Macroeconomics: The Day Ahead for 14 January

Both Exports and Imports were a lot stronger than expected despite a 20% y/y fall in Exports to the US, and a 14.6% y/y fall in Imports, and thanks to strong exports to ASEAN (and Asia generally), EU and Africa. Per se, this implies that Net Exports will help to offset weak domestic demand in terms of Q4 GDP, to be published next Monday and expected at an unchanged 1.1% q/q, with 2025 GDP at 5.0% y/y. In the details on commodities, familiar trends were again evident, with price sensitivity clearly a factor in the strength of oil imports (though this may also reflect an element of ‘insurance’ for potential disruptions to supplies, with Iran obviously a focal point at the moment), and contrasting with weak Copper Imports. Echoing the comments by BoE’s Taylor this morning about the deflationary effects of China trade diversion from the US to Europe, record Steel exports and Iron Ore imports reflect both a price advantage for Chinese Steel mills (despite domestic oversupply) and some stockpiling to mitigate the impact of tariffs. While the local authorities appear to be taking comfort from exports holding up, and by extension offsetting pressure for more stimulus to boost very weak domestic demand, action still needs to be taken, above all, given very weak overall Fixed Asset Investment, and specifically the ongoing property sector crisis.

Unlike CPI, the BLS says it was able to collect data for PPI with a delay, and will publish October and November readings, with the consensus looking for November headline and core to post a very ‘average’ 0.2% m/m increase. November Retail Sales are expected to rebound to 0.7% m/m after a big drag from Autos in October due to the end of the EV tax credit, while the key core ‘Control Group measure is forecast to ease back to a solid 0.4% m/m after a robust 0.8% m/m in October, and thus continuing to imply consumer spending remains resilient, though very uneven across income classes. The Beige Book seems likely to signal a marginal improvement on November, where the pace of activity was characterized as little changed, with an upgrade to modest or moderate, though the profile is likely to be uneven across Fed regions and business sectors. While labour demand and price trends will be of interest, outlooks may prove to be bigger focal point, above all, given the myriad of uncertainties.