Macroeconomics: The Day Ahead for Feb 15

In trading terms, this week will get off to a very quiet start with the Lunar New Year holidays in Asia, a very subdued Carnival in parts of Europe and South America, US President’s Day and Canada’s Family Day. Be that as it may, the data schedule is quite busy, even if much of it will have minimal market impact, with Q4 GDP readings from Japan, Singapore, Thailand and Denmark to digest ahead of Eurozone Trade and Industrial Production. The events schedule has only the Euro Group finance ministers’ meeting, with the formation of the new Italian cabinet and how and then the UK proposes to start easing lockdown restrictions, having reached the landmark of 15.0 Mln Covid-19 vaccinations, likely to be the main talking points, along with the big freeze in Texas, which sent some local NatGas Prices skyrocketing on Friday. Japan’s better than expected Q4 GDP was due to a stronger than expected rebound in Business CapEx (4.5% q/q) and Exports (11.1% q/q), even if the Private Consumption recovery was rather sluggish at 2.2%. As elsewhere renewed activity restrictions introduced in January, Q1 GDP will contract, but how the economy performs thereafter will in part depend on whether the Olympics take place and under what conditions, if they do.

RECAP – The Week Ahead Preview:

There is a busy schedule of statistics in the US, UK and Japan, but very modest elsewhere with the G7 and Australia flash PMI surveys rounding off the week. On the central bank front, there are ECB, FOMC and RBA minutes, a further rash of major central speakers, and a number of EM central bank policy meetings, which are expected to see a further 25 bps rate cut in Indonesia, while Turkey’s TCMB will hold rates. In the commodities space, the main points of interest will be: a) corporate earnings, amongst others: BHP, Deere & Co, Glencore, Occidental Petroleum & Rio Tinto; b) the USDA’s annual outlook forum, including its estimates of 2021 (planted) acreage, and c) the re-opening of China’s commodities markets on Thursday, which appears unlikely to see the usual post-LNY lull in demand. It will be a busy week for govt bond issuance in the Eurozone, UK and to a much lesser extent the US.

US Retail Sales and weekly jobless claims along with the flash PMIs are likely to be the key data points. Even if there are also Japan’s Q4 GDP, Trade and Machinery Orders, UK inflation, Retail Sales and PSNB, US Industrial Production, Housing Starts, and NAHB, NY & Philly Fed surveys along with Germany’s ZEW survey and Australian Unemployment. US Retail Sales are projected to post a 1.2% m/m rebound after falling for the past 3 months, with the core ‘Control Group’ measure seen up 0.9%, with solid auto sales, rising gasoline prices and a fresh round of ‘fiscal stimulus’ payments all expected to contribute to the rebound. However the setback in last Friday’s Michigan Sentiment (current and expectations) leaves considerable doubt over whether that rebound will be sustained, and in turn put a lot of focus on this week’s jobless claims data, with some wondering whether last week’s unexpected rise in claims underlines that prior falls were more a function of seasonal adjustment (a process which the pandemic essentially puts a big red line through) than a real pick up in labour demand. Friday’s PMIs are expected to see modest downticks across the G7, with the exception of UK Services which are seen picking up to 42.0 from the lockdown and Brexit induced slide to 39.5 in January. In principle, this would leave Manufacturing still expanding at a solid pace in much of the G7 (except Japan), Services expanding strongly in the US, but clearly contracting though to varying degrees in Eurozone, UK and Japan.

On the central bank front, there is unlikely to be much to be gleaned from the FOMC and ECB minutes, nor from the numerous central bank speakers. These will continue to stress the commitment to ‘forward guidance’ on low rates and endless liquidity injections for at least another two years, and to policies which continue to create colossal asset price inflation pressures, distort markets, deepen inequality, create the illusion of financial stability, and which are toothless to deal with the economic impact of the pandemic, having already totally failed to deal with disinflationary forces following the GFC. But as previously observed, this is a case of Stockholm syndrome, where the central banks’ financial repression is welcomed by markets that feel assured that they are in a ‘win-win’ situation, knowing that if central banks even hint at reneging on current levels of support, a market tantrum will lead to a tightening of financial conditions that will force central banks to indulge in even greater levels of ‘largesse to excess’.

Corporate earnings are once again plentiful, with Bloomberg suggesting that the following will be among the highlights:

• Energy & mining: BHP Group, Glencore, Fortescue Metals, Barrick Gold, Occidental Petroleum, Marathon Oil, Eni, Newmont, Rio Tinto, NovaTek and Repsol; Financials: Barclays, Credit Suisse, AIG, Swiss Re, Allianz and Vornado
• Travel & Car companies: Airbus, Air France-KLM, ADP, Daimler, Renault, Michelin, Hilton Worldwide and Hyatt Hotels
• Tech: Applied Materials, Southern Co., Baidu, Synopsys, Garmin, Palantir, Shopify, Twilio, Analog Devices and Roku
• Industrials: Owens Corning, Waste Management and Deere
• Food & household: Walmart, Nestle, Spam maker Hormel Foods, CVS, Danone, Hermes, Kering, Herbalife, Ahold Delhaize, Carrefour and Kirin Holdings
• Others: Animal health company Zoetis and gun maker Sturm Ruger.