Macroeconomics: The Day Ahead – 2 February 2021
Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
Modest data schedule: digesting above forecast Korea and France CPI; awaiting Eurozone, Italy, Portugal Q4 prov. GDP and US Auto Sales; RBA holds rate, extends QE; UK and German bond sales; big tech and energy stocks dominate busy day for earnings; plenty of Fed & ECB speak
Eurozone CPI and GDP surprises already discounted
RBA QE and guidance extension underlines major central banks’ intentions to keep ultra-loose policy, but accompanying dogmatic rationales does not stand up to scrutiny
The day’s data schedule is unlikely to generate much reaction in financial markets. This has less to with the generally blasé market view about statistics at the current juncture, and more due to the fact that last week’s national Q4 GDP readings in Germany, France and Spain already flagged better than expected outturns for the Eurozone, which today’s pan Eurozone, Italian and Portuguese readings should confirm. Likewise the compositional pressures on Eurozone CPI have already been flagged, leaving US Auto Sales as the only item likely to attract much attention. There is the as the unexpected QE expansion from Australia’s RBA to digest ahead of further Fed speak from Kaplan, Mester & Williams, with regional Fed presidents falling back into line with the Fed board push back on any form of taper talk, though showing some divergence on the need for further fiscal stimulus. While there are debt sales in Japan (10-yr), Germany (2-yr) and the UK (5 & 50-yr), it is the corporate earnings schedule which will likely grab the headlines. The A’s dominate today’s tech sector run featuring Alibaba, Alphabet and Amazon.com, but there are also reports from energy sector heavyweights BP, Exxon Mobil and Marathon Petroleum, vaccine maker Pfizer and “WFH” beneficiary UPS. But it will be the continued speculative bubbles that continue to provide the main talking point, as the whisper chatroom orchestrated move in Silver was stymied by a sharp rise in COMEX margin rates, even if a look at the gold/silver ratio and potential industrial demand does offer a form of practical rationale for the move, rather than the short squeezes in individual equities like GameStop that have been witnessed.
There had been some talk ahead of the RBA meeting about a potential QE taper announcement, instead it went in completely the polar opposite direction, extend its QE programme by a further A$100 Bln for a further 6 months from mid-April, and indeed pushed out its forward rate guidance (“The Board does not expect these conditions to be met until 2024 at the earliest”). By way of justification, it also cuts its GDP forecasts for 2021 & 2022 to 3.5% from prior estimates 5.0% and 4.0% respectively, seeing only a modest fall in the Unemployment Rate from the current 6.6% to 6.0% this year, and to 5.5% in 2022, and sees inflation below target over its forecast time horizon. While RBA governor Lowe sounded an optimistic note on the economic outlook, he highlighted the govt’s tapering of its fiscal support measures (since the back end of 2020) as a key near-term risk to the economic outlook. While circumstances may result in a different outturn, and Australia may not be the best proxy for the broader global economy, there is a simple message that major central banks are determined to ensure that monetary policy is super loose for as far as the eye can see, and will therefore continue to foster conditions that ensure asset prices continue to rise exponentially and inequalities become even more deeply embedded, while taking no responsibility for their actions; indeed even worse, defending them as the only option, largely because anything else would almost certainly lead to a cataclysmic failure of the global financial system, which their actions have laid the foundations for.
The evident deficit of thought, the inability to escape the strictures of a clearly failed economic paradigm attests once again to this observation about ‘dead stars’ from William Pfaff being “ideas that people want or need to be true”, “they are ideas about political change, about the correlation between political and economic progress, and about the universal relevance of certain values and political institutions, which are held to merely because it would be bewildering to be without them. Theoretical formulations that are generally conceded to be false but have become conventional, and for which no replacement is evident, continue to be employed by people who certainly know better. …. There is a real dissociation of perception from analysis and decision. ” (Barbarian Sentiments: How the American Century Ends, 1989).
As Foucault observed in a similar vein: “Relations of power are not in themselves forms of repression. But what happens is that, in society, in most societies, organizations are created to freeze the relations of power, hold those relations in a state of asymmetry, so that a certain number of persons get an advantage, socially, economically, politically, institutionally, etc. And this totally freezes the situation. That’s what one calls power in the strict sense of the term: it’s a specific type of power relation that has been institutionalized, frozen, immobilized, to the profit of some and to the detriment of others.” (Michel Foucault: Power, Moral Values, and the Intellectual, 1988).
To view the full report and to sign up for daily market commentary please email firstname.lastname@example.org
The information within this publication has been compiled for general purposes only. Although every attempt has been made to ensure the accuracy of the information, ADM Investor Services International Limited (ADMISI) assumes no responsibility for any errors or omissions and will not update it. The views in this publication reflect solely those of the authors and not necessarily those of ADMISI or its affiliated institutions. This publication and information herein should not be considered investment advice nor an offer to sell or an invitation to invest in any products mentioned by ADMISI.
© 2021 ADM Investor Services International Limited.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.