Macroeconomics: The Day Ahead – 18 January 2021

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

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

  • Heavily front-loaded data schedule has China GDP and monthly activity indicators to digest along with Singapore Exports and UK Rightmove House Prices; US holiday, Eurozone Finance Ministers’ meeting and a few  central bank speakers
  • China Q4 GDP beats forecasts, but growth still heavily dependent on industry and exports, domestic demand still sluggish; Q1 likely to see similar trend
  • Week Ahead: modest schedule of data to focus on China data and PMIs; busy week for major central banks but no changes seen, highwire balancing act on guidance; US corporate earnings reports; Biden inauguration; IEA oil market report


The day’s schedule is heavily frontloaded, being a case of digesting China’s Q4 GDP and monthly activity indicators, much better than expected Singapore Exports and the unsurprising drop in UK Rightmove House Prices, with only Canada’s Housing Starts, the regular Euro group finance ministers’ meeting and a smattering of central bank speakers ahead, with the US closed for Martin Luther King Day. Pandemic infection rate news continues to be less than encouraging, and risk sentiment has clearly taken a knock from Friday’s US Retail Sales. Two items are worth bearing in mind form the run of weekend news, firstly the suggestion that the ECB will move to tighten bank capital requirements for leveraged loans, and secondly the EU’s plans to reduce the bloc’s reliance on the USD.

In terms of the Chinese data run, it was again a rather mixed bag. On Q4 it would be easy to focus on the fact that Q4 GDP at 6.5% y/y beat expectations, and was the best in 2 years, on the other hand 2020 GDP amounted to just 2.3% y/y, the weakest outturn in more than 40 years; impressive given the colossal headwinds of the pandemic at the start of the year, but still weak.  The monthly indicators highlight that fiscal stimulus continues to propel a solid pace of manufacturing and industrial activity, above all helped by export demand, with production up a robust 7.3% y/y, but consumer spending remains sluggish with Dec Retail Sales missing forecasts again at 4.6% y/y, and down 3.9% for 2020, with curbs on movement due to the rise in infection rates suggesting that the LNY holiday boost will be modest (once very favourable base effects are accounted for). Overall domestic demand remains sluggish, with the surveyed Unemployment Rate remaining high by recent historical standards at 5.2%, and according to some anecdotal reports underestimating actual unemployment. Q1 2021 looks likely to repeat this overall profile in terms of contributions to growth, the challenge for the economy will be in H2 2021 as industrial and export demand is likely to plateau.


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