Macroeconomics: The Day Ahead – 13 January 2021

Good Morning: The Long & the Short of it and The Bigger Picture

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

• Top ECB and Fed speakers dominate schedule; digesting Australia & S. Korea  jobs data, awaiting Eurozone Industrial Production, US CPI and Fed Beige  Book; busy run of govt bond sales; UK PM Johnson testimony
• US CPI: headline to be boosted m/m by gasoline, core subdued by shelter & housing; y/y rates to continue to offer Fed plenty of room in AIT terms
• Fed Beige Book: focus on outlooks for hiring and overall activity; NFIB survey suggests less optimistic turn; survey timing effects

EVENTS PREVIEW

Today’s schedule differs little from Tuesday, with central bank speakers front and centre – most notably Lagarde, Brainard & Clarida; while the data schedule features US CPI and Treasury Budget, along with Eurozone & Italian Industrial Production, and the Fed’s Beige Book, and there is also the overnight news on much better Australian job vacancies, and by contrast a surge in Unemployment in South Korea to digest. The scheduled political highlight will be UK PM Johnson’s testimony to Parliament’s Liaison Committee, which will doubtless be far less candid and honest about the UK’s pandemic situation than Chancellor Merkel’s admission yesterday that maximum lockdown measures in Germany may well have to be extended until Easter (early April), given the need to contain the latest more virulent Covid-19 variants.

U.S.A. – December CPI / Fed Beige Book

The simplest observation on today’s CPI is that in y/y terms at an expected 1.3% headline and 1.6% core, it will be another month that is below target, and in an AIT (average inflation target) environment only adding to ‘lower for longer’. In m/m terms headline terms, Gasoline prices were up by nearly 4.0% on the month, in contrast to what would normally be seasonal fall of ca. 3.0%, and this will be the key contributor to an expected overall rise of 0.4%; by contrast shelter/OER will weigh heavily on core, which is seen up by just 0.1% m/m. There will likely be small pockets of supply disruption price pressures, but of little consequence relative to the aforementioned heavily weighted items. While there is a political bias in the survey base for the NFIB Small Business Optimism (heavily Republican), which may well have accounted for the sharp drop on the economic outlook and future sales, it is likely that this downturn in outlook optimism will find an echo in today’s Beige Book. While there may have been offset from the end December fiscal package, this will have been modest, with many responses pre-dating the passage of that bill. Indeed uncertainty about the Georgia run-offs, rising infection rates and vaccine distribution will also likely have weighed quite heavily on business outlooks, and this was also evident in the JOLTS Job Openings report fall yesterday, which was modest, but widespread.

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