Macroeconomics: The Day Ahead for 22 February

The Ukraine confrontation stands front and centre following Russia’s decision to recognize the separatist regions of Donbas and Lukhansk, and deployment of military forces to these regions, with the nuances of whether these are ‘peace keeping’, or this annexation and/or occupation being totally moot. The focus is now on how disunited the Western response will be, and how decrepit the supranational security institutions such as the UN Security Council will appear. How is it even possible that an aggressor is allowed to chair an emergency meeting to decide on the aggressor’s actions? The question is then how much further Putin intends to prod at the NATO/Western disunity once Russian forces are fully deployed, in other words manufacture confrontations with Ukrainian military forces, which appears inevitable given the anger, vitriol and Hitlerian tones to his announcement yesterday. Market reaction has in truth been relatively modest (see charts attached), aside perhaps from Gold and Oil making new highs, while US and German 2 & 10-yr yields slightly lower, the Swiss Franc slightly stronger, and VIX Volatility still below 30. It is a this point debatable whether this attests to markets being relatively well hedged, or to a degree of complacency about short to medium term consequences.

But otherwise surveys once again dominate the statistical schedule with US Consumer Confidence and Germany’s Ifo Business Climate accompanied by UK CBI Industrial Trends and US Richmond Fed, with the UK PSNB Budget data to digest ahead of US FHA and CS CoreLogic House Prices. A busy day for central bank speakers has RBA’s Kent to digest ahead of BoE ‘hawk’ Ramsden (voted for 50 bps in at last meeting, and incoming data will have hardly inspired a change of thinking it would seem), Norges Bank’s Olsen, and Fed’s Bostic, with rate hikes seen in Hungary (+50 bps) and Paraguay (+25-50 bps). The corporate earnings run features HSBC and Wilmar, with retailers topping the US run: Home Depot, Macy’s, accompanied by potash/fertilizer maker Mosaic and homebuilder Toll Brothers. Govt bond supply is limited to US 2-yr, after an avalanche of Chinese local govt bond issuance overnight.

** Germany – Feb Ifo Business Climate **
– The Ifo Business Climate is expected to rise to 96.5 from January’s 95.7, paced above all by Expectations, which would fit both with the flash PMIs published yesterday, as well as the Bundesbank monthly report. The latter noted that while Q1 GDP will likely contract due to workplace attendance disruption due to the Omicron variant (thus putting Germany into a technical recession), but added that order backlogs, ‘easing supply bottlenecks and high demand’ should give a substantial boost to activity going forward. The latter is perhaps being underestimated, even if a weak end to 2021 and soft Q1 2022 leaves quite a lot to catch up with.

** U.S.A. – Feb Consumer Confidence **
– Consumer Confidence has painted a rather different picture on the consumer mood to the very depressed Michigan Sentiment, but has nevertheless been trending lower. It is expected drop to 110.0 from January’s 113.8 close to September’s recent low of 109.8, with rising inflation pressures, above all as seen through the lens of always emotive gasoline as well as food prices, rising mortgage rates and a choppy equity market are expected to outweigh solid labour demand, and this would appear to impart downside risks relative to forecasts.