Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
** The N@ked Short Club radio show returns on January 20! Expert talk about Economic Uncertainties, Policy Conundrums, Geopolitical Upheavals, Market Trends & Growth Prospects. Marc Ostwald (ADM ISI), William Hobbs (Barclays Wealth) & Professor Spyros Galanis (Durham University) join host, Dr. Stu on London’s Resonance FM: Poetic streams from Kate Coe Temnomeroff, torrents of Heady Music (Gong & some of its cosmic derivatives and fellow astral travellers) & a deluge of Madoff Ponzi Bier.
Tune in from 21.00-22.00 hrs: Resonance FM | Home , London time, on Resonance (104.4FM in London, DAB in Southern England &, worldwide): the world’s Number 1 Voice of Radio Art, the Arts, the Creative & the Unexpected. You can support not-for-profit Resonance via London Musicians’ Collective Limited – Support Resonance FM
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The new week’s schedule will be dominated by Trump being inaugurated as President on Monday, and what will fly off his desk in terms of executive orders and policy initiatives will be the focal point. In what some might see as ironic, the US is also closed for Martin Luther King Day on Monday, and the US is also facing a bout of arctic weather, which has forced the inauguration ceremony indoors. The Bank of Japan holds a two day policy meeting at the end of the week, at which it will also update its economic forecasts, with the inflation forecast seen revised higher, and as a consequence most expect a further 25 bps rate hike to 0.50%. Statistically the schedule is very light with G7 and India ‘flash’ PMIs and various other surveys on tap along with UK Unemployment, Wages and PSNB budget data; US Existing Home Sales, Japan Orders;, Trade and National CPI; Canadian CPI and BoC Q4 Business Outlook survey, and South Korea Q4 GDP. The unedifying spectacle that is the Davos World Economic Forum takes place (with a lot of ECB speakers scheduled), while China’s monthly Loan Prime Rate fixings are seen unchanged, and Turkey’s TCMB is expected to cut rates by a further 250 bps to 45.0%. The Q4 earnings season picks up pace, with the US looking to more financials (i.a. American Express) and the likes of Alcoa, American Airlines, Freeport-McMoRan, General Electric, Johnson & Johnson, Netflix, Procter & Gamble and Verizon Communications. Given that there is a consensus expectation that the 493 non-“Magnificent 7” companies will make a much stronger contribution to earnings growth in 2025, these real economy non-tech sector earnings will require a lot more attention. The end of the week will also see much of East Asia start to shut up shop ahead of the Chinese/Lunar New Year holidays next week to celebrate the Year of the Snake (irony would appear to be writ very large for this week, Ed.).
– U.S.A.: The Fed enters its 10 day ‘purdah’ period ahead of its January 30 FOMC meeting, and the only statistical items of note will be the flash PMIs and Existing Home Sales. The former are expected to show a marginal 0.4 pt improvement in Manufacturing to 49.9, and a 0.3 pt dip to a robust 56.5 in Services, while Existing Home Sales are forecast to post a further 1.2% m/m rise to 4.20 Mln SAAR. Per se it will be a case of all eyes on Trump 2.0. In contrast to his first presidency, markets and other governments are much better prepared for the onslaught of erratic outbursts and random policy pronouncements, and many have acted to ensure that channels for negotiation are in place, though whether these will be fruitful is a different question. Trump has clearly learnt the lesson from the early part of his prior administration, when many key government and cabinet posts were unfilled for months, though the coterie of ‘loyal’ allies that have been appointed, subject where necessary to approval in Congress, appear to lack relevant knowledge or experience in a number of cases, which clearly poses risks. The fact that Elon Musk’s role in the Trump administration is not immediately subject to approval of the legislature (Congress), and indeed the potential for the SEC lawsuit that has been launched over Musk’s takeover of Twitter perhaps being ‘swept under the carpet’ once Trump’s SEC chief nominee Paul Atkins takes the helm, are reminders that there will be a continued large scale assault on the US’ institutional framework, which will create tensions at home and abroad. But in the first instance, and as previously observed, it is what is actually implemented and how quickly from the Trump 2.0 agenda, most notably on tariffs, immigration and deregulation (finance, energy and housing), and how this all progresses poses a lot of interconnectivity risk – above all it is the sequencing which may prove critical. Republican party divisions are already clear to see in terms of extending his first term tax cuts, but also on rolling back parts of the Inflation Reduction Act, though ending or severely curtailing EV subsidies look like a slam dunk. It was initially assumed that with the Republicans being in control of the executive and the legislature that ‘debt ceiling’ dramas would be put to one side, but all the evidence thus far suggests that his will not be the case, and Trump may struggle to get the debt ceiling repealed. Indeed, with the Republicans opting to get budget related legislation resolved by the clumsy process of reconciliation, which ensures that long standing spending issues are not resolved, but merely deferred to become an even bigger problem for a future administration to deal with, market concerns about the ballooning level of US government debt are likely get further traction, potentially undermining USD strength. Just as importantly in terms of tariffs, Trump has already declared his willingness to deploy tariffs for non-trade issues (as already stated in respect of Canada and Mexico in respect of curbing immigration and Fentanyl). As noted, his key post nominations are all in place, and ready to hit the ground running, not just due to the 2017 experience, but also because after 2026, the US political machine will render him something of a lame duck, as it focuses on the post-Trump 2028 presidential election. Per se this all appears to be a recipe for a great deal of market volatility.
– Europe/UK PMIs & surveys: Germany’s ZEW survey gets the run of Eurozone and UK surveys under way, with the Expectations index expected to be little changed at 15.2, but this does not fit well with the time honoured correlation which it has to the performance of the Dax, which has posted a strong gain and implies a relatively solid gain in m/m terms; Current Conditions are seen unchanged at an abjectly weak -93.1. Headline French Business Confidence is also expected to be unchanged at 94, though Manufacturing is seen slipping 1 pt to 96. The UK CBI Industrial Trends survey is forecast to show a 5 pt improvement to a still very weak -35, with Selling Prices seen elevated though 3 pts lower at 20, but the focus will be on the accompanying quarterly survey of Business Optimism, which took a further sharp dive from -9 to -24 in October, while Friday’s GfK Consumer Confidence is expected to slip marginally to -18 from -17. The week ending PMIs are anticipated to show a marginal improvement in Manufacturing in the Eurozone (45.5), but no change in the UK (47.0), while Services readings are seen barely changed (Eurozone 51.5, U.K. 50.8) – per se fitting with the current outlook for at best tepid growth in the Eurozone and UK.
– UK: Monthly labour market indicators are not expected to add to the case for a February BoE rate cut, with somewhat adverse base effects accounting for an anticipated further rise in Average Weekly Earnings to 5.6% y/y, with basic pay seen up 0.3 ppt to 5.5%. Measures of labour demand are forecasts to show December HMRC Payrolls falling a further -15K, marking four months in five of modest contraction, while the much maligned LFS Employment for the 3 months to November is expected to slow to just 23K, and the ILO Unemployment Rate unchanged for a third month at 4.3%. The pattern for the PSNB in December is rather erratic, but the expected widening in the deficit to £14.1 Bln from November’s better than expected £11.2 Bln will probably be mostly due to higher interest payments, adding renewed pressure on beleaguered Chancellor Reeves.
– Japan: Ahead of Friday’s BoJ rate decision, the ever-volatile Private Machinery Orders are forecast to drop -0.8% m/m, but still remain up 4.2% y/y, while Trade data are expected to see a modest expansion in both Exports (2.5% y/y) and Imports (3.2%). Of greater significance in terms of the BoJ meeting will be National CPI, that is set to echo Tokyo readings with a bump higher in headline CPI to 3.4% and ex-Food to 3.0%, primarily due to the expiration of fuel subsidies, while ex-Food & Energy is seen steady at 2.4% y/y, though above the BoJ’s target. While the consensus does look for a further 25 bps rate hike from the BoJ on Friday, both Ueda and Himino were careful not to pre-commit in speeches last week, just saying that there would be a rate hike discussion. Their caution was doubtless predicated by the knowledge that the first week of the second Trump presidency could prove to be a very choppy one for financial markets, which would lean against a move at this meeting, above all given the opprobrium that was heaped on the BoJ domestically in the wake of the July hike and the associated market volatility. Outside of the updated forecasts, which should add to the case for a rate hike and indeed further policy ‘normalization’ going forward, it will be interesting to note what is said about the JPY, with Ueda seemingly peddling back on the risks of imported inflation back in December. This year’s wage settlements will doubtless be cited as a key factor going forward, and as much as the BoJ will likely not openly refer to it, the outlook for BoJ rates will hinge to a non-negligible extent on PM Ishiba’s ability to garner support from opposition parties to pass this year’s budget, with most opposed to further BoJ rate hikes.
– Canada: with all that is going on south of its border and elsewhere, Canada is not getting much attention, despite the fact that the BoC was at the vanguard of last year’s G7 rate cuts (-175 bps), this year’s election and the likelihood that Canada will be at the top of the list of countries at major loggerheads with the Trump regime. In respect of the latter, the battle to take over from departing PM Trudeau as leader of the Liberal Party, which looks likely to be an insider vs. outsider battle between former foreign minister Freeland and ex-BoC/BoE governor Carney will dictate the government’s response to the Trump administration, even if the opposition Conservatives remain way ahead in election opinion polls, the election does not have to take place until October 20. Be that as it may, this week has the always policy sensitive BoC Quarterly Business Survey, which should show further improvement given the BoC’s relatively aggressive rate cutting, but with the threat of Trump imposing 25% tariffs on Canada, businesses may be very cautious, with some estimates suggesting a hit to Canadian GDP of as much as 6% if tariffs are increased by that much. Also on tap will be CPI, with upward pressure from energy prices (above all gasoline) implying a risk of a smaller than expected and seasonally typical fall of -0.4% m/m, which would ease headline to 1.8%. That said, core inflation measures are forecast to post a fall of 0.2 ppt to 2.4% and 2.5% y/y respectively, still somewhat elevated due to housing (shelter). Overall this will likely point to a slower pace of rate cuts from the BoC.
– In the commodity space, a close eye continues to need to be kept on oil markets, with higher prices not only justified by supply fears due to tightened sanctions on Russia’s shadow fleet of oil tankers, but also a rapid rundown in US crude inventories (above all relative to typical seasonal patterns), which plays well into last week’s EIA, IEA and OPEC monthly reports suggesting a more balanced picture for supply vs. demand in 2025. The Handelsblatt Energy Summit tops the conference run, while the USDA publishes various Livestock monthly reports, and Brazil’s CONAB reports on Coffee production. What is said and discussed about the prospects for the global Energy Transition at the WEF will also attract a lot of attention, above all given headwinds from the populist shift in politics in developed economies.
– There are 37 S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: 3M, Abbott Laboratories, American Express, Amphenol, Capital One Financial, Charles Schwab, Chunghwa Telecom, CSX, Disco, Discover Financial Services, DR Horton, Elevance Health, EQT, Fifth Third, First Citizens BancShares, Freeport-McMoRan, GE Vernova, General Electric, Givaudan, HCA Healthcare, HDFC Bank, Hindustan Unilever, Interactive Brokers Group, Intuitive Surgical, Investor, Johnson & Johnson, Kotak Mahindra Bank, Netflix, NextEra Energy, Procter & Gamble, Prologis, Samsung Biologics, SK Hynix, TE Connectivity, Telefonaktiebolaget LM Ericsson, Texas Instruments, Travelers, UltraTech Cement, Union Pacific, United Airlines, Verizon Communications.
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