Macroeconomics: The Day Ahead for 9 February

While tomorrow’s US CPI is primary focal point on the inflation front, today will key inflation prints from 3 countries, where central banks have been hiking rates for many a month to try and head off price pressures – namely Brazil, Mexico and Russia. Otherwise the data run is quite light with German Trade and Bank of France Industry Sentiment to digest, and Italian Industrial Production ahead. The events schedule is very busy with a raft of central bank speakers including BoE’s Pill, BoC’s Macklem and Fed’s Bowman and Mester, while rates are likely to be raised a further 25 bps in Iceland and Romania after an as expected no change from the Bank of Thailand. In the commodity space, the Agri sector moves to centre stage with China’s CASDE to digest and the USDA’s monthly World Agricultural Supply and Demand (WASDE) report, as the energy sector casts an eye in the direction of results from Norway’s Equinor and the NAPE Energy Expo Summit. A very busy day for corporate earnings across the globe with the following likely to be among the headline makers: LG, JFE Holdings, Softbank; AP Moller-Maersk, GSK, L’Oreal, RM & Siemens Energy, with the US looking to Mattel, MGM Resorts, Uber, Vimeo, Walt Disney and Yum! Brands amongst others. Govt bond issuance sees auctions in Germany (28-yr), Portugal (6 & 9-yr) and the US (10-yr), for which fairly fat concessions have been built thanks to the post Payrolls/ECB jump in yields . As the seemingly relentless rise in US Treasury yields appears to have paused, a very close eye needs to be kept on oil and indeed energy prices more broadly, as this will to a large extent dictate the speed at which benign base effects will help to bring inflation down during Q2, though the risk of second round effects remains very real. Yesterday’s EIA Short Term Energy Outlook was notable for again raising estimates of US crude and NatGas output for 2022 and 2023, and with the rise in OPEC base quotas in Q2, which will enable a higher level of output from both Saudi Arabia and UAE, there is a material risk of a sharper correction in oil prices if supply proves to be a good deal more robust than currently feared, though it has to be added that inventories do remain historically low.

** Brazil, Mexico & Russia – January CPI **

– In Mexico and Russia, CPI data come just ahead of rate decisions on Thursday and Friday respectively, with 50 bps and 100 bps seen respectively. In Mexico, CPI is expected to ease somewhat at the headline level to 0.54% m/m 7.01% (vs. prior 7.36%), but core CPI has been evidencing second round effects from supply chain disruptions on both goods and services, and will likely vault 7.5%, leaving both measures way above the central bank’s 3.0% plus/minus 1.00% target range, and ensuring that Banxico has little choice but to hike rates, even if a recessionary economy argues strongly against the aggressive paths taken by Brazil’s BCB and Russia’s Bank Rossi. After slipping modestly in December, Brazil’s IBGE Inflation IPCA is seen rising 0.55% m/m, paced above all by food and fuel prices, which would push the y/y up to 10.39% (vs. Dec 10.06%), but the outturn barring an unlikely major upside outlier may be rather moot in terms of BCB policy, with yesterday’s February policy meeting minutes effectively hinting at a less aggressive pace of tightening following the cumulative 875 bps of hikes in the past year, but underlining that much depends on what happens with commodity and asset prices going forward. A good deal of water has flowed under the bridge, above all in terms of geopolitical tensions, since Bank Rossi hinted it might be close to a peak on rates, and today’s CPI data are expected to re-accelerate, on a combination of food and energy prices, a weaker RUB and supply chain disruptions, with headline seen uo 1.1% m/m to put the y/y rate to 8.9% from 8.4%, and with core CPI forecast to rise 0.8% m/m to push y/y to 9.2%. Anything higher than expected may see the consensus for Friday’s rate shift to 125 bps from the current 100 bps.