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Good Morning: The Long & the Short of it and The Bigger Picture - 7 February 2019 - ADM ISI
Inbox
x
Ostwald, Marc
09:01 (21 minutes ago)
to Marc
- Digesting surprise RBI rate cut, poor NZ labour data and another drop
in German Production, awaiting US jobless claims and Mexico CPI; BoE
tops busy run of central bank meetings, BSP, CNB and Banxico; EU
Commission forecast update; busy run of corp earnings; bond auctions
in France and USA; South Africa "State of the Nation"
- German Production: auto sector drag easing, but chilly winds from China
looking ever more obvious..... Construction also worrying
- RBI: not that surprising rate cut given benign CPI, but suspicion of
political interference difficult to shake
- BoE: tweaks to inflation and wages forecasts, Brexit uncertainty obvious,
but GDP forecasts likely little changed
- CNB: rates on hold, likely to be ambivalent on extent of 2019 policy
tightening
..........................................................................
********************
** EVENTS PREVIEW **
********************
Today's raft of central bank meetings looks set to dominate the narrative, with the unexpected 25bp rate cut in India likely to augment an increasingly dovish market on the outlook for monetary policy globally, even if the typically myopic focus on policy shifting to a dovish stance and endless references to 'stimulus' rather overlooks the fact that it implies a rather negative signal for global growth. Be that as it may the BoE tops the list of policy meetings, with rate decisions also due in Philippines, Serbia, Czech Republic and Mexico. The data schedule is considerably lighter with another fall in German Industrial Production, French Trade Balance and the unexpected uptick in NZ Q4 Unemployment to be digested ahead of US weekly jobless claims and Mexican CPI. In event terms, UK PM May heads to Brussels in what appears an almost futile attempt to try and wring some consessions on the Brexit Withrdawal Agreement, with tensions mounting and clearly exacerbated by the comments from EU council president Tuks yesterday. The EU Commission economic forecast updates will of course be watched for what it implies for Italy's budget, but also how far it downgrades France, Germany and Spain. The other key political item will be South African President Ramaphosa's state of the nation address, which is expected to announce a series of measures to try and stimulate the rather moribund economy, above all reduce very high unemployment, while also addressing the problems around belegauered state utility provider Eskom and national airline South African Airways. Another busy day for corporate earnings has ArcelorMittal, Fiat Chrsyler, Sanofi, UBI and Zurich Insurance among the headliners in Europe, while Dunkin' Brands, Kellogg, Twitter and Tyson Foods feature in the US. Following on from the astounding EUR 41 Bln book for the syndicated 30-yr Italian BTP sale yesterday, France sells 9, 1 & 20-yr OATs via auction, and the US rounds off its quarterly refunding with $19 Bln of 30-yr, which follows a good 3-yr sale and a rather lacklustre 10-yr yesterday.
- Obviously the signals the unexpected drop in both yesterday's German Factory Orders and today's Industrial Production will only reinforce the concerns that the H2 2018 'stall' will likely spill over into the first half of 2019, and quite rightly so, the details require attention. Notably yesterday's Orders saw a continued shapr recovery in Auto Sector orders (+10.2% for the 3 months to Decemvber), but suggest that the chilly winds from China are getting considerable traction, which sends a very poor signal for 2019. As for today's Industrial Production, there was a pick-up in Capital Goods output (0.9% m/m), however this was not enough to offset yet another sharp drop (-4.1% m/m) in Construction, a sector that is supposed to be booming according to anecdotal evidence, as well as a fouth consecutive drop in Consumer Goods (-0.5% m/m following -4.0% and -3.3%).
- India: to be fair the RBI's 25 bps rate cut was more a surprise in timing terms, and roughly a third of those surveyed had in fact been looking for a cut, with the majority having expected the RBI to wait until after the election, despite the fact that oil prices and a relatively firm INR have created a benign CPI backdrop in the near-term. But given the RBI highlighted the fiscal slippage in last's week 'pre-election' budget, adn given the change at the top of the RBI, today's move could easily be interpreted as evidencing increased political interference in monetary policy.
- The Bank of England is also seen on hold at 0.75% (and a total of $435 Bln of QE), with the accompanying Q1 Inflation Report probably seeing some small tweaks to inflation projections (lower near term) and wage forecasts (slightly higher), but all in all rather meaningless given the Brexit uncertainty, which makes forecasts for the UK economy a lottery.
- The Czech National Bank is anticipated to hold its key rate at 1.75%, and has turned rather cautious on the economic outlook, with markets no longer anticipating a previously anticipated 25 bps hike at this meeting. Governor Rusnok last week suggested that there could be no rate hikes in 2019, if growth risks crystallize, though perhaps two hikes if uncertainty ebbs.
- Mexico's central bank is seen holding rates at 8.25%, pausing a protracted tightening cycle, with recent comments underlining that the economic outlook is very uncertain above all due to the uncertainty and drop in confidence, in the wake of the Lopez Obrador's government decision to scrap the new Mexico City airport project, as well as proposed legislation to cap bank fees and regulate the mining sector.
Inbox
x
Ostwald, Marc
09:01 (21 minutes ago)
to Marc
- Digesting surprise RBI rate cut, poor NZ labour data and another drop
in German Production, awaiting US jobless claims and Mexico CPI; BoE
tops busy run of central bank meetings, BSP, CNB and Banxico; EU
Commission forecast update; busy run of corp earnings; bond auctions
in France and USA; South Africa "State of the Nation"
- German Production: auto sector drag easing, but chilly winds from China
looking ever more obvious..... Construction also worrying
- RBI: not that surprising rate cut given benign CPI, but suspicion of
political interference difficult to shake
- BoE: tweaks to inflation and wages forecasts, Brexit uncertainty obvious,
but GDP forecasts likely little changed
- CNB: rates on hold, likely to be ambivalent on extent of 2019 policy
tightening
..........................................................................
********************
** EVENTS PREVIEW **
********************
Today's raft of central bank meetings looks set to dominate the narrative, with the unexpected 25bp rate cut in India likely to augment an increasingly dovish market on the outlook for monetary policy globally, even if the typically myopic focus on policy shifting to a dovish stance and endless references to 'stimulus' rather overlooks the fact that it implies a rather negative signal for global growth. Be that as it may the BoE tops the list of policy meetings, with rate decisions also due in Philippines, Serbia, Czech Republic and Mexico. The data schedule is considerably lighter with another fall in German Industrial Production, French Trade Balance and the unexpected uptick in NZ Q4 Unemployment to be digested ahead of US weekly jobless claims and Mexican CPI. In event terms, UK PM May heads to Brussels in what appears an almost futile attempt to try and wring some consessions on the Brexit Withrdawal Agreement, with tensions mounting and clearly exacerbated by the comments from EU council president Tuks yesterday. The EU Commission economic forecast updates will of course be watched for what it implies for Italy's budget, but also how far it downgrades France, Germany and Spain. The other key political item will be South African President Ramaphosa's state of the nation address, which is expected to announce a series of measures to try and stimulate the rather moribund economy, above all reduce very high unemployment, while also addressing the problems around belegauered state utility provider Eskom and national airline South African Airways. Another busy day for corporate earnings has ArcelorMittal, Fiat Chrsyler, Sanofi, UBI and Zurich Insurance among the headliners in Europe, while Dunkin' Brands, Kellogg, Twitter and Tyson Foods feature in the US. Following on from the astounding EUR 41 Bln book for the syndicated 30-yr Italian BTP sale yesterday, France sells 9, 1 & 20-yr OATs via auction, and the US rounds off its quarterly refunding with $19 Bln of 30-yr, which follows a good 3-yr sale and a rather lacklustre 10-yr yesterday.
- Obviously the signals the unexpected drop in both yesterday's German Factory Orders and today's Industrial Production will only reinforce the concerns that the H2 2018 'stall' will likely spill over into the first half of 2019, and quite rightly so, the details require attention. Notably yesterday's Orders saw a continued shapr recovery in Auto Sector orders (+10.2% for the 3 months to Decemvber), but suggest that the chilly winds from China are getting considerable traction, which sends a very poor signal for 2019. As for today's Industrial Production, there was a pick-up in Capital Goods output (0.9% m/m), however this was not enough to offset yet another sharp drop (-4.1% m/m) in Construction, a sector that is supposed to be booming according to anecdotal evidence, as well as a fouth consecutive drop in Consumer Goods (-0.5% m/m following -4.0% and -3.3%).
- India: to be fair the RBI's 25 bps rate cut was more a surprise in timing terms, and roughly a third of those surveyed had in fact been looking for a cut, with the majority having expected the RBI to wait until after the election, despite the fact that oil prices and a relatively firm INR have created a benign CPI backdrop in the near-term. But given the RBI highlighted the fiscal slippage in last's week 'pre-election' budget, adn given the change at the top of the RBI, today's move could easily be interpreted as evidencing increased political interference in monetary policy.
- The Bank of England is also seen on hold at 0.75% (and a total of $435 Bln of QE), with the accompanying Q1 Inflation Report probably seeing some small tweaks to inflation projections (lower near term) and wage forecasts (slightly higher), but all in all rather meaningless given the Brexit uncertainty, which makes forecasts for the UK economy a lottery.
- The Czech National Bank is anticipated to hold its key rate at 1.75%, and has turned rather cautious on the economic outlook, with markets no longer anticipating a previously anticipated 25 bps hike at this meeting. Governor Rusnok last week suggested that there could be no rate hikes in 2019, if growth risks crystallize, though perhaps two hikes if uncertainty ebbs.
- Mexico's central bank is seen holding rates at 8.25%, pausing a protracted tightening cycle, with recent comments underlining that the economic outlook is very uncertain above all due to the uncertainty and drop in confidence, in the wake of the Lopez Obrador's government decision to scrap the new Mexico City airport project, as well as proposed legislation to cap bank fees and regulate the mining sector.
