Macroeconomics: The Day Ahead for 21 April

A much busier day in terms of data and events awaits, though much of the statistical schedule – Korean Exports; Australian Retail Sales; UK, Canada and South Africa CPI, Polish Employment, Production and PPI – may end up being little more than statistical roadkill, and perhaps the seemingly incessant drift down in US MBA Mortgage Applications (down in 9 of the past 10 weeks) should actually get more attention. While there are numerous BoE speakers, it will probably be the Bank of Canada policy meeting which attracts most attention. US Q1 corporate earnings sees two of the major oilfield services players – Baker Hughes & Halliburton – topping the schedule, with Verizon also due, and the overnight report from BHP rounding off this week’s run of major mining company Q1 reporting production. Govt bond supply comes via way of UK 14-yr, German 20-yr and US 20-yr.  Markets are once again tripping up on the reality check of a renewed surge (India) in or high levels of infection rates in many countries, in part also a reflection of overstretched valuations in many risk assets, even if the drop in long-term govt bond yields this month should mitigate the scale of the move, and doubtless prompt the usual Pavlovian ‘buy the dip’ reaction. It should be added that the hyperbole being applied to these setbacks borders on the preposterous, though doubtless a reflection that most are aware that valuations are the Achilles heel, as well as the continued propensity for ‘wishful seeing’ and ‘wilful blindness’. Last but not least, the latest opinion poll in Germany showing support for the CDU/CSU plunging 6 points to just 21%, the SPD dropping to 13% – i.e. leaving support for the current ‘grand coalition’ of ‘people’s parties’ (Volkspartei) on 34%, while support for the Greens surged to 28% underlines that the seismic change going on in German politics, which will have very broad ramifications for the EU and for the Euro.

** U.K. – March CPI, RPI & PPI, February ONS House Prices **

– CPI and RPI both turned out a tad weaker than expected at 0.3% m/m, with energy and to a smaller extent clothing pacing the m/m rise, but with CPI at just 0.7% y/y, core CPI at 1.1% and RPI at 1.5% y/y, the BoE will hard be trembling in its boots, even if base effects will deliver a much larger boost to y/y rates in coming months. However, it is the PPI data which requires some scrutiny, above all as it is rather more forward looking, with Input Prices jumping a further 1.3% m/m to take the y/y rate up to 5.9%, and Output prices displaying some evidence of pass through with a 0.5% m/m rise for a still very well contained but higher 1.9% y/y. To be sure, energy prices account for much of the pressure, but as the earnings reports from consumer behemoths Coca Cola and Procter & Gamble yesterday underlined that they would be passing through rising costs, PPI measures (everywhere) will require much closer attention to try and get an idea of how much pass through is actually emerging. Be that as it may, perhaps more attention should be paid to the latest ONS House Prices later this morning, which are projected to accelerate to 8.0% y/y, boosted above all by the stamp duty holiday, as well as low mortgage rates (though availability is anything but even). For a country with a long standing shortage of urban housing, which successive governments have not even vaguely started to address (for fear of seeing house prices fall); where for the majority in the densely populated South East affordability has long evaporated, both to purchase and indeed to rent, this is another totem to the long list of chronic and longstanding home-made structural weaknesses in the UK economy, exacerbating already chronic inequality trends.

** Canada – BoC rate decision **

The BoC is expected to hold rates at 0.25%, and underline that with still plenty of labour market slack, that it is unlikely to hike rates before 2023, and like other G7 central banks emphasize that an anticipated uptick in inflation will prove transitory (today’s CPI are expected to see headline tick up to 2.5%, but core measures to remain around (Median/Mean) or below (Common Core) target). It will nevertheless sound an upbeat note on the growth outlook, with the consensus looking for 5.8% y/y in 2021 as a whole, with Q2 seen slowing to 3.7% due to lockdown measures, after an anticipated 5.6% in Q1. The latter will be offered as the rationale for slowing the pace of govt bond purchases to C$3.0 Bln (perhaps more) weekly pace from the current C$4.0 Bln, and put the BoC at vanguard of G-10 central banks of starting to tiptoe away from pandemic related liquidity provisioning.