Macroeconomics: The Day Ahead for 15 January

EVENTS PREVIEW

The week gets off to a quieter start, with the focus on China and for a change Canada. The PBOC’s decision to hold it’s 1-yr MTLF rate at 2.50% against expectations of a 10 bps cut, but on the other hand adding additional liquidity, was no great surprise given that it is glaringly obvious that rate cuts are doing nothing to improving credit demand, with the onus clearly on fiscal and other legislative measures to try and restore very low levels of business and consumer confidence. Taiwan’s election outcome was in some ways the worst possible outcome with the DPP retaining the presidency, much to China’s annoyance, but losing the parliamentary election, making the process of trying to bolster the economy and resisting China’s attempts to undermine Taiwan’s leadership all the more difficult, above all as the opposition parties are very much at Loggerheads. There are the largely seasonal uptick in UK Rightmove House Prices, rather down at heel Indonesian Trade, and the base effect driven rebound in Australia’s MI Inflation Gauge, and as expected German 2023 GDP and Swedish core CPI readings to digest. Canada dominates the rest of the day’s schedule with the BoC’s Q4 Business Outlook survey in focus, given that it typically sets the tone for BoC policy guidance over the coming quarter, with the Manufacturing, Wholesale and Existing Home Sales also on tap. The generally redundant (in terms of policy debate) spectacle of the week long Davos World Economic Forum (WEF) gets under way, while the US Republican Party kicks off its presidential candidate selection process underway, with Trump expected to easily win the caucuses in Iowa.

RECAP: The Week Ahead Preview: 

As China’s reaction to the Taiwan presidential and parliamentary election is assessed, and the US Martin Luther King Day holiday thins start of week trading volumes, the new week brings a broad swathe of activity data. These include Retail Sales and Industrial Production in the US and China, the latter also has Q4 GDP. The UK will focus on labour data, CPI, Retail Sales and RICS House Prices, with Germany seeing PPI and ZEW survey; Japan PPI, Machinery Orders and National CPI; Australia Unemployment, and Canada CPI and Retail Sales. On the central bank front, the Fed publishes its Beige Book, the ECB December policy meeting minutes, and the BoE Q4 Credit Conditions and Bank Liabilities surveys, while China’s PBOC holds it’s monthly 1-yr MTLF operation. There will also be a much higher volume of central bank speakers, a number of whom will be at the week long Davos World Economic Forum. The US Q4 earnings season will gradually kick into gear, still heavily dominated by financials (Goldman Sachs and Morgan Stanley inter alia), with a slow trickle of non-financials headlined by Alcoa, PPG Industries and Schlumberger. In the commodity space OPEC and IEA publish their monthly Oil Market Reports, though the escalating tensions in the Middle East above all after Friday’s US/UK strikes on Houthi forces in Yemen may render their conclusions on the Oil S&D outlook rather moot. Also on the radar at a national political level will be whether Congress can pass a Federal spending bill by Friday to avoid a partial govt shutdown. Govt bond supply quite busy, with auctions in the US, UK, Germany France and Spain, and financials will doubtless head the run of corporate issuance once Q4 earnings reports have been completed.

U.S. – expect the increasingly familiar picture of official (‘hard’) data proving to be much more resilient than surveys, including the Fed’s Beige Book suggest (recall the prior Beige Book saw 2/3 of Fed regions reporting declining activity), with Retail Sales seen posting modest m/m gains across the board, Industrial Production seen flat m/m, but turning higher y/y after a protracted fall, while NY and Philly Fed Manufacturing surveys are forecast to remain in negative territory though up from December, with Michigan Sentiment little changed. Housing sector data are anticipated to see the NAHB survey tick up a little on lower mortgage rates, but remaining weak, Housing Starts to see a mean reversion after November’s unexpected surge, with Existing Home Sales seen up a fraction.

China – a 10 bps rate cut is seen at the PBOC 1-yr MTLF operation on Monday, though reserve requirement ratio cuts would be of more significance. Q4 GDP and monthly activity data may well be divergent in signal terms, with GDP seen slowing to 1.0% from 1.3% in q/q terms, but boosted to 5.2% from 4.9% y/y and perhaps higher thanks to very benign base effects. Retail Sales will certainly slow due to adverse base effects (exp. at 8.0% from 10.1% y/y), while Industrial Production is seen eking out a small pick-up to 6.8% y/y (vs. prior 6.6%), with FAI seen unchanged at 2.9% y/y. Property sector data are likely to remain dire, with Investment seen down -9.5% y/y, and Sales to continue to contract (last -4.5% y/y). Meanwhile labour market conditions are seen little changed, with the Unemployment Rate steady at 5.0%.

U.K. – Tuesday’s labour report will remain partly experimental, with HMRC Payrolls expected to again 13K, while base effects will likely weigh on Average Weekly Earnings, headline forecast 6.8% y/y from 7.2%, ex-Bonus dropping to 6.6% from 7.3%. Wednesday’s CPI is forecast to see headline up 0.2% m/m, but decelerating to 3.8% from 4.2% y/y, smaller 0.2 ppt falls are expected for Core 4.9% y/y and Services (6.1%), with both still looking very sticky. Thursday’ RICS House Price Balance is seen weak, but improving to -35 from -43 on lower mortgage rates. Friday’s Retail Sales are forecast to drop -0.5% m/m after unexpectedly jumping 1.3% in November. 

Corporate earnings highlights for the week as compiled by Bloomberg News: Asian Paints, Avenue Supermarts, Charles Schwab, Discover Financial Services, EQT, Fastenal, Goldman Sachs, Grupo Financiero Banorte, HDFC Bank, Interactive Brokers, Investor AB, Morgan Stanley, PNC Financial Services, PPG Industries, Prologis, Schlumberger, Taiwan Semiconductor Manufacturing aka TSMC, Travelers, Truist Financial, UltraTech Cement, US Bancorp.