Macroeconomics: The Day Ahead for 24 February

The worst fears have been realized as Russia launched attacks on the Ukraine, maintaining that it is targeting military installations rather than cities, but the television images from cities such as Kharkiv suggest otherwise. The question is how the West responds in terms of increased sanctions, and what measures are taken to reinforce borders in the Baltic states, Poland and Czechia. There is clearly no desire in the West to engage militarily, and there appears to be little Western appetite to ‘weaponize’ energy and commodity trade, and with inflation already high, the economic cost for the rest of the world would be as severe as for Russia. While increasing financial sanctions would clearly have an impact in the long run, these will have little short-term effect, given the many measures Russia has taken since the annexation of the Crimea to decouple itself to a substantial extent from the western financial system. Given an 18% debt to GDP ratio, and $639.6 Bln of FX reserves, it has little immediate need to raise debt internationally, though a protracted confrontation would obviously be extraordinarily costly. While the EU will want to preserve some diplomatic channels, Putin’s rhetoric looks to be antithetical to any form of negotiation any time soon. This leaves Ukraine’s government with the unenviable task of making some very stark choices about the price of defending itself in terms of loss of human lives, and the inevitable damage and destruction of its infrastructure. Comparisons with the Crimea annexation in 2014 look to be very misplaced.

Today’s schedule of events has a very busy look to it, but even if there were no Russia/Ukraine confrontation, the run of economic data would fall short on real potential market movers. There are Australia’s Q4 CapEx and French Consumer Confidence to digest, while ahead lie the UK CBI Retailing survey, Canada’s CFIB Business barmoeter, Mexico’s mid-month CPI, while a busy for the US sees weekly jobless claims, revised Q4 GDP, New Home Sales and KC Fed Manufacturing Index. On the central bank front, the Bank of Korea held rates after hiking at the prior two meetings, and confirmed that a tightening bias remains, though a further hike seems more likely in Q2 than Q1. The BoE’s BEAR research conference gets under way, and will be less interesting for the view on BoE rates, which looks to be a good deal more dovish than markets are assuming given yesterday’s testimony and Ramsden’s comments on Tuesday, and rather more for the panel discussion on ‘Unwinding QE’ with BoE’s Broadbent , ECB’s Schnabel SF Fed’s Daly. There are also speeches by Riksbank’s Jansson, which given the jump in core CPIF last week could be more interesting than Fed speak from Barkin, Bostic and Mester, all of whom have spoken at least once in the past fortnight. Govt bond supply comes in the form of US 7-yr, while a busy run of corporate earnings will likely find the following among the headline makers: Alibaba, Anheuser-Busch InBev, Centrica, Deutsche Telekom, Lloyds Bank, Rolls Royce, Telefonica; Dell, Discovery, Keurig Dr Pepper, Moderna, RBC, Braskem and Vale.

** U.S.A. – Jobless Claims, Q4 GDP revised & New Home Sales **

–  Q4 GDP is seen revised up fractionally, thanks to a marginally smaller drag from Net Exports, and with Inventories still contributing heavily to the expected 7.0% SAAR pace, but this is now very historical. Initial Claims are forecast to drop back to 235K after last week’s unexpected jump to 248K, while New Home Sales New Home Sales are forecast to see a marginal -1.4% m/m mean reversion in after surging 11.9% m/m in December, still very much signalling the continued strength of hosing demand.

FYI: Russian exports as % of Global Supply.

Palladium    45.6%

Platinum     15.1%

Gold          9.2%

Oil           8.4%

Nat Gas       6.2%

Nickel        5.3%

Wheat         5.0%

Aluminium     4.2%