Dentalfloss
Legendary member
- Messages
- 63,404
- Likes
- 3,726
- Market non-reaction to Syria missile strikes revealing; digesting UK
Visa Consumer Spending, awaiting US Retail Sales, NY Fed & NAHB surveys
and Business Inventories
- US Retail Sales: expected to post solid though modest gains across the
board after soft January and February prints; gasoline sales a wild card
- Germany/Eurozone: Scholz comments on Eurozone reform prospects implies
prospects for any significant changes rather poor
- Charts: US IG and HY OAS Credit spreads
..........................................................................
********************
** EVENTS PREVIEW **
********************
A new week begins, but with the same divergent influences in terms of market news flows, as the fall-out from the from the Syrian missile strikes plays against a busy day for US data, with the focus on Retail Sales and a couple of corporate earnings reports. The IMF publishes its latest World Economic Outlook, ahead of the IMF/World Bank Spring meetings, with IMF MD Lagarde hinting last week that these will see some upgrades, obviously heavily caveated with warnings about trade tensions. With the geo-political and trade tensions dominating the headlines, it would be easy to overlook issues related to EU and Eurozone reforms, but a close eye needs on developments, as German Finance Minister (SPD) comments at the weekend underline that there is little or appetite in Berlin for a material shift in Germany's position from his predecessor Schaeuble (see also below). As previously observed, the new German grand coalition is likely to deliver very little in terms of meaningful policy changes or initiatives, be that domestically or internationally, and with what form of Italian government eventually emerges still written in the stars, the risk of economic headwinds re-emerging from a deep seated political impasse remain very elevated. For what it is worth, one of the last major speeches by the late Helmut Schmidt "Germany in and with and for Europe" (2011) offers plenty of food for thought, see: https://library.fes.de/pdf-files/id/ipa/08888.pdf . In market terms, I made the observation on Friday “Political risks, pah! Complacency rules OK” https://www.youtube.com/watch?v=ZojUvLDlnXw&feature=youtu.be , which fits well with the non-reaction to the Syrian missile strikes. A quick looks at the attached charts on US IG and HY credit spreads underlines the markets' indifference!
** U.S.A. - Retail Sales, NY Fed Manufacturing, NAHB Housing Index **
- Retail Sales have disappointed thus far in Q1, with forecasters again looking for a rebound in headline terms (0.4% m/m), while the ex-Autos & Gasoline measure is projected to pick up to 0.4% m/m from 0.3%. This would point to a reasonable pace of Q1 Personal Consumption, but considerably slower than Q1. In the detail Food, Autos and Food / Drink Services (i.e. spending in restaurants & bars) were particularly weak in the first two months of the quarter, with the ex-Autos (0.2% m/m) implying a rebound in that area, with the other areas also likely to pick up, but after a price related boost in January & February, Apparel may well dip given a rebound in prices; Gasoline CPI dropped sharply on the month (-4.9% m/m) implying a drop in sales (given US CPI is nominal data and not inflation adjusted). In terms of the day's surveys, NY Fed Manufacturing is projected to 18.4 from March's 22,5, but would remain robust by any recent historical standards, while the NHAB Housing Market Index is seen unchanged at 70, i.e. remaining close to its recent and pre-GFC cyclical peaks. As the advance estimate of US Q1 GDP looms at the end of the month, Business Inventories require some attention as forecasts for the former are tweaked, with another 0.6% m/m (same as January) rise expected, confirming the rebuild of stocks, following the drag on Q4 GDP; accompanying Sales data should also be robust, if recent orders and production data are any guide. Per se, inventories should make a solid contribution to Q1 GDP, at least partially offsetting another likely hefty drag from Net Exports.
RECAP / UPATED: The Week Ahead Preview - 16 to 20 April 2018
- There will be no escaping the ongoing geo-political and trade clouds that hang over the world at the current juncture, but the week ahead has much in the way of key economic data from the USA, UK and China to digest. Policymaker events and speeches will be plentiful via way of the IMF/World Bank Spring meetings, a BoC rate decision, numerous Fed speakers and the Fed's Beige Book, as well as a number of top level meetings between France and Germany, US and Japan, Commonwealth heads of states, the start of UK/EU post Brexit trade negotiations, along with an OPEC/Non-OPEC technical meeting. The US corporate earnings season cranks into gear, while Govt bond supply is led by the Eurozone and Japan.
- The rest of the weeks sees US Industrial Production, which looks to be pre-programmed to 'mean revert' after jumping 0.9% m/m in February, with the consensus looking for 0.3% m/m, while Manufacturing is likely to be ostensibly sluggish at 0.2% m/m, predicated on the dip in Hours seen in the labour data, though as with the headline reading this would follow an impressive 1.2% m/m in February. Housing Starts, the NAHB Housing, NY & Philly Fed Manufacturing surveys, Business Inventories and TIC portfolio flows are also due. Tuesday gives China top billing via way of Q1 GDP (exp. 1.5% q/q vs. Q4 1.6%, and unchanged 6.8% y/y), with monthly indicators seen rebounding from softer LNY related February readings, with Retail Sales seen at 9.7% y/y from 9.4%, (but markedly stronger in real terms 7.6% from 6.5%), while Production is forecast at 6 6.4% y/y from 6.2%. While FAI is seen dipping to 7.7% y/y from 7.9%, this would still signal a marked acceleration vs. 7.2% y/y in December and January; as ever the focus within FAI will be on Private Sector Investment, which accelerated to 8.1% in Jan-Feb vs. a 6.0% y/y outturn for 2017. With markets almost fully discounting a BoE rate hike at its May 10 Q2 inflation report MPC meeting, this week's run of first division monthly indicators are anticipated to give a green light for a further 25 bps rate hike to 0.75%. That said, if forecasts for this week's data prove to be correct, the case for a rate hike is far from clear cut, outside perhaps of the certainty with which it is being discounted (itself a tautology). Be that as it may, CPI is projected at 0.3% m/m, which would leave the y/y rate unchanged at 2.7%, and core CPI at an unchanged 2.5%. This might appear to suggest that the BoE needs to act now to sustain the recent downward momentum, but some care is required, in so far as data collection would have taken place in the week that fell two weeks ahead of the Easter holidays. Typically retailers hike prices in that week ahead of any bank holiday, largely for the purpose of being able to show bigger discounts over the holiday 'sales' period; indeed with Easter falling very late in 2017 (April 16), timing effects may even result in an uptick. Though without sight of the April inflation data (not due until 23 May), it will hard to make a judgement call. Airfares (likely to bump higher) may offer some insight into the extent of the Easter timing effects, while petrol prices should see a modest dip in m/m terms, but not as large as March 2017's -0.8% m/m. It should also be noted that the ONS has now reorganized its publication schedule (to allow MPs more time to 'digest' labour market data ahead of Prime Minister's Question Time on Wednesdays), thus the equally important labour market data will be published on Tuesdays, while CPI and the other inflation indicators on Wednesday. (Cynics might well have some unpublishable comments about what this implies about UK MPs' analytical capabilities!). The labour data are expected to show the ILO Unemployment Rate unchanged at 4.3%, but the focal point will be Average Weekly Earnings, with headline earnings seen at 3.0% y/y, and ex-Bonus at 2.8% y/y from 2.6%, which if correct would be the highest for both since September 2015. That said, real headline earnings would be a paltry 0.3% y/y, and still close to 8.0% lower than in 2007, per se making the case for a rate hike hardly pressing. However the BoE seems very determined to suggest that the trend will continue to improve over the year, though their forecasting record hardly stands up to even the most gentle of scrutiny, as well as dismissing weak activity data as being weather related. In that vein Retail Sales are expected to be soft, mirroring anecdotal evidence from the likes of the BRC, Barclaycard, Visa and Kantar, with a 0.5% m/m drop (in real terms), though this thanks to the aforementioned Easter timing effects would still see sales rise y/y to 2.2% from February's 1.5%, and perhaps more importantly see the key and less noisy 3-mth/3-mth comparison rebound into positive territory from the previous -0.4% (as December's -1.3% m/m drops out). Japanese Trade, Canada CPI and Retail Sales, Australian labour data and the market sensitive, though pointless German ZEW survey will be the other items on financial markets' radars.
- Central banks: while the schedule of Fed speakers is plentiful (eight at the time of writing), and the Fed will publish its very comprehensive Beige Book this week, most of the speakers have spoken recently, and the relatively unified message on the economy, labour market and inflation outlook has been clear. The Beige Book will primarily be of interest in terms of what it may highlight in terms of business concerns about trade tensions, perhaps most notably the agricultural sector, which continues to contend with drought conditions across much of the central southern areas of the USA (see attached Drought Monitor graphic). The Bank of Canada is seen holding its key policy rate at 1.25% when it meets this week, and indeed at the end of May, with a 25 bps hike to 1.50% seen in July, and a further hike to 1.75% by October. The BoC has underlined that the rate trajectory outlook remains fluid, being not only data dependent, but also on the outcome of NAFTA negotiations. February's core inflation uptick and rather better prospects for NAFTA renegotiations, though rather mixed signals on the property sector, may prompt some revisions to the accompanying Monetary Policy Report (MPR) forecasts, though Poloz and Wilkins are unlikely to stray far from the 'no specific guidance' on the policy outlook message that has been in place for some time. The BoJ publishes its Financial Stability Report, with the dovish Amamiya the only scheduled BoJ speaker. In the "EM" space, central banks in Indonesia and Israel are seen leaving official rates unchanged, and no change is likely at this week’s policy meetings in Kazakhstan or Uganda.
- Politics: Tensions with Syria, Iran and Russia in geo-political terms will continue to cast their shadow, and provide focal points along with US/China trade tensions for this week's EU foreign ministers' meeting, and more than likely the Commonwealth Heads of Government in the UK. While Chancellor Merkel will attempt to be tactful, and not obstructive, when she holds her summit meeting with Macron this week, it should now be obvious to all that prospects for any meaningful Eurozone or EU reforms, above all in the near-term, are very remote, as the deep fissures in the German grand coalition, and dogmatic and deep seated German scepticism on any form of burden sharing set the bar to any reforms stratospherically high. As such Macron's keynote address on EU reforms to the European Parliament may be a case of fine words and ideas, which are unlikely to take root in reality.
- Corporate Earnings: the US will dominate the schedule, though there will be a few reports of note elsewhere. Monday kicks off with Bank of America and Netflix; Tuesday has ABF in the UK, while the US looks to Goldman Sachs, Charles Schwab, IBM, Johnson & Johnson and United Health. Wednesday sees reports from TSMC, Heineken and Temenos, with Wall Street eyeing Amex, Abbott Laboratories, Alcoa, Kinder Morgan and Morgan Stanley. Thursday brings ABB, Novartis and Sky, while 'across the pond' Bank of New York Mellon, Mattel and Philip Morris will be in the spotlight. Friday concludes the week with GE, Honeywell, Procter & Gamble and Schlumberger.
- Govt bond supply: a relatively modest week has multi-tranche sales in France (3, 5 & 6-yr OATs and various OATeis) and Spain (5, 10 & 15-yr), with Germany and the UK selling 10-yr, the US re-opening its 5-yr TIPS and Japan slated to sell 5 & 20-yr JGBs. Sovereign EM and IG Corporate supply was plentiful this week, with the easy absorption of the Saudi $11 Bln and Qatar $12 Bln jumbo multi-tranche sales, and Mexico's Samurai supply catching the eye. Appetite for credit of all forms continues to be voracious, even if it eminently belies a degree of complacency.
from Marc Ostwald
Visa Consumer Spending, awaiting US Retail Sales, NY Fed & NAHB surveys
and Business Inventories
- US Retail Sales: expected to post solid though modest gains across the
board after soft January and February prints; gasoline sales a wild card
- Germany/Eurozone: Scholz comments on Eurozone reform prospects implies
prospects for any significant changes rather poor
- Charts: US IG and HY OAS Credit spreads
..........................................................................
********************
** EVENTS PREVIEW **
********************
A new week begins, but with the same divergent influences in terms of market news flows, as the fall-out from the from the Syrian missile strikes plays against a busy day for US data, with the focus on Retail Sales and a couple of corporate earnings reports. The IMF publishes its latest World Economic Outlook, ahead of the IMF/World Bank Spring meetings, with IMF MD Lagarde hinting last week that these will see some upgrades, obviously heavily caveated with warnings about trade tensions. With the geo-political and trade tensions dominating the headlines, it would be easy to overlook issues related to EU and Eurozone reforms, but a close eye needs on developments, as German Finance Minister (SPD) comments at the weekend underline that there is little or appetite in Berlin for a material shift in Germany's position from his predecessor Schaeuble (see also below). As previously observed, the new German grand coalition is likely to deliver very little in terms of meaningful policy changes or initiatives, be that domestically or internationally, and with what form of Italian government eventually emerges still written in the stars, the risk of economic headwinds re-emerging from a deep seated political impasse remain very elevated. For what it is worth, one of the last major speeches by the late Helmut Schmidt "Germany in and with and for Europe" (2011) offers plenty of food for thought, see: https://library.fes.de/pdf-files/id/ipa/08888.pdf . In market terms, I made the observation on Friday “Political risks, pah! Complacency rules OK” https://www.youtube.com/watch?v=ZojUvLDlnXw&feature=youtu.be , which fits well with the non-reaction to the Syrian missile strikes. A quick looks at the attached charts on US IG and HY credit spreads underlines the markets' indifference!
** U.S.A. - Retail Sales, NY Fed Manufacturing, NAHB Housing Index **
- Retail Sales have disappointed thus far in Q1, with forecasters again looking for a rebound in headline terms (0.4% m/m), while the ex-Autos & Gasoline measure is projected to pick up to 0.4% m/m from 0.3%. This would point to a reasonable pace of Q1 Personal Consumption, but considerably slower than Q1. In the detail Food, Autos and Food / Drink Services (i.e. spending in restaurants & bars) were particularly weak in the first two months of the quarter, with the ex-Autos (0.2% m/m) implying a rebound in that area, with the other areas also likely to pick up, but after a price related boost in January & February, Apparel may well dip given a rebound in prices; Gasoline CPI dropped sharply on the month (-4.9% m/m) implying a drop in sales (given US CPI is nominal data and not inflation adjusted). In terms of the day's surveys, NY Fed Manufacturing is projected to 18.4 from March's 22,5, but would remain robust by any recent historical standards, while the NHAB Housing Market Index is seen unchanged at 70, i.e. remaining close to its recent and pre-GFC cyclical peaks. As the advance estimate of US Q1 GDP looms at the end of the month, Business Inventories require some attention as forecasts for the former are tweaked, with another 0.6% m/m (same as January) rise expected, confirming the rebuild of stocks, following the drag on Q4 GDP; accompanying Sales data should also be robust, if recent orders and production data are any guide. Per se, inventories should make a solid contribution to Q1 GDP, at least partially offsetting another likely hefty drag from Net Exports.
RECAP / UPATED: The Week Ahead Preview - 16 to 20 April 2018
- There will be no escaping the ongoing geo-political and trade clouds that hang over the world at the current juncture, but the week ahead has much in the way of key economic data from the USA, UK and China to digest. Policymaker events and speeches will be plentiful via way of the IMF/World Bank Spring meetings, a BoC rate decision, numerous Fed speakers and the Fed's Beige Book, as well as a number of top level meetings between France and Germany, US and Japan, Commonwealth heads of states, the start of UK/EU post Brexit trade negotiations, along with an OPEC/Non-OPEC technical meeting. The US corporate earnings season cranks into gear, while Govt bond supply is led by the Eurozone and Japan.
- The rest of the weeks sees US Industrial Production, which looks to be pre-programmed to 'mean revert' after jumping 0.9% m/m in February, with the consensus looking for 0.3% m/m, while Manufacturing is likely to be ostensibly sluggish at 0.2% m/m, predicated on the dip in Hours seen in the labour data, though as with the headline reading this would follow an impressive 1.2% m/m in February. Housing Starts, the NAHB Housing, NY & Philly Fed Manufacturing surveys, Business Inventories and TIC portfolio flows are also due. Tuesday gives China top billing via way of Q1 GDP (exp. 1.5% q/q vs. Q4 1.6%, and unchanged 6.8% y/y), with monthly indicators seen rebounding from softer LNY related February readings, with Retail Sales seen at 9.7% y/y from 9.4%, (but markedly stronger in real terms 7.6% from 6.5%), while Production is forecast at 6 6.4% y/y from 6.2%. While FAI is seen dipping to 7.7% y/y from 7.9%, this would still signal a marked acceleration vs. 7.2% y/y in December and January; as ever the focus within FAI will be on Private Sector Investment, which accelerated to 8.1% in Jan-Feb vs. a 6.0% y/y outturn for 2017. With markets almost fully discounting a BoE rate hike at its May 10 Q2 inflation report MPC meeting, this week's run of first division monthly indicators are anticipated to give a green light for a further 25 bps rate hike to 0.75%. That said, if forecasts for this week's data prove to be correct, the case for a rate hike is far from clear cut, outside perhaps of the certainty with which it is being discounted (itself a tautology). Be that as it may, CPI is projected at 0.3% m/m, which would leave the y/y rate unchanged at 2.7%, and core CPI at an unchanged 2.5%. This might appear to suggest that the BoE needs to act now to sustain the recent downward momentum, but some care is required, in so far as data collection would have taken place in the week that fell two weeks ahead of the Easter holidays. Typically retailers hike prices in that week ahead of any bank holiday, largely for the purpose of being able to show bigger discounts over the holiday 'sales' period; indeed with Easter falling very late in 2017 (April 16), timing effects may even result in an uptick. Though without sight of the April inflation data (not due until 23 May), it will hard to make a judgement call. Airfares (likely to bump higher) may offer some insight into the extent of the Easter timing effects, while petrol prices should see a modest dip in m/m terms, but not as large as March 2017's -0.8% m/m. It should also be noted that the ONS has now reorganized its publication schedule (to allow MPs more time to 'digest' labour market data ahead of Prime Minister's Question Time on Wednesdays), thus the equally important labour market data will be published on Tuesdays, while CPI and the other inflation indicators on Wednesday. (Cynics might well have some unpublishable comments about what this implies about UK MPs' analytical capabilities!). The labour data are expected to show the ILO Unemployment Rate unchanged at 4.3%, but the focal point will be Average Weekly Earnings, with headline earnings seen at 3.0% y/y, and ex-Bonus at 2.8% y/y from 2.6%, which if correct would be the highest for both since September 2015. That said, real headline earnings would be a paltry 0.3% y/y, and still close to 8.0% lower than in 2007, per se making the case for a rate hike hardly pressing. However the BoE seems very determined to suggest that the trend will continue to improve over the year, though their forecasting record hardly stands up to even the most gentle of scrutiny, as well as dismissing weak activity data as being weather related. In that vein Retail Sales are expected to be soft, mirroring anecdotal evidence from the likes of the BRC, Barclaycard, Visa and Kantar, with a 0.5% m/m drop (in real terms), though this thanks to the aforementioned Easter timing effects would still see sales rise y/y to 2.2% from February's 1.5%, and perhaps more importantly see the key and less noisy 3-mth/3-mth comparison rebound into positive territory from the previous -0.4% (as December's -1.3% m/m drops out). Japanese Trade, Canada CPI and Retail Sales, Australian labour data and the market sensitive, though pointless German ZEW survey will be the other items on financial markets' radars.
- Central banks: while the schedule of Fed speakers is plentiful (eight at the time of writing), and the Fed will publish its very comprehensive Beige Book this week, most of the speakers have spoken recently, and the relatively unified message on the economy, labour market and inflation outlook has been clear. The Beige Book will primarily be of interest in terms of what it may highlight in terms of business concerns about trade tensions, perhaps most notably the agricultural sector, which continues to contend with drought conditions across much of the central southern areas of the USA (see attached Drought Monitor graphic). The Bank of Canada is seen holding its key policy rate at 1.25% when it meets this week, and indeed at the end of May, with a 25 bps hike to 1.50% seen in July, and a further hike to 1.75% by October. The BoC has underlined that the rate trajectory outlook remains fluid, being not only data dependent, but also on the outcome of NAFTA negotiations. February's core inflation uptick and rather better prospects for NAFTA renegotiations, though rather mixed signals on the property sector, may prompt some revisions to the accompanying Monetary Policy Report (MPR) forecasts, though Poloz and Wilkins are unlikely to stray far from the 'no specific guidance' on the policy outlook message that has been in place for some time. The BoJ publishes its Financial Stability Report, with the dovish Amamiya the only scheduled BoJ speaker. In the "EM" space, central banks in Indonesia and Israel are seen leaving official rates unchanged, and no change is likely at this week’s policy meetings in Kazakhstan or Uganda.
- Politics: Tensions with Syria, Iran and Russia in geo-political terms will continue to cast their shadow, and provide focal points along with US/China trade tensions for this week's EU foreign ministers' meeting, and more than likely the Commonwealth Heads of Government in the UK. While Chancellor Merkel will attempt to be tactful, and not obstructive, when she holds her summit meeting with Macron this week, it should now be obvious to all that prospects for any meaningful Eurozone or EU reforms, above all in the near-term, are very remote, as the deep fissures in the German grand coalition, and dogmatic and deep seated German scepticism on any form of burden sharing set the bar to any reforms stratospherically high. As such Macron's keynote address on EU reforms to the European Parliament may be a case of fine words and ideas, which are unlikely to take root in reality.
- Corporate Earnings: the US will dominate the schedule, though there will be a few reports of note elsewhere. Monday kicks off with Bank of America and Netflix; Tuesday has ABF in the UK, while the US looks to Goldman Sachs, Charles Schwab, IBM, Johnson & Johnson and United Health. Wednesday sees reports from TSMC, Heineken and Temenos, with Wall Street eyeing Amex, Abbott Laboratories, Alcoa, Kinder Morgan and Morgan Stanley. Thursday brings ABB, Novartis and Sky, while 'across the pond' Bank of New York Mellon, Mattel and Philip Morris will be in the spotlight. Friday concludes the week with GE, Honeywell, Procter & Gamble and Schlumberger.
- Govt bond supply: a relatively modest week has multi-tranche sales in France (3, 5 & 6-yr OATs and various OATeis) and Spain (5, 10 & 15-yr), with Germany and the UK selling 10-yr, the US re-opening its 5-yr TIPS and Japan slated to sell 5 & 20-yr JGBs. Sovereign EM and IG Corporate supply was plentiful this week, with the easy absorption of the Saudi $11 Bln and Qatar $12 Bln jumbo multi-tranche sales, and Mexico's Samurai supply catching the eye. Appetite for credit of all forms continues to be voracious, even if it eminently belies a degree of complacency.
from Marc Ostwald
