Macroeconomics: The Day Ahead for 29 March

The pre-Easter week gets off to a very subdued start with nothing more than the very strong, but heavily base effect distorted China Industrial Profits and BoJ March ‘summary of opinions’ to digest along with Suez canal blockage news, with India closed for the Holi holiday. While ahead lie UK Consumer Credit & Mortgage Lending and the Dallas Fed Manufacturing survey, neither of which seem likely to engender anything other than academic interest. There are speeches from ECB’s de Cos and a debut from Fed’s Waller, while the USDA offers its report on Winter Wheat Conditions. The partial refloating of the Ever Given container ship in the Suez leaves markets to focus on the Archegos fall-out, with a number of banks now reporting related losses; the fact that this follows on hot foot from the Greensill Capital debacle is a timely reminder that the structural weaknesses in the world’s financial architecture remain, and if anything central banks’  financial repression policies only serve to exacerbate them, while the post GFC regulation changes actually did nothing to dispel these risks. Markets are also awaiting some details on Biden’s USD 3.0-4.0 Trln “Build Back Better” plan to rebuild America’s infrastructure due this week

RECAP: The Week Ahead – Preview: 

The world goes into yet another major holiday period, with many countries still under very tight restrictions on activity and movement due to the pandemic, and unfortunately there remain rather too many who would like to wish the pandemic would ‘just go away’ with the wave of a magic vaccine wand, rather than face up to adjusting to living with it.  At a political level, vaccine nationalism remains the dictum (see chart on vaccine production and exports), and testimony to collective failure as well as the numerous geo-political tensions which serve as the greatest hurdles to successfully combatting and overcoming the pandemic, which in turn feeds into rising social tensions, above all in western nations. As Lao Tzu observed in the Tao Te Ching: ““Water is fluid, soft, and yielding. But water will wear away rock, which is rigid and cannot yield. As a rule, whatever is fluid, soft, and yielding will overcome whatever is rigid and hard. This is another paradox: what is soft is strong.”

Be that as it may, a shortened holiday week has a reasonable volume of statistics to peruse, comprising the usual end of month mix of surveys, headed by US Consumer Confidence, the gamut of Manufacturing PMIs and Japan’s Q1 Tankan, along with German, Eurozone and Japan (Tokyo) CPI, the end of month rush of Japanese activity data, Canada’s monthly GDP, US Auto Sales and on Good Friday March labour data. There are no major central bank policy meetings, and a much more modest run of central bank speakers. The commodity space awaits the OPEC JMMC (Joint Ministerial Monitoring Committee) and OPEC+ meeting, while the USDA publishes its annual US Prospective Plantings and Dairy Production reports, with Suez canal developments also in focus. Govt bond supply is minimal (Japan, Italy and Germany), while China again dominates the earnings schedule, with a particular focus on earnings from some of the world’s largest solar energy companies GCL-Poly Energy, JA Solar Technology and Flat Glass Group. However equity markets will also continue to be abuzz with attempting to get to the bottom of the $10.5 Bln of block trades in Chinese tech and US stocks with spectacular price effects: above all the question of will there be any follow through, as quarter end looms and likely dominates flows on the back of portfolio rebalancings. Escalating tensions between China and the US, EU, UK, Canada will also continue to cast a long shadow.

In terms of the data run, last week’s much better than expected Eurozone PMIs and national surveys underlined the strength of the Manufacturing sector recovery (Ifo’s Wohlrabe highlighting export demand from China and the US), but above all an unexpected rebound in Services, even if the relative divergence between flash German and Eurozone Services PMIs hints at still sluggish readings overall. Per se there will be rather more interest in this week’s EC Confidence surveys, which are forecast to show a sharper pick-up, though the Services index at an expected -15.0 vs. February’s -17.1 would still be very weak.

February’s inflation data in the Eurozone, UK and indeed US were not as some suggested an indication that inflation pressures are weak, but rather testament to the fact that the pandemic has ripped through normal seasonal patterns (let alone general household consumption patterns). Thus the pick-up in January was primarily due to the lack of typical post-Christmas sales discounting, and the setback in February due to over-compensating seasonal adjustment for what would be the typical upward pressure on prices as sales discounts are unwound. Preliminary Eurozone CPI readings for March are forecast to show a renewed upward bump to 1.4% y/y from 0.9%, though core CPI is seen unchanged at 1.1%, with energy price rises and base effects playing a key role in headline terms, but still a long distance from the ECB’s target, though April and May data will see a much anticipated further boost from adverse base effects.

US Consumer Confidence will be very closely watched, with a sharper rebound to 96.0 from 91.3 expected, and the risks skewed to the upside, with easing activity restrictions, a robust vaccine roll-out pace, ‘stimulus cheques’ and improving labour demand likely to boost the mood of consumers, though perhaps not quite as high as October’s recent high of 101.4. Ahead of Friday’s Payrolls, Initial Claims are forecast to post a marginal dip to 680K from last week’s much better than expected 684K, still just above the GFC record of 665K. By contrast Friday’s Non-farm Payrolls are projected to accelerate from 379K to 635K, though the key Labour Force Participation rate is seen improving only modestly to 61.5% from 61.4%, and serving as reminder that there is still a very long way to go before the labour market gets back to some form of normality, as the Fed continues to emphasize. US Auto Sales are expected to rebound to a 16.40 Mln SAAR pace (Feb 15.67 Mln), as February’s weather effects on abroad swathe of monthly indicators are unwound.

Manufacturing and China’s NBS PMIs will be of interest from two aspects a) to see if the strength in G7 Manufacturing readings is echoed more broadly around the world (Japan’s Tankan will also be watched closely), and b) whether China’s PMIs continue to signal that it’s recovery is plateauing after leading the way in H2 2020, which would in turn raise further questions about medium-term commodity demand.

A modest run of corporate earnings is dominated by China, with Bloomberg identifying the following as likely to be among the headline makers:  Air China, Bank of China, online pet retailer Chewy, discount retailer Dollarama, Foxconn Industrial Internet, H&M, Micron Technology, Next, Novagold, facilities manager Sodexo, recruitment agency Synergie, WH Group, BlackBerry and Walgreens Boots Alliance.