Macroeconomics: The Day Ahead for 22 April

Another relatively light day for statistics await with business and consumer surveys, US weekly jobless claims and Existing Home Sales in focus, but the main points of focus will be the ECB meeting and a host of corporate earnings and indeed production reports. The latter sees Q1 Production reports from Anglo American, Anglo Platinum and Kumba Iron Ore and earnings from Freeport-MacMoran in the commodities space, with one eye also on SMM Copper conference in China. Meanwhile Intel heads the earnings run elsewhere, which also sees reports from Credit Suisse, Heineken, Orange and Volvo in Europe, with AT&T, Blackstone, Dow, Snap and Union Pacific also likely to be among the headline makers. The govt bond auction schedule sees multi-maturity supply from France and Spain, and 5-yr US TIPS. Winding back the tapes to yesterday’s BoC meeting, which proved to be a good deal more hawkish than most had anticipated, with the BoC holding rates and cutting its weekly Govt bond purchases by C$1.0 Bln to C$3.0 Bln, and confirming that other liquidity measures will be terminated over the next two months, as previously flagged. However it effectively brought forward its timeline for when it might hike rate, by revising its forecast of when the slack in the economy might be fully absorbed to H2 2022, vs. a prior estimate of 2023, which unsurprisingly prompted the CAD to rip higher. It would appear that the BoC is managing an exit from unconventional policy measures successfully and admirably, but primarily because it is not encumbered by a mountainous litany of post GFC measures, as is the case with the Fed, ECB and BOE, or 20 years of failed inflation targeting in the case of the BoJ. Per se it is not in the same boat as other central banks, and unlike the RBA not overly obsessed with FX rates.  Today’s US weekly jobless claims data are seen rising to 610K after last week’s unexpectedly sharp 193K fall to 576K, in part due to a less favourable seasonal adjustment and also a mean reversion of the Easter holiday related statistical noise of recent weeks, the trend is however clearly lower, with Continued Claims forecast to drop to 3.64 Mln. The latter is however deceptive, as there are also around 7.0 Mln on PUA (Pandemic Unemployment Assistance) and in excess of 5.0 Mln on PEUC (Pandemic Emergency Unemployment Compensation) benefits, underlining the Fed’s point about there still being colossal slack in the US labour market.

** Eurozone – ECB council meeting **

No changes are expected to ECB rates or its PSPP & PEPP total volumes, nor to its “guidance” on the volume and term  of PEPP purchases (i.e. still bifurcated) or the long-term rate outlook. Incoming activity data has shown some unexpected resilience, even if extensions and / or tightening of lockdown measures in a number of countries imply a delay to prospects for a more robust recovery bump, though accelerating vaccination rates offer a counter to this. Yesterday’s decision by Germany’s Bundesverfassungsgericht to throw out the attempt to thwart ratification of the European Recovery Programme will clearly be welcomed, but ultimately does little to change views that as much as inflation will tick above target in coming months, this will not prove to be durable. Lagarde will face some more testing questions on the increase in weekly PEPP purchase volumes announced the March meeting, with many market participants viewing the average weekly EUR 16.9 Bln volume since that meeting, vs. EUR 14.4 Bln volume in 2021 up to that meeting as not really being that ‘significant’. Eminently the easing in nominal long-term yields this month has eased the pressure on the ECB to be more aggressive, though the divisions on the council that were all too evident in the bifurcated signals in the last press conference, and the minutes of that meeting suggest that the “modest” increase in volumes is in effect a compromise.  Ultimately all the ECB meeting will achieve is to underline that it really is fiscal policy that is going to matter as the Eurozone economy attempts to navigate its way to a post-pandemic recovery.