Macroeconomics: The Day Ahead for 14 February

Today’s deluge of statistics in Europe will likely be little more than roadkill as the market will be laser-eyed focus on US CPI. There are UK labour data along with Japanese and Norwegian Q4 GDP to digest, while Eurozone Q4 GDP heads a long list of national GDP readings across Europe, with German and Indian WPI also on tap. There is a busy run of corporate earnings, with woe-stricken Adani Enterprises, the various parts of Japan Post, SMC in Asia; Carrefour, Norsk Hydro, Telecom Italia in Europe; while North America has AirBnB, Cleveland-Cliffs, Global Foundries, Peabody & TC Energy, Restaurant Brands, West Fraser Timber and Zoetis. In event terms, there are the EU Finance Ministers meeting, OPEC publishes its monthly Oil Market Report, the Oslo Energy Forum gets underway, and there is another raft of central bank speakers, while the UK sells 10-yr, and Italy 3, 6 & 15-yr. The run of data overnight offered mixed signals, with Japan’s Q4 GDP missing forecasts on the back of a larger-than-expected drag from both CapEx and Inventories, even though Private Consumption rebounded as expected, which in turn underlines the BoJ’s resistance to pulling back from its ultra-easy policy stance. Australia’s confidence surveys were diametric opposites, with Consumer Confidence collapsing close to its pandemic low as the impact of higher mortgage rates bites hard on households, and by contrast Business Confidence and Conditions picked up further, with NAB Business Confidence at its best level since August, which overall leaves the RBA with the same dilemma, how to balance fighting inflation without forcing a collapse in the housing market, and by extension personal consumption.

** U.K. – Dec/Jan Labour data **
As with the US and Canada, UK labour demand is proving to be very resilient even in the face of a sluggish economy, with a sharp 102K rise in HMRC Payrolls given greater heft by the upward revision to December to 47K from 28K, along with a 12.9K drop in the Claimant Count, while the less timely LFS Employment measure posted a solid 74K rise. The fact that Vacancies eased 76K to 1.134 Mln is rather moot, given that the absolute level remains ca. 300K above the pre-pandemic peak. But it is the Average Weekly Earnings readings which will pile the pressure on the BoE for another rate hike, as basic pay (ex-Bonus) continued to post a robust gain of 6.7% y/y against expectations of 6.5%, even though the headline measure dropped more than expected to 5.9% y/y from 6.5%. While base effects should act as something of a drag during Q1, the anecdotal evidence on the level of pay settlements reported looks likely to offset some if not all of this, and while real wage growth remains very negative, this will shift into positive territory as the year goes on.

** U.S.A. – January CPI, NFIB Small Business Optimism **
CPI is expected to dip in y/y terms to 6.2% from 6.5% y/y headline and 5.5% y/y from 5.7% core, but to accelerate in m/m terms to 0.5% headline and 0.4% core, which would leave headline 3-mth annualized at 3.2%, and core rising to 4.4% from 4.0%. The path lower on inflation was always going to be bumpy, and rising gasoline and used car prices (the latter also indicating core goods disinflation is ebbing), and continued sticky core services inflation exercising upward pressures (perhaps most notably medical care), along with easing, but continued pressure from shelter/housing. The January report also sees the annual reweighting of the CPI basket, which will need to be taken into consideration in any analysis, but while this may have some modest implications in trend terms, too much focus on the detail risks losing sight of the bigger inflation picture. Ahead of CPI there is the NFIB Small Business Optimism, that is seen rebound modestly to a still very low 91.0 from December’s sharpish drop to 89.8 (second weakest since 2013), with the pick-up in compensation and Vacancies implying some upside risk. There are a lot of contradictions in this survey, above all the contrast between December’s Expect Better Economy sliding to -51, not that far from the all-time low of -61, while Expect Higher Sales stood at -10, well above the low of -29.