Macroeconomics: The Day Ahead for 10 January

Market reaction to last Friday’s US wages and Services ISM underlines that markets remain in the mood to fight the Fed’s hawkish rhetoric, and assume a relatively robust rebound in China’s economy now that most Zero Covid restrictions have been lifted. Today’s schedule is dominated by the rash of major central bank speakers, including Powell, at the Riksbank’s conference on central bank independence. The relatively busy run of statistics will likely have little more than a passing impact, comprising the overnight Japan Tokyo CPI, UK BRC Retail Sales, Swedish monthly GDP activity indicators, French and Spanish Industrial Production, with only the US NFIB Small Business Optimism survey, Wholesale Sales and Brazil’s IPCA Inflation ahead. Rather more likely to have some impact will be the World Bank’s economic forecast update, which will see some further downgrades, but perhaps one or other upgrade, though also emphasizing that central banks must remain resolute in their fight against inflation, while warning of downside risks to the global economy from further shocks and sharp rise in interest rates in many countries. The focus in terms of the EIA’s monthly Short Term Energy Outlook will be largely on demand forecasts given the loss of economic momentum in Europe and North America, and near term uncertainty about the impact of China’s re-opening. A busier day for govt bond sales sees the UK sell 10-yr, Austria 3 & 24-yr, Netherlands 3-yr, Germany I-L 10-yr and the US 3-yr, with syndicated sales seen from Italy 20-yr, Belgium 10-yr and Latvia 5-yr.

As the US corporate earnings gets under way at the end of the week, one aspect to keep a close eye on is margins, both the anecdotal evidence on price pressures remaining rather sticky in some areas, along with wage pressures given tight labour markets and higher interest rates, as well as a likely clear deterioration in pricing power as both consumer and business demand gets weaker. The rush back into riskier assets in recent days seems to ignore the fact economies are a very long way from reaching a trough, and the pressure on profits may well persist throughout 2023. This in turn serves as a reminder that much needed investment in many sectors where capacity constraints and fragile supply chains have been exposed may well be cut back, or simply instigated, and per se supply side issues may well prove to be a renewed problem once growth picks up.

** U.S.A. – Dec NFIB Small Business Optimism **
The Employment components of the survey have already been released, and saw Plans to Hire dip to 17.0, weakest since Jan 2021, and Positions Not Able to Fill drop to 41 from 44, weakest since Feb 2021, but both still well above historic norms, and perhaps most notably Net Compensation rebounding to 44 from 41, indicating companies are very much focussed on retaining staff. The headline survey index is forecast to dip to 91.5 from 91.9, very much entrenched in the tight range 91.3/92.1 range that has persisted since August, and historically depressed above all due to the persistent weakness of the economic expectations (‘expect better economy’) which remains below the survey’s prior record low of -36 (1979, 1980 & 2012), despite recovering from last year’s nadir of -61.