Macroeconomics: The Day Ahead – 25 November 2020

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

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

• US election and vaccine euphoria still in the driving seat as US data  deluge and UK Spending Review top schedule; FOMC minutes and central bank speakers; China EV intervention, ECB bank dividend hint & EU derivatives trading new also in play; Deere results; Italy debt auction
• U.K. Spending review: details absolutely critical, as Sunak likely  to talk up spending measures, while austerity measures glossed over
• U.S.A.: Jobless Claims perhaps most sensitive, overall reaction may be  muted as positions lightened ahead of Thanksgiving holiday

EVENTS PREVIEW

Today will be dominated by the US and UK, with the latter awaiting the Chancellor’s Spending Review, while the former sees a rash of data releases ahead of the Thanksgiving holiday (and a shortened Friday trading session) along with the November FOMC minutes. Elsewhere there are Australia’s Q3 Construction output and South African CPI to digest, as well as a less onerous run of major central bank speakers. Italy holds the first of two auctions this week (2-yr Zero & 3-yr I-L), while the Deere & Co earnings results will also be in focus, given its fortunes are seen as a solid proxy for the fortunes of the US agricultural sector, and follow a sharp upgrade to its sales forecast when it reported its Q2 results in August. In terms of the UK 1-yr Spending Review, Mr Sunak was keen to emphasize in TV interviews on Sunday that the UK’s debt mountain will not be addressed until after the Covid-19 crisis is over, and that there would not be a return to austerity. However as with PM Johnson, that which is denied is all too frequently the height of disingenuity. For example, the talk is that there will be some form of public sector wage freeze, which beggars belief as far as the burden that has been placed on healthcare workers (expected to be exempted) and indeed police and teachers during the pandemic. It is also suggested that the minimum wage will be frozen, which hardly sends a positive message against the backdrop of rising unemployment, above all youth unemployment and short-time working, even if there will be doubtless be some mention of the very low level of CPI (with the long awaited RPI review also due). The other focal points will be on infrastructure spending, above all healthcare which has been so badly exposed (across the world) by the pandemic, but also on the so-called ‘levelling up’ between North and South, and indeed what will be done to protect the UK economy from the disruption due to Brexit on January 1, with agriculture, automakers, pharmaceuticals and transport/logistics looking to be among the most vulnerable sectors. As ever, reading through the detail rather than taking the headlines at face value will be key given the penchant to inflate spending increases with already announced programmes and measures. Perhaps even more poignant as regards to infrastructure spending is the UK’s woeful delivery on implementation, planning and delivery, as currently best exemplified by the talk of ‘mothballing’ the already heavily delayed and over budget ‘Crossrail’ project in London – it is not ‘how much’ that matters, but ‘how effective’. Elsewhere, and as noted in the Week Ahead, a close eye needs to be kept on regulatory news flow, even if the signals conflict as they do this morning, with the ECB said to be considering lifting the block on banks paying dividends in 2021, while on the other hand the EU (or rather ESMA) confirms what had already been flagged that European banks will have to trade derivatives on platforms that are inside the EU as of January.

U.S.A.

– Today’s rush of US data may well see only a modest reaction, both due to the sheer volume of statistics, and the likelihood that many traders will be looking to lighten positions ahead of what will be for many a long weekend. Be that as it may Q3 GDP is expected to be unrevised at 33.1% SAAR, though Private Consumption is seen revised up modestly to 41.2% from 40.7%. Durable Goods Orders are forecast to post solid but slower gains of 0.9% m/m headline and 0.6% m/m Nondefense Capital Goods ex-Aircraft, mirroring the evidence from manufacturing surveys. Personal Income and PCE are forecast at Flat m/m and 0.4% m/m after robust gains in September, and mirroring earnings and Retail Sales data, while the Goods Trade Balance is anticipated to have widened modestly to $-80.5 Bln. New Home Sales are expected to rebound 1.7% from last months’ setback, and in SAAR terms remain very strong in any case, even if low inventories and raw materials continue to present headwinds. Weekly jobless claims may prove to be the most sensitive item after last week’s slight uptick in initial claims, with a marginal drop to 730K from 742K seen, though Continued Claims are expected to drop to 6.00 Mln from 6.372 Mln, but as has been the case for some time reflecting expiry of benefit eligibility, rather than a return to work, with the broadest measure of benefits claims (including federal PEUC) remaining well in excess of 21.0 Mln.

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