Macroeconomics: The Week Ahead: 20 to 24 February

The Week Ahead – Preview:

The new week sees the first anniversary of the Russian invasion of Ukraine, while the US President’s Day holiday and Carnival will thin out markets in Germany and parts of Latin America to start the week. Surveys dominate the data schedule, most notably G7 flash PMIs, Germany’s Ifo and ZEW, UK CBI surveys, and Eurozone, UK and German Consumer Confidence. The US has PCE & Personal Income, New and Existing Home Sales and the first revision to Q4 GDP, the UK looks to PSNB and Rightmove House Prices, Canada CPI, Australia Q4 Wages and Private CapEx, with initial February inflation readings due from Brazil and Mexico. On the central bank front New Zealand’s RBNZ is seen hiking rates a further 50 bps to 4.75%, Turkey’s TCMB cutting 100 bps to 8.0%, with the Bank of Korea seen on hold at 3.50%, and China’s 1 and 5-yr Loan Prime Rates are also seen unchanged at their monthly fixing. G20 Finance Ministers and central bank governors will also hold a 2-day meeting in India on Thursday, with debt relief measures for EM countries likely to top the agenda, above all China’s potential role. There are the February 1 FOMC minutes and another rash of central bank speakers, and the US Supreme Court hearing on two key tech sector cases will also be closely monitored. In the commodity space, metals markets will look to earnings from Anglo American, Antofagasta, BHP and Rio Tinto, while a busy week for Agricultural markets has the USDA’s 2023 outlook and UK NFU annual conferences and the Grain Forum Dubai, along with the EU MARS Crop Bulletin, while livestock markets look to USDA data on Cattle on Feed, Cold Storage, Poultry Slaughter and Red Meat Production. Retailers such as Home Depot and Walmart top the US earnings run, and given the strong Retail Sales data and still sticky services inflation and margin compression, it will be interesting to see if they are more comfortable with inventory levels, and perhaps a little more optimistic on outlooks.

In terms of the run of surveys (PMIs, Ifo, ZEW, CBI, regional Fed, etc), forecasts assume a general improvement vs. January across the board, whereby outside of France manufacturing PMIs are still seen below 50.0, while Services readings are seen above in the Eurozone, but below in the UK and US, the latter perhaps having some upside potential given the strength of the rebound in the Services ISM. A close eye will be kept on price indices, after other surveys have suggested some renewed, if modest pressures, but still underlining that central banks are going to be very cautious on declaring victory in their inflation battle. US Q4 GDP is seen unrevised at 2.9%, while New and Existing Home Sales are both expected to post increases m/m (0.7% and 2.0% respectively) predicated on the pick-up in Pending Home Sales and Mortgage Applications (during January, though they have fallen since), though it should also be noted that some assistance is also coming from homebuilders making considerable efforts to bridge the ‘affordability gap’. But it will be the deflators in the Personal Income/PCE reports which will be the focal point. As with CPI, the headline PCE is expected to bounce sharply m/m from 0.1% to 0.5%, with core ticking up 0.1 ppt to 0.4%, and leaving both very fractionally higher in y/y terms. PCE is seen echoing Retail Sales with a rebound of 1.3% m/m (vs. Dec -0.2%), while Cost of Living Adjustments to social security payments are likely to account for much of the expected 1.1% m/m jump in Personal Income.

Canada’s CPI and Retail Sales will get a lot of scrutiny, given that the BoC has gone out on something of a limb by signalling a pause in rate hikes. CPI is seen rebounding 0.7% m/, mostly due to energy prices, but given base effects still see a dip to 6.1% y/y from 6.3%, while core measures are seen dipping 0.1 ppt to an average of 5.1%, while Retail Sales are forecast to rise 0.5% m/m headline thanks to strong Auto Sales, but dip a further 0.1% m/m ex Autos after falling -0.6% in November. Also of note will be the CFIB (small) Business Barometer, which has edge up the past 2 months from a low of 50.0 in December. In Australia, the first components of GDP, Construction Work Done & Private CapEx are seen post solid gains of 1.5% and 1.3% q/q, but the focus will be on Q4 Wage Price Index that climbed quite sharply in the first three quarters of 2022, and expected to hold in q/q at a relatively lofty 1.0% q/q, which would see the y/y rate climb to 3.5%, in itself not indicative of enormous wage pressures, but still on a rising trend, which the RBA would probably like to see peaking no higher. Swedish CPI will also get plenty of attention with a drop in energy prices seen pacing the headline CPIF fall to an expected 9.5% y/y from 10.2%, but CPIF ex-Energy is seen only slightly lower at a still stubbornly high 8.2% – both measures are likely to rebound in February and March, before commencing a genuine downshift from Q2.

On the central bank front, the February FOMC minutes will highlight that despite a unanimous vote for a 25 bps, non-voting members such as Bullard and Mester and perhaps others actually favoured a 50 bps hike. Thus the discussion and views on the pace of policy transmission and the implications for the terminal rate will be of particular note, along with the discussion on ‘disinflation’, the rather more hopeful run of economic data and the easing of financial conditions, about which Powell surprisingly appeared to be rather indifferent to at the press conference. But given the rebound in CPI, it will be the run of Fed speakers through the week which will perhaps be more instructive, with plenty of ECB, BoE and other central bank speakers also on tap, as well as Japan’s lower house hearing with BoJ nominee governor Ueda on Friday. New Zealand’s RBNZ is expected to hike rates 50 bps to 4.75%, and continue to sound hawkish, perhaps pointing to the risk that the recent devastating floods may result in supply chain disruptions, and add to inflation pressures, even though the labour market does appear to be easing along with inflation expectations. There may also be some revisions lower to some of its economic forecasts, which markets may pounce on as a sign that it may be closer to a peak in rates.

The US leads the run of government bond auctions with $120 Bln of 2, 5 & 7-yr and $22.0 Bln of 2-yr FRN, with the UK selling 6 and 30-yr and the BoE conducting short and medium QT sales, while Germany and Italy both sell 5 and 10-yr, in what will be a somewhat lighter week in total auction volumes in the Eurozone of around EUR 25 Bln. In passing it is worth noting that the Eurozone govt bond yields has seen a sharp reversal of the outflows witnessed during the many years of negative yields, which at the margin should offer some support to the EUR.

Among this week’s earnings, the following are likely to be among the highlights according to Bloomberg News: Alibaba, Alnylam, Amadeus, American Electric Power, American Tower, Anglo American, Autodesk, AXA, BAE Systems, Baidu, BASF, BHP, Block, Booking, CIBC, Capgemini, CBRE, Cheniere Energy, CoStar Group, Danone, Deutsche Telekom, Diamondback Energy, EBay, Edison International, Engie, Eni, EOG Resources, Fomento Economico Mexicano, Galaxy Entertainment, Genmab, Hang Seng Bank, Holcim, Home Depot, Hong Kong Exchanges & Clearing, HSBC, Iberdrola, Intuit, Keurig Dr Pepper, Keysight Technologies, Lloyds Banking, Loblaw, Medtronic, Moderna, Munich Re, NetEase, Newmont, Nvidia, Oversea-Chinese Banking Corp, Palo Alto Networks, PG&E, Pioneer Natural Resources, PSEG, Public Storage, Qantas, Realty Income, Rio Tinto, Saudi Telecom, SBA Communications, Stellantis, SHK Properties, TJX, United Overseas Bank, Vici Properties, Walmart, Warner Bros Discovery, Williams, Wolters Kluwer, Woolworths Group.