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Macroeconomics: The Day Ahead for 12 January

  • Inflation dominates schedule, digesting China PPI & CPI, awaiting US and India CPI; Japan monthly Tankan and services surveys, South Korea Unemployment and India Industrial Production; variety of central bank speakers; US WASDE & China CASDE crop reports; German, US & Canada debt sales
  • China CPI & PPI: larger than expected drops, but drivers as expected: base effects, food prices and govt measures to curb commodity prices  China: inflation drop perhaps not the ‘slam dunk’ for further policy easing given financial stability concerns
  • US CPI: month on month headline pace to slow on drag from energy prices, but housing and autos set to pressure core higher
  • US Beige Book: likely to confirm Omicron impact on labour availability, focus on pass through pressures and any signals on easing supply chain bottlenecks

EVENTS PREVIEW

Inflation data rules the roost today, with the focus obviously on the US, but also with China’s CPI and PPI to digest, and India CPI and Industrial Production just ahead of the US, with the only other notable statistics being Japan’s Economy Watchers (services) survey and South Korea Unemployment. There is rather more variety in terms of central bank speakers with BoJ’s Kuroda, BoE’s Cunliffe, ECB’s Enria and the Fed’s arch dove Kashkari, who will accompany the publication of the Fed’s Beige Book. Government bond supply sees Germany sell 30-yr, US 10-yr and  Canada 5-yr, while a busy day for agricultural monthly reports has the USDA’s WASDE and the just published China Farm Ministry’s CASDE (see table attached).

** China – December CPI & PPI **

– While both CPI and PPI came in below expectations at 1.5% y/y (vs. forecast 1.7%) and 10.3% y/y (vs. forecast 11.35), with base effects and the other drivers of the falls proving to be precisely as anticipated. CPI dropped on a combination of lower food prices above all pork and vegetables (-1.2% y/y vs. prior 1.6%), and some downward pressure on non-food prices (2.1% y/y vs. prior 2.5%) due to intermittent lockdown measures. The PPI drop was largely attributable to government measures to curb coal, oil and steel prices, with the Mining sub-index dropping to 44.% y/y vs. prior 60.5%, and Raw Materials dropping to 19.7% from 25.0%. Unsurprisingly this has prompted calls for and expectation further monetary easing, though last week’s large PBOC liquidity drain serves as a reminder that the PBOC is in no mood to reignite financial stability risks, and is probably minded to keep plenty of policy ammunition in reserve to deal with the ongoing woes of the property sector.

** U.S.A. – December CPI / Fed Beige Book **

– CPI is expected to slow to 0.4% m/m from November’s 0.8%, thanks to a hefty drag from energy prices, but still climbing to a fresh multi decade high of 7.1% from 6.8%, but core CPI seen posting another 0.5% m/m to jump the y/y rate to 5.4% from 4.9%, and closing in on the 30-yr high of 5.6% in 1991, as housing continues to exercise considerable upward pressure, as it will do through much of 2022, along with new and used autos. The Beige Book will be combed for insights into second round inflation and wages effects, as well as signals on the extent to which there has been any material easing of supply chain disruptions, and it should also confirm that the primary impact of the Omicron variant has been on staff attending their workplace due to having to self-isolate, which will result in the economy slowing temporarily, as Powell noted yesterday. His comments on balance sheet reduction essentially put the January, March and May meetings in the frame for a decision on QT, the question is what does ‘sooner and a little faster’ mean, with Bostic suggesting $100 Bln/mth earlier in the day, i.e. double the pace of 2017-19.

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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.

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