Macroeconomics: The Day Ahead for 7 December

  • Digesting China Trade, Australia GDP, German Industrial Production and RBI rate decision; awaiting final Eurozone GDP and US Non-farm Productivity; busy day for central bank rate decisions, with focus on Bank of Canada; smattering of central bank speakers
  • China Trade: much worse than expected as Zero Covid measures and softening foreign demand bite; easing of Covid restrictions to only provide passing boost, with property sector support measures unlikely to offer boost well into 2023
  • Canada rate decision: market expectations divided between 25 bps and 50 bps hike, BoC likely to water down hawkish rhetoric, but stress that tightening bias remains

EVENTS PREVIEW

A busy looking data calendar has rather less to it than meets the eye, with China’s much worse than expected monthly Trade data and Australia Q3 GDP to be digested along with German Industrial Production (better than expected thanks to Construction, though energy output plunged, and Manufacturing & mining contracted), Swedish monthly GDP (much better than expected, but Household Consumption fell), French Trade and Italian Retail Sales, while ahead lie final Q3 Eurozone GDP and US Non-farm Productivity. A bumper day for central bank policy meetings has the expected RBI rate hike and clear signal of some further tightening to mull over, ahead of expected rates hikes from Canada’s BoC and Peru’s BCRP, and no change decisions from Poland’s NBP and Brazil’s BCB. There is a smattering of ECB speakers, while oil markets look to the EIA weekly inventories report, and the UK sells 9-yr I-L Gilt.

** China – November Trade data **

The much sharper than expected falls in both Exports (-8.7% y/y) and Imports (-10.6% y/y) effectively underline why China is loosening some of its Zero Covid measures, but this is only likely to give a passing boost. Much of the weakness is down to weakening foreign demand, as well as the well documented sluggishness in domestic demand, with the only bright spots in import terms being oil and gas, paced by demand from refiners as refined product export quotas were raised, and stock piling of gas ahead of winter. Some of the weakness in agricultural imports (above all Soybeans) was down to disruptions to US exports due to Mississippi water levels, and this should see some recovery as demand has picked up on improving domestic crush margins. But any recovery in coming months is likely to be both patchy as the roll-back of restrictions will be gradual, and the benefits of recent support measures for the ailing property sector will not be felt until well into Q2.

** Canada – BoC rate decision **

The majority of economists look for a 50 bps hike to 4.25% from the BoC, bringing the cumulative total for 2022 to 400 bps, but there is a sizeable minority looking for just 25 bps. The latter group are taking the view that the BoC will want to maintain a modest tightening bias and expect a further 25 bps in January, while the majority expect the BoC to tentatively signal a pause to assess the cumulative impact. Inflation remains elevated at 6.9% y/y headline, but down substantially from a June peak of 8.1%, though average core CPI is still only modestly below its recent peak at 5.4% y/y. At its October meeting it did signal heightened concern about the slowdown in consumer spending (Q3 Household Consumption -1.0% q/q & Q3 Final Domestic Demand -0.6% q/q), though overall Q3 GDP was a good deal stronger at 2.9% SAAR than the BoC was forecasting. But with House Prices in free fall (see chart) and Q3 Housing Investment posting a further SAAR drop of 15.4% following Q2’s -31.5%, the BoC will now be wary of the lagged effects of its aggressive rate hikes this year. That said the labour market remains very tight, given that it would be premature to suggest that the tepid 10K rise in November Employment was a clear signal of labour conditions loosening, given that this followed an outsized 108K increase in October. Whatever the outcome, the BoC will be very keen to stress that even if it were to pause, there could still be further rate hikes, and a pivot to lower rates was not on the cards in 2023.

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