Dentalfloss
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Good Morning: The Long & the Short of it and The Bigger Picture - 7 February 2020 - ADM ISI
- Digesting very poor Taiwan Trade, German & French Industrial Production,
and China Trade data postponement; awaiting US & Canada labour reports,
Brazil & Mexico inflation; Russia Bank Rossi seen cutting rates 25 bps;
also digesting OPEC+ agreement to cut oil output, Quarles comments on
GSIB surcharge changes
- Germany Industrial Production: a timely reminder to listen to BDI,
watch Ifo, ignore ZEW and PMI
- US Labour data: market 'whisper' way higher than consensus following
ADP surge, but Earnings seen remaining very well contained
- Canada labour data: Employment change volatility imparts high risk
of another outlier; wage growth seen elevated but edging lower, base
effects in play
- Attachments: Canada Employment, Lipper Fund Flows report
- Audio preview:
https://www.mixcloud.com/MOstwaldADM/adm-isi-morning-call-7-february-2020/
..........................................................................
********************
** EVENTS PREVIEW **
********************
A bumper crop of major statistics to end the week, though perhaps leaving more questions about the outlook in the case of the array of trade readings from Taiwan (very sharp hit from coronavirus by the looks of the -7.6% y.y for Exports and even more Imports -17.7% y/y, also LNY timing effects), and to a lesser extent Germany and France, with the China data postponed and set to be a combined Jan/Feb report (as is the case with IP, Retail Sales & FAI), but likely to raise the suspicion that it was too awful to publish, though given movement restrictions there may simply have been insufficient staff numbers to compile the data. German and French Industrial Production data can only be described as totally abject, Germany -3.5% m/m -6.8% y/y vs. a forecast of -0.2%/-3.7%, France -2.8% m/m -3.0% y/y vs. a forecast -0.3%/1.0% - while the parallel downward shift suggests a problem with seasonal adjustment, the more material point is that both data points give the lie to the optimism of the PMIs, and in Germany's case echo the BDI (Federation of German Industry) which said 2 weeks ago German manufacturing was still in deep recession with further downside risks, and no sign of an upturn. Beyond these, there are of course the US and Canadian labour data, national Production data in Germany, France and Spain, and inflation data from Brazil and Mexico. The RBA's Statement on Monetary Policy and Lowe's testimony effectively underscored the point that the Australian economy and labour markets will need to take a sharp turn for the worse to put a rate cut back on the table. There is more than a certain logic to the point that deploying a limited volume of monetary ammunition to offset the impact of either the Coronavirus fall-out or the terrible Australia firestorms, which above all revealed woeful domestic infrastructure to deal with them, is unlikely to be effective policymaking, especially with RBA rates being so close to the putative zero bound. Russia's Bank Rossi is expected to cut rates a further 25 bps to 6.0%, with downward revisions to the inflation outlook (2020 CPI now seen at 3.6% vs. prior 3.8%, short of 4.0% target) giving Nabiullina & co rather more room for manoeuvre than they had anticipated 6 months ago. We also note the other key story of the past 24 hours "To counter Huawei, U.S. could take 'controlling stake' in Ericsson, Nokia: attorney general" https://www.reuters.com/article/us-...ericsson-nokia-attorney-general-idUSKBN2001DL - if US/EU are to counter Huawei's huge advantage in 5G infrastructure, they would need to co-operate and back both these companies along with Motorola 'to the proverbial hilt' - seemingly unlikely given US/EU relations under President Trump, but....
** U.S.A. - January Payrolls / Labour report **
- For all the very obvious "read across" failings from ADP Employment to official Payrolls, there is no doubt that market expectations for Payrolls will be pegged considerably higher than the consensus 163K headline and 150K Private, given the 5 year high of 296K seen in the ADP. That said January has a very hefty seasonal adjustment (unsurprisingly), so a divergence of even 100K would not be big surprise, with revisions to Payrolls as ever key (annual benchmark revisions are also due). As noted previously, with Powell and many other Fed speakers stressing that their primary concern is the persistent undershoot (even if it is modest) of inflation relative to target, a tight labour market with no sign of a substantial pick-up in wage growth is not going to be a policy game changer. Dec Average Hourly Earnings were much weaker than expected at 2.9% y/y (lowest since July 2018), and are forecast to revert to 0.3% m/m, but only edge up to 3.0% y/y. The Unemployment Rate is expected to hold at its low at 3.5%, but of greater significance will be the U-6 Underemployment Rate which hit an all-time low of 6.7% in December, even if it should be noted that this series has only been compiled since January 1994; a further fall would represent a potentially material tightening of labour market conditions.
** Canada - January Labour report **
- Canadian labour data have been particularly volatile over the past 2 years (see attached graphic), and especially so over the past 6 months, which imparts a health warning to a very 'long-term average' consensus estimate of +17.5K for January, and to expectations of a slight uptick in the Unemployment Rate to 5.7% from 5.6%. It has to be added that Wage growth has also been very choppy, in 2019 alone registering a low of 1.8% y/y in January and a high of 4.5% in July. As a result base effects, which were benign into the end of last year (i.e. boosting), need to be accounted for and be adverse in H1 2020, which accounts for an expected further deceleration to 3.6% y/y from 3.8% in today's report. As such this makes the read across to what is a relatively fluid outlook for BoC policy needs to look at longer trends rather than month on month noise, with the BoC signalling that if it is ease to ease policy, it will need to see clear evidence of some slack opening up in the economy.
| Inbox | x |
| 08:49 (21 minutes ago) |
|
- Digesting very poor Taiwan Trade, German & French Industrial Production,
and China Trade data postponement; awaiting US & Canada labour reports,
Brazil & Mexico inflation; Russia Bank Rossi seen cutting rates 25 bps;
also digesting OPEC+ agreement to cut oil output, Quarles comments on
GSIB surcharge changes
- Germany Industrial Production: a timely reminder to listen to BDI,
watch Ifo, ignore ZEW and PMI
- US Labour data: market 'whisper' way higher than consensus following
ADP surge, but Earnings seen remaining very well contained
- Canada labour data: Employment change volatility imparts high risk
of another outlier; wage growth seen elevated but edging lower, base
effects in play
- Attachments: Canada Employment, Lipper Fund Flows report
- Audio preview:
https://www.mixcloud.com/MOstwaldADM/adm-isi-morning-call-7-february-2020/
..........................................................................
********************
** EVENTS PREVIEW **
********************
A bumper crop of major statistics to end the week, though perhaps leaving more questions about the outlook in the case of the array of trade readings from Taiwan (very sharp hit from coronavirus by the looks of the -7.6% y.y for Exports and even more Imports -17.7% y/y, also LNY timing effects), and to a lesser extent Germany and France, with the China data postponed and set to be a combined Jan/Feb report (as is the case with IP, Retail Sales & FAI), but likely to raise the suspicion that it was too awful to publish, though given movement restrictions there may simply have been insufficient staff numbers to compile the data. German and French Industrial Production data can only be described as totally abject, Germany -3.5% m/m -6.8% y/y vs. a forecast of -0.2%/-3.7%, France -2.8% m/m -3.0% y/y vs. a forecast -0.3%/1.0% - while the parallel downward shift suggests a problem with seasonal adjustment, the more material point is that both data points give the lie to the optimism of the PMIs, and in Germany's case echo the BDI (Federation of German Industry) which said 2 weeks ago German manufacturing was still in deep recession with further downside risks, and no sign of an upturn. Beyond these, there are of course the US and Canadian labour data, national Production data in Germany, France and Spain, and inflation data from Brazil and Mexico. The RBA's Statement on Monetary Policy and Lowe's testimony effectively underscored the point that the Australian economy and labour markets will need to take a sharp turn for the worse to put a rate cut back on the table. There is more than a certain logic to the point that deploying a limited volume of monetary ammunition to offset the impact of either the Coronavirus fall-out or the terrible Australia firestorms, which above all revealed woeful domestic infrastructure to deal with them, is unlikely to be effective policymaking, especially with RBA rates being so close to the putative zero bound. Russia's Bank Rossi is expected to cut rates a further 25 bps to 6.0%, with downward revisions to the inflation outlook (2020 CPI now seen at 3.6% vs. prior 3.8%, short of 4.0% target) giving Nabiullina & co rather more room for manoeuvre than they had anticipated 6 months ago. We also note the other key story of the past 24 hours "To counter Huawei, U.S. could take 'controlling stake' in Ericsson, Nokia: attorney general" https://www.reuters.com/article/us-...ericsson-nokia-attorney-general-idUSKBN2001DL - if US/EU are to counter Huawei's huge advantage in 5G infrastructure, they would need to co-operate and back both these companies along with Motorola 'to the proverbial hilt' - seemingly unlikely given US/EU relations under President Trump, but....
** U.S.A. - January Payrolls / Labour report **
- For all the very obvious "read across" failings from ADP Employment to official Payrolls, there is no doubt that market expectations for Payrolls will be pegged considerably higher than the consensus 163K headline and 150K Private, given the 5 year high of 296K seen in the ADP. That said January has a very hefty seasonal adjustment (unsurprisingly), so a divergence of even 100K would not be big surprise, with revisions to Payrolls as ever key (annual benchmark revisions are also due). As noted previously, with Powell and many other Fed speakers stressing that their primary concern is the persistent undershoot (even if it is modest) of inflation relative to target, a tight labour market with no sign of a substantial pick-up in wage growth is not going to be a policy game changer. Dec Average Hourly Earnings were much weaker than expected at 2.9% y/y (lowest since July 2018), and are forecast to revert to 0.3% m/m, but only edge up to 3.0% y/y. The Unemployment Rate is expected to hold at its low at 3.5%, but of greater significance will be the U-6 Underemployment Rate which hit an all-time low of 6.7% in December, even if it should be noted that this series has only been compiled since January 1994; a further fall would represent a potentially material tightening of labour market conditions.
** Canada - January Labour report **
- Canadian labour data have been particularly volatile over the past 2 years (see attached graphic), and especially so over the past 6 months, which imparts a health warning to a very 'long-term average' consensus estimate of +17.5K for January, and to expectations of a slight uptick in the Unemployment Rate to 5.7% from 5.6%. It has to be added that Wage growth has also been very choppy, in 2019 alone registering a low of 1.8% y/y in January and a high of 4.5% in July. As a result base effects, which were benign into the end of last year (i.e. boosting), need to be accounted for and be adverse in H1 2020, which accounts for an expected further deceleration to 3.6% y/y from 3.8% in today's report. As such this makes the read across to what is a relatively fluid outlook for BoC policy needs to look at longer trends rather than month on month noise, with the BoC signalling that if it is ease to ease policy, it will need to see clear evidence of some slack opening up in the economy.
