Macroeconomics: The Day Ahead for 8 December

  • Another busy looking data run, but mostly low impact: digesting UK RICS House Price survey, Japan services survey and GDP, Australia Trade; awaiting US jobless claims and Mexico CPI; central bank speakers mostly talking about macroprudential issues, focus on BoC’s Kozicki; energy markets still very much focal point of recession fears
  • US term rate structure heavily at odds with Fed rhetoric, as CPI and FOMC meeting move to centre stage
  • Energy: easing product bottlenecks bearing down on crude prices, but US crude inventories are now at multi-decade lows, as focus turns to OPEC+ response

EVENTS PREVIEW

Once again the data schedule has a busy look to it, but there are rather fewer genuine market movers, with Japan’s Economy Watchers (services) survey (unexpectedly falling back) and revised Q3 GDP, UK RICS House Price Survey (sliding sharply again) and Australian Trade to digest, and only US weekly jobless claims and Mexican CPI ahead. While there will be a good number of central bankers speaking today, the bulk of them will be speaking on macroprudential rather than monetary policy issues at the European Systemic Risk Board (ESRB) annual conference. However, BoC’s Kozicki will speak on the economy, following yesterday’s statement only BoC policy meeting hiked rates a further 50 bps to 4.25%, and may well shed some additional light on the rate hike “pause” potential that was signalled in the statement. Otherwise, the focus will remain on energy markets, above all as a recession signal, as crude prices fell again on the EIA’s report of sharp rises in US oil product inventories, and despite a drop in crude stocks, and underlining that a key prop for oil prices for much of the year has been product bottlenecks rather than crude; but as the attached chart highlights, the irony now is that it is crude inventories that are the problem now, having plummeted to a multi-decade low. The question remains whether OPEC+ will take any further action on production, as it threatened to at its recent meeting. A close eye also needs to be kept on the accumulation of Caspian oil-laden tankers unable to cross the Turkish Straits after the Turkish government demanded proof of insurance to be presented, even if this is more likely to impact physical crude markets than derivatives. With temperatures in Europe now around 5C to 10C below seasonal averages, and forecast to remain so for the next week, the focus may also shift back to Natural Gas and Power prices in Europe.

At some time there will also have to be a reckoning in US rates markets as Treasuries staged yet another sharp rally yesterday, which leaves the 2/10 yr curve inversion at more than 40-yr low of -83 bps, and the 2-yr yield at 4.23, with Fed Funds still seen peaking at 4.92 in Q2 2023, and near 50 bps of rate cuts priced for the end of 2023, despite Fed rhetoric continuing to emphasize no “pivot” in 2023. Eminently with UST yields at current levels, and so much uncertainty over economic and monetary policy outlooks, it is little surprise that there are a lot of defensive demand attractions about short-dated USTs going into year end. Next week’s CPI data, published a day ahead of the FOMC meeting will probably be pivotal, with the consensus looking for a 0.3% m/m rise for headline and core, which would see y/y rates fall respectively from 7.7% to 7.3%, and from 6.3% to 6.0%.

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ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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