Macroeconomics: The Day Ahead for 19 January

  • Focus on ECB minutes and speeches from Brainard, Lagarde and Schnabel; digesting UK RICS House price slide, unexpected Australia Employment drop, Japan Trade; awaiting US Housing Starts, Philly Fed Manufacturing & Jobless Claims, and Canada Teranet House Prices; Norway & Turkey rate decisions; Netflix and P&G headline US earnings; France, Spain and US to auction debt
  • ECB: minutes likely to underline very hawkish message from ECB speakers
  • US Housing Starts seen posting further drop, as mortgage rates and high prices continue to weigh
  • US Philly Fed Manufacturing: modest bounce expected, but street whisper likely skewed to downside following NY Fed survey plunge
  • US Debt Ceiling not seen as a problem, but there are risks


Yesterday’s flow of data, contrasting stubborn inflation in the UK and the Eurozone with the weak US Retail Sales (in part due to the weaker CPI), Industrial Production and larger than expected headline PPI drop sets the tone for the rest of the week. It puts the ECB minutes, along with speeches by Fed’s Brainard, and ECB’s Lagarde and Schnabel front and centre today, with the run of data likely to be subordinated. There are the slide in the UK RICS House Price survey, weak Australia Unemployment and Japan Trade data to digest, with US Housing Starts Philly Fed Manufacturing & weekly Jobless Claims, and Canada Teranet House Prices ahead. Outside of the ECB minutes, Norges Bank to expected to hold rates at this week’s meeting, but hint strongly at one further rate hike by the end of Q2, while overnight Bank Indonesia hiked rates 25 bps to 5.75% as expected but also signalled an end to the rate hike cycle, but Bank Negara Malaysia unexpectedly held rates at 2.75%, against expectations of a 25 bps hike. Turkey’s TCMB is seen holding again at 9.0%, and the BoE publishes its Bank Liabilities & Credit Conditions surveys. In terms of corporate news, there are BHP’s Q4 production report to digest along more with earnings, headlined by Netflix and Procter & Gamble in the US. There are multi-tranche auctions from France (mediums and I-L) and Spain, while the US sells 10-yr TIPS. Markets will probably choose to ignore the fact that the US will hit its ‘debt ceiling’ today, particularly as Treasury Secretary Yellen has suggested that with mitigating actions, it is unlikely to be a problem until June, and by that point assume the necessary legislation will have been passed, as has been the case since the last genuine related debacle in 2011. The latter assumption has a good deal of logic to it, though the enormous difficulty in electing House Speaker McCarthy, and the concessions that he had to offer as a quid pro quo to the fiscal hawks who were opposing him, in return for their support, suggest that it may still become a problem.

The December ECB minutes will be scrutinized for some clues about the size of hikes in February and March, as will the numerous number of ECB speakers at the Davos WEF. Of particular note within the minutes will be what persuaded the hawks to back down from demanding a further 75 bps rate hike in December, with Lagarde’s comment that rates will increase at a “steady pace” perhaps indicating perhaps offering a clue that a steady pace of 50 bps hikes through to the March meeting, barring unforeseen development, was the compromise. Villeroy’s comments yesterday that Lagarde’s ‘guidance’ of two further 50 bps hike in Q1 ‘remains valid’, and Rehn’s saying that ‘significant’ rate hikes are warranted, along with the confirmation of a fresh high of 5.2% for Eurozone December core CPI, suggest that the ECB is no mood to relent on its hawkish message.

Following on from the dead cat bounce in the US NAHB Housing Market Index, which broke a run of 12 consecutive m/m falls, today’s Housing Starts are seen down 4.8% m/m to a SAAR pace of 1.358 Mln, which is weak, but by contrast to the NAHB index still at the low end of average. High mortgage rates and poor affordability will continue to weigh, and there is little sign of any reprieve in the near term. Weekly Jobless Claims are seen rising to a still very low 215K, while expectations for the Philly Fed Manufacturing are doubtless skewed to the downside of a forecast uptick to -11.0 from December’s -13.7, given the steep fall in the equivalent NY Fed survey, though they are very poorly correlated.

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