Macroeconomics: The Day Ahead for 7 February

For all that there are a good number of data points of interest, the focus remains squarely on central banks, with the as expected RBA 25 bps rate hike to digest ahead of a raft of Fed, ECB, BoE and BoC speakers, headlined by Powell, with the minutes of last week’s Brazil BCB meeting also likely to attract attention. Statistically: UK BRC Retail Sales, German Industrial Production, French and Australian Trade featured overnight, with Taiwanese Export Orders and US and Canada Trade, and US Consumer Credit ahead. A busier day for govt bond sales has UK 4-yr, German I-L, Austria 10 & 17-yr and US 3-yr, while the earnings schedule has Carlsberg, Linde and Monte dei Paschi di Sienna in Europe, while the US is likely to see Carlyle, Chipotle, DuPont, KKR and Prudential Financial among the highlights. German Industrial Production was much weaker than expected with a steep, mostly weather related -8.0% m/m slide in Construction accounting for some of the weakness, but more ominous as a signal on future output was the -5.8% m/m drop in Intermediate Goods Output.

With the wisdom of hindsight on last week’s Fed meeting and press conference, the FOMC would have had sight of Friday’s payrolls, thus Powell’s comment that the Fed and markets had a difference of opinion on the rates and economic outlook, and ‘we will see who is right’ was a case of letting markets do what they do, knowing that the misplaced euphoria in reaction to the Fed meeting would prove short lived. In light of Bostic’s (generally quite dovish) comments overnight that rates may have to rise more than the December forecast, it will be interesting to see if there is any shift in tone from Powell when he speaks today, relative to Wednesday’s press conference. In that vein, the RBA rate hike overnight and Lowe’s comment that: “The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary” also puts paid to the market notion of just one more hike after today’s move. In truth, the run of inflation data in recent weeks should have put that idea to bed a few weeks ago, and as much as the housing downturn is creating a serious headache for many local households, the RBA is likely to be not that unhappy that excesses in the sector (consumer and banks) are being corrected, and for the time being, do not present a serious threat to financial stability.