Macroeconomics: The Day Ahead for 18 January

  • Digesting UK labour data ahead of run of surveys (ZEW, NY Fed, NAHB) on  data light schedule; OPEC Oil Market and EIA Drilling Productivity reports  in focus for oil markets; gaggle of central bank speakers; financials  again dominate US earnings; UK, German and Finnish debt auctions
  • UK: solid labour data leave market little choice but to discount February  BoE rate hike, with focus shifting to potential BoE balance sheet reduction
  • Germany ZEW: Expectations seen edging back up, mirroring Dax; current  conditions seen dipping again, as incoming data offers few hints of  accelerating growth momentum
  • US NY Fed: setback to still robust level expected; focus on Supplier  Delivery Times, Prices and Employment clues on Omicron impact: solid  demand, low inventories expected to keep NAHB Housing survey high
  • Charts: Brent Crude longer-term, US 2-yr and US 2/10yr spread; Fed  reverse repo volume

EVENTS PREVIEW

A relatively data light day has the UK labour data for November/December to digest, while ahead lie Germany’s ZEW survey, while the US looks to NY Fed Manufacturing and NAHB Housing surveys. A busier day in terms of events as the as expected no change from the BoJ and forecast upgrades are digested ahead of a gaggle of central bank speakers, and the monthly OPEC Oil Market and EIA Drilling Productivity reports. Goldman and BoNY Mellon top the run of US corporate earnings, while there are debt auctions in the UK (7-yr), Germany (5-yr) and Finland (4-yr). In terms of the BoJ, the upward revisions to its FY22 and FY23 CPI forecasts by 0.2 and 0.1 ppts respectively to a still paltry 1.1% y/y essentially render the pre-meeting chatter about a potential signal that it is working to end its ultra-easy monetary policy at some point in the not too distant futures as nothing more than idle speculation.

 

** U.K. – Nov/Dec labour market reports **

– As was anticipated, this was another solid labour market report, with a further relatively sharp fall in the Claimant count (-43K, with Nov revised to a much larger 95.1K from -49.8K, mirroring a persistent improving trend in revisions); HMRC Payrolls were stronger than expected at +182K (vs. f’cast 130K), though November was revised sharply lower to 162K from 257K. The less timely ILO and LFS data were a mixed bag with Employment weaker than forecast at 40K, while the Unemployment Rate dropped to 4.1% vs. a forecast of 4.2%. But it is the sky high levels of Vacancies (>1.4 Mln) which is on the one hand impressive from a labour demand perspective, but underlines a chronic level of skills shortages (as well as a reminder that employees are no longer  willing to accept what are now perceived as unattractive working conditions, above all inflexibility on Working From Home), and it is that skills mismatch which potentially could prove to be a major impediment to the growth outlook. Be that as it may, the fact that last week’s GDP data signalled a stronger near-term growth momentum, and per se encouraging the BoE to look through any Omicron induced slowdown in December/January, which this solid labour report will only reinforce, and thus suggests a further 25 bps rate hike to 0.50% in February. The level of Base Rate would obviously remain negligible, but the BoE has signalled it will consider reducing reinvestment of maturing Gilt holdings at this level, which will be the focal point in market terms; as with the Fed, the question is how aggressive will any quantitative tightening be?

 

** Germany – January ZEW survey **

– As is very typical the Expectations index is expected to recover modestly to 32.0 from December’s 29.9, predicated on a bounce in the Dax since the last survey, and nothing more and with the risk skewed modestly to the upside given that the last survey was taken close to the December lows. Meanwhile the slightly more informative Current Conditions index is seen edging down to -8.8 from -7.9, with the run of incoming data confirms inflation pressures remain high, some disruption from the Micron variant given a rebound in Short-time workers, and little to cheer in terms of incoming data.

 

** U.S.A. – January NY Fed Manufacturing and NHAB Housing Markets surveys **

– The consensus looks for a setback in the NY Fed survey to a solid 25.0, after unexpected strength in the headline index in December (31.9). There were many that jumped all over the December’s details that suggested easing supply chain problems, (Supplier Delivery Time down sharply to 23.0 from 32.2 and 38.0 in prior months) and a very marginal slip in Prices Paid, though Priced Paid dropped by a slightly larger margin. But the December survey did not capture much in the way of Omicron disruptions, which will be the focal point for today’s survey. The housing market continued to see buoyant demand and very low inventories, as such it is no surprise that the NAHB survey is expected to be unchanged at a very strong 84.

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