Macroeconomics: The Day Ahead for Feb 19

At the end of another rather underwhelming week in financial markets outside of the Texas freeze impact on the energy sector, it is the array of G7 flash PMIs that will take centre stage in data terms, on a busy day for UK data (Retail Sales, PSNB, GfK Consumer Confidence and CBI Industrial Trends), with Japan’s CPI and  Australia’s Retail Sales to digest; ; US Existing Home Sales and Canadian Retail Sales are also due. There is the virtual G& meeting which will focus on Covid-19, climate change and China, along with a few ECB and Fed speakers, with Allianz, Eni and NatWest Group and above all Deere & Co likely to be among the headline makers in terms of corporate earnings. Next week brings month end and with it the usual raft of surveys, including Germany’s Ifo and US Consumer Confidence, the month end run of major Japanese data, UK labour data, US home sales metrics and Goods Trade Balance.

In terms of the UK data, while the GfK Consumer Confidence rebounded more than expected, it remains very low at -23, and in any case pales into insignificance relative to the steep fall in Retail Sales, and the dire PSNB budget data. To be sure, the tight national lockdown is clearly to blame for the steep fall, as is evidenced by the fact sales were down 5.9% relative to pre-pandemic levels, and as with the US data (though in completely the opposite direction) seasonal adjustment may be exaggerating the extent of the fall, but the rebound is going to have be very vigorous and sustained to dispel the impression that underlying consumer spending trends are weak. As for the PSNB data, these also attest to the weakness of the economy, and underline why any attempt to start recouping some of the huge volume of govt spending related to the pandemic at the March budget would be extraordinarily foolish.

G7 – February flash PMIs

Today’s PMIs are expected to see modest downticks across the G7, with the exception of UK Services which are seen picking up to 42.0 from the lockdown and Brexit induced slide to 39.5 in January. In principle, this would leave Manufacturing still expanding at a solid pace in much of the G7 (except Japan), Services expanding strongly in the US, but clearly contracting though to varying degrees in Eurozone, UK and Japan. HOWEVER it is the details which will be more important in so far as they offer some insights into how rising energy prices, semiconductor and container shortages, and the array pf supply chain bottlenecks and disruptions due to the pandemic are impacting the various economies attempts to recover from the pandemic. Thus supplier deliveries, prices paid, employment and inventory metrics will require a good deal of scrutiny. A broader point is to think how the attempts to decouple the US and to a much lesser extent Europe, from China in supply chain terms in the longer run might then play out; as has already been evidenced over the past year; decoupling will be a lot easier said than done, and the price in economic terms may prove to be rather damaging.