Macroeconomics: The Day Ahead for 31 January

The focus may be on this week’s central bank meetings, but with a busy data schedule that could shift expectations for the Fed and ECB expectations, markets may be in for a somewhat bumpy ride. There are the array of China’s NBS PMIs, Japan and Korea Industrial Production, Australian & German Retail Sales, French GDP & CPI, along with the latest IMF World Economic Forecast update to digest. Ahead lie German CPI, UK Consumer Credit & Mortgage Lending, Indian Infrastructure Industries Output, US Employment Cost Index, FHFA and CS CoreLogic House Prices and Consumer Confidence, and the first LatAm Q4 GDP reading from Mexico. The OPEC+ Technical Committee meets, but is not expected to recommend any changes to production, and France faces another day of strikes in protest at Macron’s pension reforms. A very busy day for earnings has results from Samsung Electronics to ponder, with the resource sector focussing on Caterpillar, Exxon Mobil, Jindal Steel, Komatsu, Marathon Petroleum, Phillips 66, Tokyo Gas and Vale’s Q4 production report, while Sumitomo Mitsui Trust, UBS and Unicredit feature in terms of financials, and elsewhere AMD, General Motors, McDonald’s, Mondelez, Pfizer, PulteGroup and Western Digital. A busy day for China local govt muni issuance accompanies a new German 2-yr, and Italian 5 & 10-yr BTPs and 3-yr CCT (FRN).

** France and Germany – January prov. CPI **
Yesterday’s Spanish CPI shocker, above all the surge in core CPI to 7.5% y/y from 7.0% in December put everyone on notice that the ECB will be good to its current mantra that it will ‘stay the course’, with more modest seasonal discounting by apparel retailers, processed food prices and the end of blanket government energy price subsidies the driver. As previously noted this was always a risk with the European government subsidies above all not being accompanied by measures to dampen demand. This was also evident in France with the cap on regulated gas prices raised by 15% at the start of the year, and car fuel subsidies also being fully removed. While not unprecedented, the fact that the German statistics office has postponed the release of January CPI data until next week due to ‘technical issues’ is embarrassing; it may well down to rebasing national and state CPI data, which postponed the release of the usual run of state CPI. Be that as it may, German HICP (in contrast to Spain) had been expected to rebound 1.4% m/m, pushing the y/y back up to 10.2% from 9.6%, as the one-off gas price support payments in December unwind, and even though new measures to cap electricity and gas prices were introduced from January 1, they will have a smaller impact than the one-off payment. Tomorrow’s Italian HICP will be a similar story, but in reverse, with the base effect from last year’s 21% increase in electricity prices, and the additional downward pull from a 19.5% reduction this month exercising a big downward drag, but as with France offset by the termination of its car fuel subsidies, all of which is expected to see HICP fall 1.5% m/m, and push the y/y rate down to 10.7% from December’s 12.3%. As such, the path to much lower inflation in the Eurozone is going to be a very bumpy ride, and markets would do well not to jump all over single month changes, and keep some perspective…. the ECB certainly will not.

** Eurozone – Q4 advance GDP **
Talking of keeping perspective, the same applies to Euro area GDP data (national and Eurozone), the fact is that whether today’s GDP reading does contract 0.1% q/q as per the forecast or perhaps a little more, or even if it were to post a very unlikely +0.1% q/q, the Euro area economy is running at stall speed. The -0.2% q/q for Germany skewed the risk to the downside of the expected -0.1% q/q for the Eurozone, but should be offset by the better than expected 0.1% q/q for France, though the latter looks uglier in the details with Net Exports (due to a shaper fall in imports than exports) offsetting a big drag from a -0.9% q/q drop in Household Spending. But this is really not going to weigh much in terms of near term ECB policy decisions, indeed many ECB council members would consider an economy running at stall speed a very acceptable collateral damage in the context of what needs to be done on rates and QT to try and rein in inflation.

** U.S.A. – Q4 Employment Cost Index / January Consumer Confidence **
Coming just ahead of the FOMC meeting, and after Friday’s core Services ex-Housing Deflator (5.0% y/y) showed no signs of easing, today’s ECI will be important, with only a modest slip to 1.1% q/q vs. Q3 1.2% expected, and per se well above the Fed’ comfort zone. While Average Hourly Earnings have eased substantially (last 4.6% y/y vs. March 2022 peak of 5.6%), the Atlanta Fed Wage Growth Tracker is at 6.1%, from a peak of 6.7% in July, and is a rather better proxy for the ECI. Consumer Confidence is expected to post a further modest gain to 109.0 from December’s 108.3, with annual cost of living adjustments (8.7%) to social security payments expected to give a modest boost, along with the easing in overall inflation pressures, though the uptick in gasoline prices may act as a restraint, even if they remain much lower than last year’s peak. The latest House Price data from FHFA and CS CoreLogic are also due and are unsurprisingly expected to see further m/m falls of -0.5% and -0.7% respectively, which thanks to base effects see the CS measure decelerate even more sharply in y/y terms to 6.7% from 8.6%. The ever volatile Chicago PMI is seen little changed at 45.0, with risks to the upside of the consensus, judging by other regional surveys, though signalling contraction.