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Macroeconomics: The Day Ahead for 13 January

  • Modest run of data leaves focus on Brainard nomination hearing and further rash of Fed and ECB speakers; Italy Industrial Production, US PPI and weekly jobless claims; BoE and Norges Bank Lending surveys; Italy, US and Canada bond auctions ¶
  • Familiar TINA reaction to US CPI a reminder that real yields matter ¶
  • US PPI: lower energy and raw materials prices seen tempering rise; beneficial base effects to kick in during Q1 2022 ¶
  • US initial claims expected to slip back close to multi decade lows

EVENTS PREVIEW

Today’s schedule is rather light on possible market movers following on from yesterday’s inflation data fest, which in truth met with the now all too familiar ‘dash for trash’ market reaction, signalling a) a tenuous “relief” that US CPI was not much worse than expected (but still bad), and b) relentless financial repression due to deeply negative real yields, thanks to central bank ‘largesse to excess’. The focus will be on Brainard’s testimony, which will likely differ only marginally from Powell, but may offer slightly different points of emphasis which could prompt some volatility. There are also other Fed speakers (Barkin, Evans and Harker, the latter sounding very hawkish overnight in comments to the FT), who are generally more dovishly inclined, but equally are all non-voters in 2022. One comment from the typically hawkish Mester yesterday that should be take note was the suggestion that the Fed may need to, or at least should consider actively selling assets to facilitate faster balance sheet reduction. Though she did add a strong proviso that this should not be allowed to disrupt financial markets. Statistically there are Italian Industrial Production, ahead of US PPI and weekly jobless claims. Elsewhere on the central bank front, there are the BoE’s and Norges Bank’s quarterly lending surveys, a speech by BoE’s Mann, and a number of ECB speakers, though most are not going to be talking about monetary policy. Govt bond supply takes the form of Italian 3 & 7-yr, Canadian 2-yr and US 30-yr.

 

Amid much anticipation of further China monetary policy easing, following the larger than expected falls in CPI and PPI and soft lending aggregates, there will be plenty of focus on the PBOC’s money market operations tonight, when it sets its 7-day Reverse Repo Rate. A very modest 5 bps and a large net injection of cash is expected, as it starts to pump up liquidity ahead of the Lunar New Year holidays (and following a large net drain last week). This in turn would open the door to a cut in MTLF (medium-term lending facility) and LPR (loan prime) rates.

 

** U.S.A. – Dec PPI, Weekly Jobless Claims **

– PPI is expected to decelerate in m/m terms, thanks in the main to energy which is seen at 0.5% m/m vs. Nov 0.8%, but is also predicated on the sharp fall in the ISM Manufacturing Prices Paid sub-index, which should see core PPI ease modestly to 0.5% m/m. In turn this should see modest rises in y/y terms to 9.8% y/y vs. 9.6% headline and 8.0% y/y vs. 7.7% core, with many likely to highlight that Q1 should see some moderation on the back of beneficial base effects, e.g. January sees a 1.2% m/m headline and 0.9% m/m core fall out of the comparison. A passing observation would be that perhaps the bigger complacency risk at the current juncture comes not from the ‘bond vigilante inflationista’ camp, but rather the deflationista narrative that has become embedded over the past two decades (particularly in central bank circles). Labour market data have clearly been relegated in importance, but in the context of that deflationista narrative, with many workers being temporarily sidelined by isolation requirements, any rise in jobless claims may be jumped all over, even if the series are inherently volatile in week to week terms, particuarly to bad weather effects at this time of the year. Be that as it may, Initial Claims are seen edging lower to 200K from 207K, close to recent multi-decade lows, with Continued Claims also seen dropping back to 1.733 Mln.

 

** U.S.A. – Agri Commodities **

– ADM IS review of yesterday’s WASDE report: https://www.admis.com/usda-jan-12-supply-demand-report-review

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© 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.

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