Written Commentary
- Lightweight data schedule features ECB Negotiated Wage Indicator and Canada CPI; digesting aggressive China 5-yr LPR cut, busier schedule of events has BoE testimony, Riksbank speakers; Walmart heads US corporate earnings run; UK 40-yr and German 2-yr
- China 5-yr LPR cut fails to impress markets, underlining credit demand very weak amid deep seated crisis of confidence
- Eurozone wage indicator: base effects likely to drag lower from record high, pace of deceleration key to rate outlook
- Canada CPI: headline seen lower, core measures expected to continue to move sideways at uncomfortable level for BoC
- Recording of this morning’s Asharq Business interview about China and USA
EVENTS PREVIEW
Today’s statistical schedule only has Canadian CPI as a genuine potential market mover, with EU New Car Registrations, Eurozone December Trade and Construction Output, and the US Leading Index in the ‘allaso rann’ category. The events schedule has a number of focal points, with the overnight China monthly Loan Prime Rate Fixing, which saw the 5-yr cut a record 25 bps to 3.95% against expectations of a 10 bps cut, to digest. The lack of any material market boost from the cut underlines the point that there is a fundamental lack of demand for credit due to a a now deep seated crisis of confidence, both business and confidence, which will require some form of property sector balance sheet resolution to turn around. Ahead lie the ECB’s key indicator of negotiated wage rates, BoE testimony on the February Monetary Policy Report and a number of Riksbank speakers. The corporate earnings will likely see Barclays, Carrefour, Intercontinental Hotels, Diamondback Energy, Toll Brothers, Gerdau and above all Walmart among the headline makers. A busy day for commodity sector conferences with UK National Farmers Union (NFU), Dubai Grain Forum, E-World Energy & Water conference, and Global Base Oils getting under way, while Polish farmers are expected to blockade Ukraine border crossings and Baltic Sea ports, as they protest against new EU farming laws. and cheap Ukrainian grain imports. The EU ‘Antwerp Declaration’ on a green deal for industry will also see its official launch. Govt bond supply sees Japan selling 20-yr, UK 40-yr and Germany 2-yr.
** Eurozone – ECB Negotiated Wages Index **
– The increasing importance of wage trends to the ECB policy outlook can be seen in both the increased references to wage trends in its statement (roughly twice as many in January as December), and ECB speakers, above all chief economist Lane. While the official data is derived from the 3rd and final reading on GDP/national income, published in the final month of the following quarter, the Negotiated Wages Index is published earlier. Benign base effects as the sharp increases in Q4 2022 & Q1 2023 fall out of the comparison should see today’s report for Q4 drop from the Q3 peak and also record high of 4.7% y/y, above all given the fall in the Indeed Wage Tracker to 3.9% y/y at the end of Q4 from a peak of 5.3% at the end of Q3. The key aspect is how quickly it falls back to the 3.0% level that the ECB as a rule of thumb would find acceptable.
** Canada – January CPI **
– The consensus looks for a 0.4% m/m headline rise to take the y/y rate down to 3.2%, while core measures are seen little changed at 3.6% y/y. The problem for the BoC is that core CPI was already at that level back in July 2023, and has been trending sideways since. While US and Canadian CPI are anything but joined at the hip, large up or downside surprises in the US are quite often mirrored in Canada, which suggests upside risks for today’s report, which would follow the modest upside surprise in December, and by extension push back further on expectations for an initial BoC rate cut.
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