Written Commentary
PLEASE NOTE: due to a series of conference commitments over the next 3 weeks, updates to this report, Good Morning and The Week Ahead will be very limited. For anyone attending Commodity Trading Week APAC next week, I look forward to catching up with you at the conference.
- Focus on run of US activity data and Import Prices, as Trump ‘reciprocal tariffs’ left hanging like a Damocles sword; Asia & Europe Q4 GDP, Spanish final CPI to digest; Munich Security Conference and speech by Dallas Fed’s Logan top events run
- US Retail Sales expected to slow on drop in Auto Sales, core measures likely to remain healthy, even if at a slower pace of expansion
- US Industrial Production; mean reversion seen after December surge, some modest upside risks given Manufacturing ISM upturn
- CGTN Europe interview on Apple and Alibaba AI co-operation: watch video here
EVENTS PREVIEW
As much as Trump did not announce any immediate ‘reciprocal tariffs’, which has prompted some relief, the threat will hang over markets and countries like a Damocles sword, and as much as this is very much characteristic of Trump’s ‘art of the deal’ transactional approach, it is effectively ‘gunboat diplomacy’. As previously noted, it adds to already high levels of uncertainty about the global economic outlook, and on balance will likely make businesses defer investment and hiring decisions, even if some may look to front load orders of resources, intermediate and finished goods to pre-empt the risk of tariffs at a later date. The week ends with a busy run of statistics, though the run of final and provisional Q4 GDP readings in Asia and Europe, and final Spanish CPI are unlikely to elicit much market reaction, with the focus on the run of US Retail Sales, Industrial Production, Import Prices and Business Inventories. Otherwise there is a speech from Dallas Fed’s Logan, and the Munich Security Conference, where the primary talking points will be yet another horrific case of a car being driven into a crowd of innocent people in Germany yesterday, and the moves to try and reach a ceasefire and peace settlement in the Russia Ukraine war.
** U.S.A. – Jan Retail Sales, Industrial Production **
– Today’s run of activity data are anticipated to see headline Retail Sales drop -0.1% m/m due to the fall in Auto Sales, but rise 0.3% m/m ex-Autos (vs. Dec 0.4%), though the core ‘Control Group’ measure is seen slowing to 0.3% m/m from 0.7%, with January’s cold weather expected to have dampened consumer spending, and suggesting some downside risks. Despite the January Manufacturing ISM turning positive for the first time in 8 months, both Industrial Production and Manufacturing Output are expected to slow from December’s robust 0.9% and 0.6% m/m to 0.3% and 0.1% m/m respectively, with headline likely to see a cold weather-related boost to Utilities Output offset by a drop in Mining/extractive industries. As noted previously, this may be all rather moot for markets given that it is backward looking, when markets are attempting to gauge the impact of the new administration’s measures on the economy, though a major downside surprise above all on Retail Sales may well spark talk of ‘stagflation’, while an upside surprise may prompt chatter about a Fed rate hike – to which the response, the Fed is not that sensitive to single month data points, and more importantly has genuinely adopted a ‘wait and see’ approach, which means keeping its powder dry for a number of months. Going down rabbit holes is ill advised with so much ‘up in the air’.
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