Macroeconomics: The Day Ahead for 31 January

While the Lunar New Year holidays made for a subdued session in Asia, outside of a further rip higher for oil prices, there are a busy run of statistics, some Fed speak and some corporate earnings to digest, even if geopolitical tensions and central bank policy outlooks remain the focal points for markets. China’s PMIs were a mixed bag, but essentially confirmed a realtively sluggish pace of growth, Japan’s Industrial Production, Retail Sales and Consumer Confidence were weaker than expected, while Australia’s January Trimmed MI Inflation gauge at 2.9% y/y will only serve to reaffirm expectations of a much less accommodattive message from the RBA tomorrow. Ahead lie German CPI data, with the NRW reading coming in above forecasts at 0.7% m/m (vs. forecast 0.5%), but with very large base effects due to VAT and compositional changes, it will still fall very sharply in y/y terms, even if slightly above the expected 4.3% y/y vs. December’s 5.7%, and thus still remain high. UK Consumer Credit and Mortgege Lending, Eurozone and Italian GDP, US Chicago PMI and Dallas Fed Manufacturing surveys, and Mexican Q4 GDP are also due.  But as noted, it is central bank policy narratives that are front and centre, with data largely secondary to considerations. Month end will inevitably create some anomalous price action, and all the more so given the volatility seen in January.

A recording of today’s Daily Energy Market Forum discussing the outlook for the OPEC+ meeting, oil prices and the global economy can be found here: https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DADA0KGSEe_I&data=04%7C01%7CSimrat.Sounthe%40admisi.com%7C77a7fe1acf87413facbd08d9e49c7b76%7C2f55bf3242d444b3a8c2930ac8b182b2%7C0%7C0%7C637792183152461539%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=Wzs%2FBPMsRYbMcyNe5IbgWYzXD%2Bs15Qvos%2FMLx%2FzIa6I%3D&reserved=0

RECAP: The Week Ahead – Preview: 

  The Lunar New year holidays will see China and other East Asian countries closed for some or all of the week, with the Winter Olympics starting in China at the end of the week, and accompanied by President Xi meeting with Putin. Italy’s presidential impasse has been resolved, though the divisions in Draghi’s national unity govt were all too clear, while UK PM Johnson remains mired in the so-called ‘Partygate crisis’, and NATO/Russia tensions remain on a knife edge.

  Statistically, it’s a case of the usual start of month run of data dominating: PMIs & ISMs, US and Canada labour reports, Eurozone and national CPI (seen falling in y/y terms due to base effects) and Q4 advance GDP, German Orders & Unemployment, Japan’s Industrial Production & Retail Sales, along with Canada monthly GDP, Australian Retail Sales and Trade. China’s PMIs were mixed, with no change in the NBS measures, but the Caixin Manufacturing PMI dropping into contractionary territory. US Payrolls are expected to be weak (+150K) due to Omicron disruptions, though the focus will increasingly be on wages (seen climbing to 5.2% y/y from 4.7%) and the household survey, which has been much stronger than the Establishment survey. But data are very much secondary to the very fluid outlook for central bank policy.

  Thus the focus following on from last week’s Fed and BoC meetings, turns to the RBA, BoE and ECB policy meetings. The RBA is expected to hold rates at 0.1%, but likely to shift to a much less dovish rate trajectory following the CPI and labour data, and is expected by many to end its QE programme, and raise its inflation forecasts. The BoE is seen following up on December’s 15 bps hike with a 25 bps hike to 0.50%, but the questions are: a) will they push back on market rate expectations that see base rate close to 1.50% by year end? b) what will they signal on the BoE’s balance sheet, given that previous ‘guidance’ opened the door to QT once Base Rate reached 0.50%. The ECB is expected to stick to its guns on rates and the inflation outlook, though still conceding that risks are skewed to the upside, but adding that growth risks are to the downside, but as the December minutes revealed, the rift between hawks and doves is getting ever larger. Elsewhere Brazil’s BCB is seen hiking rates a further 150 bps to 10.75%, which would finally take official ‘real’ rates into positive territory, the question is whether there is a hint that a pause in the rate hike cycle is not far away. Czechia’s CNB is also expected to hike rates aggressively by 75 bps to 4.50%, with the focus on how far it revises up its inflation forecasts, and per se offering a signal on how close it may be to pausing the current rate hike cycle. In terms of the Fed, it is notable that Fed speakers have hardly been plentiful post the FOMC meeting, with only George and Daly currently scheduled to speak this week, though there will be Senate Banking nomination hearings for Cook, Jefferson and Raskin. The inevitable assumption of this relative ‘silence’ is that there is a fairly fierce debate on the best course of action, and a good deal of uncertainty about how best to balance rates hikes with balance sheet reduction. Too much silence and the sort of vague guidance offered by Powell last week may end up unsettling markets, just as much as an aggressive signal on rates.

  In the commodity space the OPEC+ meeting is seen holding the current production increase pace at 400K per month, though the obvious question is that with many countries are struggling to meet increased output targets (having only raised out by 60% of the 400K in December), will Saudi Arabia step in to make up for shortfalls. In that context earnings reports from Exxon, Chevron and ConocoPhilips will be above all monitored in terms of up and downstream spending intentions. Amid a widening ‘cost of living crisis’ in many countries, the January UN FAO Food Price Index is due on Thursday, and is likely to move back up after a brief respite in December, with the annual OECD / FAO Agricultural Outlook also due on the same day. The Lunar New Year holiday may prompt some consolidation for metals and agricultural prices, though Ukraine related tensions remain the biggest near term ‘wildcard’.

  Govt bond supply takes something of a breather this week, with no coupon sales in the US or UK, though Germany, France and Spain will sell up to EUR 22.0 Bln of debt this week, while Japan sells JPY 3.5 Trln total of 10 & 30-yr.

  On the earnings front, there are no less than 108 S&P 500 companies reporting, it’s also a busy week for reports from major oil companies, big tech (Amazon, Google, Facebook) and Japanese earnings, with Bloomberg News highlighting the following as likely to be among the headline makers: ABB, Activision Blizzard, AMD, Alphabet, Amazon, AON, BBVA, Banco Santander, Eli Lilly, Enel, Estee Lauder, Exxon Mobil, Ferrari, Ford Motor, General Motors, Gilead, Hitachi, Honeywell, Infineon, ING, Intesa Sanpaolo, Itochu, Merck, Meta Platforms, MetLife, Mitsubishi, Mitsubishi UFJ Financial Group, Mitsui, Mizuho Financial Group, Nintendo, Nordea Bank, Novartis, Qualcomm, Roche, (Royal Dutch) Shell, Sanofi, Snap, SoftBank, Sony, Spotify, Starbucks, Sumitomo Corp, Sumitomo Mitsui Financial, UBS Group, UPS.