- Digesting China data run, Yellen comments, as UK Retail Sales, Canada CPI
and Retail Sales, ECB Coeure speech, corporate earnings at Davos offer
some distractions from Trump inauguration as President
- UK Retail Sales: seen slipping modestly after very solid run during H2
2016, some downside risks
- China: GDP and monthly indicators underline need for further structural
reforms, corporate deleveraging and waning fiscal stimulus impetus
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** EVENTS PREVIEW **
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It's President Trump inauguration day, though there are other non-US items on the agenda, kicking off with the overnight run of China's Q4 GDP and monthly economic activity indicators. Ahead lie UK and Canadian Retail Sales, with Canada also publishing CPI, which will for the first time includes an array of new 'core' CPI measures (common, median and trimmed mean) for added inspiration. Davos winds up with ECB's Coeure as one of the speakers, following on from the express train (45 mins) press conference yesterday, which sprung precisely nothing in the way of surprises, indeed offered no insights, outside of the official notice that only govt bonds with yields below the Depo Rate (-0.4%) will be eligible for QE purchases. There is also some further Fed speak via SF Fed's Williams and Philadelphia Fed's Harker, but as both have already spoken since the start of the year, there may be little in the way of fresh insights. That said, Yellen clearly sought to signal a less accommodative bias yesterday, when she backtracked on her Q4 2016 comments with the observation that "I think that allowing the economy to run markedly and persistently “hot” would be risky and unwise". On UK Retail Sales, the consensus looks for headline Sales to post a marginal fall of -0.1% m/m, and there could be a larger fall if the BRC measure is any guide. However, given that this follows a run from July to November of 2.0% m/m, 0.2%, Flat, 1.8% and 0.2%, this would hardly suggest that British consumers have suddenly slammed on the brakes in spending terms, even if the ex-Auto Fuel measures matches an expected -0.4% m/m. Indeed the often choppy and erratic pattern for this series in the November to March period advises caution in terms of interpretation, and the primary cause for concern at the current juncture is far more than unsecured credit growth is outpacing wage growth at such a rapid pace.
** China - Q4 GDP, Dec Industrial Production, Retail Sales, FAI **
- Q4 GDP at 1.7% q/q 6.8% y/y was marginally stronger than forecast, though still slowing fractionally from Q3's 1.8% q/q, and given the hefty contribution from Property Investment (Jan-Dec accelerating to 6.9% y/y vs. prior 6.5% y/y), the imbalances in the economy are all too obvious, and prospects for 2017 hardly look propitious, especially given the headwinds that may emanate from Trump's trade policies. The outturn is indeed all the more disappointing given the large scale fiscal stimulus, which will clearly be a subject for quite heated discussion at the National People’s Congress in March. Be that as it may, the recent moves to curb the property bubble allied with the ongoing measures to control capital flows will keep markets focused on the CNY exchange rate, and the array of debt related risks, imply 2017 GDP will likely slow to the low end of a 6.0-6.5% y/y range. The challenge for the Chinese authorities will be how to manage corporate deleveraging and other supply-side structural reforms (e.g. reducing business costs), while keeping the CNY on a relatively tight leash, and only allowing a modest slowdown in growth. In terms of the monthly data, it is worth noting that the recovery in the Private sector component of Fixed Asset Investment (lower than expected at 8.1% y/y) appears to be stalling, rising just 3.2% y/y vs. November's 3.1%, with Retail Sales (10.9% y/y) and Industrial Production (6.0%) essentially in line with forecasts, and by extension also showing that any residual impetus from the fiscal boost is clearly waning.
from Marc Ostwald