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Good Morning: The Long & the Short of it and The Bigger Picture - 18 January 2019 - ADM ISI


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Ostwald, Marc
08:31 (30 minutes ago)

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- Digesting US and Japan funds flow data, soft Japan CPI, awaiting UK Retail
Sales, US Industrial Production & Canada CPI; Fed and ECB speakers, more
largely financials corporate earnings ahead of Monday US holiday; Trade
and political news still the key driver as seen in reaction to later denied
story of US Treasury considering cutting China tariffs

- UK Retail Sales: sharpish fall seen after Black Friday predicated surge
in November, anecdotal evidence universally weak, underlying trend
sluggish; overall moot given Brexit related political crisis

- US Industrial Production: modest gain expected, restrained by utilities,
manufacturing seen rebounding modestly from November flat line; Beige
Book & Philly Fed a timely reminder that underlying trend solid, but
slower than mid-year

- Canada CPI: energy, gasoline to weigh on headline, core resolutely
around target

- Charts: Citi Global Money Supply proxy, US Vix vs GS Financial Conditions,
US IG vs. HY average credit spreads, US Treasury cash balance at Fed,
ICI total mutual and ETF fund flows

..........................................................................

********************
** EVENTS PREVIEW **
********************

As has been the case for much of the week, scheduled data and events remain very much subordinated to political and trade related news (as evidenced by the jump on later denied talk of the Treasury looking at lowering China tariffs), with UK Retail Sales, US Industrial Production and Canadian CPI accompanying Polish wages, employment and production on tap, while Visco, Williams & Harket are on hand in central bank speaker terms. The corporate earnings run is still dominated by financials with Citizens Financial, State Street & Suntrust on hand along with oil services giant Schlumberger. As for next week's calendar, surveys including G7 'flash' PMIs and Germany's Ifo are very plentiful, China has Retail Sales, Industrial Production & FAI; the UK has jobs, wages and the PSNB; Japan looks to Trade and Tokyo CPI, while the US should have Durable Goods and Existing Home Sales, but probably not due to 'shutdown', and the US will also be closed for Martin Luther King Day on Monday. Q4 Corporate Earnings will also pick up in number terms and also have much more in the way of reports from Main St rather than Wall St, while the ECB meeting is expected to note that downside risks to the outlook are crystallizing. Our chart of the day is the Citi Global Money Supply proxy, which serves to underline that while the long-term liquidity trend remains negative, in the short term it is improving, and hence it is rather unsurprising that risk assets have started the year on a firmer footing.

** U.K. - Dec Retail Sales **
- As is well documented, UK Retail Sales in the November through February period frequently see a run of outlier readings, and the consensus for -0.8% m/m reflects not only weak survey data (BRC, Barclaycard & Visa), but also the very overstated 1.4% m/m November surge (due to Black Friday sales), will likely be a case of 'robbing Peter to pay Paul' as has been the case on a number of occasions in recent months. Be that as it may, it is clear that UK consumer spending is at best lacklustre, weighed down by high levels of household debt, still very weak real wage growth and Brexit uncertainty. This is in any case rather moot, as markets remain focussed on the UK's Brexit related political crisis, where the idea that there might be an attempt to build some form of cross party consensus on 'where to next' looks to be a forlorn, with May and Corbyn sticking with well entrenched "red lines", which are totally antithetical to any form of even basic negotiation, let alone working towards some solution.

** U.S.A. - Dec Industrial Production **
- Fortunately this series is produced/published by the Federal Reserve, and thus offers an at the moment scarce 'hard data' fix on the US economy, and follows a not so downbeat Beige Book, and the unexpectedly sharp rebound in yesterday's Philly Fed Manufacturing survey. It is expected to see Production slow to 0.2% m/m after jumping 0.6% in November on utilities and mining, with Manufacturing Output projected to bounce from a flat m/m in November to 0.3%.

** Canada - Dec CPI **
- Canadian CPI is seen little changed at 1.9% y/y on all core measures, which helps to underline why the BoC is rather more focussed on growth, wages and exports in terms of its short to medium-term policy outlook, given that inflation has been remarkably stable around target for a considerable period. Falling energy prices predicate an expected -0.4% m/m for headline, that would drag the y/y down to 1.7%.
 
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