Macroeconomics: The Day Ahead for 11 December

US CPI tops a modest day for data and events, though there will also be some interest in Argentine and Russian CPI, where trends are diverging sharply, as is the case with rate outlooks in Canada and Brazil, whose central banks decide on rates today, with South African CPI also due. Last week’s jump in the Unemployment Rate to 6.8% (from 6.5%) imparts an even bigger sense of urgency for the Bank of Canada to continue cutting rates aggressively, with a 50 bps cut to 3.25% expected, while higher than expected inflation, a very weak BRL and continued concern over fiscal policy predicates expectations of as 75 bps rate hike from Brazil’s BCB.

The long shadow of national and geopolitics continues to cast a long shadow, as events unfold following the toppling of the Assad regime, only adding to the array of uncertainties in the Middle East. A couple of observations about events in Syria: a) the Assad’s regime demise finally brings to an end the last remnants of Baathism (Arab nationalist ideology), which also ushered in Saddam Hussein in Iraq, though was primarily notable for establishing dictatorships. b) It leaves Syria seemingly headed along the same path as Iraq, Afghanistan and Libya, serving as another reminder of the destructive and divisive legacy of Western European imperialism, and latterly US and Russian interventionism or interference. c) The lightning speed of the Assad’s regime attests both to a good military mind exploiting the damage done to Iran’s affiliates Hamas and Hezbollah by the conflicts in Gaza and Lebanon, and Russia’s pre-occupation with its invasion of Ukraine, as well as to the slender thread by which Assad had hung on to power over the past 14 years. d) It also serves as a reminder that Turkey’s influence over developments in Syria and the Levant remains of critical importance, even if Erdogan has been forced to adhere to more orthodox economic policies over the past 18 months. Back in 2018 (and therefore obviously somewhat ‘dated’), I wrote an article for the Ghost in the Machine entitled ‘The Ashes of the Arab Spring’, click here to read, primarily to highlight that the challenges and the theoretical opportunities remain the same today as they did then.

** U.S.A. – November CPI **

– From a perspective point of view, it should be remembered that the Fed’s reversion to a cautious stance on rate cuts is primarily predicated on it misreading the US economy during the summer, and assuming that a sharper loosening in the labour market, and a loss of growth momentum behoved them to step away from the restrictive policy stance, aimed at reining in inflation. Whether the current ostensible growth and productivity momentum is maintained into 2025 hinges heavily on how the new regime implements its fiscal, trade (though tariff threats from Trump 2.0 are not just trade related) and immigration policies; second guessing how this set of dominoes falls is a thankless task for forecasters and above all for the Fed. Per se, overinterpreting up or downside misses on today’s CPI data would be ill advised. Still, for the record, headline CPI is expected to tick up to 0.3% m/m after a string of 0.2% readings, while core is expected to remain ‘sticky’ at 0.3% m/m, the 0.1 ppt expected rise in y/y headline to 2.7%, and core remaining at an elevated 3.3% y/y is uncomfortable for the Fed, even if PCE deflators are lower. Rather more salient in the case of both headline and core CPI is that Shelter/Housing and Car Insurance accounted for more than 80% of the y/y increase in October, this is hardly broad based inflation pressures, though the fact that both are major parts of consumer non-discretionary spending underlines why consumers continue to complain vociferously about inflation pressures. Be that as it may, markets reaction function (in the first instance) remain tethered to the overly simplistic ‘better, worse or in line’ with forecasts?

** Russia / Argentina – November CPI **

– It to say the least unconventional to compare and contrast inflation trends in Argentina and Russia, but the point is to underline that trends matter, and only when looking more closely at m/m trends can one see why Bank Rossiya governor Nabiullina has seen fit to ratchet Russian rates all the way up to 21.0%. Russian headline CPI is seen up 1.5% m/m, accelerating sharply and taking the 3-mth annualized rate up to 10.9%, even if the y/y rate is forecast to rise to 8..9% from 8.5%, while core CPI is expected to rise 1.1% m/m 8.37% y/y, though the 3-mth annualized rate would ratchet up to 10.6%. By contrast Argentine national CPI is seen up 2.8% m/m, which thanks to base effects would see the y/y rate fall to a still eye-watering 167.2% from 193.0%, though the 3-mth annualized rate would be a much lower 36.0%, decelerating from 51.2% in the 3-months to August.