Macroeconomics: The Day Ahead – 2 February 2021

The day’s data schedule is unlikely to generate much reaction in financial markets. This has less to with the generally blasé market view about statistics at the current juncture, and more due to the fact that last week’s national Q4 GDP readings in Germany, France and Spain already flagged better than expected outturns for the Eurozone, which today’s pan Eurozone, Italian and Portuguese readings should confirm. Likewise the compositional pressures on Eurozone CPI have already been flagged, leaving US Auto Sales as the only item likely to attract much attention. There is the as the unexpected QE expansion from Australia’s RBA to digest ahead of further Fed speak from Kaplan, Mester & Williams, with regional Fed presidents falling back into line with the Fed board push back on any form of taper talk, though showing some divergence on the need for further fiscal stimulus. While there are debt sales in Japan (10-yr), Germany (2-yr) and the UK (5 & 50-yr), it is the corporate earnings schedule which will likely grab the headlines. The A’s dominate today’s tech sector run featuring Alibaba, Alphabet and Amazon.com, but there are also reports from energy sector heavyweights BP, Exxon Mobil and Marathon Petroleum, vaccine maker Pfizer and “WFH” beneficiary UPS.  But it will be the continued speculative bubbles that continue to provide the main talking point, as the whisper chatroom orchestrated move in Silver was stymied by a sharp rise in COMEX margin rates, even if a look at the gold/silver ratio and potential industrial demand does offer a form of practical rationale for the move, rather than the short squeezes in individual equities like GameStop that have been witnessed.

There had been some talk ahead of the RBA meeting about a potential QE taper announcement, instead it went in completely the polar opposite direction, extend its QE programme by a further A$100 Bln for a further 6 months from mid-April, and indeed pushed out its forward rate guidance (“The Board does not expect these conditions to be met until 2024 at the earliest”). By way of justification, it also cuts its GDP forecasts for 2021 & 2022 to 3.5% from prior estimates 5.0% and 4.0% respectively, seeing only a modest fall in the Unemployment Rate from the current 6.6% to 6.0% this year, and to 5.5% in 2022, and sees inflation below target over its forecast time horizon. While RBA governor Lowe sounded an optimistic note on the economic outlook, he highlighted the govt’s tapering of its fiscal support measures (since the back end of 2020) as a key near-term risk to the economic outlook. While circumstances may result in a different outturn, and Australia may not be the best proxy for the broader global economy, there is a simple message that major central banks are determined to ensure that monetary policy is super loose for as far as the eye can see, and will therefore continue to foster conditions that ensure asset prices continue to rise exponentially and inequalities become even more deeply embedded, while taking no responsibility for their actions; indeed even worse, defending them as the only option, largely because anything else would almost certainly lead to a cataclysmic failure of the global financial system, which their actions have laid the foundations for.

The evident deficit of thought, the inability to escape the strictures of a clearly failed economic paradigm attests once again to this observation about ‘dead stars’ from William Pfaff being “ideas that people want or need to be true”, “they are ideas about political change, about the correlation between political and economic progress, and about the universal relevance of certain values and political institutions, which are held to merely because it would be bewildering to be without them. Theoretical formulations that are generally conceded to be false but have become conventional, and for which no replacement is evident, continue to be employed by people who certainly know better. …. There is a real dissociation of perception from analysis and decision. ” (Barbarian Sentiments: How the American Century Ends, 1989).

As Foucault observed in a similar vein: “Relations of power are not in themselves forms of repression. But what happens is that, in society, in most societies, organizations are created to freeze the relations of power, hold those relations in a state of asymmetry, so that a certain number of persons get an advantage, socially, economically, politically, institutionally, etc. And this totally freezes the situation. That’s what one calls power in the strict sense of the term: it’s a specific type of power relation that has been institutionalized, frozen, immobilized, to the profit of some and to the detriment of others.” (Michel Foucault: Power, Moral Values, and the Intellectual, 1988).