Macroeconomics: The Day Ahead for 16 January

EVENTS PREVIEW

Once Trump’s easy win in the US Republican Iowa caucuses has been digested, it will be UK labour market data and BoE governor Bailey’s testimony to the House of Lords Economic Affairs Committee which top an otherwise quite modest schedule of data and events. It also has Japan’s PPI, Norwegian monthly GDP to digest, ahead lie Germany’s ZEW survey, Poland’s core CPI and Canadian CPI, and a few other central bank speakers, most notably Fed’s Waller. Goldman Sachs and Morgan Stanley top the run of US corporate earnings, while there are govt bond auctions in the UK (I-L 9-yr) and Germany (5-yr). Germany’s ZEW Expectations are expected to ease very fractionally (11.7 vs. Dec 12.8), though the choppy performance of the Dax (with which it is closely correlated) suggests data collection timing effects will be important, and imparts some downside risks; political and economic stagnation with no relief in sight will likely keep Current Conditions very depressed, but little changed at -77.0. 

The US NY Fed Manufacturing survey is also, and is expected to edge up on the month, but remain negative, but its record of extreme volatility in the past 2 years has eroded its value as an economic leading indicator.

** U.K. – Nov/Dec Labour report, Bailey testimony **

While headline Average Weekly Earnings slowed more sharply than expected from 7.2% to 6.5% y/y, this was in no small part base effect driven, with the ex-Bonus measure dropping as expected to 6.6% from 7.2%, and while this trend will extend in coming months, the absolute level remains very high and does argue for rates to be cut in the near future. Labour demand metrics were mixed with Payrolls falling a larger than expected -24K, but this was fully offset by an upward revision to November from -13K to +9K, and the experimental Nov Employment metric posted a solid 73K rise, while Vacancies fell to 934K from 951K, still well above pre-pandemic levels. As with the US, the relative strength of labour demand argues for caution on rate cut timing. BoE’s Bailey is likely to face some tough questioning about BoE forecasts and policy, above all from former BoE governor King, who has been more than candid in voicing his disapproval of BOE and other G7 central bank policies. Of particular note will be if King uses the BoE’s November policy report upwardly revised forecasts for end 2024 CPI and wage growth, which could easily be reached as soon as January 2024 data are published, and per se implying the BoE policy rate is already ‘overly restrictive’.

** Canada – December CPI **

After a modest upside surprise on November’s headline CPI (0.1% m/m 3.1% y/y), as food and clothing more than offset the expected drag from gasoline prices, December’s CPI is expected to fall -0.3% m/m, but thanks to adverse base effects see the y/y rate to rise to 3.4%. Nevertheless, core CPI measures are expected to edge down by 0.1 ppt to 3.4% (Trimmed Mean) and 3.3% (Median), still modestly above the BoC’s 1-3% target range, and likely continuing to restrain the BoC from initiating a rate cut cycle. The BoC will however take some comfort from its quarterly Business Outlook survey, which offered evidence that its restrictive policy stance is restraining price increases, as softer demand evidences greater price competition. Markets continue to price a first BoC rate cut in April.