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Macroeconomics: The Day Ahead for 10 February

  • US CPI takes centre stage on busy day for central banks and corporate earnings; UK RICS, Japan PPI, Norway CPI to digest; US weekly jobless claims and South Africa Mining Output ahead; ECB, BoE speakers in view; rate hikes seen in Mexico & Peru; OPEC Oil Market Report; EC forecast update; US 30yr and Canada 5yr sales
  • US CPI: headline m/m seen slowing, but core pressures to persist on housing and second round effects in services; y/y rates to rise, peak seen in February; upside miss unlikely to prompt 50 bps hike from Fed
  • ECB: focus on Lane speech, picking up pieces after Lagarde drops ball on policy communication; hawk / dove divisions very difficult to paper over
  • BoE: Bailey likely to echo Pill, signal further H1 rate hikes, but stress longerterm rate trajectory still unclear
  • ADM IS USADA WADE Summary:  https://cfuat.admis.com/usdafeb9thsupplydemandreportreview/  

EVENTS PREVIEW

US CPI takes centre stage on a day which is long on central bank events & speakers and corporate earnings, but rather short on other market moving data, with UK RICS House Price Balance and Norwegian CPI to digest, and South African Mining Output and US weekly jobless claims also ahead. India’s RBI unexpectedly did not tighten its policy corridor, and left rates and its Cash Reserve Ratio unchanged, with Bank Indonesia also holding rates at 3.50%, while both Banco de Mexico and Peru’s BCRP are seen hiking rates 50 bps to 6.0% and 3.50% respectively, and likely to signal further rate policy tightening.  As the ECB policy debate starts to heat up, with hawks (Kazaks, Knot, Nagel) calling for a swift end to QE and hinting at a rate hike by year end, the focus today is on speeches from de Guindos and Villeroy (doing some fence sitting with Tuesday’s comment that markets ‘may have overreacted’ on rates), but above all on the normally very dovish Lane, who is left with the unenviable task of picking up the pieces after Lagarde tried to row back on her ‘hawkish’ press conference message earlier this week. Schnabel was very measured in her comments yesterday, noting ‘IF high current inflation threatens to a lead to a de-anchoring of inflation expectations, we MAY still need to act’, in principle echoing Villeroy’s position. But the fact remains that the ECB has let the genie out of the bottle in terms of policy miscommunication, and it will be hard to put it back, particularly as hawks and doves are likely to send the usual very divergent messages, but with markets no longer able to assume that the doves always win, as was the case throughout Draghi’s tenure as president, and up until very recently.

 

BoE governor Bailey also speaks today, and will doubtless echo the message from BoE Chief Economist Pill yesterday, that a) the BoE majority are loathe to hike rates more aggressively, above all due to the precedent / message that it would send to markets (a similar message is coming from the Fed), b) they cannot offer much guidance, but two further rate hikes in March and May are pretty much baked in the cake, and c) they will be sensitive to any evidence that wage pressures are due to second round effects rather than a tight labour market as they are currently. Notably Pill was also at pains to underline that Base Rate reaching 1.0% is not an automatic trigger for outright sales of QE held Gilts, but rather an option for discussion at that point.

 

OPEC’s monthly Oil Market Report and a fresh set of EU Commission economic forecasts will also be on tap, with the US rounding off this week’s quarterly refunding with $23.0 Bln of 30 Yr, while Canada sells 5-yr. In terms of a broad sector spectrum of corporate earnings around the world, it is likely that the following will be among the headline makers: Manhindra & Mahindra & Tokyo Electron; Arcelor Mittal, Credit Suisse, Norilsk Nickel, Pernod Ricard, Siemens, Societe Generale, ThyssenKrupp, Vestas & Zurich Insurance; Coca-Cola, Kellogg, Pepsico, Tapestry, Twitter and Cemex.

 

** U.S.A. – January CPI **

– US CPI is expected to rise 0.4% m/m headline and 0.5% m/m core, which would push y/y rates up to 7.3% (from 7.0%) and 5.9% (from 5.5%) respectively. While the 3-mth annualized rate for headline would slip to 6.8%, the core rate would remain at 6.4%, underlining how much upward pressure is coming from housing and services (e.g. car insurers are rushing to raise premiums by 6.0-8.0% to get ahead of the increase in prices for car parts and repairs), as well as food and energy. There should be some Omicron related downward pressure on travel and leisure related prices, while auto price pressures should be a smaller contributor than in December. Beneficial base effects should start to kick in March, particularly energy and auto related, but with wage pressures all too obvious in Friday’s Average Hourly Earnings (0.7% m/m 5.7% y/y), second round effects clearly have gotten some traction, and housing appears likely to ensure that there is little chance of core CPI falling below 3.0% by year end. Would a higher than expected outturn make a 50 bps hike in March more likely? Probably not, as the Fed is mindful that if it kicks off with a 50 bps hike, it will implicitly be saying that it is behind the curve, and set a precedent for markets that would steepen the rate trajectory, which would not be welcomed by the Fed at this stage. It might however prompt a rather more aggressive quantitative tightening path, with some mooting $150 Bln / month (3x previous QT pace), though as with a 50 bps hike, the Fed will be wary of setting such an aggressive policy precedent. Interestingly Bostic’s comments yesterday were on the one hand hawkish suggesting that he is now leaning more towards four rather than three rate hikes this year, though also flagging that he expects inflation to peak very soon, while Mester touted the possibility of faster rate hikes but only IF inflation is still ‘running hot’ at mid-year, as well as outright MBS sales ‘at some point’ during QT; Initial Claims are seen edging down to 230K from 238K, with an adverse seasonal adjustment seen hampering any sharper downward move, despite the impact of Omicron disruptions fading quite rapidly now.

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© 2022 ADM Investor Services International Limited.

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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