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Dentalfloss · Jan 30, 2019

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Dentalfloss · Jan 30, 2019

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Dentalfloss · Jan 30, 2019

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Dentalfloss · Jan 30, 2019

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Dentalfloss · Jan 30, 2019

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Dentalfloss · Jan 30, 2019

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Dentalfloss · Jan 30, 2019

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Dentalfloss · Jan 30, 2019

Good Morning: The Long & the Short of it and The Bigger Picture - 30 January 2019 - ADM ISI

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Ostwald, Marc
08:53 (3 minutes ago)

to Marc

- Very busy day for data, events and earnings reports: FOMC meeting and
press conference tops schedule; US/China trade negotiations, and post
mortem on parliament Brexit votes also in focus; digesting Oz CPI, UK
BRC Shop Prices and French Q4 GDP; awaiting UK credit and monetary
aggregates, slew of surveys, US ADP Employment and Pending Home Sales;
bond auctions in Italy & Germany

- Fed: clearly on a protracted rate pause, and still very data dependent;
balance sheet reduction programme signals in focus; some risk that
message is not as dovish as markets are pricing

- Brexit: gridlock still very much the status quo, parliament still
focussed on what it does not want, but unclear / divided on what it
does not want

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

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

In a continuation to this week's very busy run of data and events, today probably marks the high watermark on most fronts, with the focus above all on the US, though there is plenty to contemplate elsewhere. Though the advance US Q4 GDP report will have to wait for the compilers of the various monthly reports to catch up after the partial govt shutdowns, and only then will the BEA be able to compile the GDP report. Be that as it may, the FOMC meeting and a raft of US and European corporate earnings, are accompanied by the overnight Australian CPI (above forecast, but below the RBA target of 2.0%), Japan Retail Sales (better than expected, and pointing to a solid, if unspectacular contribution to GDP) and provisional French Q4 GDP (marginally better than expected_. Ahead lie UK credit & monetary aggregates (credit growth set to slow further), German CPI (seasonally typical large falll m/m, with CPI seen edging lower to 1.6%, but HICP y/y edging up to 1.8%)and a slew of national and Eurozone surveys along with US ADP Employment and Pending Home Sales. If this is not enough the high level US/China trade talks get under way, and then of course there is the outcome of the various Brexit votes yesterday, which in the cold light of day change precisely nothing, in so far as Parliament continues to be clear about what it does not want, but unspecific about what it does not want. It should be added that for all that the non-binding votes reinforced antipathy to a 'no deal' Brexit', it is not off the table, but also imply little chance of a second referendum either . Apart from anything else, the EU has already rejected any renegotiation of the existing deal offer, so in principle the clock is is ticking rapidly to March 29 and gridlock remains the status quo. Eminently the situation is such that the UK has set up the EU as the scapegoat on whom to blame a no deal Brexit, if that is the outcome, and it has long been the case that this was the only thing that the UK govt was determined to ensure... Very sad, very spineless and incredibly blinkered, and very much a case of acting in bad faith. Aside from all of this, there are also govt bond auctions in Italy (5 & 10-yr) and Germany (10-yr).

** U.S.A. - FOMC meeting **
- It is rather fortunate that the Fed will now be holding a press conference after every meeting from now on, even if there will be no updates on its forecasts or the 'dot plot'. Be that as it may, the clear shift in Fed rhetoric since the December meeting to a less hawkish stance (rather than dovish) requires some explanation, and there is some risk that markets could be disappointed. Eminently the Fed is 'flying blind' as much as markets are in terms of economic indicators, but the statement will still emphasize that they remain highly 'data dependent', and will doubtless acknowledge that there has been a clear loss of momentum in growth, but perhaps also stressing that overall growth remains solid. They are likely to stress that labour demand continues to be very robust, and that there is precious little slack in the labour market, even if this is not materially pushing up wage growth, and will probably note that while oil prices will drag headline inflation lower, core inflation is likely to remain around target. The signal on rates is likely to be that they are 'pausing' until a clearer picture on the domestic and global economic outlook emerges. However markets will be most interested in what is said about the Fed's balance sheet reduction programme, which is clearly no longer on 'auto pilot' given the FOMC discussion at the December meeting, the question is what would prompt a change, and what specific concerns they have in relation to its impact on market liquidity, and above all overall financial conditions. As noted, the risk that markets, which have been edging towards speculating about when the next Fed easing cycle might start, could well be disappointed by anything that does not have a 'dovish lean'.

On a separate note, I look forward to participating in the UK IoD Economic Forecasting Panel this evening, and to chatting with any of you that may be attending: https://www.iod.com/events-community/events/event-details/eventdateid/12965