Macroeconomics: The Day Ahead for 21 January

The week ends with something of a damp squib in terms of data and events, with poor UK Consumer Confidence and Retail Sales, Japan’s national CPI and Thai Trade to digest ahead of Industrial Production and labour data in Poland, and the always less than timely Canada Retail Sales. There is more from ECB’s Lagarde at the Davos WEF (following on from those ECB minutes that highlighted deep divisions on the council about the inflation outlook) and BoE’s Mann speaks at an OMFIF. Earnings are also thin on the ground with Ally Financial and Schlumberger featuring in the US. Next week’s schedule is heavy on US data, and surveys including G7 flash PMIs and Germany’s Ifo, but also has the US FOMC and BoC policy meetings, and a deluge of US corporate earnings. US data include advance Q4 GDP, Durable Goods, Consumer Confidence, Home Sales and House Prices, while elsewhere there are Q4 prov. GDP data from South Korea, Germany France and Spain’s preliminary Q4 GDP. There was a degree of inevitability about the setback in oil prices yesterday, with the EIA crude inventory build unsurprisingly sparking a bout of profit-taking, though by Q4 correction standards, the setback thus far looks to be modest. Overall market risk sentiment is clearly very cautious ahead of next week’s FOMC meeting, but as the still voracious appetite for new issuance in credit markets suggests, the watchword is ‘caution’, rather than ‘panic’ paced by position liquidation.

Amidst all the tensions over Russia and Ukraine, fears about central bank policy tightening (above all the Fed, and the farcical political situation in the UK, there has probably been insufficient attention paid to next week’s very uncertain new Italian President selection. To be sure, Italian political crises have come ten a penny since World War II, so many will tend to largely ignore what is potentially a seminal moment in Italy’s future. Draghi has long been the favourite to take over the Quirinale, but having brought some stability to Italian politics since taking over as PM of the unity government, and engendering a good deal more hope about the local economic outlook than has been the case for many decades, next week’s outcome has a strong air of make or break. It is not simply about whether Draghi takes over from Mattarella, and then appoints a successor as PM, but rather whether the unity government can survive, even if Draghi stays on as PM and an as yet very unclear alternative is found to take over the presidency. It would appear that Berlusconi, who has put his name in the ring for the presidential post (though very unlikely to be appointed), may be the kingmaker, but with a much needed electoral reform law (which would cut seats in the two houses of parliament by roughly 1/3) also at stake before parliamentary elections take place, there is plenty of scope for Machiavellian intrigue and some surprises.

** U.K. – Dec Retail Sales / Jan Consumer Confidence **
– As with the US Retail Sales numbers, only data in coming months will clear up whether this much weaker than expected outturn was primarily a case of front-loaded holiday shopping due to fears of supply shortages, allied with some Omicron effects, or whether the inflationary pressures on household income are starting to bite. The broad based drop in the GfK Consumer Confidence survey, above all the climate for major purchases, 1 yr economy and to a lesser extent personal finances expectations, certainly hint strongly at inflation fears coming home to roost. It does give the BoE’s MPC pause for thought on rates, above all in trajectory terms, but is unlikely to deter a further rate hike at the February meeting.