Macroeconomics: The Day Ahead for 23 February

Today’s light schedule of statistics is also heavily front loaded, with no releases in the US, and China Home Prices, UK GfK Consumer Confidence and the lowering of the household energy price cap, and the detailed final Q3 GDP for Germany to digest, and the German Ifo survey and monthly ECB Inflation Expectations survey the only items ahead. Central bank speakers are again quite plentiful, with the comments from Fed’s Waller urging caution on rate cuts very much echoing vice chair Jefferson yesterday, and underlining what has been remarkably unitary Fed messaging on the policy outlook for the past 18 months. Nevertheless Waller’s comments about recent productivity growth justifying higher wage growth introduces an additional strand to the rationale for the Fed continuing to be patient before initiating a rate cut pivot. A lighter run of corporate earnings will likely feature Allianz, BASF and Standard Chartered Bank among the headline makers in Europe, while Warner Brothers Discovery tops the US run. Next week sees a busier run of US statistics (Consumer Confidence, Durable Goods, House Prices, revised Q4 GDP and above all Personal Income & PCE), Eurozone provisional CPI and M3, Japan’s Tokyo CPI, Retail Sales and Industrial Production, China’s official NBS PMIs and Manufacturing PMIs, UK BRC Shop Prices and credit aggregates. It also has another busy run of central bank speakers, as the US corporate earnings season winds down with the focus on more retailer reports.

** U.K. – February Gfk Consumer Confidence **

– The unexpected setback in Consumer Confidence to -21 from -19, the first drop in 5 months was above all paced by drops in the Economic Outlook (-24 vs. -21) and the Climate for Major Purchases (-25 vs. -20), which one can probably ascribe to continued cost of living pressures, above all with many households facing pressure from needing to refinance mortgages at much higher rates, as well as mixed news on the economy. Still today’s announced cut in the household energy price cap should help to bolster confidence next month, as would any mooted tax cuts if they materialize at the March 6 Budget, and a now generally improving trend in house prices.

** China – January Home Prices **

– The falls in both New (-0.37% m/m) and Used (-0.68% m/m) Home Prices were somewhat smaller than December, and in month on month terms there were slightly less cities reporting falls (56 vs. December 62) in New Home Prices, but the trend remained prices. But with this week’s unexpectedly sharp cut in the 5-yr LPR, which serves as the benchmark for mortgage rates and should provide a boost to the March report, and perhaps February, this report will be perhaps taken as historical. Nevertheless the profound hit that both business and consumer have suffered also advise caution about whether any short-term boost will be sustained, even if Chinese authorities do now appear to be more willing to take a more forceful, and less piecemeal approach to turning the economy around, and above all the property sector.

** Germany – Q4 final GDP / February Ifo Business Climate **

– While headline GDP readings were confirmed at -0.3% q/q and -0.2% y/y, the breakdown underlined just how large the drag from Capital Investment has been, with a drop of -1.9% q/q compounded with Q3 CapEx being slashed to just 0.1% q/q vs. prior 0.6%. There was somewhat better news on Private Consumption with Q4 posting a modest 0.2% q/q increase, but Q3 revised from -0.3% to Flat. It remains an open question whether the marginally better than expected +0.3% q/q in Q4 Govt Spending, following a sharp upward revision to Q3 from 0.2% to 1.1% q/q proves to be the last positive reading, as measures to consolidate the budget following last year’s constitutional court ruling bite. Yesterday’s PMIs with Manufacturing dropping sharply back again to 42.3 from 45.5, and Services still weak, despite a modest uptick to 48.2 from 47.7, and today’s Ifo survey, which is expected to remain depressed at 85.5 (vs. Jan 85.2), underline that prospects for Q1 GDP are not good, as the sharp downward revision to the Economy Ministry’s 2024 forecast to just 0.2% y/y from 1.3% earlier in the week underlined. Given that the ‘traffic light’ govt coalition is struggling to find any common ground on how to turn the economy around, there seems little prospect of a material rebound in the economy.