Macroeconomics: The Day Ahead for 16 February

The barrage of central bank speakers (RBA, ECB, BoE, Fed and BoC) today may well overshadow the run of data, which has Japan’s Trade record Trade deficit and Machinery Orders, China New Home Prices (eking out first small gain in a year), Australian labour data (weak for a second month) and Consumer Inflation Expectations (still high but falling) to digest, with US PPI, Housing Starts, Philly Fed Manufacturing & NY Fed Services surveys and weekly jobless claims ahead. Nestle tops the run of corporate earnings, above all from the aspect of how it intends to continue to pass through increased costs to consumers, along with Centrica, Commerzbank, Repsol and Standard Chartered in Europe, while North America looks to Agnico Eagle Mines, Fortune Brands, Hasbro and Iamgold. Govt bond supply takes the form of medium dated conventionals and OATeis in France, Spanish 4, 6 & 9-yr and US 30-yr TIPS. Equity and risk assets reaction to yesterday’s run of strong or solid US data underlines the point that markets’ risks appetite has at most been dented, rather than holed below the waterline by the recent re-pricing of Fed rate expectations, and that FOMO is not dead by any manner of means. This is perhaps most visible in USD Credit spreads, which are at the levels they were when the Fed first started tightening – see chart, which sits very uncomfortably with the continued deterioration in earnings, and earnings outlooks.

** U.S.A. – January PPI & Housing Starts, Feb Philly Fed Manufacturing **
Following on from the slightly higher than expected CPI and the very robust rebound in Retail Sales, US PPI is expected to see upward pressure from energy prices with a headline rise of 0.4% m/m, though the core ex Food, Energy & Trade measure is seen up just 0.2% m/m, but thanks to strong benign base effects, y/y rates are expected to fall to 5.4% (-0.8 ppt) and 4.0% (-0.6 ppt) respectively, and continue to point to easing pipeline pressures overall, though the Fed will above all be focussed on Services PPI, which has been subdued for a number of months (last 0.1% m/m 5.0% y/y). That said, it will also look to the Philly Fed survey, with the headline seen marginally better but still weak at -7.5 from -8.9, particularly Prices Paid and Received, which rebounded quite sharply in yesterday’s NY Fed Manufacturing survey. Yesterday’s sharper than expected rebound in the NAHB Housing Market Index (42 vs. exp. 37 and January 35) offers a glimmer of hope that the housing sector is stabilizing, though the sharp reversal in MBA Mortgage Applications (-7.7% wk/wk) suggests caution is the watchword, after the rebound in mortgage rates. Today’s Housing Starts (very much a lagging indicator for the sector) are seen falling -2.0% m/m to a still reasonable 1.355 Mln SAAR pace. Weekly Jobless Claims are also due, with a marginal 4K uptick to a still very low 200K anticipated, and following on from some very premature market chatter about easing labour market conditions, it would be wiser to reserve judgement in reaction to a sharper than expected rise, particularly as the recent fall owed much to seasonal adjustment quirks resulting in artificially low readings.