constitutional court ruling, first Polish parliament sitting of 2017,
Brazil and Poland rate decisions; UK sees Trade, Industrial Production
and BoE FPC testimony; Germany and US 10-yr auctions
- USA: Trump press conference: latest allegations to cast long shadow
as markets seek clarification on policy priorities
- Brazil rates: IPCA IBGE inflation data likely to give COPOM scope for
much sharper than expected 50 bps rate cut, given spectacularly high
level of 'real' rates
- Turkey: in contrast to Brazil, negative real rate profile and evaporating
FX reserves leave TRY with nowhere to hide
- Charts: FX y.t.d. performance vs. USD / Turkey FX reserves
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** EVENTS PREVIEW **
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Today looks primarily to be about policy and politics, with UK Trade and Industrial Production data presenting the only significant items on the agenda along with the NIESR's Q4 GDP estimate, though Brexit related politics will continue to trump (sic) any UK official and survey data. Govt bond supply sees 10-yr supply in both Germany and the USA. On the political side, it is all about President elect Trump today, with his first press conference since June, while the Senate Foreign Relations Committee starts its confirmation hearing for one of the perhaps more controversial Trump nominations namely former Exxon Mobil CEO Tillerson. On the policy side, Poland's National Bank is seen holding rates at 1.50% for the 23rd consecutive month, with likely greater interest in proceedings in the Sejm (parliament) after last month's 'sit-in' occupation of parliament by opposition parties in protest at the government's failure to consult parliament on the 2017 budget. There will also be plenty of interest will be today's Brazilian CPI (aka IBGE Inflation IPCA), which is forecast to fall sharply in y/y terms to 6.34% from November's 6.99%, 8.48% at the end of Q3 and 10.81% at the start of 2016, which leaves Brazilian nominal rates at 13.75% looking spectacularly high in inflation adjusted terms, the more so given the austerity measures that are set to be passed by the Temer govt, which are both long overdue in terms of bring some order to Brazilian public sector finances, but hardly what a rapidly shrinking economy is looking for. That said, elderly President Temer can clearly implement such measures given he eminently cares not a jot about the 2018 election, as such the BRL's real rate advantage relative to its EM peers would still look colossal even if COPOM cut rates bvy 250 bps, given an 11.25% Selic rate would if CPI forecasts are correct still equate to 5.0% in real interest rate terms. The contrast with Turkey is all too obvious, in so far as both countries continue to face enormous political uncertainty, but with the central bank's benchmark repo rate at 8.0%, while December CPI soared from 7.0% y/y in November to 8.53% y/y, real rates are negative and trending sharply lower without TCMB policy tightening, and the pace at which FX reserves are being 'burnt' (see chart) with no obvious benefit for the TRY, all bode poorly and likely to ensure the TRY remains the worst performing currency (see chart). In terms of what Mr Trump has to say, outside of the inevitable likely lengthy questions about the latest allegations of Russia having 'compromising information about him', the key question are about what policies appear to have greatest priority, especially for financial markets that have as ever chosen to focus on the potential positive, and glossed over the array of negatives. Thus if particular emphasis is placed on Trade tariffs, migration, China and Mexico, ahead of the proposed corporate and income tax measures, and indeed infrastructure spending, then the USD would appear to be especially vulnerable, as would a number of equity market sectors which have benefitted from the putative boost from Trump policies. Italy will get plenty of attention, not only in terms of progress on the MPS/banking sector resolution, but also as the Constitutional Court on whether Renzi's labour market reforms should be subject to a referendum; the court will rule on the electoral reforms on January 24th. BoE's Carney and his fellow FPC members will also be testifying on the latest FPC decisions and report, which will doubtless generate the usual plethora of Brexit related headlines which ultimately are very uninformative, outside of evidencing the known hostility of many Brexiteers' hostility to Mr Carney.
from Marc Ostwald