Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
Modest data run topped by US jobless claims; digesting Fed Beige Book, Japan Consumer Confidence, Korea CPI, & Australia Retail Sales & Trade; OPEC+, China NPC meeting and Powell speech in focus; France, Spain, UK bond sales; more US retail corporate earnings
US weekly jobless claims: modest rise seen; reactive correction and Presidents’ Day holiday heighten risk of outlier
OPEC+: rollover mooted; hefty tussle between Russia and GCC views
Fed Beige Book: optimistic outlook mixes with hefty caution, labour demand still quite heavily impaired
UK Budget: corporation tax plans ill conceived
EVENTS PREVIEW
The day’s data schedule is modest, with only US weekly jobless claims likely to garner much market attention, with the overnight run of Korean CPI, Japanese Consumer Confidence and Australian Trade and Retail Sales having had little or no impact. The focal points are likely to be the start of China’s NPC related meetings (which will only run until 10th March, as against the usual two weeks), and the OPEC+ production meeting. There will also be more central bank speakers, with the focus on Fed’s Powell, along with bond auctions in France, Spain and UK, while retailers (Costco, Kroger) will again be among the highlights of today’s run of US corporate earnings. The commentary narrative for today highlights Powell’s speech as being the key event, but the fact is that he is only going to repeat the low for longer, patience and rising yields are a sign of confidence narratives and, as with other G7 central banks, markets have clearly reached the point of trying to goad central banks into taking action. That said some of the weakness in bond prices does look to be related to Japan’s fiscal year end at the end of month, with Japan’s banks again heavy sellers of foreign bonds in the latest reporting week.
Be that as it may, yesterday’s Fed Beige Book underlined some already well established points: there is a pick-up in activity, but as the regional reports note, the pick-up is ‘slight’ or ‘modest’. There is considerable optimism about the outlook, but ongoing restrictions above all for leisure related activities and the cancellation of planned summer events leaves most businesses feeling cautious. Labour demand is overall weak, even if there are clearly sector specific labour shortages and wage pressures, and supply chain disruptions remain very much in evidence. The key problem with the latter is that these could be easily overcome, but with so many setbacks with regards to the virus’ impact on the economy, impaired revenue flows and balance sheets, most businesses are not willing to over-commit limited resources, for fear of another setback.
In passing in respect of the UK Budget, the various extensions and adaptations of current Covid-19 support measures were wholly unsurprising, and had been leaked. The moves on corporation tax can only be described as well beyond feckless. Firstly the 130% ‘super deduction’ for the next 2 years will be heavily utilized and without a shadow of a doubt abused and scammed. The decision to than hike corporation tax from 19% to 25% in one fell swoop is a massive disincentive to use the ‘super deduction’ to make long-term investments, and in terms of FDI flows for a ‘global Britain’ is a major incentive for foreign investors to look for more attractive opportunities.
Today’s OPEC+ meeting is going to be an interest test, with Russia clearly wanting to increase production meaningfully, having a much lower oil price factored into its budget calculations. By contrast the GCC countries would prefer to ensure that any setback in crude prices from current levels is modest, given their need to sure up rather parlous budgetary positions, due to high levels of pandemic related govt spending. ‘Sources’ have indicated that a number of countries would like to keep current production levels unchanged in April, though it is unclear what would happen with Saudi Arabia’s voluntary 1.0 mln output cut; the pre-meeting consensus had assumed a 500K bbls increase in output and for Saudi Arabia to roll back its voluntary cut.
As for US Initial Claims, last week’s downside surprise owed everything to the big freeze, with the drop to 730K being a function of people not being able to file claims. The consensus looks for only a modest rebound to 755K, but the risk looks to be to the upside, with the President’s Day holiday adding to the risk of yet another outlier.
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