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


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Ostwald, Marc
08:29 (24 minutes ago)



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- Brexit debacle drama still front and centre; digesting poor French
& Japan PMIs, Japan CPI, awaiting German, Eurozone & US PMIs, US
Existing Home Sales, Canada CPI & Retail Sales; Fed, ECB & Norges Bank
speakers and Russia rate decision

- PMIs: France slide and another weak Japan PMI do not augur well for
Germany/Eurozone, focus on German Mfg vs Services divergence; US seen
holding its ground

- Russia rates: no change expected, likely to change guidance to suggest
next move will probably be a cut

- Canada CPI: energy prices rebound unlikely to be enough to see headline
rebound, core CPI seen holding just below BoC target; Retail Sales
likely to remain depressed by gasoline price fall (Jan not Feb data)

- Charts: CBOT Corn, KC Wheat, US 10 yr yield, RUB/USD & FX performance
vs USD year to date, LME Nickel, VIX vs. V2X

- Morning Call audio file:
https://www.mixcloud.com/MOstwaldADM/adm-isi-morning-call-22-march-2019/

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

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

As another week draws to a close, the Brexit drama will remain front and centre as parliament jockeys for position ahead of next week's vote(s), and with a promise from Juncker that there will be another council meeting next week, if as seems very likely the Withdrwal Agreement is again voted down by the UK parliament. There is of course plenty more to consider, even if the Brexit cacophony creates a high level of interference. Statistically, there are the Japanese CPI and Manufacturing PMI to digest ahead of Eurozone and US PMIs, the US also has Existing Home Sales, while Canada sees CPI and Retail Sales. Following on from the FOMC meeting and the Norges Bank's 'hawkish' rate hike yesterday, the day's run of central bank speakers has Atlanta Fed's Bostic along with Norges Bank governor Olsen and many of his fellow board members, which will attract a good deal of attention, while Bank Rossi and BanColombia are both seen holding their key policy rates. The week ahead brings month and quarter end, and a goodly volume of US and Japanese data - for the US Housing Starts, Consumer Confidence, final Q4 GDP, Trade Balance and Personal Income, while Japan has Tokyo CPI, Industrial Production, Retail Sales and Unemployment. Otherwise surveys dominate in the Euro area including German Ifo and GfK, and the EC Confidence measures, the UK has final Q4 GDP and monetary & lending aggregates, while Canada awaits monthly GDP. On the Brexit front, the A50 extension 'agreement' effectively swaps March 29 for April 12, though this could be extended to May 22 in the seemingly unlikely event that the Withdrawal Agreement is approved in the meantime. But in principle this really is nothing more than messing around with calendar dates. It does not change the basic fact that there is no majority in parliament FOR anything, other than an array of 'unicorns', or the fact that PM May's press conference on Wednesday has raised the level of angry resistance to anything that she proposes to new levels, in other words the UK remains mired in a constitutional crisis.

** G7 - March 'flash' PMIs **
- 'Flash' PMIs are mostly projected to be little changed vs. final February readings, both in the USA and the Euro area. The key question is whether there is any sign that the chill winds that have been and are still blowing from China for the Japanese and German manufacturing sectors continue to signal sector contraction. On the other hand Manufacturing is seen faring rather better in France (exp. 51.3 vs. 51.5) and the USA (53.8 vs. 53.0). By contrast Services PMIs have mostly been quite buoyant, with the exception of the hefty hit from the 'gilets jaunes' protests in France, though even here a further recovery to 50.6 from 50.2 is expected, while Germany (54.8) and the USA (56.3) continue to see a very solid pace of sector activity.

** Russia - Bank Rossi rate decision **
- Russia's Bank Rossi had suggested at the turn of the year that it might still have to hike rates again in 2019 (after two 25 bps hikes to 7.75% in 2018), if the combination of the VAT hike and legacy effects from last year's RUB fall were to see CPI rise more than expected, but recent rhetoric has signalled a shift to a neutral policy stance, and a hint of a rate cut(s) later in the year. CPI inflation hit 5.2% in February (above the 4.0% target), and Bank Rossi's analysts are expecting it to peak around in 5.5% y/y in March or April, while deputy governor Zabotkin highlighted the strength of the RUB (up ca. 6.0% vs USD year to date – see chart) as very beneficial, while obviously noting the risk of further sanctions. The fact remains that the RUB is proving to be far more resilient to oil price fluctuations and sanctions than previously, in no small part due to a combination of the purge of nearly 500 'Potemkin' banks in recent years by governor Nabiullina, a sharp reduction in dependence on western finance (and an increase from China), and the fact that its external liabilities are now less than its FX reserves. As an aside, some thoughts on the outlook for Russia, above all in the context of the recently announced 6-yr infrastructure spending programme can be found in this recently recorded video that I recorded for the Investing Channel:
.

** Canada - Feb CPI, Jan Retail Sales **
- CPI will see the rebound in energy prices pressure the m/m rate to 0.6% m/m, but the rise is in part seasonal and as such the y/y rate is seen unchanged at 1.4%, while core CPI is again very close to the BoC's 2.0% target at 1.8% y/y, where it has been for more than a year. Retail Sales have been depressed in recent months by the fall in energy prices and weak Auto Sales, and will likely continue to be in this report, as this is January data.
 
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