Macroeconomics: The Day Ahead for 21 February

A much busier day awaits as the US and Canada return to the fray of markets, with an array of surveys headlined by flash PMIs dominates the data schedule, with the UK PSNB budget data to digest ahead of Germany’s ZEW survey, Canadian CPI and Retail Sales, and US Existing Home Sales and Philly Fed Services index. On the central bank front, the February RBA minutes were hawkish but offered nothing more than the Statement on Monetary Policy had already made clear, with only Riksbank speakers scheduled at the time of writing. But German Economy Minister Habeck’s speech on domestic industrial capacity in the context of energy reforms will be of particular note, as the energy crisis threatens to hollow out the industrial might of Deutschland AG. It follows on from his speech yesterday outlining power market reforms, which set out the aim for 80% green power by 2030, with Habeck quipping “Creating alternative baseload will be a specific challenge. In a way, it will be like teaching an elephant how to dance.” Putin also holds his first ‘state of the nation’ speech in early two years, as the first anniversary of the Russian invasion of Ukraine looms, and on the same day that China’s top diplomat Wang Yi visits Russia. US retailers Home Depot and Walmart are the headliners in terms of corporate earnings, with results also due from Chesapeake Energy, Coinbase Global, Molson Coors and homebuilder Toll Bros. In the agricultural commodity space there are the UK NFU annual conference and Grain Forum Dubai, while govt bond supply takes the form of German 5-yr, UK 6-yr and US 2-yr.

** U.K. – January PSNB **
An unexpected PSNB ex Banking Groups surplus of £5.4 Bln against forecasts of an atypical deficit of $7.8 Bln, was paced by a jump in Income & Capital Gains tax receipts, and a sharp rebound in VAT receipts, and brings some welcome relief to the UK’s beleaguered public sector finances. Self-assessment Income Tax receipts stood at a January record £21.9 Bln, sharply higher than January 2022, though problems with submissions in 2022 made for a flattering base effect. Nevertheless, a sharp rise in I-L Gilt interest payments and the payment of £10.0 Bln in energy subsidies serve as a reminder that reducing the budget deficit is not going to be plain sailing.

** G7 – February Flash PMIs **
Forecasts for today’s busy run of surveys (PMIs, CBI, ZEW) assume a general improvement vs. January across the board, whereby outside of France manufacturing PMIs are still seen below 50.0, while Services readings are seen above in the Eurozone, but below in the UK and US, the latter perhaps having some upside potential given the strength of the rebound in the Services ISM, even if the US PMIs are often seen as an inferior proxy for US economic activity to the ISM indices. A close eye will be kept on PMI price indices, after other surveys have suggested some renewed, if modest pressures, but overall underlining that central banks are going to be very cautious on declaring victory in their inflation battle, as per Fed’s Barkin last week: ‘what you see is progress, but slow progress, you don’t see victory’.

** Canada – Jan CPI, Dec Retail Sales **
Today’s Canadian data run will get a lot of scrutiny, given that the BoC has gone out on something of a limb relative to other G10 central banks by already signalling a pause in rate hikes. CPI is seen rebounding 0.7% m/m, mostly due to energy prices, but given base effects this would still see a y/y dip to 6.1% from 6.3%, while core measures are seen edging down 0.1 ppt to an average of 5.1%, indicating core inflation remains stubbornly high. Meanwhile, Retail Sales are forecast to rise 0.5% m/m headline thanks to strong Auto Sales, but dip a further 0.1% m/m ex Autos after falling -0.6% in November, and standing in contrast to the robust outturn south of the border.