Macroeconomics: The Day Ahead for 11 February

Today has one of those busy looking data schedules, which on closer inspection really only has a couple of market movers, i.e. UK Q4 GDP and monthly activity indicators and US Michigan Sentiment, with Malaysia Q4 GDP, Hungarian and Swiss CPI, Taiwan CPI & Trade, and Turkey Current Account to digest ahead of Brazil’s monthly GDP. Fed’s Barkin and ECB’s Visco feature in terms of central bank speakers, while Russia has the Bank Rossi rate decision, and the IEA rounds off this week’s run of monthly Oil Market Reports. A modest run of corporate earnings features, Cleveland-Cliffs, Magna International and Rosneft Oil, while Italy auctions 3, 7 & 19-yr BTPs, for which a fairly fat selling concession has been carved out following the ECB policy meeting. Next week’s calendar has a lot of first division statistics in the US (Retail Sales, Industrial Production, PPI, Existing Home Sales), China (CPI, PPI), Japan (Q4 GDP, Trade) and the UK (CPI, Unemployment and Retail Sales), accompanied by Australian labour data, and Canadian and Indian CPI. There are plenty of central bank speakers, along with Fed and RBA policy meeting minutes.

While markets have moved to discount a 50 bps Fed rate hike in March, with Bullard (voter) only adding fuel to the fire, with his comments that he would like to see rates rise by a cumulative 100 bps over the next 3 meetings, most other Fed speakers seem unconvinced of the need. But with markets pricing in an 86% chance, Fed speakers (above all Powell and Brainard) will have to exercise considerable push back, if they want markets to reprice to a less aggressive trajectory.

** U.K. – Q4 / December GDP **

– December GDP at -0.2% m/m took a smaller hit than expected from the Omicron variant, with Services “only” dropping 0.5% m/m against a forecast of -0.7%, while Construction Output proved to be more resilient at +2.0% against a forecast of -0.7% m/m (and notwithstanding the downward revision to November. However this is already rather historical in the context of the BoE’s rate trajectory. Within the Q4 GDP, Private Consumption proved to be stronger at 1.2% q/q than the expected 0.8%, and all the more so given the upward revision to Q3 to 2.9%; Govt Spending at 1.9% q/q and Gross Fixed Capital Formation 2.2% q/q were also stronger than expected, with the weakness in Q3 in both revised to a smaller. There was the expected strong contribution from Net Exports, but the drag on Q3 GDP from trade was revised up, and underlying trade trends remain very poor.

** Russia – Bank Rossi rate decision **

– Bank Rossi is expected to hike rates by a further 100 bps to 9.50% bringing its cumulative tightening to 525 bps, as supply chain bottlenecks, food price pressures, and a weaker RUB on the back of geopolitical tensions put paid to its December signal that a pause might not be far off. January CPI only served to underline the case for another aggressive rate hike, with headline CPI up 1.0% m/m to push the y/y rate up to 8.7% from 8.4%, with core CPI underlining the scale of second round effects, rising 0.8% m/m to push y/y up to 9.2% from 8.9%. There is a risk of a slightly larger hike, to try and get ahead of the curve in real rate terms, though with headline CPI likely close to a peak, Nabiullina & Co may prefer to signal that a further hike is likely.

** U.S.A. – Feb Michigan Sentiment **

– The consensus does not expect the fading impact of the Omicron variant to have given consumer sentiment any boost, though it does seem likely that there may in fact be a modest boost, even if rising inflation (1-yr expectations are seen edging up 0.1 ppt to 5.0%) will clearly continue to dampen sentiment, as will the inherent poltical bias (with only 1 in 5 Republican voters showing any optimsim on the economy, as opposed to roughly 1/2 of Democrat voters.