Macroeconomics: The Day Ahead – 4 January 2021
Good Morning: The Long & the Short of it and The Bigger Picture
Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
- New Year but politics and pandemic related news still front and centre; Manufacturing PMIs dominate schedule, OPEC+ meeting, Fed speakers, Asia currency strength also in view; US political developments cast shadow
- Manufacturing PMIs: Asia sets positive tone, likely echoed in Europe and North America, but Services employment still the key issue
- Voracious risk appetite faces challenge from skews in positioning and prospective risk/reward
The New Year starts with most of the same political and virus themes in the ascendancy, and rendering much of the incoming macroeconomic data to a subordinated role, with the usual start of month Manufacturing PMIs (N.B. the US ISM manufacturing is published tomorrow) dominating the schedule of data, and Fed speakers topping the events schedule along with the monthly OPEC+ production meeting. The rapid rise in or persistently high level of infection rates continues to push further back on timelines for a vaccine assisted recovery (with distribution and actual vaccination rates in the spotlight), leaving an array of questions about the voracious overall level of risk appetite across asset classes, above all given the skews in positioning and risk/reward, which at the very least are likely to be a source of more elevated levels of volatility. But it is worries about democratic institutional processes in the U.S.A. which are in focus via way of the run-off Senate elections in Georgia, and the inaugural session of the new Congress on Wednesday which will be the focal point for the middle of the week. In the U.K. it will probably be a number of weeks before it becomes clear how much Brexit related disruption there will be to the economy, but the immediate crisis of confidence in the UK’s political leadership due to its management of the pandemic fall-out is the initial concern. Asian Manufacturing PMIs continue to underline that the latest round of activity restrictions is having little or no impact on the sector, with the fall in China’s Caixin PMI from a multi-year high still indicative of a solid pace of output, particularly given that outlooks remain very positive. That said the cooling of export demand, rising input prices and a drop below 50.0 for the Employment sub-index for the first time in 3 months offer notable points of concern, despite the broad strength across much of the rest of Asia. European and North American PMIs are expected and likely to echo trends in Asia, however the severe impairment of activity in the Services sector and the risks to employment as a consequence are the material issue, even if businesses are clearly adapting better to the current set of restrictions. Yesterday’s OPEC meeting unsurprisingly highlighted an array of downside risks to growth and demand in H1 2021, and as such today’s OPEC+ meeting is expected to keep production levels unchanged. Currency markets will be the other focal point as the CNY powered down through the key 6.50 level vs the USD, and the JPY tests the 103.00 level, seen as a trigger level for Japanese authorities to take a more active stance to quell strength.
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