BY TYLER DURDEN …
MONDAY, DEC 11, 2023 – 07:29 AM …
Usually the week after US payrolls is pretty quiet on the news and events front, but not this one, because as DB’s Jim Reid writes it’s hard to see how the week could be much busier given we have the following highlights.
- Today we get a 3yr and 10yr US Treasury auction plus the NY Fed’s Survey of Consumer Expectations.
- Tomorrow sees the all-important US CPI and a 30yr Treasury auction (after a very bad one last month).
- Wednesday sees a fascinating FOMC meeting and US PPI.
- Thursday sees US Retail Sales and policy meetings from the ECB, SNB and BoE.
- Finally, Friday brings the latest global flash PMIs and China’s main monthly data dump.
There are plenty of other releases but these are likely to be the primary market moving events. For a full list, see the day-by-day calendar of events at the end as usual.
As Reid adds, it’s a toss up as to whether the FOMC or the US CPI will be the most important event of the week. Given that CPI tomorrow could shape the FOMC, let’s start there. For headline, the consensus thinks we’ll be flat MoM, the same as last month, helped by gas prices being down -8% since October. For core, the consensus is at +0.3% MoM (last month +0.23%). All these estimates would lead YoY to be 3.1% (-0.1pp) for the headline and 4.0% (unch) for core. For core, that would push the 3m and 6m annualized rate down one-tenth and three-tenths respectively to 3.3% and 2.8%. If accurate, this would be the first time that the 6m measure has been below 3% for since March 2021 .
That will then set up the FOMC the following day and it will be interesting to see how Powell and the committee play it. Markets have got way ahead of the Fed in terms of pricing cuts for next year, so do they try to rein them in or acknowledge the direction of travel? The Fed is still likely to be more of a slow oil tanker than a speedboat but will probably acknowledge that barring a unexpected surprise, the hiking cycle is over but will conclude that it’s premature to talk about cuts at the moment. The dot plot will likely show 50bps of cuts by YE 24, which would leave the end-2024 dot 25bps lower than it was in September. In its revised Fed preview published late on Sunday, Goldman notes that it too expects the FOMC’s median projection to likewise show two cuts next year, as it did in September, and to show the same 125bp of cuts in 2025 and another 100bp of cuts in 2026 (full note available to pro subs in the usual place).
Central banks will stay in focus on Thursday, since the ECB will be making their latest policy decision that day. DB economists expect them to hold rates, but their preview highlights several factors that might tilt the ECB in a more dovish direction going forward. They now see the central bank cutting rates from April, with a risk of an earlier cut in March. They currently expect 150bps of cuts in 2024. The BoE are also expected to hold on Thursday; ahead of the decision, there will be the labor market data (tomorrow) and the monthly UK GDP report (Wednesday). Finally, DB sees the SNB shifting to a dovish policy bias and expect the first rate cut in March.
Over the weekend, Chinese CPI came in at -0.5% for November, which was below the -0.2% expected and is the biggest year-on-year decline in the CPI for three years. PPI also fell to -3% (vs. -2.8% expected). As a result, Chinese equities are struggling this morning, with the CSI 300 (-0.59%) and the Shanghai Comp (-0.26%) both losing ground. Moreover, the Hang Seng (-1.72%) has continued to underperform, and is currently at a 13-month low, having now lost -18.84% on a YTD basis. That said, other equity indices in Asia have managed to advance, with the KOSPI (+0.12%) posting a modest increase, whilst the Nikkei (+1.47%) has seen a strong bounceback. That comes as investors have downgraded the likelihood of a policy adjustment from the BoJ at next week’s meeting following the previously mentioned BBG report, with markets only pricing an 8% chance that they end their negative interest rate policy (down from a peak of 45% last Thursday) .
Here is a day-by-day calendar of events, courtesy of Deutsche Bank
Monday December 11
- Data: US November NY Fed 1-yr inflation expectations, Japan November PPI, machine tool orders
- Earnings: Oracle
- Auctions: US 3-y ($50bn) and 10-y ($37bn, reopening) Notes
Tuesday December 12
- Data: US November CPI, NFIB small business optimism, monthly budget statement, UK October weekly earnings, November jobless claims change, Japan Q4 Tankan survey, Germany December Zew survey, November wholesale price index, Eurozone December Zew survey
- Central banks: ECB’s Villeroy speaks
- Auctions: US 30-y ($21bn, reopening) Notes
Wednesday December 13
- Data: US November PPI, UK October monthly GDP, trade balance, industrial production, index of services, construction output, Japan October core machine orders, Italy Q3 unemployment rate, Germany October current account balance, Eurozone October industrial production
- Central banks: Fed decision
- Earnings: Adobe, Inditex
Thursday December 14
- Data: US November retail sales, import and export price index, October business inventories, initial jobless claims, Japan October capacity utilization, Canada November existing home sales, October manufacturing sales
- Central banks: ECB decision, BoE decision, SNB decision
- Earnings: Costco, Lennar
Friday December 15
- Data: US, UK, Japan, Germany, France and Eurozone December PMIs, US November industrial production, capacity utilization, December Empire manufacturing index, October total net TIC flows, China November retail sales, industrial production, new home prices, UK December GfK consumer confidence, Japan October Tertiary industry index, Italy October trade balance, general government debt, Eurozone Q3 labour costs, October trade balance, Canada November housing starts, October international securities transactions
- Central banks: China 1-yr MLF rate, ECB’s Vasle, Kazimir, Muller, Scicluna, Simkus and Vujcic speak, BoE’s Ramsden speaks
* * *
Finally, focusing on just the US, Goldman writes that the key releases this week are the CPI report on Tuesday, the PPI report on Wednesday, and the retail sales report on Thursday. The December FOMC meeting is on Wednesday. The post-meeting statement will be released at 2:00 PM ET, followed by Chair Powell’s press conference at 2:30 PM.
Monday, December 11
- 11:00 AM New York Fed 1-year inflation expectations, November (last 3.6%)
Tuesday, December 12
06:00 AM NFIB Small business optimism, November (consensus 90.7, last 90.7)
- 08:30 AM CPI (mom), November (GS +0.03%, consensus +0.0%, last +0.0%); Core CPI (mom), November (GS +0.27%, consensus +0.3%, last +0.2%); CPI (yoy), November (GS +3.06%, consensus +3.1%, last +3.2%); Core CPI (yoy), November (GS +3.99%, consensus +4.0%, last +4.0%): We estimate a 0.27% increase in November core CPI (mom sa), which would leave the year-on-year rate unchanged at 4.0%. Our forecast reflects a 0.5% drop in apparel prices due to an earlier start to holiday promotions and the weakness in online prices indicated by Adobe’s customer base. We also assume a drop in auto prices (new -0.3%, used -0.9%), as dealer incentives more than fully rebounded post the UAW strike and used car auction prices have continued to decline. We also look for deceleration in car insurance rates (we assume +1.1%), as premiums have nearly caught up to repair and replacement costs. On the positive side, we estimate a 4% rebound in airfares based on higher webfares ahead of the holidays. We expect a similar pace of shelter inflation as in October (we estimate +0.46% for rent and +0.42% for OER), reflecting a slowdown in rent growth and a more normal rent-OER gap, following recent volatility. We estimate a 0.03% rise in headline CPI, reflecting lower energy (-3.2%) and higher food (+0.3%) prices.
Wednesday, December 13
- 08:30 AM PPI final demand, November (GS +0.2%, consensus flat, last -0.5%); PPI ex-food and energy, November (GS +0.2%, consensus +0.2%, last flat); PPI ex-food, energy, and trade, November (GS +0.2%, consensus +0.2%, last +0.1%)
- 02:00 PM FOMC statement, December 12-13 meeting: As discussed in our FOMC preview, we expect the FOMC’s median projection to show two cuts next year and to show the same 125bp of cuts in 2025 and another 100bp of cuts in 2026. We expect the neutral rate dot to rise from 2.5% to 2.56% (the midpoint of 2.5% and 2.625%), in part because even those participants who think that neutral is now higher might in some cases express that view not by raising their longer-run dot but by concluding that the short-run neutral rate is higher than the longer-run rate, as Chair Powell suggested in September. We expect the economic projections to reflect the better inflation news and continued resilience of the economy, with a small upward revision to 2024 GDP growth (+0.1pp to 1.6%), a small downward revision to the peak unemployment rate (-0.1pp to 4.0%), and a slightly lower core PCE inflation path (-0.1pp to 2.5% in 2024 and 2.2% in 2025).
Thursday, December 14
- 08:30 AM Retail sales, November (GS -0.5%, consensus -0.1%, last -0.1%); Retail sales ex-auto, November (GS -0.5%, consensus -0.1%, last +0.1%); Retail sales ex-auto & gas, November (GS -0.1%, consensus +0.2%, last +0.1%); Core retail sales, November (GS -0.1%, consensus +0.2%, last +0.2%): We estimate core retail sales declined 0.1% in November (ex-autos, gasoline, and building materials; mom sa). Our forecast reflects a 0.4% rise in nonstore sales based on solid online spending across Adobe’s customer base. However, we expect this sequential increase to be more than offset by weakness in brick and mortar categories (70% of retail control), based on Fiserv credit card and Redbook department store data. We also assume a 0.1pp drag on retail control growth from the winddown of covid vaccine boosters (one tenth of the population received shots in September and October). We also view seasonality as a negative factor this month, as discussed in more detail here. We estimate a 0.5% drop in headline retail sales, reflecting lower gas prices and a drop in auto and restaurant sales.
- 08:30 AM Initial jobless claims, week ended December 9 (GS 215k, consensus 221k, last 220k); Continuing jobless claims, week ended December 2 (GS 1,890k, consensus 1,876k, last 1,861k): We estimate that initial jobless claims declined to 215k. We estimate that continuing claims rebounded to 1,890k, reflecting continued upward pressure from seasonal distortions.
- 08:30 AM Import price index, November (consensus -1.0%, last -0.8%); Export price index, November (consensus -0.8%, last -1.1%)
- 10:00 AM Business inventories, October (consensus flat, last +0.4%)
Friday, December 15
- 08:30 AM Empire manufacturing index, December (consensus 2.0, last 9.1)
- 09:15 AM Industrial production, November (GS flat, consensus +0.3%, last -0.6%); Manufacturing production, November (GS +0.1%, consensus +0.5%, last -0.7%); Capacity utilization, November (GS 78.8%, consensus 79.1%, last 78.9%): We estimate industrial production was flat, as strong natural gas and electricity production balanced weak mining production. We estimate capacity utilization declined to 78.8%.
- 09:45 AM S&P Global US manufacturing PMI, December preliminary (consensus 49.3, last 49.4): S&P Global US services PMI, December preliminary (consensus 50.7, last 50.8)
Source: DB, Goldman, BofA