Macroeconomics: The Day Ahead – 15 January 2021

Good Morning: The Long & the Short of it and The Bigger Picture

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

  • Very busy day for UK and US data, event schedule rather sparse; UK monthly GDP and activity indicators, Sweden CPI to digest; awaiting US Retail Sales, PPI, Industrial Production, NY Fed Manufacturing & Michigan Sentiment; JPM, Citi & Wells Fargo top US corporate earnings; digesting Biden fiscal package and Powell comments; Kashkari sole Fed speaker
  • UK: smaller than expected, but still large fall in Services weighs on GDP, but December through February the bigger challenge
  • US Retail Sales: seen little changed after November slide, gasoline sales a price related boost; delayed holiday related sales may provide boost
  • US Industrial Production: headline and manufacturing seen posting modest gain, utilities a potential headline booster, ISM hints at upside risks
  • US Michigan Sentiment: little change seen; much depends on ugly politics & pandemic spread vs. benefits boost from fiscal package
  • Germany: CDU leadership election only likely to reinforce credentials  of CSU leader Soeder as Chancellor candidate for Federal elections; coalition formation again likely to be tortured process


A busy day is in prospect for UK and US data, but the events schedule is rather more sparse, with only the unsurprising no change decision from the Bank of Korea to digest ahead of Fed’s Kashkari. Expectations for the run of UK data anticipated November lockdown related weakness in Services being the key drag on GDP were realized, but proved to be somewhat less than expected, while Manufacturing and Construction continued their recovery. Sweden has CPI, while the US looks to Retail Sales, Industrial Production, NY Fed Manufacturing and prov. Michigan Sentiment ahead of Monday’s Martin Luther King day holiday. Biden’s $1.9 Trillion fiscal package proposal did not contain much in the way of surprises, focussing on boosting vaccination implementation and Covid-19 treatment, as well as boosting one-time and supplementary benefits; the more immediate concern relates to security in the lead up to next week’s inauguration, even if markets continue to be minded to discount this as being anything of long-term significance. This weekend also sees the German CDU leadership vote, with NRW prime minister Laschet just about ahead in the polls, but with all 3 candidates not having much traction both with the party faithful, not the broader populace, it increasingly looks as though Bavarian (CSU) prime minister Soeder will likely be the Chancellor candidate for the CDU/CSU in November’s Federal elections, and if he is elected, then he would be the first Bavarian Chancellor of the Federal Republic, though he would not represent a sharp change of direction from Merkel. However the key question is with whom CDU/CSU would form a coalition, with both current partner SPD (even less likely to be willing to participate than after the last election) and the Greens a possibility, though negotiations for the latter would likely be drawn out and quite fractious, given major divergences in many policy areas (though not energy and to a lesser extent the environment).


U.S.A. – Dec Retail Sales, Industrial Production

Following on from November’s much sharper than expected and broad based drop, Retail Sales are expected to have remained weak, posting a flat m/m in headline terms (Nov -1.1% m/m), but dropping -0.3% m/m ex Autos & Gasoline. Price driven strength in gasoline sales and the already reported rebound in Auto Sales imparts some upside risk to headline sales, but much depends on whether a) November’s weakness owed more to the lack of a Black Friday boost (due to movement restrictions), which may have pushed holiday related sales into December, and b) whether the late month approval of benefits extensions and one-off payments as part of the fiscal package offset the prospect of no extension for much of the month, with Retailers overall suggesting solid holiday sales. An upside outlier is thus a reasonably strong possibility. Industrial Production and Manufacturing Output are both expected to rise 0.4% m/m, though cold weather looks likely to boost utilities output, imparting some upside risk to headline Production. SOlid manufacturing payrolls and a small rise in overtime hours should underpin Manufacturing Output. The January NY Fed Manufacturing Index is forecast to be little changed at 5.5, though there would appear to be some downside risks from some of the tightest regional activity restrictions, even if the sector as a whole has tended to latterly be less sensitive to these, and the strength of the Dec ISM implying an overall solid trend for output and orders; a close eye needs to be kept on Input Prices, which surged in December to 37.1, even if pass through to Output Prices looks ot be modest. PPI is likely to largely mirror CPI with energy seen as the main driver of an expected 0.3% m/m rise, but core measures are expected to remain subdued at 0.1% m/m. Michigan Sentiment recovered in December to 80.7 after a shapr drop to 76.9 in November, and is anticipated to slip marginally in January to 80.0, with much depending on how additional fiscal support weighs in against the continued rise in infection and mortality rates, along with the ugly spectre of anti-democratic protests last week; inflation expectations will be in focus, with December dropping to 2.5% from 2.8%, but likely to rebound. Powell’s very clear push back on any form of taper talk yesterday did however also suggest that the Fed sees inflation recovering reasonably robustly.


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