Macroeconomics: The Day Ahead for 18 December

A minimalist calendar of data and events to start the week, with Singapore trade to digest, ahead of Germany’s Ifo Business Climate and US NAHB Housing Market Index and NY Fed Services Index. But with Fed and ECB speakers already lining up to push back on market rate expectations, it will be the run of today’s speakers that will be watched closely, with incoming data really needing to be weak to push back on central bank narratives. Germany’s Ifo survey follows the downturns in both the Manufacturing and Services ‘flash’ PMIs, with the headline Index seen up 0.4 pts at 87.7, paced by a 0.7 pt increase in Expectations to 85.9, premised very tenuously on the rise in ZEW Expectations, which owed everything to the strength of the Dax over the past month, and next to nothing to economic news. The risks given the PMIs and a stream of negative economic headlines looks to be to the downside. The US NAHB Housing Market Index is expected to rebound after steadily declining for much of H2, with lower mortgage rates on the back of the fall in Treasury yields expected to be the driver, but at 37 vs. prior 34, still some way off the mid-year peak.

RECAP: Week Ahead Preview

The new week’s schedule is not overwhelming, as is typical in the week before Christmas, but has the BoJ and some EM central bank policy meetings (most notably a further 250 bps hike in Turkey), while UK and Canada CPI, German PPI and Ifo Business Climate, US Personal Income, PCE, Consumer Confidence and Durable Goods Orders, Japan Trade and national CPI are likely to be the statistical highlights. There is also the ECB Biennial Conference on Fiscal Policy and EMU Governance, and a fair number of central speakers overall, with China’s 1 & 5-yr LPR rate fixing seen unchanged for a fifth month (it now being all too obvious that lower rates are not going to help resolve the property crisis). Govt bond supply is light with only the US (20-yr and TIPS 5-yr) and Canada (5 & 10-yr) holding auctions. Corporate earnings highlights for the week as compiled by Bloomberg News are likely to include: Accenture, Cintas, FedEx, General Mills, Micron Technology, Nike and Paychex.

The BoJ has been quite busy pushing back against market chatter about a policy ‘tweak’ at this meeting, and is expected to hold the call rate at -0.1% and leave the 10-yr Yield target at 0%. There will be no forecast updates, so it will be Ueda’s press conference that is the focal point. While various BoJ policymakers have been openly discussing an exit from YCC and ultra-easy policy, this should be understood as a very long and protracted preparatory process, with the BoJ attempting to ensure that disruption to markets (domestic and international) will be as small as possible. Ueda will doubtless note that weak Q3 GDP, and a gradual drop in CPI mean that there is no need to adjust policy now. Nevertheless, he will put great emphasis on the new year’s annual wage round as being key in determining the timing of any exit, which implies April as the very earliest meeting at which they would make a likely tentative exit, and it could be as late as July, by which time its ‘broad’ monetary policy review (of the past 25 years!) should have been completed. Wednesday will be Japan’s Trade data with Exports seen up just 0.8% y/y (vs. prior 1.6%) on slowing external demand, while Imports post a smaller decline of -9.6% y/y, as energy price base effects dwindle. National CPI will likely echo Tokyo CPI and post sharp headline (-0.6 ppt) and core (-0.4 ppt) declines to 2.7% and 2.5% y/y respectively, while ‘core core’ CPI only edges down to a still high 3.8% y/y from 4.0%.

After a relatively hawkish BoE MPC hold last week, this week brings CPI and Retail Sales. A modest 0.1% m/m rise in headline CPI would bring the y/y rate down to 4.3% from 4.6%, but the stickiness of Core and Services CPI is expected to be all too evident, with the former seen 0.1 ppt lower at 5.6% y/y, and the latter unchanged at 6.6% y/y. Energy prices are expected to push both PPI Input and Output readings down in m/m and y/y terms, underlining again that goods price pipeline pressures have completely abated. Friday’s Retail Sales are expected to see a more meaningful rebound of 0.4% m/m after declining -0.3% in October, with a modest from Black Friday promotions and a new round of cost of living payments expected to be the drivers, but sales are still expected to be down 1.3% y/y. The Lloyds Business Barometer will be of some interest, after effectively flagging the better-than-expected flash Services PMI, having risen to a 21-month high of 42 last month. The CBI’s Industrial Trends survey is expected to show Orders remaining weak, but rebounding to -29 from November’s -35, while the Retailing survey’s Reported Sales measure is expected to slip to -14 from -11.

Germany’s Ifo survey gets the week underway, and follows the downturns in both the Manufacturing and Services ‘flash’ PMIs, with the headline Index seen up 0.4 pts at 87.7, paced by a 0.7 pt increase in Expectations to 85.9, premised very tenuously on the rise in ZEW Expectations, which owed everything to the strength of the Dax over the past month, and next to nothing to economic news. The risks given the PMIs and a stream of negative economic headlines look to be to the downside. Final Eurozone CPI is seen unrevised at 2.4% y/y headline and 3.6% y/y core, with the details likely to get particular attention, in an attempt to gauge how much of the larger than-expected decline will prove to be a one off, and therefore reversed somewhat over the turn of the year, and thus reinforce the ECB’s pushback on market rate cut expectations.

US economic data and surveys continue to be an exercise in ‘push me / pull you’ in signalling terms, and on balance not making a strong case for sharp ‘have to’ rate cuts as implied by what is being discounted in rate cut terms by markets. For this week, Monday’s NAHB Housing Market Index is expected to rebound after steadily declining for much of H2, with lower mortgage rates on the back of the fall in Treasury yields expected to be the driver, but at 37 vs. prior 34, still some way of the mid-year peak. Consumer Confidence gets an early release with a modest gain to 104.0 from 102.0 expected, paced by lower gasoline prices and mortgage rates, and the strength of the equity market. Friday’s Personal Income and Expenditure are likely to echo Average Earnings and Retail Sales with gains of 0.4% and 0.3% m/m, but as ever it will be the PCE deflators that are the focal point with headline seen unchanged m/m and down 0.2 ppt at 2.8% y/y, while core is seen up an unchanged 0.2% m/m, and edging down 0.1 ppt to 3.4% y/y, per se not giving the Fed a real push to cut rates in the next few months, as it maintains a cautious data dependent brief. Durable Goods remain as ever volatile in headline terms thanks to aircraft, with a 2.2% m/m rebound seen after slumping 5.4% m/m in October, but little changed m/m ex-Transport and on the Non-defence Capital Goods Orders ex-Aircraft measure, thus in tune with PMIs/ISM indicators. North of the border, Canadian CPI should continue to improve, aided by falling energy prices and to some extent base effects, with the consensus looking for a -0.2% m/m on headline taking the y/y rate down to 2.8%, while core measures are seen slipping to 3.3% y/y from 3.5%/3.6%, the latter still a little too high for the BoC’s comfort.

This will be the final ‘Week Ahead’ for 2023, the next edition will be published on the weekend of 6/7 January 2024.