Macroeconomics: The Day Ahead for 17 December

  • Modest schedule of data and events to ends the week as markets start holiday season wind down; digesting UK Retail Sales, Gfk Survey and by-election result, German PPI and Bundesbank forecast update; awaiting German Ifo and Eurozone CPI; smattering of ECB and Fed speakers, Russia and Colombia rate decisions; “quadruple witching”

  • U.K. Retail Sales and Gfk better tban expected, but inflation and Omicron headwinds impart downside risks going forward

  • Germany: PPI better than expected, but likely no more than a blip give energy price rebound; Bundesbank forecasts imply little let let-up in in ECB criticism post-Weidmann

  • Germany Ifo: current assessment seen weighing again on sentiment, PMIs impart downside risk

  • Russia rates: further sharp hike seem=n, but may signal pause

EVENTS PREVIEW

After all the data and major central meetings of the past two days, the week ends on a more sedate note, with a heavily frontloaded statistical schedule having UK Retail Sales and GfK Consumer Confidence (both better than expected), German PPI  and Singapore Exports to digest ahead of Germany’s Ifo survey and final Eurozone CPI. There are also the BoJ policy meeting and Bundesbank half-yearly forecast update to digest ahead of the Bank Rossi and BanColombia rate decisions, with a smattering of Fed and ECB speakers also on tap, and it is quadruple witching in Equity futures and options, as markets wind down to the holiday season. Last but not least three is the unexpectedly hefty defeat for the UK Conservative Party in the North Shropshire by election, throwing in some political uncertatinty into the mix with the BoE’s seemingly random policy making. Next week’s calendar is modest, with US Consumer Confidence, Home Sales and Personal Income/PCE accompanied by a slew of surveys in the Eurozone and UK, with a further setback likely next month.

U.K. – Nov Retail Sales, Dec GfK Consumer Confidence

The better than expected 1.4% m/m rise in Retail Sales came on the back of strong clothing sales (finally above pre-pandemic levels), a Black Friday boost and some early Christmas shopping on the back of fears of shortages, and given the latest surge in infection rates, and associated restrictions imparts considerable risk of some payback in December. The smaller than expected drop in GfK Consumer Confidence to -15 from -14 was above all due to a setback in the Major Purchases Climate to -6 from -3, with other metrics little changed, and is unsurprising given the headwinds for household finances due to the spike in inflation, above all for non-discretionary items.

Germany – Dec Ifo Business Climate, Nov PPI & Bundesbank forecasts

Following on from the stark divergence in the German PMIs (Services tumbling into contraction 48.4 vs. 52.7 on the back of the surge in infection rates, even prior to Omicron, while Manufacturing picked up modestly to a robust 57.9), the focus turns of the Ifo survey. The consensus looks for a further fall to 95.3 from 96.5 in the headline, paced about all by Current Assessment, (forecast 97.5 vs. 99.0), with the PMIs on balance suggesting some modest downside risks. PPI was lower than expected, but at 19.2% y/y hardly represents a cause for celebration, especially as the slower pace was all about energy prices, which have since jumped gain, above all electricity. As for the Bundesbank forecast update, the reduction in GDP forecasts for 2022 merely brings them into line with other forecasters, and has already been well flagged, underlining just how much the German manufacturing and trade sectors are to supply chain disruptions. The CPI projections, all above the ECB’s target ensures that whoever succeeds Jens Weidmann as Buba president will be no less critical of the ECB’s open ended QE commitment, and doubtless also push for a much earlier rate hike than is assumed in the latest set of ECB staff forecasts; but this is hardly surprising and certainly not news.

Russia – Rate Decision

Russia’s Bank Rossi is expected to deliver another aggressive 100 bps given that there is as yet no sign that inflation or inflation expectations are peaking, let alone turning lower, though there is scope for a surprise on the size of the hike, given that policymakers have only signalled ‘at least’ a 50 bps. Recent weekly CPI data (8.11% y/y vs. prior 8.28%) suggests inflation is plateauing, but still double the 4.0% target, and per se Nabiullina & Co. may opt for an aggressive rate cut to push real rates into positive territory, but signal that a pause in the rate tightening cycle is likely.

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Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

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.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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