Macroeconomics: The Day Ahead for 16 January

The focus today shifts from inflation to activity data in the UK and US, with the overnight UK monthly GDP, Industrial Production, Construction Output and Trade, Australian labour report and an unexpected rate hold from the Bank of Korea, which was predicated on the ongoing political turmoil, to be digested. Ahead lie US Retail Sales, Import Prices, weekly jobless claims, and the Philly Fed Manufacturing & NAHB Housing Market surveys, along with a further tranche of US bank corporate earnings, with UnitedHealth also reporting. The Bank of England’s quarterly Bank Liabilities and Credit Conditions Surveys and Treasury Secretary nominee Bessent’s testimony to the Senate Finance Committee are the highlights on the events schedule on a lighter day for central bank speakers. A lighter day also for govt bond supply sees Spain holding a multi-tranche auction of longer dated debt. Q4 Cocoa grindings data for Asia, Europe and North America feature for commodities, along with the EIA’s weekly Natural Gas S&D report. Yesterday’s sharp about-turns in FX, rates and bonds are a reminder of just how fluid and fickle market expectations, and a reminder that with G7 central banks still scaling back the size of their balance sheets, underlying excess liquidity is continuing to be eroded, and exacerbating overall poor market depth in many asset classes, per se a recipe for more persistent volatility.

** U.K. – November GDP & activity data **

– Following on from the better than expected CPI, and comments from BoE’s Taylor advocating for four rate cuts in 2025, today’s run of monthly GDP and activity data will only serve to bolster the case for a rate cut in February. GDP proved to be marginally weaker than expected at 0.1% m/m, which suggests that Q4 GDP will likely be at best flat. Weaker than expected Industrial Production & Manufacturing Output were the soft spot, though 0.1% m/m increase in the Index of Services also attests to a very sluggish economy, while Trade made a marginally positive contribution on the month after a number of months of being a drag on growth. Overall the data does not fundamentally alter prospects for a flatlining economy.

** U.S.A. – December Retail Sales, Import Prices **

– Retail Sales are seen up 0.6% m/m headline thanks to the rise in Auto Sales, with core measures also seen up a solid 0.4% m/m, on the back of holiday season purchases, which anecdotal evidence suggests were robust. Reaction to yesterday’s marginally better than expected CPI looked somewhat overdone, even if this was probably mostly due to an overly pessimistic market Fed rate cut expectations, i.e. primarily a burst of short-covering. Today rounds off this week’s run of inflation indicators with Import Prices seen down -0.1% m/m, largely reflecting lower energy prices and USD strength, though likely to be offset by strength in imported airfares, as per the surge in PPI passenger air services, with the ex-Petroleum measure seen up 0.1%. If forecasts are correct, then the run of inflation data this week would confirm FOMC views that the disinflationary trend has stalled, even if the feared renewed upturn was not in evidence. Yesterday’s unexpectedly sharp drop in the NY Fed Manufacturing (-12.6 vs. expected 3.0, prior 0.2) only reinforces the view that this survey is far too volatile and erratic to offer any meaningful insights into sector trends, with the rather more reliable Philadelphia Fed reading due today and expected to rebound to -5.0 after skidding to -16.4 in December. Meanwhile, the NAHB Housing Market Index is expected to dip by 1 pt to 45 as headwinds from higher mortgage rates (yesterday’s MBA 30-yr contract rate rising 10 bps to 7.09%, the highest since May 2024) offset home builder optimism that the incoming Trump regime will ease regulatory burdens.