The sharp drop in oil prices is adding downward pressure to inflation, and CPI figures from Romania, Czech and Hungary will likely reflect that next week
We expect November CPI to drop by 0.7 percentage points to 3.6% year-on-year. On top of large statistical base effects, the sharp drop in oil prices is adding downward pressure. Provided there are no major supply shocks, inflation is likely to end the year within the National Bank of Romania's (NBR's) target band of 1.5-3.5%.
The NBR is comfortable with inflation overshooting the mid-point as long as it stays within the band, citing the Balassa–Samuelson effect. Our call for three key rate hikes of 25 basis points in 2019 looks a bit stretched for a structurally dovish NBR Board. Less transparent liquidity management could be deployed to fend-off potential currency weakness as the FX pass-through is too strong for the central bank to ignore. Still, given idiosyncratic vulnerabilities stemming from the divergent twin deficit story and remote prospects for fiscal consolidation, we still see two hikes next year from the NBR.
Another week in developed markets that will be dominated by Brexit as PM May's deal is voted on in parliament on Tuesday. The ECB meets next Thursday too - a historical meeting at that, given we'll be seeing quantitative easing coming to the end of its era
It's likely to be a little mixed in terms of the US data flow with recent oil price fluctuations exerting a significant influence. The $25/bbl plunge in oil since the start of October has seen gasoline prices drop from $2.90 to $2.45 per gallon. As such, this will be a significant drag on headline inflation with transportation costs also likely to edge a little lower. However, the US economy continues to run hot with wage pressures intensifying. With tariffs also on the rise, core inflation is likely to keep grinding higher with the annual rate set to tick up to 2.2% year on year.
Energy will also impact the value of retail sales with gasoline station sales obviously heavily impacted. However, consumer confidence is good, and incomes are rising so outside of this component we expect sales to remain robust. Industrial production should rebound following last month’s slightly disappointing outcome. Rig counts continue to rise suggesting rising mining, oil and gas extraction while utilities output should also rise after two consecutive monthly falls. Manufacturing remains good despite fears over tariffs and protectionism with improvements in the ISM series pointing to another positive outcome.
Given the backdrop of decent activity, rising wages and solid core inflation this should reinforce expectations for a December interest rate rise from the Federal Reserve.
The Asian calendar is packed with economic releases from China and India, which will make for an exciting week ahead. State legislative assembly elections in India and the central bank meeting in the Philippines should add to the fun
Since the outbreak of the trade war, China’s economic data has been under the spotlight for any noticeable impact as the protectionist sentiment increases.
Next week, we'll get all the activity data for November starting with trade data over the weekend. The tariffs on more than half of China’s exports to the US went into effect in September, and so while overseas orders for Chinese goods have been shrinking since June, there has been no let-up in export shipments which have maintained their double-digit pace of growth throughout October, as the graph below shows.
The strength seen in recent months could be front-loading before higher tariffs strike at the beginning of 2019 as the consensus estimates 10% annual export growth, which will put monthly exports at an all-time high of $237 billion. Hopes remained pinned on the latest trade truce talks giving way to the so-called 'real deal' after the 90-day negotiation period ends. But all markets need now is more clarity on what exactly transpired at the Trump-Xi meeting at G-20 summit last week.
The rest of the China data including inflation, retail sales, fixed asset investment, industrial production, and bank lending should tell us about the effectiveness of domestic policies which have been trying to cushion the economy from the effect of the trade war.
Discover what ING analysts are looking for next week in our global economic calendars