Macroeconomics: The Day Ahead for 31 March

For all of the positive signals following Tuesday’s talks between Ukraine and Russia, the truth remains that actions speak much louder than words, above all in respect of the Kremlin; this lesson should by rights have been learnt a long time ago, and as it turns out Russia is now focussing on an even bigger assault on the Donbas region and southern Ukraine. It is difficult to avoid the tragic conclusion that this will be a protracted war, with even more death and destruction. Elsewhere today brings to an end a brutal quarter in financial markets, despite the fact that overall financial conditions have only tightened modestly in the US, when seen from a longer-term perspective, but US 10 yields have nevertheless risen the most in four decades over the quarter, and the drop in yields over the past two days, looks to be mostly a case of quarter end portfolio rebalancing after a large underperformance relative to equities.

The statistical and events schedule is very busy, as is often typical at month end. The run of commodity and energy events are likely to centre stage, the more so given talk of the US considering a large (180 Mln bbls) SPR release, which will again be little more than a salve, with the OPEC+ meeting (even if it is not expected to do anything other than reconfirm current arrangements for a 400K bbls/month increase in production), various USDA reports including its annual report on acreage prospective planting data for wheat, barley, corn, cotton, soybeans and sunflower, and a monthly report on grains inventories, while the EIA issues its Petroleum Supply Monthly and “914 monthly oil and gas production”. In respect of the latter, the attached graphic on US seasonal gasoline demand hints strongly at demand destruction, which offers another reason for the mooted SPR release. But if this is happening in the consumer semi-discretionary arena (i.e. gasoline), what might be happening to discretionary spending. The economic data schedule will inevitably find its focal points in French and Italian HICP and US PEC Deflators, with Japan and South Korea Industrial Production, UK Lloyds Business Barometer, final Q4 GDP & Q4 Current Account and German Retail Sales to digest from the overnight run. Also ahead are German Unemployment, South Africa PPI, Canada’s January GDP, along with US weekly jobless claims and the ever volatile Chicago PMI. Another busy day for central bank speakers, with ECB’s Enria perhaps the focal point following the joint warning with the BoE on excessive banking sector leverage published yesterday: https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.bloomberg.com%2Fopinion%2Farticles%2F2022-03-30%2Fthe-ecb-and-boe-issue-rare-joint-warning-on-excessive-leverage&data=04%7C01%7CSimrat.Sounthe%40admisi.com%7C972cac4c9b704d7627d908da12edf0be%7C2f55bf3242d444b3a8c2930ac8b182b2%7C0%7C0%7C637843110650108846%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=BEscmDUeXteadW8KBl%2F7udhQqnY39Qv9dsg6Vz%2BLUB4%3D&reserved=0 . Meanwhile the CEE and EM central bank policy meeting schedule is expected to see another 50 bps rate hike in Czechia, and a whopping 150 bps hike in Colombia.

In terms of the overnight run of data, China’s NBS PMIs at 49.5 Manufacturing and 48.4 Services were the weakest since the onset of pandemic, but should hardly come as a major surprise, as yesterday’s PBOC quarterly survey had already flagged considerable weakness, with Domestic and Export Orders indices falling sharply. The slide in the UK Lloyds Business Barometer (33 vs. 44) was equally unsurprising, and still leaves the headline index above the levels recorded in 2018-2019. By contrast the upward revision to Q4 GDP (1.3% q/q vs 1.0%) was in truth not as good as the headline suggests, with Private Consumption revised down to 0.5% from 1.2%, Gross Fixed Capital Formation also revised down to 1.1% from 2.2%, and the upward revision wholly accounted for by an upward revision to Net Exports, which contributed to 1.65 pts to Q4 GDP, but still failing to completely regain the 2.31 pts deduction to Q3 GDP from Net Exports.

** France / Italy – March HICP **

– Following from the sharp upside surprises from Germany and Spain, mostly due to household energy prices rising much more than had been expected, while food and petrol prices surged, the only question for today’s readings from Italy is how much higher than expected, with France’s HICP posting only a modest upside miss, in no small part due to the preponderance of nuclear energy in its power supplies. Core readings from Italy bear some scrutiny, and should show still relatively modest upside pressures, though as with the rest of the Eurozone, these are likely to signal broadening price pressures in Q2.

** U.S.A. – February Personal Income / PCE **

– While the Fed may favour the PCE deflators over CPI as their inflation indicators, today’s reports are in principle just a rehash of data that has already been published, with some fine tuning to reflect non-wage earnings in Personal Income, and add services spending to Retail Sales. While the PCE deflators do ostensibly look less bad than headline and core CPI, the more relevant point is that they are a country mile above the Fed’s average inflation target of 2.0%, with the headline deflator forecast to rise 0.6% m/m to push the y/y rate up to 6.4%, with core seen up 0.4% m/m 5.1%. Will this make any difference to the Fed’s still quite distant May rate decision. Of course not, though it will offer grist to the mill for the seemingly endless inflation discussions that currently do the rounds of markets 24/7/365.