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Macroeconomics: The Day Ahead for 21 December

This is the final edition of ‘Good Morning’ for 2023; we would like to wish all our readers a peaceful holiday season and a healthy, happy and prosperous 2024.

  • Relatively busy run of second tier data as markets wind down for holidays;  UK Lloyds Business Barometer & PSNB, France Business Confidence, Korea Trade  and Bank Indonesia ‘hold’ to be digested; US Weekly Jobless Claims, final  Q3 GDP and Philly Fed Manufacturing, Canada Retail Sales; Czechia, Egypt  and Turkey rate decisions; Nike heads busier day for US corporate earnings
  • Czechia CNB expected to initiate rate cut cycle, as Turkey TCMB continues  eye watering tightening cycle
  • Abrupt volte face in US stocks and credit spreads yesterday a reminder  of thin trading conditions, possibly choppy year end
  • A World in Transition December 2023′ presentation slides

EVENTS PREVIEW

As the holiday season looms very large in markets headlights, there is an array of largely second tier or revised data, which will need to surprise to goad much of a reaction from markets, while the central bank schedule is dominated by CEE & EM rate decisions. Korean Trade & PPI, UK Lloyds Business Barometer & PSNB Budget balance and French Business Confidence are on the ‘to digest’ list, with the UK CBI Retailing survey, Canada’s Retail Sales and US weekly jobless claims, final Q3 GDP and the Philly Fed Manufacturing survey ahead. As expected Bank Indonesia held rates at 6.0%, while Czechia’s CNB is seen embarking on a rate cut cycle with a modest 25 bps cut to 6.75%, and while CPI is still high at 7.1%, real wages are contracting around 3.0% y/y and GDP is also negative. As a reminder that the CNB rate hiking cycle was among the modest aggressive in developed countries, taking rates from 0.25% to 7.0% between June 2021 and June 2022. Eminently that now looks like a walk in the park by comparison with Turkey, where in the course of the past seven TCMB monthly meetings rates have risen 3,150 bps cumulatively to 40.0%, with a further 250 bps hike to 42.5% expected today, and possibly one further 250 bps hike in January. Markets are already discounting an equally sharp reversal starting in H2 2024, with year-end 2024 rates seen at 25.0%. Meanwhile, Egypt’s CBE is seen holding rates at 19.25% (depo) and 20.25% (lending). A final hurrah for US corporate earnings has results from CarMax, Carnival Corp, Cintas, Nike and VMware amongst others. Yesterday’s sharp US afternoon setback in equities and widening of credit spreads underlines the scope for a choppy Christmas, given not just seasonal poor liquidity conditions, but also overall thin market depth, the sharp run up in risk assets leaving markets skewed in positioning terms, in the face of a high level of uncertainty about the economic, policy and geopolitical outlook.

This will be the last edition of Good Morning for 2023, so I am taking the opportunity to attach the slides from a series of presentations I made earlier this month with some thoughts on where the world stands and the outlook. They are primarily intended as food for thought. As I always stress at the start of any presentation, every headwind or challenge is an opportunity, for which we have, or can develop the technology to master the problem and by extension reap the benefits. One final observation to consider: at the end of 2022, markets were anticipating major central banks ex-Japan to pivot from rate hikes to rate cuts, while the BoJ was seen gradually exiting from ultra-easy monetary policy, the USD was expected to weaken, major economies to fall into or flirt with recession, and a sharp rebound in China which would help to resolve its property sector woes.. so much for the predictive power of markets?

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