Macroeconomics: The Day Ahead for 13 April

A much busier schedule awaits both in data and event terms, with China’s Trade data and UK February GDP and rash of monthly activity data along with BRC Retail Sales to digest, while ahead lie Germany’s ZEW survey, US CPI and NFIB Small Business Optimism along with numerous Fed and other central bank speaker, and OPEC’s monthly Oil Market Report. A busy day for govt debt sales sees the Netherlands launch a new 17-yr, Italy sell 3,5 & 16-yr BTPs, the UK 50-yr and the US 30-yr (following solid demand for yesterday’s 3 & 10-yr sales), in what is becoming a busy week for sovereign issuance in the Euro area after yesterday’s syndicated sales from Austria (4 & 50-yr) and Spain (15-yr). The other talking point will be German politics with a bare knuckle fight between CDU leader Laschet and CSU leader and Bavarian PM Soeder for who should be Chancellor candidate at September’s Federal election breaking out, only adding to the sense of a leadership void post Merkel; reports suggests that the CDU parliamentary bloc favours Soeder.

** China – March Trade **

– As with so much data in H1, base effects played a big role in the outturns, above all the 38.0% y/y surge in imports (vs. expected 24.6%), though the surge was also exacerbated by well documented logistical bottlenecks in maritime transport, with capacity constraints easing in March, but these doubtless also played a role in the lower than expected 30.6% y/y jump in Exports. In the detail, there was some easing in oil imports, in part due to lower seasonal demand due to planned Q2 refinery maintenance as well as the backwardation in the oil price curve. Strength in soybeans (82% y/y) and grains imports has been more than well flagged on the back of feed related demand from the livestock, with corn imports boosted by high prices for domestic corn. Ongoing strength in Copper imports attests to demand from US and Europe, with production and processing shifted to China due to lockdown related constraints, which will likely continue through much of Q2, but then drop quite sharply as production recovers elsewhere.

** U.K. – February GDP, Index of Services & Industrial Production **

– Given the array of anecdotal day suggesting a rush back to the High Street as a consequence of yesterday’s lockdown easing measures, today’s data will be seen as affirming that January represented the trough in activity, above all given the upward revisions to January readings, with a very sharp acceleration expected in Q2. The 47.0% m/m recovery in Exports to the EU is perhaps the most significant element in the run of data, suggesting that a good proportion of the January drop was due to pre-emptive front loading of exports in the latter part of Q4, though a modest 7.0% m/m bounce in Imports from the EU underlines that logistical problems remain.

** Germany – April ZEW survey **

– The consensus looks for a modest rise in Expectations to a 21-yr high of 79.0 (breaching September’s 77.4) from 77.6, which looks modest relative to the surge in the Dax over the past month, with which this component of the survey is closely correlated, and imparting some upside risks despite being at already loft levels. The Current Situation continues to languish at very depressed levels, but with recent data picking up (above all surveys) quite sharply, the consensus looks for a solid rise to a still depressed -54.1 from -61.0, with risks to the upside, particularly given an improvement in vaccination rates in the past fortnight, though increasing political uncertainty may restrain.

** U.S.A. – March NFIB Small Business Optimism & CPI **

– The NFIB Small Business Optimism will be of particular interest, given that it has lagged other survey indicators in recent months. The already published labour components posted some new record highs (see chart), however these had already rebounded sharply, and have been more than heavily offset by deep set pessimism on the general business outlook (last -19.0), which hit an 8-year low in February. The consensus looks for a further rebound to 98.0 from 95.8, and the risks would appear to be firmly to the upside, though continued tight financing conditions may continue to constrain overall business outlooks. CPI is expected to post a 0.5% m/m rise in headline terms paced above all by a sharp 12% m/m rise in gasoline prices, but also boosted by household energy and to a lesser extent food prices, with base effects (March 2020 -0.3% m/m) helping to amplify a jump in the y/y rate from 1.7% to 2.5%. By contrast core CPI is seen up a more modest 0.2% m/m to push the y/y rate up to 1.5% from 1.3%, with Shelter (housing) continue to exercise considerable restraint, though the easing of lockdown restrictions may give a boost to services prices related to leisure activities that have been curtailed by lockdown measures. While the Fed will continue to emphasize that any rise in inflation in H1 (and probably much of H2) will like be transient, and stress that the labour market is a long distance from getting anywhere close to target (low participation rate with nearly 6.5 Mln having dropped out of the labour force, and around 8.4 Mln still having lost jobs temporarily or permanently), markets will likely be less tolerant of a robust uptick in core inflation measures. There was some excitement about the NY Fed’s consumer inflation expectations survey, but as the attached chart highlights, these may be rising, but remain well contained within the medium-term historical range.