Macroeconomics: The Day Ahead – 1 February 2021

A new month gets off to a familiar start in terms of the data schedule – PMIs, US/Canada labour data and German Orders, with further CPI and Q4 GDP reports in the Eurozone; there are RBA and BoE monetary policy meetings, plenty of Fed and ECB speakers, and it will be a peak week for US Q4 corporate earnings and also busy elsewhere. But pandemic related news, be that infection and mortality rates, vaccine roll-out progress and perhaps most importantly rising lockdown fatigue and resistance, which along with political news remain the bigger influences, along with the added bonus factor of examples of disorderly speculative markets (GameStop, etc.), borne on the wings of central bank financial repression, and exposing further faults in the post-GFC regulatory environment.  In the commodity space, earnings from energy majors BP, Exxon Mobil and Royal Dutch Shell and mining majors Vale and Glencore will be closely watched, with OPEC+’s JMMC meeting and the annual South African Indaba Mining conference also in view. Last but not least as China heads into its final full trading week ahead of the Lunar New Year holiday period, will the PBOC relent on its squeeze on speculative and leveraged positions in its markets and start to inject liquidity ahead of the holiday period, as it would normally do.

The unseemly row over the EU vaccine roll-out leaves the European Commission exposed on multiple fronts, with its judgements and its planning obviously flawed and found wanting. However there is one question which no one seems to be asking: the planning for vaccine production and distribution at government and corporate level worldwide should have aimed for the maximum capacity to inoculate ALL of the world’s population as quickly as possible, once vaccines were/are approved for deployment. This should have long pre-dated actual approval processes, particularly given the extensive pre-orders by governments and indeed large govt subsidies to create production capacity, why are pharmaceutical companies now having to suspend production to expand capacity? Perhaps I am being naive and exposing my ignorance, but this appear to be very material, above all given markets’ blind faith in a vaccination led economic recovery.

The week’s economic data schedule again looks to be nothing more than statistical roadkill, with Manufacturing PMIs holding up well (above all in the USA) and Services PMIs mostly contracting but still not as bad as in Q2 2020, but raising concerns that the second wave of the virus is taking more of a toll than had been hoped initially. If forecasts are correct then markets may take heart from US Initial and Continued Claims, seen falling to 830K and 4.50 Mln, and ignore the anticipated rebound from -140K to a still very week 50K in Non-Farm Payrolls. German Factory Orders are forecast to fall 1.3% m/m, the first setback since April’s -25.9%, and broadly in line with indications from surveys, but again a reminder that the recovery momentum in Europe, even in Manufacturing, has lost traction, and lags North America and Asia.

On the central bank front, Australia’s RBA is not expected to change its key rate or yield target, but there is some speculation that it might opt to taper its six month A$100 Bln QE programme (due to end at the end of April) given that the economy is showing some robust recovery momentum, and the housing market is ‘running hot’. By contrast the Bank of England is expected to keep Base Rate and its QE programme unchanged, but the focus will be on its ongoing review of the feasibility of deploying negative interest rates, with the publication of responses to its consultation process on negative rates due to be published. The message on negative rates will likely remain the same, they remain a policy option, but there is no immediate prospect of actual deployment, and given the most recent BoE comments on the topic, markets are not discounting any move to negative rates.