Macroeconomics: The Day Ahead for 17 January

  • China data deluge and UK Retail Sales dominate statistical schedule, final Eurozone CPI and US Housing Starts ahead; financials and first batch of real economy US corporate earnings, smattering of ECB speakers as markets hunker down for Trump inauguration on Monday

  • U.K.: big fall in food sales offsets strength in auto fuel and rebound in clothing & footwear; consumers still very cautious despite the rise in real wages; reinforces case for more 2025 BoE rate cuts than market is discounting

  • China: quarterly GDP accelerates as expected, monthly data underline very lopsided economy, as Industrial Production and Trade pace expansion, while Retail spending remains tepid

  • China: some small chinks of light in property sector data, but still a long road ahead to eliminating sector drag on growth

EVENTS PREVIEW

The run of China Q4 GDP and monthly activity indicators dominates the day’s schedule, with UK Retail Sales, Singapore Exports and Malaysia also be digested, ahead of final Eurozone CPI and US Housing Starts and Industrial Production. There are a number of ECB speakers, the Bank of Canada will publish its Review of Pandemic-Era Policy Measures, while more US banks feature on the earnings schedule along with Fastenal, Kinder Morgan and Schlumberger (aka SLB). Next week’s schedule will be dominated by Trump being inaugurated as President on Monday, and what will fly off his desk in terms of executive orders and policy initiatives will be the initial focal point. In what some might see as either ironic, or potentially prophetic, the US is also facing a bout of arctic weather next week. The Bank of Japan holds a two day policy meeting at the end of the week, at which it will also update its economic forecasts, with the inflation forecast seen revised higher, and as a consequence many expect a further 25 bps rate hike to 0.50%. Statistically the schedule is quite light with G7 and India ‘flash’ PMIs and various other surveys on tap along with UK Unemployment, Wages and PSNB budget data, US Existing Home Sales, Japan Trade and National CPI, Canadian CPI and BoC Q4 Business Outlook survey, and South Korea Q4 GDP. The unedifying spectacle that is the Davos World Economic Forum takes place, while China’s monthly Loan Prime Rate fixings are seen unchanged, and Turkey’s TCMB is expected to cut rates by a further 260 bps to 45.0%. The Q4 earnings season picks up pace, with the US looking to more financials (i.a. American Express) and the likes of Alcoa, American Airlines, Freeport-McMoRan, General Electric, Johnson & Johnson, Netflix and Procter & Gamble.

** U.K. – December Retail Sales **

– Retail Sales rounded off a week of good news on inflation, and poor news on growth by missing forecasts, posting a drop of -0.3% m/m, with Auto Fuel and Clothing & Footwear strength (the latter reversing a sharp fall in November) mitigating some of the large drag from Food (-1.9% m/m). It left Q4 Retail Sales volumes down by 0.8%, which according to ONS estimates will deduct around 0.04 ppts from Q4 GDP. This paints a rather bleak picture of private consumption, and flies in the face of the oft stated view that the rise in real wages would help to boost consumer spending. As with the rest of the week’s UK data, it strengthens the case for a February rate cut, and makes four 25 bps rate cuts in 2025 a reasonable assumption.

** China – Q4 GDP, December activity & property data **

– Q4 GDP was broadly in line with expectations at 1.6% q/q, with the sharp upward revision to Q3 from an originally reported 0.9% q/q to 1.3% accounting for the better than expected 5.4% y/y, though overall 2024 GDP was in line with forecasts at the authorities target level of 5.0%. But the monthly continued to underline just how lopsided growth has been with a much stronger than expected 6.2% y/y rise in Industrial Production (vs. forecast of 5.4%) contrasting with a still rather tepid, though slightly better than expected 3.7% y/y increase in Retail Sales, and a rather feeble 3.2% y/y increase in Fixed Asset Investment. The targeted transition from an investment and export led economy to one led by consumption remains very elusive. The Property crisis remains the key drag, even if there were some modest improvements in New Home Prices, though still down slightly (-0.08%  m/m) and Residential Property Sales at -17.6% y/y vs. prior -20.0% suggesting that stimulus measures have at least arrested the decline, but there is still a long path ahead before the downward pull on growth from the sector is eliminated.

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