Macroeconomics: The Day Ahead – 9 December 2020

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

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

• Digesting strong Japan Orders, mixed China inflation, as expected German Trade and China lending; US JOLTS Job openings and Mexico CPI ahead; politics still in the driving seat: focus on last ditch Brexit talks,  Merkel budget speech and US fiscal package;  bond sales in Germany, UK & USA
• Merkel speech likely to underline erosion of authority at home & abroad
• Canada BoC seen holding policy rate and maintaining QE volume, to underline lower for longer commitment

EVENTS PREVIEW

While there is major data to digest – Japanese Machinery Orders (trouncing forecasts with a 17.1% m/m jump), China’s inflation metrics (mixed: PPI better than expected -1.8% but weak at -1.5% y/y, CPI -0.5% weaker than forecast Flat y/y, on food price base effects)) and German Trade (largely in line with consensus, slight miss on imports) – the remainder of the statistical schedule – US JOLTs Job Openings, Mexican and South African CPI – is unlikely to garner much attention, as the focus remains on pandemic related and political news, with “last ditch” Brexit talks between Johnson and von der Leyen in focus, but also EU recovery programme, US fiscal package & tensions with China. There also appears to be an ebbing of what might be termed ‘gung ho buy every dip’ in risk assets, that probably has less to do with uncertainty, and more a desire to book profits (where applicable) and withdraw to the sidelines until the new year, given overstretched valuations in equities and credit, and likely poor liquidity depth in markets over the next few weeks, along with a continued high level of event risk. The Bank of Canada policy meeting looks to be something of a non-event, with no changes either on rates or its QE programme expected, though it will reaffirm its commitment to maintain policy settings for the foreseeable future, and to do more if the economic outlook deteriorates, or financial conditions tighten. The overnight speech by PBoC governor Yi Gang bears some scrutiny given increasing warnings by Chinese officials about debt levels, above all local govt, and the risk of further interventions, such as the AntFinancial IPO suspension. Merkel’s speech in the Bundestag will doubtless continue to lay bare her diminishing authority, both at home in respect of the management of the Covid-19 crisis with the federal govt at loggerheads with state govts over movement restrictions, as infection rates flatline at a high level rather than turning decisively lower as in France, UK or Spain. Internationally her bridge building reputation is in tatter given the EU recovery programme impasse and the knife edge Brexit negotiations. A relatively busy day for govt bond auctions has German 2-yr, UK 15-yr and US 10-yr.

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