Written Commentary
Digesting UK labour data, Indian WPI jump and Swedish CPI; awaiting US NFIB Small Business Optimism and PPI; IEA Oil Market Report, raft of CEE and EM central bank rate hikes expected; Austria & Italy to sell debt
UK labour data: strong employment gains and record vacancies point to very strong labour demand, but surge in infection rate to stay MPC’s hand
US NFIB survey seen little changed, with rising costs, supply bottlenecks and labour shortages all weighing heavily on small business sentiment
US PPI: energy likely to play smaller part in expected strong gain on continued pressure on finished goods, logistics and transport prices
EVENTS PREVIEW
There is a little more meat on the macro bone today, but certainly not overwhelming, with the stronger than expected UK labour data, Indian WPI and Swedish CPI to digest ahead of the more significant US PPI and NFIB Small Business Optimism. This week’s barrage of central bank policy meetings gets into its stride with an array of CEE and EM decisions, which are expected to see a 40 bps hike in Hungary, 125 bps in Chile, 100 bps in Pakistan and quite possibly 25-50 bps in Armenia, given that it is within the former CIS fall-out zone, i.e. in thrall to Bank Rossi policy moves. Italy (3-yr) and Austria (10-yr) hold the only Eurozone govt bond auctions this week.
U.K. – Oct/Nov Labour data
Another relatively sharp drop in the Claimant Count (-49.8K), a record surge in Payrolls (257K) and record Vacancies (1.219 Mln) all point to very robust labour demand, with the Aug-Oct Unemployment Rate dipping to 4.2% as expected, and earnings growth decelerating as base effects unwind. Were it not for the surge in the Covid-19 infection rate, and last week’s very soft monthly GDP data, markets would probably be moved to price in a BoE rate hike on Thursday, but Covid related uncertainty will almost certainly ensure that the MPC stay their hand.
U.S.A. – November NFIB Small Business Optimism
The NFIB Small Business Optimism survey has stood in marked contrast to the run of new highs seen in ISM and other surveys in 2021, having only briefly got back to 2019 levels in Q3 2020, before tailing back sharply by the end of the year. While many of its sub-indices (Increased Capital Spending & Inventory, Plans to Hire, Good time to Expand) are at historically robust levels, the ‘Expect Better Economy’ index has collapsed from a re-opening high of +39 in June 2020 to a new all-time low of -37 in October; rising costs (raw materials, staff), difficulties in recruiting staff are clearly weighing very heavily, with the Positive Earnings Trends sub-index dropping -17 in October. The consensus looks for little change at 98.4 (vs. Oct 98.2), and with the already published Employment sub-indices little changed, much will depend on what happens to the desultory ‘Expect Better Economy’ index.
U.S.A. – December PPI
After markets shrugged off another jump in CPI (headline 6.8% y/y and core 4.9% y/y), because it was “in line with forecasts”, it is debatable whether anything other than an upside outlier on PPI will generate much reaction. Be that as it may, mth/mth readings for headline (0.5%) and core (0.4%) are seen little changed relative to October, and this will continue to pressure y/y rates higher to 9.2% and 7.2% y/y, if forecasts are correct. While energy prices are likely to be less of a factor for November, finished goods, transport and logistics prices will underline that any easing in supply chain bottlenecks that there has been, has at the most been very modest, and per se the pressure to pass through to consumers will remain very high.
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© 2021 ADM Investor Services International Limited.
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