Macroeconomics: The Day Ahead – 27 January 2021

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

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

• Digesting Australia CPI, collapse in German Consumer Confidence and solid China Industrial Profits; focus on US with Durable Goods, FOMC meeting and corporate earnings; pandemic and political news still  front and centre
• US Durable Goods: further solid gains expected on headline and core;  shipments key for tomorrow’s Q4 GDP
• FOMC meeting: ‘steady as she goes’ likely to be message from statement and Powell; pushback on taper talk likely to be underlined, despite some optimism on medium-term outlook

EVENTS PREVIEW

If the schedule of data and events was modest to start the week, it is a good deal busier today, and there are plenty more corporate earnings. The FOMC meeting may get top billing, despite it being something of a non-event in many ways, but there are Australia’s Q4 CPI, UK BRC Shop Prices, China’s Industrial Profits (continuing to accelerate) along with the sharply contrasting uptick in French and the collapse in German Consumer Confidence to digest, while ahead lie US Durable Goods and tonight’s Japan Retail Sales. Apple and Tesla top the run of US corporate earnings with Abbott Laboratories, AT&T, Blackstone, Boeing, Teledyne, Teradyne and Whirlpool, with govt bond auctions in the UK, Germany and the U.S.A.  However pandemic and political news will continue to be the primary driver of market sentiment, with the overnight comments from French Finance Minister Le Maire that the EU recovery fund is ‘too slow and complicated’ serving as one more reminder that the understandable market hopes of a vaccine roll-out led recovery sometime during 2021 are vulnerable and subject to an array of other headwinds. That said Schumer’s comments that ‘a vote on a budget resolution, a possible first step toward passing another round of coronavirus relief using a procedural tool called “reconciliation,” could come as early as next week’, will doubtless be interpreted as an encouraging sign.

U.S.A. – Durable Goods Orders

Further strength in headline and core Durable Goods is expected (1.0% and 0.5% m/m respectively), though in terms of final tweaks ahead of the release of Q4 advance GDP tomorrow, it is Shipments that will be key with Non-Defence Capital Goods Shipments seen up 0.6%, rounding off a very strong quarter for Orders and CapEx, which is anticipated to have made a major contribution to GDP. Eminently some of the strength reflects inventory replenishment, but the momentum going into Q1 looks solid, even if supply chain bottlenecks and disruptions are evident in a number of related sectors.

U.S.A. – FOMC meeting

No changes to rates or its current array of ‘unconventional’ policy programmes are expected, with forward guidance on both maintained (above all the emphasis that both its inflation and employment mandates need to be being met before any withdrawal of support), and some cautious optimism on the medium-term outlook (thanks to vaccine roll-out) tempered by short-term downside risks. The FOMC will also continue to emphasize that the onus is on fiscal rather than monetary measures, but it will avoid anything more prescriptive, as it awaits how the new Biden administration’s ‘stimulus’ proposals will fare in Congress. But markets will also be counting on Powell repeating his and others such as Clarida and Brainard pushing back on ‘taper talk’ by some FOMC members. Nevertheless as noted on Friday following the run of BoC, BoJ and ECB meetings: ‘if one reads between the lines, is that the major central banks are in fact very concerned that their ultra-accommodative polices are blowing bubbles, which go far beyond their collective desire to ensure financial stability – they obviously cannot say this explicitly, but the message is very clearly there just below the surface.’

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