Macroeconomics: The Day Ahead for 13 December

US CPI will be the centrepiece for today’s markets, though there are plenty of other data and events. UK labour data, Norwegian monthly GDP, Australian Confidence surveys and final German CPI will need to be digested, ahead of the German ZEW and US NFIB surveys. The BoE’s latest Financial Stability Report will garner plenty of attention with the focus on the risks to the non-bank sector and LDI investing exposed by the recent gilt market meltdown. In a similar vein, the US House Financial Services will also hold initial hearings into the collapse of crypto exchange FTX. Commodity and energy markets will continue to keep an eye on power and gas price pressures in Europe and North America due to the current bout of very cold weather, as EU Energy Ministers meet to try and sign off Russian gas price caps. It is worth noting that French Nuclear Power production is at its highest level for more than 8 months (see chart), and is providing a good deal of relief to European power supplies, given the high level of demand, and the near zero output from wind and solar. They will also be looking to the OPEC monthly Oil Market Report, and France’s Agriculture Ministry crop production and winter plantings estimates. Germany’s ZEW Expectations are expected to recover further to -26.4 from -37.0, as ever tracking the rebound in the DAX, while tonight’s Japan Q4 Tankan is seen showing a slight slip in Manufacturing DIs, but a marked improvement in Non-manufacturing, with All Industry CapEx expected to remain very buoyant at 20.9% (vs. Q3 21.5%).

** U.K. – Oct/Nov labour market indicators **
Once again UK labour data has defied expectations that the labour market is loosening, with HMRC Payrolls jumping a very robust 107K (with October revised up modestly to 79K), while the less timely LFS Employment measure rose 27K against forecasts of a drop of 17K. The expected rise in the Unemployment Rate to 3.7% from 3.6% reflects an increase in the size of the active workforce, though labour force participation remains woefully low, with the Inactivity rate down 0.2 pt at 21.5%. As noted in the preview the rise in Average Weekly Earnings up 0.1 ppt to 6.1% y/y, and ex-Bonus a higher than expected 0.3 ppt to 6.1% is wholly due to base effects given a sharp deceleration in October 2021. While this pace remains well above long-term nominal trend rates, it is a) still heavily negative in inflation adjusted terms (-5.0%), and b) echoes survey data suggesting the rise in wage settlements has peaked, and is edging down, even if the current wave of national labour strikes may change this. The ONS noted that in October 417K working days were lost to labour disputes, the highest level since November 2011. For all that the data will be seen as adding pressure on the MPC, the fact is that interest rates are not going to resolve the UK’s labour market problems.

** U.S.A. – November CPI, NFIB Small Business Optimism **
US CPI has been the prompt for some violent moves in equity indices and risk assets in recent months, and coming a day ahead of the FOMC meeting it could well be pivotal for markets into year-end. The consensus looks for a 0.3% m/m rise for headline and core, which would see y/y rates fall respectively from 7.7% to 7.3%, and from 6.3% to 6.0%. Aside from benign base effects, lower energy prices (above all gasoline) will bear down on headline, though as Friday’s PPI data highlighted, the question is how much of this will be offset by persistent Food price pressures. Core CPI will continue to benefit from a drag from medical insurance, with Used Car Prices likely a smaller drag than in October, but retailer discounting to shift still bloated inventories should also help to offset upward pressure from Shelter, which should start to ease going into Q1 2023, but core Services ex-Shelter will likely remain quite ‘sticky’. But for markets, it will be a very binary perspective of ‘above or below’ expectations, however myopic this may be. The NFIB Small Business Optimism is also forecast to edge down, with the already published Employment components signalling downside risks, in so far as hiring intentions and compensation plans slipped to 18-20 month lows.