Written Commentary
Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
Modest statistical schedule unlikely to trouble markets more focused on month end flows; digesting Australian Construction Work Done, German Q4 GDP and France Business Confidence; ahead US New Home Sales & Mexico mid-month CPI; deluge of BoE and Fed speakers; US retail corp earnings
Central banks pushing back hard on reflation trade – too hard?
German Q4 GDP revision underlines recovery in external demand, leaves Germany in awkward position on US/EU pushback on China
EVENTS PREVIEW
Today’s schedule is unlikely to get markets particularly excited, even if price action in riskier assets would appear to be pushing back against the message from central banks for them not to worry about anything – asset bubbles, inflation, financial stability – “everything is fantastic”. In truth the risk asset weakness is probably mostly a function of month end rebalancing, with the sharper moves in things like Tesla and Bitcoin above all a reflection of leveraged positions and a lack of market liquidity, i.e. market depth, which is a very long established phenomenon, and a function of post GFC regulation and incessant flow of central bank largesse to excess, aka ‘financial repression’. Be that as it may the Bank of England’s MPC follows on from a relatively dovish RBNZ overnight, Powell yesterday and Lagarde on Monday in the aforementioned big pushback, with more from Powell and a raft of other Fed speakers. There are also annual budget presentations in Hong Kong, and more sensitively South Africa. Statistically Australia’s Q4 Construction Work Done overnight proved to be disappointing, and imply a mild drag on Q4 GDP (due next week), with US New Home Sales and Mexican mid-month CPI and Retail Sales being the only items of any note. Retailers will again be the focal point in terms of US corporate earnings, while Germany (10-yr), Canada (3-yr) and the US (5-yr & FRN 2-yr) auction debt.
The overnight data from Germany and France was distinctly mixed. The upward revision to German Q4 GDP underlines the extent of the weakness in Private Consumption due to lockdown measures (-3.3% q/q), and by contrast the strength of the contribution from Construction Output and external demand driving the recovery in Manufacturing. The latter again raises questions about how Germany is politically going to balance the clear dependence on Chinese demand for its manufacturing sector, against US and EU efforts to take a more forceful approach with China on numerous fronts. French Business Confidence was disappointing relative to forecasts, primarily due to very unsurprising falls in Services and Retailer Confidence, but Manufacturing indicators improved from downwardly revised readings for January, most importantly Own Company Production Outlook (10 vs. 8).
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