Macroeconomics: The Day Ahead for 23 February

  • Ukraine/Russia front and centre; digesting German Consumer and French
  • Business Confidence, Australia Wages and hawkish RBNZ hike; awaiting final Eurozone CPI and Brazil IPCA-15 Inflation; BoE MPR testimony,
  • ECB speakers; busy corporate earnings; US 5-yr & FRN 2-yr  Germany GfK survey: unexpected drop very clearly paced by inflation concerns, despite optimism on economy  ECB: Holzmann push for summer rate hike may not be majority view, but will make for heated March council meeting  Ukraine/Russia: market reaction testament to persistence of TINA and
  • FOMO conditioning, likely to underpin volatility 

EVENTS PREVIEW

The Russia/Ukraine confrontation remains front and centre, even if markets yesterday appeared all too willing to dismiss it after the initial knee jerk reaction to Putin’s vitriolic diatribe, with a familiar burst of ‘buy the dip’, which was faded very quickly on incoming Russia/Ukraine headlines. The latter is now so hard wired in markets’ psyche, after a decade of central bank ‘largesse to excess’, which doubtless contributes to the view that if the worst comes to the worst, then central banks threatening tighter policy to combat inflation pressures will ‘surely’ back pedal, with aggressive rate moves that had been priced in for March for both BoE and the Fed now largely wound back to a ‘military medium’ 25 bps. In terms of the measures announced yesterday by the US, EU and UK, these were of the toothless variety, with the Russian banks that have been sanctioned rather immaterial to energy and commodity trade (though VTB’s results yesterday suggest it already has some large problems due to rocketing rates). Meanwhile Germany’s ‘suspension’ of the NordStream “gas pipeline approvals” had the ring of finger wagging, and the mercantilist dogma that is all too familiar from Germany, above all in the past 10 years. That said, the question is how much further Putin will go, i.e. in terms of escalating this into a full military conflict with the Ukraine as a whole, and will Europe be willing to the harsh economic consequences of a handbrake turn on imports of Russian energy, and how would the wider world deal with a loss of one of the world’s largest marginal exporter of grains? Will it be more a case of displacement, above all considering the widening water crisis facing agriculture in North Africa and the Middle East?

Be that as it may, today’s regular schedule has a lightweight look in terms of statistics, with Australia’s Q4 Wages, German GfK Consumer Confidence and French Business Confidence to digest of final Eurozone CPI and Brazil’s IPCA-15 inflation. As expected, the RBNZ raised rates 25 bps to 1.0% overnight, but also considered a 50 bps cut, and raised its rate trajectory, and its analysis of the outlook placed a good deal more emphasis on inflation risks, than any headwinds to growth. Following on from BoE’s Ramsden backpedalling somewhat on his hawkish February 50 bps rate hike vote, today sees Baily, Broadbent, Haskel and Tenreyro testify to Parliament’s Treasury Select Committee on the Q1 Monetary Policy Report, and likely further efforts to push back on market rate trajectories. ECB’s de Guindos and Elderson will also speak, and follow on from Holzmann’s (hawk) comments that the ECB could hike rates in the summer before ending QE. While this is very unlikely to be a majority view on the council, it will make for another heated discussion at the March council meeting. Another busy day for corporate earnings covers a broad spectrum of business sectors, with the following likely to be ‘in the mix’ of headline makers; Barclays, Danone, Iberdrola, Pirelli, Puma, Rio Tinto, Stellantis, and in the Americas: eBay, Hertz Global, Lowe’s, TJX, Gerdau and Petrobras. Govt bond auctions sees Italy sell 2-yr Zero (CTZ) and the US 5-yr Notes and 2-yr Treasury FRN, and in that vein, a reminder that while the jump in govt bond yields may have reached a hiatus point, credit spreads continue to trend wider – see charts.

Germany’s GfK Consumer Confidence unexpected drop to -8.1 vs. expectations of -6.3 and prior -6.7 bears some scrutiny, given that it really underlines consumer inflation concerns. In the details, Business Cycle Expectations echoed yesterday’s Ifo rise, rising to 24.1 from 22.8; however ‘Income Expectations’ collapsed to 3.8 after jumping to 16.9 in the prior month from 6.5, while Willingness to Buy slid even further to 1.4 from 5.2 and January’s 7.4. It should be noted that the survey collection period was prior to the recent easing of Covid related restrictions. One can safely assume that Herr Nagel will be vociferous in joining OeNB chief Holzmann for an early ECB rate hike.

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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. 02547805, 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.                  

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