Macroeconomics: The Day Ahead for 20 December

** PLEASE NOTE: this is the final edition of this “Good Morning” update for 2024.**

We wish all our readers a wonderful holiday season, and a happy, healthy and prosperous 2025.

  • UK Retail Sales and Japan national CPI to digest ahead of US Personal Income/PCE and Canada Retail Sales as trading winds down for the year; Russia and Colombia rate decisions

  • UK: tepid rebound in Retail Sales underlines weak underlying trend, even if some of weakness attributable to Storm Bert

  • USA: Personal Income and PCE set to echo hourly earnings and Retail Sales, very average m/m rise in deflators as base effects set to push y/y rates higher

EVENTS PREVIEW

Markets are now on full wind down ahead of the holiday season and year end, and with the major central bank meetings in the rear-view mirror, the primary incentive will be to scale back exposures ahead of thin trading conditions, and wait for the New Year. The data schedule is quite busy, with UK Retail Sales and PSNB Budget data to digest ahead of Italian confidence surveys, Canadian Retail Sales, US Personal Income, PCE and final Michigan Sentiment. As expected, China’s 1 and 5-yr Loan Prime Rate fixings saw rates left unchanged, while there are rate decisions in Russia and Colombia. Russia’s Bank Rossiya is expected to hike rates a further 200 bps to 23.0%, as it continues to try and curb the rapid rise in CPI, and a very weak RUB, with imbalances in the economy due to so much output and labour capacity being deployed to defence, as well as the impact of sanctions. Last but not least Colombia’s BCR is expected to cut rates by a further 50 bps to 9.25%, bringing this year’s cumulative easing to a total 400 bps, and perhaps some risk of a larger 75 bps cut, given that October’s vote was a very close 4-3, with the minority favouring a larger cut. While it is expected to signal room to cut rates further, inflation remains elevated, and increasing concerns about fiscal policy, allied with persistent COP weakness may soon curb the central bank’s scope to ease policy further. The other talking point will be a renewed failure to pass a US stop-gap funding bill, which in contrast to the prior proposal was backed by Trump, underlining that the assumption with Republicans in charge (though not currently) of Congress and having the presidency, passing legislation, above all related to the Budget and the debt ceiling, should become less problematic, is far from assured.

** U.K. – November Retail Sales **

– A tepid bounce in Retail Sales of just 0.2% m/m underscores why there were 3 dissents (all voting for a 25 bps rate cut) at yesterday’s MPC meeting. While food sales staged a recovery, weakness in clothing sales offset much of this. Some of the weakness may be attributable to Storm Bert, but the underlying trend remains sluggish, and touting the rise in real disposable incomes (above all emphasized by the jump in Average Weekly Earnings earlier this week) misses the point that with a good deal of doom and gloom about the economic outlook being peddled by the media, above all post Budget, and the government seemingly stumbling from one mishap to another, consumers are hardly likely to feel minded to unlock their purse strings.

** U.S.A. – November Personal Income / PCE **

– While the Fed has clearly pivoted back to a greater focus on inflation, amid less (immediate) concern about the labour market, it is difficult to see how today’s data will have a significant impact on either FOMC thinking on rates, or market rate expectations. Personal Income is expected to echo the solid increase in Average Hourly Earnings at 0.4% m/m, and PCE to echo Retail Sales with a rise of 0.5%. The PCE deflators are both seen up a very average 0.2% m/m, which thanks to adverse base effects would push up y/y rates to 2.5% and 2.9%, the latter underlining the Fed’s now very cautious view on the rate outlook.

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