Macroeconomics: The Day Ahead for 9 January

While the day’s statistical schedule has a good number of highlights, these may not be enough to stifle the noise from forecasters waxing lyrical about the 2024 economic and rates outlook, rather too much of which seems to be premised on ‘What ifs’ which at the current juncture are not more than speculation – .e.g. what if the wheels off the US labour market? with the conclusion that the Fed would cut rates sharply… which it would, but there is no evidence of this happening near term. Be that as it may, there are Japan’s Tokyo CPI, UK BRC Retail Sales and German Industrial Production to digest, along with results from chip behemoth Samsung Electronics. Ahead lie US NFIB Small Business Optimism, US & Canadian Trade and Mexico’s CPI, with a sprinkling of central bank speak from ECB’s Lane and Fed’s Barr. Today’s US EIA Short Term Energy Outlook (STEO) follows yesterday’s sharp slide in crude oil prices, triggered by Saudi Arabia cutting official physical prices for all regions of the world, in what looks like a towel throwing exercise in response to weak demand as well as more than abundant supply, and exacerbated by anticipated fund selling of WTI ahead of the annual rebalancing of key commodity indices. As with the end of 2023 breakneck rally in equities and bonds, the negative speculative sentiment in energy, grains and oilseeds leaves position heavily skewed, and vulnerable to event risk, even if the bearish rationale is rather more soundly based than the end 2023 ‘everything rally’.

In terms of the overnight run of data, German Industrial Production again missed forecasts with a drop of -0.7% m/m, falling for a sixth consecutive month, very much in line with the message from the sector PMI, but also underlining that even with the drop in gas and power prices (which helped to push energy output into positive territory after a long period of contraction), demand remains very weak, and construction remains a big drag. Anecdotal evidence had already flagged the weakness in UK consumer Christmas shopping, which was confirmed by the setback for BRC Retail Sales to 1.7% y/y, which given that this series is not adjusted for inflation underlines the pressure on consumers from the cost of living crisis. Japan’s Tokyo CPI fell on both headline (2.5% y/y) and core measures (2.1% and 3.5%), and while “core core” CPI remains high, the continued downward trend give the BoJ more than enough breathing space to watch how 2024 wage settlements evolve, before taking a decision on exiting its ultra-easy monetary policy stance.