Good Morning: The Long & the Short of it and The Bigger Picture - 10 January 2019 - ADM ISI
09:15 (5 minutes ago)
- Another very busy day for Fed speakers, as weak China, CPI, UK BRC Sales
and French Industrial Production are digested; US Initial Claims ahead,
Dec ECB minutes also due; France and US to auction debt; politics via
way of various trade tensions, Brexit debate and US Govt shutdown still
- China CPI/PPI: weaker oil and commodity prices (and weaker domestic
demand) proving to be a much stronger influence than H2 drop in CNY;
base effects also playing a role
- Fed minutes underscore FOMC was already contemplating a pause in
December: foolish Trump pressure more than likely the swing factor
behind rate hike - heightens focus on Powell and other Fed speak
Another busy day for central bank, above all Fed, speakers with the focus on Powell, accompanies the overnight China inflation data, UK BRC Retail Sales (very unsurprisingly weak), Norway CPI (marginally stronger than expected at 3.5% y/y headline and 2.1% y/y for core) and very weak French Industrial Production, with the US looking to weekly jobless claims, with a raft of activity data also due across Europe, most of which will likely be little more than statistical roadkill. Eminently all of this will continue to be subordinate to political developments with the initial focus on the briefing about the US/China trade talks (with China and US communiques essentially saying that progress has been made, but there is still a lot of work to do before the end of the 'truce' period) that concluded on Wednesday, ahead of the continued UK parliament debate on Brexit, and of course developments on the partial US government shutdown which looks set to continue for another week, after Trump flounced out of yesterday's meeting with Congressional leaders. Trump is now probably the biggest risk to the US economy, with his infantile tantrums becoming too frequent, and his lack of any analytical abilities all too clear. It is worth noting that while progress is being made on US/China trade talks, no progress has been made on US/EU talks, thus raising the risks of US tariffs on EU autos being implemented. Govt bond supply takes the shape of a multi-tranche auction of French OATs, while the US concludes this week's refunding exercise with $16 Bln of 30-yr Treasuries, along with $70 Bln of 1 & 2-month T-bills. The much sharper than expected fall in Chinese PPI 0.9% y/y vs. forecast 1.6% and November's 2.2%, with CPI also missing at 1.9% y/y vs. forecast 2.1% and November 2.2% are in part due to base effects, and certainly emphasize that there has been zero impact on inflation from the CNY H2 2018 fall, with the slide in oil and some other commodity prices dictating the current trend, along with weakening domestic demand. It certainly gives the PBoC scope to cut rates, though there is a clear signal that targeted fiscal stimulus and lending incentives are going to be front and centre of the Chinese authorities' efforts to stimulate the economy.
** U.S.A. - Fed outlook **
- In terms of the FOMC minutes they confirmed that despite a unanimous vote to hike rates, the Committee was quite ambivalent on the rate trajectory, and also debated whether it might need to adjust its balance sheet reduction programme. It effectively implies that a pause might well have materialised in December had the very foolish President not been piling pressure on the Fed. This puts even greater focus on Powell's speech today. It is worth noting that for all that much of yesterday's Fed speak underlined that the Fed is now in 'wait and see' mode, with the hawkish lean of those such as Rosengren evaporating, but the once super dovish Evans while backing a pause, still suggested that he saw three rate hikes in 2019 based on this current economic forecasts, emphasizing that he expected a slower but still solid pace of growth, which he expects will tighten the labour market even further. Be that as it may, markets are probably running the risk of taking a rather too dovish view on the Fed rate outlook, and as with the Bank of Canada's message yesterday, ultra 'data dependency' should not be constructed as an asymmetric bias to no further rate hikes, which in turn implies that the start of year recovery in many risk assets could founder on the rocks of central banks leaning more heavily against current market rate expectations, i.e. by not being as accommodative and / or dovish as markets are discounting.
Good Morning: The Long & the Short of it and The Bigger Picture - 11 January 2019 - ADM ISI
08:35 (3 hours ago)
- Digesting better than expected Australia Retail Sales & French BoF
Industry Sentiment, weak Japan Household Spending; awaiting UK monthly
GDP and raft of activity data along with US CPI; ECB speakers and
Italy BTP auctions
- UK GDP: marginal expansion expected, some upside risks if Production
and Construction rebound more than expected from October slump
- US CPI: gasoline and energy to weigh on headline CPI, but robust
Services CPI to underpin core
UK data tops the day's schedule, along with US CPI data which will be published as it is compiled by the Bureau of Labor Statistics which was funded back in September and is therefore not subject to the shutdown, which for the record books will be the longest ever shutdown if it continues until Saturday. (Just for reference, this a list of what is open and what is closed in terms of statistical depts., see http://www.pewresearch.org/fact-tan...casualties-of-the-federal-government-shutdown). Outside of the that run of UK monthly GDP, Trade, Industrial Production and Construction Output, there are also the overnight Australia Retail Sales, Japan Household Spending and Turkish Current Account, with the only other item with market moving potential looks to be Indian Industrial Production. Italy rounds off a very busy week for Eurozone govt bond issuance with max. EUR 6.5 Bln total of 3, & & 30-yr BTPs.
** U.K. - Nov monthly GDP, Industrial Production, Trade & Construction Output **
- Eminently, the Brexit debate in parliament is of far greater significance than today's run of data, though one might well argue that, given the protracted period of uncertainty which shows no sign of imminent resolution, the UK economy has not slipped into recession, and that demonstrates a degree of resilience. Be that as it may, November monthly GDP is seen posting another meagre 0.1% m/m gain as it did in October, predicated on a similar sized rise in Services, which would see the q/q rate dip to 0.3% from 0.4%, which in annualized terms would be around the 1.2% pace that will likely be the outcome for 2018 GDP. There is perhaps a modest upside risk, if the Industrial Production & Construction Output data rebound a little more strongly than the 0.2% m/m consensus, after posting quite sharp falls in October, though this would merely confirm that the October fall was rather exaggerated. The accompanying Trade data are also expected to post a marginal narrowing from October's levels, but it is the growth rates for exports (Oct 0.8% m/m) and Imports (3.5% m/m) which require rather more attention, even if the obvious point that there has been absolutely no benefit in terms of Exports from the sharp fall in GBP.
** U.S.A. - December CPI **
- The story on US inflation at the current juncture is very simple, the sharp fall in gasoline prices is set to drag headline inflation all the way down to 1.5% y/y, with December seen at -0.1% m/m and 1.9% y/y, however core inflation is basically seen staying around target (consensus 0.2% m/m 2.2% y/y), and continues to buoyed by OER (rents) and medical/health care related items, though the latter has been a rather more volatile item of late. Apparel prices and Air Fares have been quite frequent wild card items over the past 6 to 9 months, but perhaps most attention needs to be given to Services prices that have been creeping steadily higher to stand at 2.7%, and thus offsetting a gradual deceleration in OER over H2 2018. However in Fed policy terms, inflation is clearly not front and centre in terms of that ultra 'data dependency', with the growth outlook and a tight labour market weighing far more heavily in the equation at the current juncture.