Macroeconomics: The Day Ahead for 6 December

The calendar of data and events looks quite sparse but has a number of items that will bear some scrutiny, even if the overarching themes of Fed and other bank policy outlooks (BoC decision tomorrow, Fed, ECB and BoE next week), China’s economic outlook and Covid-19 strategy, the war in Ukraine and a myriad of uncertainties continue to dominate. There are the UK BRC Retail Sales (unexpectedly rebounding, though largely price driven, with some help from Black Friday promotions), Australia’s Q3 Current Account (coming just ahead of tomorrow’s Q3 GDP), Japan’s Household Spending and Wages, and German Factory Orders to digest, with South African Q3 GDP, and US and Canadian Trade data ahead. The EU Finance Ministers’ meeting tops the event agenda with a) freeze on EU funds for Hungary, b) “fiscal rule” changes and c) additional taxes to fund pan-EU borrowing all likely to again highlight intra-EU divisions. There are the as expected RBA 25 bps rate hike decision and Australia’s Abares Agriculture S&D report to digest, while the latest US EIA Short Term Energy outlook will be closely eyed in the wake of the G7 oil price cap and the weekend OPEC meeting, though it has to be said that with so many supply and demand variables “in play”, the EIA probably has no better insights than any other oil market players. Govt bond supply has 5 & 17-yr UK Gilts and German 2-yr to be auctioned. Just as a reminder in respect of the US Services ISM strength vs. the weak Services PMIs to consider the sharp differences in survey respondents, as per the attached table, above all the absence of Retail & Wholesale and the inclusion of the agricultural and mining sectors in the ISM.

** Australia – RBA rate decision **
The RBA hiked by 25 bps to 3.10% as expected, but its messaging on the outlook continued to lean to the hawkish side. It noted ‘Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role. Returning inflation to target requires a more sustainable balance between demand and supply.’ It also underlined that: ‘The labour market remains very tight, with many firms having difficulty hiring workers. The unemployment rate declined to 3.4 per cent in October, the lowest rate since 1974. Job vacancies and job ads are both at very high levels, although they have declined a little recently. Employment growth has also slowed as spare capacity in the labour market is absorbed. Wages growth is continuing to pick up from the low rates of recent years and a further pick-up is expected due to the tight labour market and higher inflation. Given the importance of avoiding a prices-wages spiral, the Board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.’ Perhaps most importantly it made no change to ‘The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market’.

** Germany – Oct Factory Orders **
At +0.8% m/m with September’s fall revised to -2.9% m/m from the prior -4.0%, Factory Orders were a good deal better than expected, but the fact remains that Orders have fallen in seven of the past 9 months. A rebound in Capital Goods Orders (3.2% m/m following prior falls of -4.,1% and -2.1%) accounted for all of the rebound in Foreign Orders (with Domestic Orders falling), and the continued weakness in Intermediate Goods (-1.4% m/m following -3.4% and -3.7%), while Consumer Goods reversed some of their recent rebound (-6.3% m/m vs. 7.3% and 6.0%), all fit with a picture of the downturn being less severe than many have predicted, but quite possibly more protracted.