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Macroeconomics: The Day Ahead for 19 December

  • Central banks still the focal points along with Red Sea shipping attacks. BoJ policy meeting to be digested, awaiting final Eurozone CPI, UK CBI Industrial Trends, Canada CPI and US Housing Starts; Sunak testimony
  • Japan: BoJ sticks with ultra-easy policy, re-emphasizes wages as key focal point for exit, underlines no abrupt exit
  • Eurozone CPI seen unrevised, but focus on details as signal on potential for rebound in headline and core over turn of year once base effects unwind
  • Canada CPI: further fall expected, but not enough to sway BoC to open door to rate cuts…. yet
  • US Housing Starts: marginal fall expected, trending slightly below long-term average


Central bank watching will likely remain the key activity for markets today, as the BoJ’s as expected policy hold on all policy variables is digested, and some further central bank speakers ahead. The Fed may find that framing its rate cut narrative along the lines of Daly’s comments yesterday that cuts may be needed to avoid overtightening is rather too nuanced (even if perfectly valid) for markets that have been baying for a Fed rate ‘pivot’ for some 18 months, leaving them with something of a quandary in communication terms. Contending with markets’ “animal spirits” has never been an easy task. Statistically, final Eurozone CPI, UK CBI Industrial Trends survey, Canadian CPI and US Housing Starts feature ahead of tonight’s Japanese Trade data. Following on from what was a hollow looking victory on last week’s immigration bill, beleaguered UK PM Sunak today faces questions from the powerful Parliamentary Liaison Committee, which will more than likely raise even more questions about the future of his leadership.

The other talking point will be oil and gas prices in the context of the increasing disruption to shipping via the Red Sea & Suez Canal following numerous attacks by Houthis acting in support of Hamas, and with the Houthis supported by Iran, the risk of a broadening of the conflict has risen substantially. The announcement of an international task force to counter this threat underlines the scale of the threat, though shipping and oil & gas companies may well judge the risks as remaining too high to pull back on the re-routing of their ships by the Cape of Good Hope. It is worth bearing in mind by way of context that the estimated cost of the disruption caused to shipping in the Suez Canal by the Ever Green running aground in March 2021 was around $9.6 Bln per day.


** Japan – BoJ policy meeting **

As expected there were no changes in any policy parameters, nor any suggestion of any imminent changes in the statement. Ueda’s press conference was a case of going over familiar ground in terms of the economic and policy outlook, above all placing great weight on the early 2024 wage round. He noted ” Labour unions are demanding wage hikes exceeding those of this year. Executives of some big firms are commenting on prospects of higher wages… Our hearings, however, show many companies have yet to decide next year’s wage policy due to high economic uncertainties.” He added that “Some smaller firms appear to be struggling to pass on higher raw material and labour costs. The chance of trend inflation accelerating towards our price target is gradually heightening. But we still need to scrutinise whether a positive wage-inflation cycle will fall in place.” On the BoJ’s exit strategy, he said “I don’t think the chance is high for us to say abruptly that we will hike rates at a subsequent meeting.” He added: “Obviously, I am always thinking about various scenarios about how we could change policy when certain conditions fall in place. But uncertainty over the outlook is extremely high and we have yet to foresee inflation sustainably and stably achieve our target. As such, it’s hard to show now with high degree of certainty how we can exit (from ultra-loose policy). Once we can foresee (conditions fall in place for achieving the target), we will disclose more information.” (Quotes source: Reuters)


** Today’s data **

Final Eurozone CPI is seen unrevised at 2.4% y/y headline and 3.6% y/y core, with the details likely to get particular attention, in an attempt to gauge how much of the larger than expected decline will prove to be a one off, and therefore reversed somewhat over the turn of the year, and thus reinforce the ECB’s pushback on market rate cut expectations. The CBI’s Industrial Trends survey is expected to show Orders remaining weak, but rebounding to -29 from November’s -35. Following on from the as expected uptick to 37 in yesterday’s US NAHB Housing Market Index, Housing Starts are expected to edge down 0.9% m/m to a 1.36 Mln SAAR pace, slightly below longer-term average. Last but not least, Canadian CPI should continue to improve, aided by falling energy prices and to some extent base effects, with the consensus looking for a -0.2% m/m on headline taking the y/y rate down to 2.8%, while core measures are seen slipping to 3.3% y/y from 3.5%/3.6%, the latter still a little too high for the BoC’s comfort, as was underlined last Friday by governor Macklem.

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