Macroeconomics: The Day Ahead – 6 January 2021

Good Morning: The Long & the Short of it and The Bigger Picture

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

• Services PMIs, French and German CPI, US ADP Employment on tap along  with BoE FOC Testimony & US FOMC minutes, but all eyes on Georgia  election outcomes & Congress Electoral College count – “split vote” (?),  pandemic  developments, and US/China and HK tensions; UK &  German 10-yr auctions
• Services PMIs expected to show some relative resilience, but January  a more interesting litmus test of sector sentiment
• US ADP Employment: marginal rise expected as fiscal uncertainty and  rising infection rate related curbs drag

EVENTS PREVIEW

The narrative for markets remains unchanged: pandemic, politics and central bank financial repression, the latter feeding what appears to be a triumph of hope over adversity, though in truth more a function of a belief that central banks will backstop any financial asset class. The ‘regular’ macro schedule offers the array of Services PMIs, French and German CPI, and the US ADP Employment report, with helpings of BoE FPC testimony (likely to be dominated by questions about the collapse of LDF in 2019), and Dec FOMC meeting minutes (Evans comments on 3.0% inflation “not being so bad” perhaps being of greater interest). Govt bond supply picks up with Germany and the UK selling 10-yr debt. But all eyes will likely be on what would normally be the formality of the US Congressional ‘Electoral College’ vote count (‘split vote’ will likely be today’s watchword), which Trump and his allies have threatened to disrupt, as the votes are counted in the as expected knife-edge Georgia Senate run-off elections – at the time of writing Democrats have won one seat and are ahead by some 3.5K in the other, but legal challenges should be expected. The latest move by the US to bar transactions with eight Chinese apps, while China hinders the arrival of the WHO team investigating the virus outbreak, and security officials arrest 53 activists in Hong Kong only serves to underline the point that the geo-political backdrop remains very adverse.

** World – Dec Services PMIs **

– The message from the G7 flash Services PMIs was a simple one, the escalating restrictions on activity and movement are not having as dramatic an impact as they did in late Q1/early Q2, though the picture varies considerably across countries and regions, which today’s reports are likely to reaffirm. It should still be born in mind in this age of abjectly binary thinking and two tone evaluations that: a) ‘not as bad’ does not equal ‘good’, and b) as I have noted before, the shock factor that was present in H1 2020 is far lower now, i.e. this is no longer ‘unprecedented’, but rather more an unwelcome persistent challenge, that underlines a degree of impotence which in turn invites innovation to meet it. That said, the current rapid escalation in infection rates also threatens to undermine the rather complacent assumption that underlines most western governments policies that all that was really going to be needed was a vaccine, and then Covid-19 would be beaten. As East Asia and Australia/New Zealand have shown, four other factors are critical: being tough, disciplined and above all vigilant. Additionally the general public need to realize that governments are not the problem (Reaganite dogma) but the solution, and that the cheap rhetoric of populists against established institutions is empty, even if constructive criticism is a sine qua non. By extension, it is January’s Services PMIs that will be more informative as a litmus test of any ostensible ‘resilience’ in today’s surveys.

** U.S.A. – Dec ADP Employment **

– A very modest rise of 63K is expected, following November’s 307K (as compared with an official Private Payrolls rise of 345K), with the sharp rebound in Claims data, and all the uncertainty on the fiscal package allying with the sharp rise in infection rates, and by extension Services labour demand, all playing a role. PMI and regional Fed employment indices were very mixed, offering little insight into up or downside risks. But with the Georgia state election run-offs on a knife-edge and likely to hog the headline limelight, today’s report will probably garner little more than a passing reaction, barring a very sharp outlier relative to expectations.

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