Macroeconomics: The Day Ahead for 17 January

There is a busy of data to consider today despite the US holiday, with China’s GDP, acitivity and property data, Japan Machinery Orders, Singapore and Indonesia Trade (the latter three all better than expected) to digest ahead of Canada’s Manufacturing Sales, Existing Home Sales and the BoC Q4 Business Outlook Survey (key in terms of the timing of the first rate hike) along with Brazil’s monthly GDP. The events side of the equation has a Eurozone Finance Minister’s meeting and the start of this week’s (virtual) Davos World Economic Forum.

The messages in terms of Chinese news overnight were decidedly mixed, with GDP (boosted heftily by net exports) and Industrial Production beating expectations, but Retail Sales slowed very sharply to 1.7% y/y (vs. f’cast 3.7%), with the PBOC’s larger than expected 10 bps cut to its 7-day Repo and 1-yr MTLF rates and a CNY 200 Bln net liquidity injection perhaps above all underlining that the end of Q4 saw a sharp loss of momentum in the economy, which has alarmed authorities. To be sure, intermittent lockdowns and the woes of the property sector certainly account for much of that slowdown, and the combination of Beijing Winter Olympics and Lunar New Year holidays set to put a large dent in Q1 GDP. The material risk for 2022 is that as European and North American economies become less disrupted and local production recovers, then demand for Chinese exports will doubtless tail off, suggesting that the target growth rate of 5.0-5.5% for 2022 may well prove to be very challenging to achieve.  While further monetary policy easing is likely, primarily via way of further cuts of up to 100 bps in Reserve Requirement Ratios (RRR) and perhaps another 10 bps in term rates, the main point of concern for the authorities has to be the sluggishness of consumer spending, with weak labour demand (as evidenced by a rise in the surveyed Unemployment Rate to 5.1% from 5.0%) doubtless restraining household income.

RECAP:  The Week Ahead – Summary Preview: 

The new week kicks off with the US Martin Luther King holiday along with China’s Q4 GDP and December activity data, in what will be a busy week for US, China, UK and Canadian data, as well as US corporate earnings. Statistical highlights includes US NY & Philly Fed Manufacturing, NAHB Housing Index, Housing Starts and Existing Home Sale, while the UK and Canada both have CPI and Retail Sales, and the UK also sees labour data and RICS House Price Balance. Elsewhere Germany looks to the ZEW survey and PPI, France to Business Confidence, Japan awaits Trade and Australia has Unemployment. But as is all too obvious, it is the central bank narratives on the economy, inflation and policy outlooks, and a still rather foggy outlook for the world and national economies, which the latest World Bank Economic Forecasts update will likely shed more light on, than the Davos WEF meeting that takes place this week.

The Bank of Japan is expected to upgrade its growth and inflation forecasts, but leave policy rates and other measures unchanged, with a keener focus on whether it hints at a gradual end to its monetary largess as has been mooted, while the Fed goes into ‘purdah’ ahead of its 26 January FOMC meeting, China sets its monthly Loan Prime Rates, and Turkey’s TCMB is expected to keep rates unchanged after a cumulative 500 bps of rate cuts that collapsed the TRY. There are bond auctions in the US, UK, Germany, France, Spain & Finland, and in the US 40 S&P 500 companies will be reporting, as the earnings seasons slowly kicks into gear.

Politically, the tensions between NATO and Russia are escalating, in a situation which has very unfortunate echoes of the deafness and unwillingness to negotiate that preceded World War I, and as a context piece, do read this NY Times article from 1998 from Geroge F Kennan (the architect of the US’s Cold War strategy) on NATO, Ukraine and Russia (the global context may appear different, but there are enduring factors which need to be borne in mind as Kennan highlighted) https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.nytimes.com%2F1998%2F05%2F02%2Fopinion%2Fforeign-affairs-now-a-word-from-x.html&data=04%7C01%7CSimrat.Sounthe%40admisi.com%7C622df45354ae4bf6728508d9d9962343%7C2f55bf3242d444b3a8c2930ac8b182b2%7C0%7C0%7C637780061129999196%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=tH2XBcGSOXLIZtC8VwwZCL4BLJ%2B4yuKQuo0RcHsF5gE%3D&reserved=0 . There are EU and Eurozone Finance Ministers meetings, and the crisis of confidence around UK PM Johnson will remain very much in focus. While Covid-19 and the spread of the Omicron variant will continue to be a key focal point, it is the gradual shift in govt policies from treating it as a pandemic to being endemic, which has rather more profound economic and social mobility consequences, even if this is far from signalling an imminent return to ‘normal’, particularly as China and a number of other Asian countries continue to adopt outright or quasi ‘zero Covid’ policies, with obvious and well known disruptive potential.

In the commodity space, the IEA and OPEC publish their monthly Oil Market Reports, while the metals sector will be looking to Q4 production reports from BNP, Rio Tinto, Antofagasta, as well as to earnings from Alcoa and JSW Steel, and a trading update from NMLK. in the Agricultural sector, there are European quarterly cocoa grindings and US Meat Production reports. The Handelsblatt Energy Summit also takes place, with Europe’s energy crisis and energy transition the focal points.

On the earnings front, major US financials dominate the start of the week, before widening out into a broader array of sectors, with Bloomberg New highlighting the following as likely to be among the headline makers: Goldman Sachs, Morgan Stanley and Bank of America. Others include: ASML Holding, Baker Hughes, CSX, Discover, EQT, Netflix, Procter & Gamble, Sandvik, Schlumberger, State Street, SVB Financial Group, Travelers and UnitedHealth.