hit economies by the EM contagion
China’s October data dump started this week on a mixed note.
The official manufacturing purchasing manager's index fell in October, but its Caixin counterpart rose, but both indexes remained in the expansionary territory - a figure above 50. However, what is striking is the seventh consecutive fall in the PMI new export orders component, a sign of the trade war impact slowly coming through.
However, the hard data paints a positive picture. The average 12% year on year growth of China’s export in the first nine months of this year was twice as fast as a year ago and based on our house forecast of 23% YoY growth in October, the strength persisted into the final quarter of the year, even as the US tariffs on $260bn of Chinese goods took effect. Likewise, a 23% surge in Korea’s exports in October reinforces the message.
But Beijing isn’t quite as relaxed. This week China’s Politburo signalled timely measures to counter the slowdown, and the State Council announced a stimulus plan but stopped short of revealing the total amount. We suspect the details must be in the making and will drive the markets as soon as they hit the newswires over the coming weeks.
Discover what ING analysts are looking for next week in our global economic calendars