Macroeconomics: The Day Ahead for 01 February

There is plenty of meat on the bone of the data and events calendar to start the new month, with the RBA statement sticking to a more dovish line on rates, but terminating its QE programme as expected, along with Japan’s robust labour data, a smattering of Asian Manufacturing PMIs and UK Nationwide House Prices to digest. Ahead lie European and Americas Manufacturing PMIs & ISM, Eurozone CPI, German Unemployment, Canadian monthly GDP and US Auto Sales, Construction Spending and JOLTS Job Openings, along with a busy run of US corporate earnings including AMD, Exxon Mobil, GM, Gilead Sciences, Paypal, PulteGroup, Starbucks and UPS. The events schedule is dominated by the commodity sector, with the OPEC+ Technical Committee meeting, US Purdue Agricultural Sentiment and the International Cotton Advisory Committee outlook report. Germany will be the sole major country issuing debt with an EUR 6.0 bln sale of a 10-yr Bund. The question for the OPEC+ Technical Committee meeting has far less to do with the outlook demand, which has for the time being improved, and far more to do with OPEC+ capacity to meet with its current production increase plan of 400K bbls per month, given that many countries’ (above all Iraq and Russia) ability to actually meet increased production targets looks questionable, and also raises credibility issues on the current OPEC+ plan, which is expected to be reaffirmed for March.

** Eurozone – Jan prov. HICP **

– The quirks of VAT tax changes, compositional effects and winter sales timing that paced last January’s spike were expected to unwind this month, which predicated expectations of a drop of 0.4% m/m and drag the headline rate down to 4.4% from 5.0%, and the core rate even more markedly to 1.8% y/y from 2.6%. But with much higher than expected outturns in Germany (5.1% y/y vs. expected 4.3%) and Spain (6.1% y/y vs. expected 5.5%), paced by sharp rises in Household Energy and Food, and only a marginal dip in Services inflation, which had been expected to drop sharply, it would appear that the setback will be a good deal more modest on both headline and core, which leaves the ECB in an even more awkward (and divided) position ahead of Thursday’s council meeting.

** World – Jan Manufacturing PMIs/ISM **

– With the China PMIs already published and only a handful of Asian readings (due to the LNY holidays), the focus will be primarily on Europe and the US. Flash readings saw little change in the UK and France, and Germany unexpectedly rebounding sharply, while the US slowed more than expected – which as usual are not expected to be revised, with Spanish and Italian readings expected to dip, but overall remain robust. The US Manufacturing ISM is forecast to dip to 57.5 from 58.8, as the Omicron variant hit output (as seen in some regional surveys and the flash PMI), but the focus will be on Supplier Deliveries and Prices, with little sign of any significant further improvement in most other surveys.

** U.S.A. – Jan Auto Sales **

– The consensus for Auto Sales looks for a modest pick-up to a SAAR pace of 12.7 Mln from December’s 12.44, which looks to be colossally “under-clubbed” judging by the anecdotal evidence from JD Power/LMC and Cox Automotive, who have pegged the SAAR rates at 14.1 Mln and 15.3 Mln respectively. The seasonal adjustment in January is huge, assuming a 30% drop from what is typically a strong month in December, but the latter was not as strong as anticipated, and a pick-up in January deliveries (still far off matching demand) implies a much smaller than usual unadjusted drop. Eminently any upside surprise will be nothing more than the smoke and mirrors of a seasonal adjustment which is ill-equipped to account for very unseasonal patterns due to supply chain disruptions in the sector. However, if realized, this would still imply a solid rebound in January headline Retail Sales after the unexpectedly sharp drop in December.