- Very quiet start to busy week: digesting Australia Inflation Gauge and Norway CPI; awaiting Eurozone Sentix survey and US Wholesale Inventories; Romania’s BNR seen hiking rates 50 bps; Russia/US talks
- Week Ahead: very busy week for US, China and UK data; inflation, US Retail Sales and China Trade the focal points
- Week Ahead: Fed nomination hearings, numerous Fed speakers to offer further ‘guidance’ on rate and balance sheet trajectory; Beige Book also due
- Charts: US CPI components; China PPI and commodity prices; S&P 500 EPS guidance trends
EVENTS PREVIEW
While the week ahead is busy, it gets off to a very slow start in terms of data and events, with Australia’s MI Inflation Gauge and Norwegian CPI to digest, ahead of Eurozone Sentix Investor Confidence and US Wholesale Inventories, none of which are likely to get any attention from markets that are firmly focused on the Fed. As noted in the Week Ahead in terms of central banks, Romania’s BNR finds itself in a similar position to Poland’s NBP in having to play catch-up with the likes of Hungary’s MNB and Czechia’s CNB, given that Friday’s CPI data is seen edging up to 7.8% y/y, which would underline that today’s expected 50 bps hike to 2.25% would still leave the BNR way behind the curve. On the political front, the first of this week’s talks between Russia and the USA/EU looks very unlikely to ease tensions, if the negative pre-meeting rhetoric to go by.
Recap: The Week Ahead – Preview:
A busy week awaits on all fronts with a raft of first division US, China and UK data, key nomination hearings for Fed’s Powell and Brainard accompanied by numerous other Fed speakers, the official kick-off for the US Q4 earnings, monthly agricultural and energy commodity S&D reports, a busy slate of government bond auctions, and a series of meetings between Russia and US, NATO and OSCE that will attempt to ease tensions on the the Ukraine. While markets will above all be focussed on the Fed, attention will need to be given to Covid developments above all in China, where an outbreak in the city of Tianjin may result in shutdowns, or at the very least hefty disruption at its busy container terminal.
CPI and Retail Sales head a busy run of US data, which also has PPI, Industrial Production, Inventories, along with the NFIB and Michigan surveys. CPI is expected to slow to 0.4% m/m from November’s 0.8%, thanks to a heft drag from energy prices, but still climbing to a fresh multi decade high of 7.1% from 6.8%, but core CPI seen posting another 0.5% m/m to jump the y/y rate to 5.4% from 4.9%, and closing in on the 30-yr high of 5.6% in 1991, as housing continues to exercise considerable upward pressure, along with new and used autos. PPI is also expected to decelerate in m/m terms thanks in the main to energy, but also predicated on the sharp fall in the ISM Manufacturing Prices Paid sub-index. Retail Sales are expected to edge down 0.1% in headline terms due to falling auto sales, gasoline prices and Restaurant sales (the latter due to the spread of the Omicron variant), though the ex-Autos and Control Group measures are seen eking out small gains, but the latter may largely be attributable to inflation rather than demand (despite a robust gain in the Mastercard Spending Pulse), given that this is a value not a volume measure. The NFIB survey is expected to see little change on the month, though the already published Employment sub-indices saw strong gains in Plans To Hire and a record high in Net Compensation, but a meaningful pick-up would require the ‘Expect Better Economy’ to pick up from November’s 9-yr low of -38%; Michigan Sentiment is expected to drift back down to 70.0 after a modest rebound in December to 70.6 from 67.4.
China’s inflation data are expected to ease significantly, with a helping hand from beneficial base effects. CPI is forecasts to drop to 1.7% y/y from 2.3% on a combination of lower food prices (above all pork and vegetables), and some downward pressure on non-food prices due to intermittent lockdown measures. PPI is seen dropping sharply to 11.3% y/y from 12.9%, largely on the back of government measures to curb coal, oil and steel prices (see chart). Trade data are projected to show Exports slowing to a still robust 20.0% y/y (vs. prior 22.0%) and Imports dropping back to 27.6% (vs. 31.7%), with base effects and another contractionary Export Orders PMI reading predicating these expectations. As ever continued supply chain and port disruptions should temper over-interpreting month to month changes in the closely watched commodities and energy sub-components. Monetary and Credit Aggregates are expected to see a seasonal drop in overall Aggregate Social Financing, with property sector woes offsetting a hefty pace of local govt bond issuance, while the PBOC’s easing measures should sustain New Yuan Loans at a similar pace to November.
The busy run of UK official data is all for November, with GDP expected to post what is a likely short-lived rebound to 0.4% m/m (from 0.1%), paced by a solid 0.5% m/m (vs. 0.4%) gain in the Index of Services, and a relatively tepid 0.6% m/m (vs. -1.8%) bounce in Construction Output, with Manufacturing Output seen up 0.2%. But with the rapid spread of the Omicron variant creating a lot of workplace disruption, December readings will likely show a marginal contraction across the board. December surveys from the BRC on Retail Sales and RICS House Price Balance are also due. A very quiet week in the Eurozone for data has the initial estimate of 2021 GDP, which is forecast at a less than impressive 2.7% y/y, attesting to the very large headwinds from supply chain disruptions to the German manufacturing sector, above all autos. Elsewhere Japan has PPI, the Economy Watchers (services) survey and Machine Tool Orders, Brazil looks to IPCA Inflation IBGE, and a busy week for India has CPI, WPI, Industrial Production and Trade.
On the central bank front, all eye will remain on the Fed, with the nomination hearings for both Powell and especially Brainard post CPI, who will both doubtless face a barrage of questions about inflation, and thus have the opportunity to offer some clearer guidance on the rate trajectory, as well as the thinking on what the Fed’s thinking is on how this would be integrated with balance sheet reduction. The indications are that the majority on the FOMC view an early move balance sheet reduction as mitigating the need for an aggressive rate hike trajectory. Most of the regional Fed presidents will also be speaking this week, with Wednesday also seeing the publication of the the latest Beige Book, which will be combed for insights into second round inflation and wages effects, as well as signals on the extent to which there has been any material easing of supply chain disruptions. While there are only a few ECB speakers this week, the comments on Friday from Lane and Saturday from Schnabel underscored that while the ECB is largely sticking to the script of expecting inflation to ease over the year as a whole, above all H2, the risks that they may be forced to take action are clearly rising. Elsewhere the Bank of Korea is expected to continue to tighten policy with a 25 bps rate hike to 1.25%, while Romania’s BNR finds itself in a similar position to Poland’s NBP in having to play catch-up with the likes Hungary’s MNB and Czechia’s CNB, given that Friday’s CPI data is seen edging up to 7.8% y/y, which would underline that Monday’s expected 50 bps hike to 2.25% would still leave the BNR way behind the curve.
In the commodity space, a very choppy ride higher for oil prices puts the focus on the EIA’s monthly Short-Term Energy Outlook (STEO), as well as supply outages in the Libya and Nigeria. In the agricultural sector, the USDA’s World Agricultural Supply and Demand Estimates (WASDE) will get plenty of attention above all for estimates in South America, with Brazil’s Conab also publishing estimates on corn and soybean output and yields, and China’s Farm Ministry publishing its monthly CASDE report. On the conference front, Saudi Arabia hosts a Future Minerals Forum as it attempts to establish itself as a more significant player in the industrial metals and raw materials sector.
A busy week for govt bond supply against the backdrop of yields jumping higher to start the year, with the US selling $120 Bln total fo 3, 10 & 30-yr, for which a substantial concession has been built, while the Eurozone sees auctions in Germany, Italy, Austria and the Netherlands, and the likelihood of syndicated sales from the likes of Spain, Belgium, Ireland and Portugal.
Last but not least, Friday marks the start of the US Q4 earnings season with the usual array of major financials getting proceedings under way. As S&P’s Factset notes in its latest weekly report: “Earnings Growth: For Q4 2021, the estimated earnings growth rate for the S&P 500 is 21.7%. If 21.7% is the actual growth rate for the quarter, it will mark the fourth straight quarter of earnings growth above 20%.” Adding on “Earnings Guidance: For Q4 2021, more S&P 500 companies are issuing negative EPS guidance than positive EPS guidance for a quarter for the first time since Q2 2020. The number of S&P 500 companies issuing negative EPS guidance for Q4 2021 is the highest number since Q1 2020 (61). On the other hand, the number of S&P 500 companies issuing positive EPS guidance is the lowest number since Q2 2020 (25).” Taiwan’s TSMC, and a number of major Indian tech sector companies will also be reporting, with Bloomberg identifying the following as likely to be among the headline makers: Avenue Supermarts, BlackRock, Citigroup, Delta Air Lines, Fast Retailing, First Republic Bank, HCL Technologies, Infosys, JPMorgan Chase, Qatar National Bank, Seven & i, Tata Consultancy Services, Wells Fargo and Wipro.
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ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
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© 2021 ADM Investor Services International Limited.
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