Macroeconomics: The Day Ahead for 7 December

  • Very busy day for data: digesting RBA, China Trade, UK BRC Sales and Barclaycard Spending, Japan Wages and Household Spending, German Industrial Production and Sweden GDP

  • Awaiting German ZEW, Eurozone final GDP, Chile CPI, US and Canada Trade,  EIA Short-Term Energy Outlook; Dutch, German, UK and US debt auctions

  • Germany Industrial Production: stronger than expected rebound paced by auto output, but supply chain headwinds still very real

  • UK retail and consumer spending bounce welcome, but largely a function of early Christmas purchases due to scarcity fears, and some base effects

  • China Trade: strength of imports less a function of domestic demand, and more surge in coal imports to ease power output curbs, and previously delayed imports

  • Germany ZEW: Expectations and Current Conditions seen dropping, downside risks on both

EVENTS PREVIEW

After Monday’s famine in data terms comes Tuesday’s feast with the array of China’s Trade Balance, UK BRC Retail Sales, Japan Wages and Household Spending, German Industrial Production and Swedish monthly GDP and monthly activity indicators to digest ahead of Germany’s ZEW and Norges Bank’s quarterly Regions survey, Eurozone final Q3 GDP, Chile CPI, US and Canada Trade and US Consumer Credit. As was expected Australia’s RBA held rates and continued to signal no rate hikes before 2024, with commodity markets digesting Australia’s Abares Q4 Agricultural Commodities report ahead of the US EIA Short-Term Energy Outlook (STEO), as oil price volatility remains at very high levels. For all that the data schedule is busy, it is likely that only the China Trade data and the generally spurious ZEW survey will get anything more than lip service from markets. The ZEW survey is expected to see the Expectations index drop back to 25.4 after November’s sharp bounce to 31.7 from the October low of 22.3. Given the strong correlation with the performance of the DAX, the setback may well prove to be larger. The rather more meaningful Current Conditions index is forecast to drop for a third month to 5.7 from November’s 12.5, with few if any signs of supply chain disruptions easing, and Omicron variant related concerns imparting some downside risks to the consensus.  UK BRC Retail Sales (1.8% y/y like for like vs. Oct -0.2%%) and Barclaycard Consumer Spending (16.0% vs. Nov 2019) were both robust, boosted by frontloading of Christmas related purchases, due to fear of shortages, and Black Friday deals, and to a certain extent flattered by base effects. Last but not least, the much better than expected 2.8% m/m rebound in German Industrial Production provides some welcome relief, given that this was only the third m/m increase in 2021, above all paced by a 12.6% rise in Auto Output. It would however be premature to suggest that the worst of the supply chain bottlenecks have been largely overcome, with raw materials and intermediate goods clearly still in very short supply.

Markets’ reaction function over the past 10 days has sadly demonstrated just how very Pavlovian it remains, though clearly pre-programmed by the ongoing financial repression of central banks’ “largesse to excess”, which in turn fosters the volatility that is currently being witnessed. The obvious risk is that the wild swings being witnessed eventually find a fund or trader on the wrong side of a margin call, or a forced liquidation, and with some risk that the volatility driven rise in options premia prompting some reduction in portfolio hedges.

China – Nov Trade Balance 

With both exports (22.0% y/y vs. expected 20.3%) and imports (31.7% y/y vs. expected 21.5%) beating expectations, this was a solid set of trade readings, which allows some offset to softening domestic demand in Q4 GDP terms. Energy, above all coal, accounted for the much better than expected imports, in turn helping to boost power output after the disruptions in September/October, and by extension underlining that the strength of imports does not point to a real improvement in domestic demand, even if the rebound in copper imports was a further key contributor. Strength in Soybean imports was both seasonal, as well as being a function of catching up after the disruption to US exports due to Hurricane Ida. The continued strength of exports continues to reflect solid demand from the US and Europe, but with container throughput at China’s ports essentially flatlining for most of the year, there appears to be little scope / capacity for a further boost.

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© 2021 ADM Investor Services International Limited.

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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