Macroeconomics: The Day Ahead for 8 February

For all that the statistical schedule looks busy today, there is rather little that will materially impact the overarching market theme of uncertainty about the policy and economic outlooks around the world. But there is a busy schedule of events with Biden’s State of the Union address along with the rate decision in India to digest, while ahead there are plenty of Fed and ECB speakers, rate decisions in Iceland and Poland, and the first ever set of Bank of Canada policy meeting minutes (‘summary of deliberations’). The data run has Japanese and South Korean Current Accounts, Japan’s Economy Watchers (services) survey and French Q4 Payrolls to digest and only Italian Retail Sales ahead. In the agricultural commodity space, the monthly USDA World Agricultural Supply & Demand Estimates (WASDE) is accompanied by local S&D reports from China’s Agriculture Ministry and Brazil’s CONAB, with the weekly US EIA Oil Inventories data also on tap. One particular question in terms of the WASDE will be the estimate for Russia’s 2023 wheat crop: at the Paris Grain Conference, the USDA speaker expressed considerable scepticism about the Russian Agricultural Ministry of 91 Mln Tonnes (even though well below prior year’s official crop of 102MMT, though the latter is heavily disputed), that estimate has since been revised down to 80-85 Mln T; making any estimate is very difficult, but with local data becoming less available and irregular, this is now an even bigger challenge. Corporate earnings are also very plentiful, with Europe looking to Akzo Nobel, Amundi, AP Moller-Maersk, Neste, Societe Generale, TotalEnergies, Vestas, Voestalpine and Yara, while North America has Brookfield Asset Management, International Flavours & Fragrances, Mattel, Sun Life Financial, Uber, Walt Disney and Yum! Brands. Last but not least, there is also a busy run of govt debt auctions: UK 16-yr, German 6-yr, Portugal & US 10-yr, Canadian 2-yr.

On the central bank front, Powell again was less than aggressive in his rhetoric, but nevertheless underlined that if data continues to come in stronger than expected, then rates will likely rise more than the Fed had anticipated in December; other Fed speakers continue to be rather more forceful in stressing upside risks to rates relative to forecasts. India’s RBI hiked rates as expected (25 bps to 6.50%), but continued to underline that while headline inflation has come down into its 2-6% target range, core CPI remains sticky and imparts upside risks to rates, and that real rates remain below pre-pandemic levels and money market liquidity is in surplus, thus dashing market expectations of a pause signal. But perhaps the strongest signal that central banks are still fighting the trillions of liquidity that they injected during the pandemic came from the ECB’s decision yesterday to cut the rate at which it remunerates govt deposits, suggesting that its fear that its rate hikes and TLTRO measures have not created the broad ‘collateral scarcity’ that it had feared when it introduced the rate last year as rates turned positive. The simple observation in terms of market reaction function to current central bank policy messaging is that binary perspectives, such as the false “not hawkish = dovish”, will only serve to foster more spikey volatility, as the pendulum of sentiment continues to swing violently, and that low headline volatility is highly deceptive.