Written Commentary
- Heavily front loaded schedule has RBA rates meeting, Japan Wages and Household Spending, UK BRC Retail Sales and German Factory Orders to digest; Eurozone Inflation Expectations, UK Construction PMI, rash of central bank speakers, US EIA monthly Oil market report and more earnings ahead
- UK BRC Retail Sales drop more a function of weather and falling prices than weakening demand, Barclaycard Consumer Spending highlights strength of internet sales
- German Orders: finally something to cheer, but premature to suggest turnaround at hand
- RBA retains threat of further rate hike, but door to Q2 rate hike opens further
EVENTS PREVIEW
In terms of significance the day’s schedule is rather heavily frontloaded, with the as expected unchanged RBA rate decision and Statement on Monetary Policy (SOMP), Japan Wages and Household Spending, UK BRC Retail Sales and German Factory Orders to digest. Ahead lie the ECB’s Inflation Expectations survey and UK Construction PMI, a hotch-potch of central bank speakers and the US EIA monthly Short-Term Energy Outlook (STEO). Among the headline makers in terms of US corporate earnings are likely to be Amgen, Du Pont, Eli Lilly, Ford, Snap and VF, while a relatively busy run of govt bond auctions sees the US offering 3-yr, UK 30-yr, Austria 4 & 10-yr and the Netherlands 10-yr. The overarching themes remain the same, the resilience of the US economy wrong footing market rate expectations, China’s woebegone property sector and its contagion effects, as authorities implement more measures to curb short selling, along with the high level of geopolitical tensions, above all in Gaza/Israel/Middle East and Ukraine. The RBA did not institute a pivot on the rate outlook as many had expected (or rather hoped), retaining the reference to the risk of a further rate hike, but Bullock was somewhat more equivocal saying she was ‘not ruling anything in or out on policy’. Given that Australian inflation remains high, despite a sharp retreat in recent months, an initial rate cut before May seems unlikely.
** Germany – Dec Factory Orders **
– After a protracted run of downbeat data, today’s 8.7% m/m Orders surge offer some hope of light at the end of the tunnel, and was paced by strong rises in Capital Goods (10.9% m/m, paced by trains and aircraft), and perhaps just as encouragingly Intermediate Goods (8.3% m/m). The series is however inherently highly erratic and volatile, and as such it will require a number of months of positive or at least flat readings to confirm a genuine turnaround.
** U.K. – Jan BRC Retail Sales **
– If one were to look at the BRC Retail Sales in isolation, this would only serve to raise concerns about UK consumer spending trends, but the weak 1.2% y/y has to be taken in context. Firstly this is a value not a volume number, unlike the official data, so the falls in the BRC’s Shop Price Index (Food 6.1% vs. 6.7% y/y, Non-food 1.3% vs. 3.1% y/y) were a sizeable drag. Secondly the two big storms and cold weather in January kept shoppers away from the High Street, and notably the Barclaycard Consumer Spending reading picked up to 3.1% y/y from December’s 2.3%, boosted above all by online sales. Official data should therefore improve from the desultory December report (-3.2% m/m -2.4% y/y). That is not to say that households are not struggling, but rather that the wheels have not fallen off, and that this does not add to pressure on the BoE to initiate a rate cut cycle.
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