Macroeconomics: The Day Ahead – 23 December 2020

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

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

• US data dominates schedule ahead of holiday break, but Brexit, US fiscal package passage and pandemic related news still holding all the aces;  Durable Goods, Personal Income/PCE, Jobless Claims, New Home Sales and  final Michigan Sentiment; digesting Australia Trade and Oct BoJ minutes
• US Durable Goods Orders: core measures set for solid rise, Boeing Orders  imply substantial downside risk for headline
• US Personal Income / PCE: modest setbacks expected, downside risks on Income
• US weekly jobless claims: upward surge in initial claims seen checked, but risks skewed to the upside

EVENTS PREVIEW

Today’s run of statistics ahead of the holiday break is all about the U.S., with no other significant items on the DM calendar elsewhere, though Mexico has monthly GDP and mid-month CPI, and eminently Brexit and pandemic related news will continue to rule the roost, along with US/China tensions. The US run includes Durable Goods, Personal Income/PCE, Weekly Jobless Claims, New Home Sales and FHFA House Prices. Trump’s threat to block the US stimulus bill has all the hallmarks of populism (he is in favour of a one off Payment of $2,000 as opposed to the bill’s $600, and wants cuts to envisaged foreign spending), but also of the scorched earth policy that has been so evident since the election. As for the continued impasse and brinkmanship on Brexit, there are no words to describe this abject display of infantile theatricality by politicians who clearly have no interest in public service, but only in the vanity of their careers. This is not a matter of principle, this is an outright deficit of diplomacy and negotiating skills, but in truth a reflection of the current Zeitgeist in the body politic across much of the world, where thought and intellect are sacrificed on the altar of vanity and machismo. At least some common sense has prevailed on re-opening cross-channel trade.

U.S.A. – Initial Claims, Nov Durable Goods and Personal Income/PCE

Durable Goods Orders are expected to be the only ray of sunshine in today’s run of data, even if the expected 0.5% m/m dip in New Home Sales would still leave these running at a very fast SAAR pace of 994K. The consensus looks for a 0.6% m/m rise in headline Durable Goods, but this looks to optimistic given Boeing Orders on net were down 61 on the month, even if core measures should be broadly in line with the consensus of 0.5%/0.6% m/m, given the order indications (both new and backlogs) from manufacturing surveys. Initial Claims are forecast to be little changed at 880K after surging ca. 170K over the past two weeks, though the risks would appear to be on the upside, both given activity restrictions as well as employers anticipating the expiry of the Paycheck Protection Programme (PPP), with Continued Claims also expected to rise 52K to 5.560 Mln (the reporting week being the same as for the monthly Payrolls survey). As is usual, expectations for Personal Income (-0.3% m/m) and PCE (-0.2% m/m) are effectively predicated by the labour report’s Average Hourly Earnings and Retail Sales, though the latter suggest that the PCE forecast may prove to be optimistic. But it is Personal Income which may post the bigger downside miss as a combination of a drop in Unemployment benefits (due to eligibility expiry), falling PPP payments to business owners and indeed a drop in farm incomes. Of course IF the fiscal package does get ratified by the president, then most of the latter factors should be at least partially reversed in Q1. As for final Michigan Sentiment, the steep fall in yesterday’s Consumer Confidence due to the slide in the present situation index (90.3 vs. 105.9) suggests the risk of a downward revision to the provisional reading that rebounded sharply to 81.4 from 76.9, though the two surveys have frequently been out of sync in month to month terms since the virus outbreak.

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