Macroeconomics: The Day Ahead for 9 February

As many parts of Asia close for the Lunar New Year, there is a busy looking schedule of data, but outside of the stronger than expected China Credit Aggregates, French Q4 Wages (lower than expected at a very modest 0.3% q/q), Canadian labour data and the annual revisions to US CPI, most of the other reports (Norwegian CPI, Swedish monthly activity indicators and final German CPI) will likely have little market impact. There will be a smattering of central bank speakers, but with the message of ‘no rush to cut rates’ at recent policy meetings and thereafter, it is difficult to see how any of today’s speakers are likely to offer any fresh policy insights. US President Biden meets with German Chancellor Scholz, with the focus likely to be on US support for Ukraine and bilateral trade relations, though there may be more discussion around the Special Counsel’s report overnight raising issues about Biden’s “poor memory”. Among the highlights of the run of corporate earnigns run are likely to be Kobe Steel, Mitsubishi Materials, Shiseido, Tokeo Electron, Saab, Yara Iternational and Pepsico. Next week’s schedule will focus on a busy run of major statistics from the US (CPI, PPI, Retail Sales, Industrial Production, NY & Philly Fed Manufacturing surveys) and the UK (CPI, Unemployment, Wages, Q4 GDP, Retail Sales), with Japan also looking to Q4 GDP, Australia to Unemployment, while the EU looks to German ZEW and CEE Q4 GDP. There will again be plenty more central bank speakers and corporate earnings, as well as monthly Oil Market reports from OPEC and the IEA.

** U.S.A. – CPI annual revisions **

– Historically the annual reweighting of the CPI basket has only attracted the attention of economists, with little market discussion. But with the inflation trajectory (above all core) very much front and centre to the Fed’s policy deliberations, and the comments by governor Waller in a speech in mid-January in which he noted “Recall that a year ago, when it looked like inflation was coming down quickly, the annual update to the seasonal factors erased those gains. My hope is that the revisions confirm the progress we have seen, but good policy is based on data and not hope.” Per se the revisions could be short-term pivotal in terms of market rate expectations. Nevertheless the scale of the revisions are likely to be relatively modest in big picture terms, whether up or down, with the most important aspect being where 10-yr real yields stand after the revisions, as this is the key to Fed thinking on whether rates are becoming ‘overly restrictive’. That said, it should be remembered that the Fed is also under no pressure on rates given that labour demand remains robust, as is growth, and while there are threats to financial stability, they are not crystallizing to such a degree that the Fed would be forced to take action, at least for the time being.