Macroeconomics: The Day Ahead for 30 March

A busier day in terms of data and events has Japanese labour and Retail Sales data along with UK Lloyds Business Barometer to digest, while ahead lie German and Spanish CPI, the EC Confidence surveys, and US Consumer Confidence and House Prices. Bostic, Quarles and Williams head the run of central bank speakers, while Italy auctions 5 & 10-yr BTPs. But with quarter end looming and the Easter fortnight typically seeing reduced trading volumes and liquidity, the primary market talking points will be Biden’s infrastructure spending plan, with more details to be announced later in the week, and the fall-out from the Archegos Capital margin call event. To be sure, most funds do not have or even permit the sort of leverage that was being deployed in highly illiquid unlisted instruments. But there will certainly be plenty of finds that are re-examining their current risk management parameters (VAR, P&L limits, leverage, concentration risk, etc), and all the more so given that the stocks involved do not fall into the small cap or low volume category, as was the case with Gamestop et al. So the fallout may not be limited specifically to Archegos and its prime brokers. This also applies to the investment banks’ prime brokerage units, and their willingness to provide leverage to the hedge fund industry; even if the scale of this particular failure suggests that little has been learnt or changed since the LTCM collapse in 1998. That said, and as has been amply demonstrated on many an occasion in the past year and indeed since the GFC, the smothering blanket of central bank liquidity and its accompanying financial repression continues to skew investor reaction to the side of buy the dip, FOMO and TINA, as they continue to feel forced to chase yields and returns. It underlines again that central banks will struggle to even tip toe away from the measures that they have adopted in the past year, let alone what was done in the decade after the GFC.

** Germany/Eurozone – March preliminary CPI / EC Confidence surveys **

As previously noted. February’s inflation data in the Eurozone, UK and indeed US were not as some suggested an indication that inflation pressures are weak, but rather testament to the fact that the pandemic has ripped through normal seasonal patterns (let alone general household consumption patterns). Thus the pick-up in January was primarily due to the lack of typical post-Christmas sales discounting, and the setback in February due to over-compensating seasonal adjustment for what would be the typical upward pressure on prices as January’s sales discounts are unwound. Ahead of tomorrow’s Eurozone CPI, today’s German CPI is expected to see an energy led rise of 0.5% m/m, that would see y/y HICP bump up to 2.0% from 1.6%, with base effects giving a significant helping hand. The heavily weighted NRW reporting 0.5% m/m, the national reading looks likely to be in line with forecasts, but higher than expected Spanish HICP (1.2% y/y vs. f’cast -0.9%, Feb -0.1%) imparts some upside risks for tomorrow’s Eurozone CPI. The EC Confidence surveys will attract attention following on from the stronger than expected national surveys and PMIs last, and are forecast to show a sharper pick-up across all measures / sectors, though the Services index at an expected -15.0 vs. February’s -17.1 would still be weak by any historical standard.

** U.S.A. – March Consumer Confidence ** 

As can be seen from the attached chart, Consumer Confidence has lagged other weekly and monthly confidence surveys that have improved sharply since December, while remaining well below year ago level. A sharper rebound in the headline to 96.0 from 91.3 is expected, with the risks skewed to the upside, though perhaps not quite as high as October’s recent high of 101.4. Easing activity restrictions, a robust vaccine roll-out pace, ‘stimulus cheques’ (see BAC chart) and improving labour demand should all boost the mood of consumers, even if high gasoline prices exercise some restraint.