Macroeconomics: The Day Ahead for 7 February

While the day’s data schedule is not overwhelming, there is a wide variety of events and earnings on tap. Statistically China’s CPI & PPI and Japan’s Economy Watchers Survey are on the ‘to digest’ list, with US weekly jobless Claims, and inflation data from Brazil, Chile and Mexico ahead. Pakistan holds its general election, as India’s RBI opted for another ‘hawkish’ hold as expected, and Banco de Mexico is expected to mirror the RBI, while opinions are divided on whether Czechia’s CNB opts for a further 25 bps rate cut or pauses. There are the ECB Economic Bulletin and Turkey’s TCMB’s Inflation report, a good number of central bank speakers, while US Treasury Secretary Yellen testifies to the Senate Banking Committee hearing on the Financial Stability Oversight Council annual report. In the agricultural commodity space, there are a barrage of monthly S&D reports, headlined by the USDA’s WASDE (World Agricultural Supply & Demand Estimates), accompanied by China’s CASDE, Brazil’s Conab and Canada’s StatCan. A blockbuster day for earnings around the world has amongst its likely highlights in Asia: Honda, Lotte Shopping, NTT, Nissan and Sumitomo Metals Mining; in Europe: Aker BP, AP Moeller-Maersk, ArcelorMittal, AstraZeneca, Credit Agricole, L’Oreal and Unilever, and in North America: Brookfield, ConocoPhillips, Duke Energy, S&P Global, Tenet Healthcare and Warner Music.  Govt bond auctions take the form of US 30-yr and Canada 2-yr.

** U.K. – Jan RICS House Prices, KPMG/REC Employment **

– The stronger than expected further pick-up in the RICS House Price Balance to -19 vs. Dec -29 lifts the index to its best level since October 2022, and was perhaps more notable for new buyer enquiries (+3 vs. Dec -7) turning positive for the first time in 2 years. Falling mortgage rates, and the long standing structural housing shortage are unsurprisingly giving the sector a boost, even if overall transaction volumes remain very subdued, though improving. The monthly REC Employment report is however more significant, especially given the comments from BoE’s Breeden yesterday about wage growth being critical to the monetary policy outlook. In the detail, the Permanent Staff Wages index slipped to 55.8 from 56.5, and is now somewhat below is pre-pandemic average of 56.7, and with demand for Permanent Staff also slipping again, there is a material loosening in labour market demand. That said the well documented skills shortages in the UK labour market implies that it may take rather longer for wage growth to slow to levels that the MPC sees as acceptable.

** China – January CPI & PPI **

– The seemingly relentless run of negative news from China continued with CPI registering a drop of -0.3% m/m for an annual drop of -0.8%, the steepest fall since 2009. While a record drop in Food Prices at -5.9% y/y accounted for much of the drop, thanks to Pork Prices sliding -17.0% y/y, core CPI also dropped back to 0.4% y/y from December’s 0.6%. The open question is whether more forceful fiscal and to a much smaller extent monetary policy stance would resolve what is a deep seated crisis of confidence, or whether some form of balance sheet resolution, perhaps in the style of the US RTC in the early 1990s, is needed to restore confidence in the stricken property sector, above all to mitigate the obvious contagion effects in the banking and fund sectors. Yesterday’s move to replace the head of China’s securities regulator CSRC looks to be a case of opting for what has previously been a rather effective way to boost domestic equity market sentiment, but given the aforementioned and seemingly entrenched loss of confidence, its efficacy may prove to be short-lived, unless authorities conjure up some additional measures to bolster sentiment over the Lunar New Year holiday period.