Macroeconomics: The Day Ahead for 4 February

The US labour report dominates the schedule, even if Omicron disrupted data is largely being discounted as generally immaterial and transitory to the overall economic and monetary policy outlook. Ahead of that there are German Factory Orders, French Industrial Production, UK auto sales and Construction PMI to digest, with Canada also reporting labour data. The events schedule has the RBA’s Statement on Monetary Policy (SOMP) to digest, whatever emerges from the Putin-Xi summit, the ECB survey of Professional Forecasters, and central bank speakers includes BoE’s Broadbent and Pill along with ECB’s Villeroy, which given the outcome of yesterday’s policy meetings will likely be the highlights of the day. A modest run of corporate earnings features NTT Data and Carlsberg amongst others. Next week’s data run is busy in the UK (Q4 GDP and array of a monthly activity indicators, BRC Sales and RICS), but is otherwise relatively modest and headlined by US CPI, accompanied by German Production and Trade, US NFIB, Trade and prov. Michigan Sentiment. In event terms there are plenty of central bank speakers, rates hikes are expected in Mexico and Russia, the EC updates its Economic Forecasts, while the commodity space has a busy week with the EIA’s Short-Term Energy Outlook, USDA WASDE, Brazilian CONAB crop estimates, StatsCan crop inventories, along with Australian Port Hedland Iron Ore and Malaysian Palm Oil Exports.

In terms of central bank policy shifts and markets, the simple question is how easily can markets weather what is increasingly looking like a very abrupt shift in liquidity provisions – Fed taper complete by March followed by QT, BoE reducing its balance sheet by £70 Bln this year, ECB fast tracking its taper, RBA terminating QE – in what has all the appearances of a co-ordinated move. It’s not co-ordinated, but it will be occurring at the same time. Financial conditions could well tighten quite sharply, and this in turn speaks to much greater volatility, particularly with the ugly concentration risk in portfolios being so brutally exposed by the collapse in the Meta Platforms (aka Facebook) share price yesterday. The question that rises then is how many times can central banks turn tail in the face of a market meltdown or tantrum, before markets have an ‘Emperor’s New Clothes’ moment, rather than continuing to indulge in ‘Wilful Blindness’ and ‘Wishful Seeing’.

** U.S.A. – January Payrolls & Unemployment **

– January’s labour report has long been flagged as likely to be heavily distorted due to Omicron related workplace absences, as was already seen in Wednesday’s 301K slide in the ADP Employment measure, and the spike in Initial Claims to 290K in the establishment survey week. Estimates for Private Payrolls have only been revised down modestly (+100k vs. prior +120K), and given the noise from various spokespeople at the White House, a negative reading appears likely, though it will be interesting to see if prior estimates are revised higher, as has frequently been the case in recent months. The ADP slide also points to a weak Household survey, with some risk that the Unemployment Rate edges up. Wages are clearly moving into the centre ground of labour market assessments with Average Hourly Earnings seen up 0.5% m/m, in line with the average of the past 6 months, with base effects bumping up the y/y rate to 5.2%, still below the 3 & 6-mth annualized rates of 6.0%, but set to rise further in coming months.