Macroeconomics: The Day Ahead for 30 January

  • ECB meeting and rash of Q4 GDP readings dominate schedule, as Apple heads busy run of US and European corporate earnings; digesting Spanish CPI, UK credit and mortgage aggregates, US jobless claims and Pending Home Sales, South Africa rate decision also ahead

  • Eurozone Q4 GDP: risks to the downside of consensus after France and Germany miss, and despite Spain jump

  • ECB: rate cut pretty much baked in the cake, and signal of more to come given downside growth risks, Lagarde likely cautious on outlook given divisions on council

  • US Q4 GDP: trade set to weigh very heavily on headline after Import surge, but Final Sales to Domestic Buyers to remain very robust

EVENTS PREVIEW

Q4 GDP data from the US, Eurozone, Mexico, Philippines and Saudi Arabia dominate a busy statistical schedule, as markets await the ECB policy meeting, in the wake of yesterday’s FOMC meeting, while Apple is the highlight of another raft of US corporate earnings. There are also Spanish CPI, UK credit and mortgage aggregates, EC Confidence surveys, US weekly jobless claims and Pending Home Sales, and Canada’s CFIB Business Barometer, while South Africa’s SARB is expected to cut rates a further 25 bps to 7.50%. Further earnings highlights include BT, Deutsche Bank, Roche, Sanofi and Shell, with Glencore’s Q4 production report also to digest, while across the pond Altria, Caterpillar, Ciogna, Intel, Mastercard, Pulte Group, UPS, US Steel and Visa will likely grab some of the headlines.

 

** USA/Eurozone – Q4 GDP **

Spain is going lead the way by a very large margin in the Eurozone at 0.8% q/q, as France posted an unexpected -0.1% q/q, though domestic demand rose 0.3 % q/q with inventories (-0.1 ppt) and Net Exports (-0.2 ppt) accounting for the headline fall; by contrast the slightly larger than expected -0.2% q/q fall in German GDP merely confirms what other monthly indicators have suggested, German industry is in structural decline, and it’s export machine is by extension no longer providing a boost, while domestic demand is weak due to job uncertainty and high energy costs. The rest of today’s readings expected to see Eurozone and Italy up 0.1% q/q, though the declines in France and Germany imply the Eurozone reading will be not better than flat, especially given the already reported reversal of Q3 strength in Ireland. By contrast US Q4 GDP data is expected to show the economy slowing modestly to 2.6% SAAR (0.7% q/q), lead again by Personal Consumption at 3.2%, though this week’s run of Durable Shipments (much stronger than expected at 0.6%), Wholesale & Retail Inventories (both contracting against forecasts of a rise), and above all the unexpectedly sharp widening in the Goods Trade deficit to $-122.1 Bln, paced by a surge in imports (Capital and Consumer Goods, along with Food) and a drop in exports suggest scope for a downside outlier on GDP, even if Final Sales to Domestic Buyers proves to be solid though slightly slower than the 3.7%, 3.4% and 3.5% in prior quarters of 2024.

 

** Eurozone – ECB policy meeting  **

The ECB is expected to cut the Depo and Refi rates by 25 bps to 2.75% and 2.90%, and maintain its stance that further rate cuts are likely, but will remain data dependent. It will express some confidence that inflation will continue to converge to the 2.0% target, but above all stress the downside risks to growth evident in today’s French and German GDP, and the threat of US tariffs going forward. As with Powell’s rather non-committal message at yesterday’s FOMC meeting, Lagarde will probably opt to paper over the crack on the council about where the ‘neutral’ rate is, and indeed whether rates will do much to stimulate the Eurozone economy, given a failure to agree a more co-operative energy policy at EU level, and the political vacuums in France and Germany impeding any chance of much need fiscal stimulus and legislative measures to boost their respective economies.

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