Macroeconomics: The Day Ahead – 14 December 2020
Good Morning: The Long & the Short of it and The Bigger Picture
Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
- Digesting Japan Q4 Tankan, French Industry Sentiment, awaiting India CPI ECB speakers and OPEC Oil Market Report; politics and pandemic news still dominant
- Week Ahead: busy run of US, China and UK data accompanies Fed, BoJ and BoE policy meetings in final full trading week of the year
A quiet start to a relatively busy week for data and events has the overnight much better than expected, though still weak Q4 BoJ Tankan to digest along with the Bank of France Industry Sentiment survey (96 vs. exp. 95), but little else ahead in data terms outside of India’s CPI. ECB speakers and the monthly OPEC Oil Market Report top the run of scheduled events, but it will be politics and pandemic news which continues to dominate. These include the seemingly inevitable weekend extension of EU/UK Brexit talks (a very narrow deal still appears to be the most likely outcome), continued adverse trends in Covid-19 infection rates forcing the hands of govts in Germany, Japan and South Korea to further tighten activity restrictions, the US electoral college meeting today to vote on the President, and US Congress seemingly edging closer to a fiscal package deal. A busy week for data in the US, China and UK sees Retail Sales in all three, Industrial Production in US and China, UK Inflation and labour data, accompanied by G7 flash PMIs and a raft of national and/or regional manufacturing surveys, while Japan has trade and Australia labour data. In central bank terms, the Fed, BoE and BoJ all hold policy meetings, with markets unsure whether the Fed will opt for an ‘operation twist’ (lengthening the duration of its Treasury portfolio), or keep this in its policy locker until some clarity on fiscal stimulus emerges; the BoJ is likely to tweak some of its corporate lending programmes, and the BoE will probably keep its powder dry given ongoing Brexit uncertainty, but stress its willingness to ease policy further in the event of any adverse shocks. While the vulnerability of buoyant risk market sentiment to a continuing barrage of adverse short-term political and pandemic headlines was again well demonstrated last week, there remains a seemingly irresistible urge to buy any dip, above all in equities, though credit markets do appear to be rather more wobbly, in part a reflection of the fact that the scope for further spread tightening is limited, leaving risk/reward ratios looking challenging.
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