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Macroeconomics: The Day Ahead for 14 January

  • Digesting raft of upside surprises on China Trade, UK GDP and activity  indicators’, along with further hawkish Fed speak; focus on US Retail  Sales accompanied by Import Prices, Industrial Production and Michigan  Sentiment; ECB and Fed speakers; large financial get US Q4 earnings  season under way; talk of BoJ shifting policy stance significant   
  • China Trade: record surplus primarily a function of weaker imports,  though exports robust; drop in imports mostly curbs and margins related   
  • UK GDP: broad based strength suggests drag from Omicron variant likely  to be more modest and short-lived, but equally pressures BoE on rates   
  • US Retail Sales: expected to be little changed, as falling gasoline  prices, auto and restaurant sales weigh; any strength more likely to  be more price than demand related; Spending Pulse strength imparts  some upside risks   
  • US Industrial Production: modest gain expected as warm weather drags on  utilities, auto output likely to make strong contribution   
  • US Michigan Sentiment: renewed but marginal setback expected as inflation  and Omicron variant spread weigh   
  • Charts/Tables: China Commodity trade details, China 1 day Repo, Fed rate  hike probabilities by meeting   

EVENTS PREVIEW

The week ends with a deluge of data, some central bank speakers and the official kick-off to the US Q4 earnings season, with the usual array of financials (JPM, Blackrock, Citi, Wells Fargo) getting things underway. Statistically, there are China’s Trade, UK monthly GDP, Index of Services, Industrial Production and Trade, along with Indian Trade & WPI and Swedish CPI to digest, all of which were stronger than expected. Ahead lie Eurozone Trade and Brazilian Retail Sales, however the spotlight will be on US Retail Sales, which is accompanied by Import Prices, Industrial Production, Michigan Sentiment and Business Inventories. The central bank speaker roster has ECB’s Laregde, Riksbank’s Ingves, Fed’s Harker and Williams. But perhaps the most significant overnight development are hints that the BoJ is gradually walking towards signalling a rate hike in the medium-term, which is arguably perhaps the strongest indication of just how much the tide is going out on central bank ‘largesse to excess’, even if markets will remain sceptical, and view central banks as ‘talking the talk’ while being a lot less willing to ‘walk the walk’, above all if markets take even a modest tumble. Next week kicks off with the US Martin Luther King holiday along with China’s Q4 GDP and December activity data, in what will be a busy week for US, China, UK and Canadian data, as well as US corporate earnings. Statistical highlights includes US NY & Philly Fed Manufacturing, NAHB Housing Index, Housing Starts and Existing Home Sale, while the UK and Canada both have CPI and Retail Sales, and the UK also sees labour data and RICS House Price Balance. Elsewhere Germany looks to the ZEW survey and PPI, France to Business Confidence, Japan awaits Trade and Australia has Unemployment. The BoJ is expected to upgrade its growth and inflation forecasts, but leave policy rates and other measures unchanged, the Fed goes into ‘purdah’ ahead of its 26 January FOMC meeting, China sets its monthly Loan Prime Rates, while Turkey’s TCMB is expected to keep rates unchanged after a cumulative 500 bps of rate cuts that collapsed the TRY.

** China – Dec Trade Balance **
– The record $94.46 Bln Trade surplus was primarily a result of weak imports, and continued strength in exports, with the import weakness as much testament to govt curbs in a number of areas, and stronger domestic output of raw materials (above all coal and pork), as well as the ongoing woes of the property sector. Continued export strength probably owed less to disruption to output elsewhere in the world due to the Omicron variant, though this should sustain exports in January, before the usual distortions to trade data due to the Lunar New year holidays. Imports of coal and steel dropped sharply, the latter being a function both of sliding demand from the property sector as well as curbs on output for environmental reasons, with the first drop in oil imports in 16 years reflecting both higher prices, and drawdowns on oil reserves (that were built up sharply during 2020’s oil price slide), and per se not necessarily of China’s oil demand having peaked. Copper imports perhaps underline the degree of sensitivity to the surge in prices for many commodities, with ore imports falling, but condensate rising; while the drop in Soybean imports owed everything to the collapse in local pork prices, and the high level of feed prices which have impinged heavily on margins. Overall it suggests a solid contribution to Monday’s Q4 GDP (expected at 1.2% q/q vs. Q3 0.2%) from net exports, though the outlook for 2022 looks a lot less rosy for trade.

** U.K. – Nov GDP, Index of Services & Industrial Production **
– GDP was much stronger than expected at 0.9% m/m, with the other activity indicators showing strength across the board, perhaps most notably Construction Output bouncing back strongly at 3.5% m/m vs. October’s -1.7% as supply chain bottlenecks eased somewhat, above all road fuel shortages. Encouragingly the Index of Services (0.7% m/m vs. expected 0.5%) showed some broad based strength, which in turn suggests that while December will see a substantial drag from the wild fire spread of the Omicron variant, this is likely to be less pronounced than many had feared, and the economy should bounce back as Q1 progresses. Eminently it also argues for the BoE to follow the Fed in signalling a steeper near-term trajectory for rates.

** U.S.A. – Dec Retail Sales, Industrial Production & Jan Michigan Sentiment **
– Retail Sales are expected to edge down 0.1% in headline terms due to falling auto sales, gasoline prices and Restaurant sales (the latter due to the spread of the Omicron variant), though the ex-Autos and Control Group measures are seen eking out small gains, but the latter may largely be attributable to inflation rather than demand (despite a robust gain in the Mastercard Spending Pulse), given that this is a value not a volume measure. Industrial Production is expected to post a modest 0.2% m/m gain after rising 0.5% in November, with mild weather likely to have seen Utilities output drop on the month, while Manufacturing Output is seen up 0.3% (following November’s 0.7% m/m. The latter should above all get a boost from Auto Output as car manufacturers continue to try and rebuild inventories, and may well see a larger gain due to a favourable seasonal adjustment, given that production typically eases over the holiday period, even if overall, Aggregate weekly hours (flat) impart some downside risks, while worker absences due to the spread of the Omicron variant are more likely to hit the January data. Michigan Sentiment is expected to drift back down to 70.0 after a modest rebound in December to 70.6 from 67.4, with 1-yr Inflation Expectations seen unchanged at 4.8% y/y.

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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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