Macroeconomics: The Day Ahead for 12 April

The new week gets off to a relatively slow  start in terms of data and events, with Powell’s cautiously optimistic weekend comments, Japan’s PPI and Turkey’s Current Account to digest, with India’s CPI and Industrial Production (likely to be ignored given the surge in infection rates locally) along with the BoC’s Q1 Business Outlook survey. The latter could well prove pivotal for the BoC following Friday’s much stronger than expected labour report (see chart), and affirm market expectations that the BoC will start to tapers its govt bond purchases when it meets on April 21. In event terms, there is another slew of Fed, BoE, and ECB speakers, though none are likely to dispel the view that G7 central banks remain firmly tethered to a reactive rather than proactive policy framework, while the agricultural sector awaits the U.S. Crop Plantings report following on from the overnight China CASDE report doubling the estimate for China 2020/21 Corn Imports, and the commodity sector more broadly awaits tomorrow morning’s China’s Trade data. The UK commences a more significant easing of lockdown measures as of today, which will be very closely monitored, as a key test of vaccination roll-out efficacy, which is very much baked in the cake of the consensus on the optimistic global economic outlook, though the wildfire spread in some countries of more virulent mutations advises caution. The US kicks off this week’s $120 Bln total of Treasury coupon auctions with 3 & 10-yr sales, which will put the steadier performance of Treasury yields in recent weeks after the Q1 surge to the test, with a total of $370 Bln of coupons on offer in April. Last but not least, the Biden administration holds its summit with semiconductor producers and corporate consumers to formulate plans to address the global shortage, which is above all hitting auto sector production.

For the week as a whole, there are a plethora of first division data from US (CPI, Retail Sales, Industrial Production, Housing Starts), China (Trade, Q1 GDP, Industrial Production, FAI, Retail Sales, Property Investment) and the UK (monthly GDP, Industrial Production, Index of Services & Trade) and Japan’s Machinery Orders, along with surveys (US NFIB, NY & Philly Fed, NAHB, German ZEW and Bank of France Industry Sentiment). Eminently markets continue to view the run of data through rose tinted spectacles, dismissing inconveniently weak data as ‘historical’, while celebrating any strength. Ultimately as noted above it is vaccination efficacy in re-opening economies (at what will be at times a highly divergent pace in differing geographies), and the real test for the global economy is what emerges in terms of permanent scarring after any initial transient pent-up demand has been absorbed. In event terms there will be plenty more central bank speakers, the Fed’s Beige Book along with OPEC and IEA monthly Oil Market Reports, and a numerous key monthly and quarterly supply related reports for both Cocoa and Sugar. The US Q1 earnings season also gets under way with S&P 500 overall earnings seen up a base effect flattered 24.5% y/y, the best since 2018’s corporate tax flattered surge, with the focus very much on guidance on earnings outlooks, particularly given the fact that S&P 500 companies are currently on 22.3x forward earnings against a long-term average of 15x, in other words fully discounting good earnings news (as a whole). A close eye will also need to be kept on China’s PBOC’s money market operations above all on Wednesday and Thursday with a further sizeable liquidity drain expected, in a further sign of policy tightening (see charts).