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Macroeconomics: The Week Ahead: 21 to 25 Feb

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

The Week Ahead – Preview: 

The disparate pull of geopolitical forces, on the one hand the drums of war in the Ukraine, on the other the ostensible but highly debatable nearing of a renewed nuclear deal with Iran, and a resultant very fluid view of how major central banks might tighten monetary policy to try and quell inflation over the next year leaves markets as rabbits in the headlights. The proximity of month end, a number of holiday, and Carnival in Germany and South America will also tend to thin already choppy trading conditions, while the trend to further easing of Covid-19 related restrictions in many countries will continue to increasingly subordinate pandemic, or rather endemic related news. As is quite typical for the last full week of the month the data schedule is dominated by surveys, with flash PMIs, Germany’s Ifo and US Consumer Confidence topping the bill, the US also has Durable Goods, Personal Income/PCE, House Prices along with new and Pending Home Sales. Elsewhere, France looks to provisional HICP for February, Australia has Q4 Wages and Private CapEx, while Brazil and Mexico await consumer inflation data. On the central bank front, there are a good number of BoE speakers to accompany plenty more Fed and ECB speakers, rate hikes are expected in New Zealand (25 bps) and Hungary (30 bps), but seen on hold in South Korea, and China is also expected to leave its benchmark Loan Prime Rates (LPR) unchanged. A busy week for corporate earnings has US retailers, UK and Canadian Banks, Alibaba, and numerous miners and energy companies, with London’s International Energy Week and US and EU agricultural S&D and outlook reports also due. A rather quiet week for govt bond sales is headed by $153 Bln of US 2, 5 & 7-yr, with no supply in the UK, and only German 15-yr and Italian 2-yr Zero in the Eurozone, though it will be another busy week for Chinese local govt bond issuance.

– Business surveys will be plentiful, with the run of flash PMIs and Germany’s Ifo all expected to hold or improve on January’s levels, above all Services measures, as the impact of the Omicron variant fades and activity restrictions are lifted, while Consumer Confidence measures are anticipated to show divergent trends, as the balance between easing restrictions and inflation concerns has divergent impacts, weighing sentiment down in the USA, but lifting sentiment in the UK and Eurozone. While Prices, Orders, Supplier Deliveries and Employment indices will be scrutinized in trend terms, none of the surveys will likely have anything more than a passing impact, above all given higher level considerations like geopolitics, and the fact that all major central banks (excepting perhaps BoJ) are behind the curve, therefore the minutiae of survey data, with a myriad of noisy influences, are nothing more than statistical roadkill. 

 US Consumer Confidence is likely to be more material, with a further drop to 110.0 from January’s 113.8 close to September’s recent low of 109.8, with rising inflation pressures, above all as seen through the lens of always emotive gasoline, and also food prices, rising mortgage rates and a choppy equity market expected to outweigh solid labour demand, and imparting downside risks relative to forecasts. FHFA and Corelogic CS House Prices are expected to rise 1.0%/1.1% m/m, maintaining the recent pace, with y/y rates set to dip thanks to base effects. Q4 GDP is seen revised up fractionally, thanks to a marginally smaller drag from Net Exports, and with Inventories still contributing heavily to the expected 7.0% SAAR pace. Rather more material and less historical will be Durable Goods, where aircraft and transport more broadly are seen pacing a 1.0% m/m headline rise, while core measures are seen up a relatively tepid 0.3% m/m, despite the continued strength in surveyed CapEx intentions. Home Sales are forecast to see a marginal -1.4% m/m mean reversion in New Home Sales after surging 11.9% m/m in December, while Pending Home Sales are forecast to recover 1.5% m/m after dropping 3.8% in December, with both still signalling continued underlying strength. But it will be the PEC deflators that will inevitably grab the most headlines, with headline seen rising to 6.0% from 5.8% and core to5.2% y/y from 4.9%, the latter would be the highest since later 1983 (see chart).

Elsewhere, the focus will primarily be on the first of the national HICP readings in the Eurozone, with French HICP set to see yet another jump to 3.8% y/y from 3.3%, with a combination of adverse base effects from seasonal sale discounts and above all energy prices, the latter despite govt efforts to limit increases. Australia’s Wage Price Index is seen picking up 0.1 ppt to 0.7% q/q to edge the y/y rate up to a still benign 2.4% from 2.2%, which would allow the RBA to continue to lean against immediate rate hike chatter; Q4 Private CapEx is expected to rebound 2.5% q/q from the pandemic disrupted -2.2% q/q in Q3. Last not least China’s New Home Prices are likely to post a fifth consecutive m/m drop, and will doubtless continue to understate the headwinds to the residential sector from the crisis that has engulfed developers for a now very protracted, for the time being the authorities remain focussed on trying to limit the fall-out from the sharp sector restructuring. 

– On the central bank front, it will be many BoE speakers who get perhaps more attention this week, given that the run of Fed and ECB speakers have all voiced their opinions in recent weeks. Bailey and his fellow MPC members testify on the latest Monetary Policy Report on Wednesday, and the BoE holding its first BEAR ‘monetary policy toolkit’ Conference on Thursday and Friday. The primary question is how much BoE speakers want to push back on market rate expectations for the March meeting and the longer-term trajectory, with little majority appetite evident for an aggressive path, and very clear concerns that growth may well slow sharply later in the year, which in turn predicates a good deal of MPC caution and lack of guidance on the ultimate destination for UK rates. The geopolitical risk certainly argues against aggressive moves for the time being, notwithstanding the fact that it would likely boost energy, grains and some metals prices in the first instance, but equally prompt a very sharp setback in the event of a short confrontation. Overall, these highly disparate influences still appear to be a recipe for more, not less volatility.

– On the commodities front, this week’s International Energy Week has an array of accompanying events including Shell’s annual LNG outlook report, the London Argus Oil Forum, S&P Platts Global Energy Forum and Rystad Energy’s ‘Oil markets in 2022: False Start or Fast Forward’. There are plenty of monthly reports and outlooks for the Agricultural sector, including the USDA’s Corn, Cotton, Soybean & Wheat acreage outlook and EU MARS Crop Bulletin, while a close eye will also be kept on the US bird flu outbreak.Among the many commodity corporate earnings, particular focus will likely be given to: Antofagasta, Anglo American, Centrica, Endesa, Gerdau, Iberdrola, Norsk Hydro, Petrobras, Rio Tinto, Vale and Wilmar International.

– In broader corporate earnings terms, Bloomberg News highlight the following: Agilent Technologies, Alibaba Group, Ambev, Anglo American, Anheuser-Busch InBev, AXA, BAE Systems, BASF, Canadian Imperial Bank of Commerce, Cheniere Energy, Cie de Saint-Gobain, Coinbase Global, Danone, Dell Technologies, Deutsche Telekom, EBay, Emirates Telecommunications Group, Holcim, Iberdrola, Lloyds Banking Group, Medtronic, Mercedes-Benz, Moderna, Petrobras, Rio Tinto, Royal Bank of Canada, Stellantis, Swiss Re, Telefonica, Vale.

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