Macroeconomics: The Week Ahead: 8 to 12 March

Brief Preview:

Last week’s choppy performance in many markets underlines that ‘uncertainty’ can take different forms, and at the current juncture the focus is shifting from ‘when will this end?’ to ‘how will it end?’. That is not to say that the issue of ‘when’ is resolved (unlikely anytime soon, though the world is gradually learn to live with the pandemic), but rather that it is an acknowledgement or realization that, even if central banks keep their ‘forward guidance’ promises, portfolios will still need to be transitioned, and just not along simple rotational lines. Per se volatility is likely to remain elevated, with the focus not only on rising long-term nominal yields, but above all real yields, and in terms of the latter how this starts to impinge on what has been a deluge of corporate bond issuance, which started to show some signs of being throttled back towards the end of last week.

There will be plenty of major statistics, but these are very much ‘rear view mirror’ and increasingly distorted by base effects, as per the weekend example of China’s trade data. These include US and China CPI and PPI, German Trade and Industrial Production, UK monthly GDP and array of activity indicators, Eurozone & Japanese final GDP, Canada’s labour report, Japan’s Household Spending and Economy Watchers (services) survey. In terms of the US and China inflation, CPI readings are likely to be less interesting than PPI, with China CPI seen unchanged at -0.3% y/y and while US headline CPI will be pulled higher by energy to 1.7% y/y, core is forecast to be unchanged at 1.4%. By contrast, adverse base effects and energy prices are likely to push China’s PPI sharply higher to 1.4% y/y (highest since Dec 2018), while US PPI is forecast to jump to 2.7% y/y from 1.7% in headline terms, and core to accelerate to 2.6% y/y from 2.0% (highest since January 2019). There are upside risks for both, and it should be added that the adverse base effects will be much more acute in the next 3 to 4 months, with central banks ‘look through’ narrative guidance likely to be severely tested.

This week also brings the first two of this month’s G7 central bank meetings (BoC and ECB, with Fed, BoJ and BoE meeting next week), which will test their respective mettle in the face of upward pressure on long-term bond yields, rising market instability and the hollow vessel of their current forward guidance; the Fed will be in ‘purdah’ this week. In the commodity space, oil markets have the OPEC and EIA monthly reports to digest following last week’s OPEC+ decision, along with Chevron’s annual investor day. Agricultural markets will focus on Tuesday’s monthly World Agricultural Supply and Demand Estimates (WASDE) report, while the metals sector will not only be watching China’s MPC meeting, but also the Fastmarkets Copper Seminar (conference) on Thursday and Friday.

On the political front, outside of pandemic related decisions, China’s NPC meeting continues through to Wednesday and the US House will ratify the Biden $1.9 Trln fiscal package. Next Sunday sees the first two (Baden-Württemberg & Rheinland-Pfalz) of six state elections in Germany this year, with the outcomes likely to be key in deciding whether CDU leader Laschet or Bavarian premier / CSU leader Soeder will be the CDU/CSU Chancellor candidate at the federal election on 25 September.

The US leads an otherwise quite light week for govt bond supply with $120 Bln total of 3, 10 & 30-yr, Germany and Japan sell 5-yr, the UK 20-yr and Netherlands 6-yr. The corporate earnings is largely complete in the US, though still quite busy elsewhere. Bloomberg identifies the following as likely to be among the headline makers: Adidas, AIA Group, Italian insurer Assicurazioni Generali, software developer Bumble, Campbell Soup, Cathay Pacific Airways, China Telecom, Continental, Deutsche Post, Dick’s Sporting Goods, Direct Line Insurance, DocuSign, French eyewear manufacturer EssilorLuxottica, Foxtons, Gem Diamonds, Go-Ahead Group, H&R Block, broadcaster ITV, JD.com, Legal & General, Lukoil, M&G, National Express Group, Pearson, Prada, Rolls-Royce Holdings, Rothschild & Co., Savills, Standard Life Aberdeen and advertising giant WPP.