Macroeconomics: The Day Ahead for 16 April

Markets continue to be pulled in so many unsettling directions, as geopolitical risk plays off against fading Fed rate cut hopes, with the latter evidencing a mood of ‘good news is bad’ in a yet another ironic twist, while debate over the implications of Iran’s “failed” attack on Israel in terms of the risks of a wider/broader conflict continues. The fact that the attack was so heavily flagged, and seemingly “choreographed” for domestic public opinion in both Iran and Israel suggests the wider conflict risks have eased somewhat, but with both Israel and Iran having a long history of echoing the apocryphal story of the scorpion and the fish, the risk is at best on the backburner, but remains ever present. Today’s schedule has a long list of data highlight with China’s Q1 GDP and monthly activity indicators and UK labour market data to digest, while ahead lie the German ZEW survey, Canadian CPI, US Industrial Production, Housing Starts and Philly Fed Manufacturing. The events schedule is dominated by the IMF World Bank Spring meetings getting under way with the latest IMF forecast update, and a rash of Fed, ECB and BoE speakers, while financials continue to dominate the nascent US Q1 corporate earnings season, though the likes of Johnson & Johnson and United Airlines starts to bring in real economy companies.

** U.K. – Feb/Mar Labour market report **

– The often hefty revisions and the questionable reliability of the LFS data advise against overinterpreting one month’s data, but today’s data were uniformly weaker, even if Average Weekly Earnings were slightly above forecast, and remain high at 5.6% y/y headline and 6.0% y/y for regular pay. But the sharp -67K drop in HMRC Payrolls (and downward revision to February to -18K0, and a sharp -167K fall in LFS Employment paint a soft picture of labour demand, even if Vacancies appear to be troughing (916K vs. 910K). The rise in the Unemployment Rate to 4.2% to an extent brings it back into line with consensus views, but overall the report will only serve to reinforce expectations of a June rate cut, with attention now turning to tomorrow’s CPI, expected to see headline fall to 3.1%, Core dropping to 4.1% y/y from 4.5%, and Services remaining high but easing to 5.8% from 6.1%.

** China – Q1 GDP and March activity indicators **

– The better than expected 1.6% q/q 5.3% y/y Q1 GDP was heavily undermined by the sharp drop off in March activity indicators, and continued desultory property sector readings. Perhaps most alarming and still strongly indicative of a lack of confidence was the post LNY setback in Retail Sales (3.1% y/y vs. expected 4.8%), with the soft Industrial Production (4.5% y/y vs. expected 6.0%) probably testament to weak prices / margins as inventories continue to build. The strength of Fixed Asset Investment (4.5% y/y vs. forecast 4.0%) at least shows that measures to boost infrastructure spending have a great deal of traction, but the yawning gap between Public FAI (7.8% y/y) and Private (0.6% y/y) begs the question about the medium term sustainability of this GDP upturn, given the dearth of private sector demand. As for the Property sector, there remains no light at the end of the tunnel, with Home Prices posting their largest fall in 9 years, and Sales and Investment remaining in a deep slump, with the 22% fall in Cement Output only adding to the impression that a turnaround is a very distant prospect.

** U.S.A. – March Industrial Production, Housing Starts **

– In stark contrast to China, yesterday’s US Retail Sales (beating expectations and with upward revisions to February) served as another reminder that there is as SF Fed’s Daly noted yesterday simply no urgency to cut rates, as we have long argued. Today’s Industrial Production are expected to confirm that the manufacturing sector is regaining some traction with a 0.4% m/m headline rise and Manufacturing Output slowing to 0.2% m/m after surging 0.8% in February. Following on from a steady NAHB reading, Housing Starts are likely to see a mean reversion of -2.4% m/m after surging 10.4% in February, but in SAAR terms broadly in line with longer term averages at 1.485 Mln.

** Canada – March CPI **

– Following on from last week’s BoC signalling a greater willingness to consider a June rate cut, today’s headline CPI is forecast to show a largely energy price driven rise of 0.7% m/m, to edge the y/y rate up to 2.9%, while core measures are seen sustaining last month’s unexpected drop at 3.0% y/y (Median) and 3.2% (Trimmed Mean). Details will remain key, above all Housing/Shelter which remains very sticky, and very much a concern for the BoC, with seasonal upward pressures on clothing and recreation also likely to be key contributors to the m/m rise. What the BoC will be examining closely will be whether disinflationary trends are broadening, and this will be key to prospects for and end Q2 rate cut.