Macroeconomics: The Day Ahead for 8 December

Central bank policy meetings and speakers take over the reins of the schedule today, with the overnight run of Japanese data (final GDP, Current Account and Economy Watchers survey) dominating an otherwise modest run of statistics, with Bank of France Industry Sentiment, US JOLTS Job Openings and Russian CPI the only other items of note. ECB speakers are very plentiful, even if many will talking about macroprudential issues rather than monetary policy, as markets digest the as expected no change rate decision from India’s RBI, while looking ahead to a BoC no change decision, and aggressive rate hikes in Poland and Brazil, serving as a reminder of how much rates are diverging around the world. Both Germany and the US will sell 10-yr debt. China Evergrande’s imminent restructuring and associated sector fall-out will continue to rumble in the background, as will the perceived threat of Russia invading the Ukraine. This comes as Europe’s energy crisis sees another twist, with concerns growing that Europe’s top power exporter France may have to start temporarily closing some of its nuclear plants (which supply 75% of French power) for regular inspections and maintenance, which had been ‘paused’ during the pandemic. The run of Japanese data overnight was mostly disappointing, with an unsurprising downward revision to Q3 GDP due to a bigger fall in Private Consumption, offset to some extent by a smaller drop in CapEx. While the Economy Watchers (services) survey remains at robust levels, the outlook measure suggests the post lockdown recovery has run out of steam. However the most interesting story out of Japan was new PM Kishida’s plan to offer corporates a large tax break to those that hike wages, and penalize that do not – the determination that this demonstrates is admirable, but many doubt that this “carrot and stick” approach will get much traction with Japan Inc.

Canada, Poland and Brazil – Rate Decisions

– While there was some speculation that the Bank of Canada might again take fright at the potential downside risks to th economy from the Omicron variant, last Friday’s relatively robust labour data (above all the sharp drop in the Unemployment Rate to 6.0%) and little sign that either headline or core inflation pressures are easing suggest that it will stick with guidance suggesting an initial rate hike in mid-2022. This is a statement only meeting, with no press conference or Monetary Policy Report update, so markets will have to wait for tomorrow’s speech by deputy governor Gravelle for a more detailed update on the BoC’s guidance. Poland’s NBP was rather late in joining in the CEE rate hike cycle, forcing it into a larger than expected 75 bps hike to 1.25% in November, which still looked modest by comparison to the more aggressive Czechia CNB hike, with a number of NBP MPC members clearly wanting a larger hike, which the latest surge in headline CPI to 7.7% y/y vs. expectations of 7.3% and October’s 6.8% will only reinforce. A 50 bps hike to 1.75% is expected, and the risk of another 75 bps hike looks to be high, despite governor Glapinski’s perma-dovish leanings, with December CPI set to surge even higher given adverse base effects, which will only start to unwind in March. Last but not least Brazil’s BCB is expected to deliver another bone crunching 150 bps rate hike to 9.25%, which would mean a cumulative 725 bps since it started raising rates in March. While IPCA IBGE inflation (due Friday) is likely to post a less rapid rise to 10.9% y/y from 10.67%, this will in part be due to increasingly beneficial base effects. Both BCB governor Campos Neto and COPOM member Kanczuk stressed that they were focussed on rising inflation expectations, and that weak GDP readings was not down to BCB policy. There were hints that they are looking at pausing the cycle in the not too distant future, premised on their stated view that energy and commodity prices will correct lower, though markets are clearly very sceptical and continue to price in a further aggressive 150 bps rate hike at the next meeting in February.