Macroeconomics: The Day Ahead for 16 February

There will be something of a data bonanza today, with an abundance of inflation readings – China, UK, Canada and South Africa – and US data – Retail Sales, Industrial Production, Import Prices and NAHB survey – topping the agenda, accompanied by Norwegian GDP and Canada’s Manufacturing Sales. Minneapolis Fed’s Kashkari (ultra-dovish normally) and BoC’s Lane feature on the central bank speakers list, and the FOMC minutes will be watched for the debate on a more aggressive rate and QT path. But these are already somewhat historical, and it would be better to watch out for the Fed’s highly influential Brainard and Waller, who both speak on Friday, with Bullard best dismissed given his tendency to express policy views which blow with the winds of market pricing. But with the Ukraine crisis still very much front and centre, and notwithstanding the better news yesterday, the NATO defence ministers meeting will be very much in focus, while agricultural markets look to FranceAgriMer monthly grains outlook, and Uruguay’s central bank is likely to hike rates aggressively, as has been the trend across Latin America. Germany (10-yr) and the US (20-yr) hold bond auctions, with a busy day for earnings across the world likely to feature the following in terms of headline makers: Alibaba, Carrefour, Heineken, Albemarle, AIG, Cisco, Hyatt Hotels, Marathon oil, Nvidia and Shopify.

** China – January CPI & PPI **

– Both PPI (9.1% y/y) and CPI (0.9% y/y) turned out weaker than expected, which does give the PBoC room to ease policy rates and liquidity measures further, but in truth, further easing will be driven not by the inflation outlook, but weakness in output in a number of sectors. As the PBOC quarterly monetary policy report on Friday highlighted, it will continue to provide ‘adequate support’ and take measures to ‘forcefully expand credit’, while at the same time aiming to avoid speculative bubbles in property, commodities and other asset classes. In the detail, CPI was dragged lower above all by a 3.8% fall in food prices, led by a 41.6% y/y slide in pork prices, with fresh vegetables also contributing (-4.1% y/y), while core CPI remained very benign at 1.2% y/y (unchanged for a third month). The effects of the authorities measures to driven down Steel, Iron and Coal prices were very evident in the larger than anticipated drop in PPI to 9.1% y/y vs. Dec 10.3%. Benign base effects will play a very large role in driving down PPI much further in H1 2022 (given that PPI climbed from 0.3% in January 2021 to 9.0% in May 2021), notwithstanding any offsetting upward pressure on energy prices

** U.K. – January CPI & PPI **

– While slightly above forecasts at -0.1% m/m 5.5% y/y vs. expected -0.2% m/m 5.4% y/y, the CPI data do not really add any more pressure for the BoE to take a more aggressive stance with the March rate hike, with food prices, autos and health offsetting seasonal sales discounting in clothing, and some downward pressure from Omicron disruptions to leisure / recreation. Of more concern, though rather unsurprising, were sharper than expected rises in both PPI Input (0.9% m/m 13.6% y/y) and Output (1.2% m/m 9.9% y/y vs. forecast 0.6% m/m 9.1% y/y), which underline both the extent of pipeline and passthrough pressures, obviously not helped by the January jump in commodity prices.  But as noted in the Week Ahead,  household energy prices are 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.

** U.S.A. – January Retail Sales & Industrial Production **

– A sharp rebound in Retail Sales is seen after the unexpected 1.9% m/m slide in December, led by the 20.9% surge in unit Auto Sales, with headline expected at 2.0% m/m, and the core ‘Control Group’ measure posting a more modest 1.4% m/m following December’s -3.1%, with a sizeable fall in Restaurant sales due to Omicron disruptions acting as something of a drag. As ever a reminder that US retail sales are a nominal measure, and any strength will look a lot impressive when adjusted for surging inflation. Industrial Production is forecast to rebound a modest 0.4% m/m after dipping 0.1% m/m, though the January cold snap after a relatively mild December suggest utilities could provide a bigger boost, while the 0.2% m/m drop in manufacturing hours imparts some downside risk to the anticipated 0.3% m/m rise in Manufacturing Output. Following on from higher than expected CPI and PPI readings, the latter showing a lot of pass through pressures to both consumer goods, and services measures, today has Import Prices with a 1.3% m/m jump expected (on the back of energy and commodity prices), with base effects bringing down the y/y rate to 9.9% from 10.4%, while the ex-Petroleum measure is expected to rise a more modest 0.4% m/m. The risks given the CPI and PPI readings point to an upside miss, which would ratchet up the pressure on the Fed. Last but not least the first of this week’s housing sector data is expected to see the NAHB Housing Market Index dipping marginally to 82 from 83, and while Consumer Confidence and ‘pent-up’ demand due to low inventories support this, a further squeeze on raw materials, labour shortages, household inflation pressures and rising mortgage rates impart some downside risks.

** Canada – January CPI **

– The consensus looks for a 0.6% m/m rise in headline, with energy prices a key contributor, which would leave the y/y rate unchanged at a lofty 4.8%, while the various core measures are seen unchanged at an average 3.0% y/y. Would an upside or downside miss make any material difference of an already heavily flagged BoC rate hike in March? No, just as the downside miss on the January Employment (-200K against a forecast of -110K) made no difference. As per BoC governor Macklem “Everybody should expect interest rates to be on a rising path”, with quantitative tightening following “in fairly short order” and perhaps a pause after a few rate hikes to “assess the situation”.