Macroeconomics: The Day Ahead for 15 February

It’s a busier day for scheduled data and events, but the clouds of geo-political tensions and the prospect of tighter central bank policy to combat inflation remain the dominant themes. There are UK labour data and Japan’s Q4 GDP to digest, while ahead lie Germany’s ZEW surveys, revised Eurozone Q4 GDP and Dec Trade Balance, US PPI and NY Fed Manufacturing and Colombia’s Q4 GDP. The Scholz Putin meeting seems unlikely to achieve anything, even if yesterday appeared to signal a marginal de-escalation in tensions, but after an awkward meeting with Biden last week, above all the conflicting comments on Nord Stream 2, there will be particular focus on the rapport (or lack thereof) at the press conference, after Putin’s frosty meetings with Macron and UK foreign secretary Truss. ECB’s Villeroy gets another speech outing as the ECB tries to wrest back the narrative on the policy outlook from markets, while BHP and Glencore head the run of corporate earnings, with the UK (10-yr) and Germany (5-yr) selling govt debt. The other discussion point (coming hard on the heels of the BHP and Glencore results) will be another intervention by China, with Iron Ore prices tumbling sharply after China warned about speculation driving prices higher, and what looked like an overly optimistic rally on the back of hopes for easing pressure on the construction/housing sector.

** U.K. – Dec/Jan Labour data **

– Outside of the higher than expected rise in Average Hourly Earnings – headline rising to 4.3% y/y from 4.2% and expectations of 3.8%, while the ex-Bonus measure dipped to 3.7% y/y vs. expected and prior 3.8%, there were no real surprises in the labour data. The fact that core earnings dipped, while headline was boosted by bonuses, allows the BoE to argue (as per Pill comments last week) that this is about tight labour supply (with bonuses being deployed to retain exiting or entice new staff), rather than second round effects due to inflation. Otherwise the 108K rise in Payrolls continues to point to solid though slowing labour demand, with December down to 131K, while the Unemployment rate remained steady at 4.1%. This report was always going to play second fiddle to tomorrow’s CPI and PPI data, with headline CPI seen falling 0.2% m/m (seasonal sales) to leave the y/y rate unchanged at 5.4%, while core is forecast to edge up 0.1 ppt to 4.3% y/y, with food prices and household goods exercising upward pressure in y/y terms, offset somewhat by base effects in housing. After signalling some easing in pipeline pressures in December, UK PPI is expected to see renewed upward pressure from food and energy on Input (median 1.0% m/m 13.4% y/y), and start of year price hikes (i.e. pass-through) on Output (0.6% m/m 9.1% y/y). But with household energy prices set to surge in April accompanied by sharp Council Tax increases, there is still plenty of upside on UK inflation, with headline CPI seen peaking around 7.0% in April.

** Germany – Feb ZEW survey **

– The ZEW survey is expected to see Expectations rise more modestly to a robust 55.0 from 51.7, after surging in January, though the correlation with the Dax implies downside risks. Meanwhile rising inflation is likely to offset better signals on economic activity as Omicron restrictions are lifted and thus see the Current Situation edging up to -7.0 from -10.2. This survey is rather meaningless at the best of times, but does not weigh anywhere in the ECB’s policy or even expectations for growth.

** U.S.A. – January PPI / February NY Fed Manufacturing **

– PPI may offer a little solace after last week’s higher than expected CPI, with headline seen up 0.5% m/m and core measures 0.4% m/m, which thanks to base effects would see headline y/y drop to 9.0% from 9.7%, while ex-Food, Energy & Trade would drop to 6.3% from 6.9%, with a close eye needing to be kept on intermediate PPI measures, which have tentatively been signalling some easing in pipeline pressures. After a precipitous slide to -0.7 in January from 31.9 in December, the frequently volatile NY Fed Manufacturing index is seen rebounding to 11.0, with the focus remaining on prices, orders and supplier deliveries sub-indices.