Weekly Recap, And Upcoming Calendar - Light Domestic Econ Data With All Eyes On POMO, Europe And China
Week in Review
After an intense set of macro events over the last few weeks, last week’s macro calendar was notably lighter. The key sources of macro surprises came from EM inflation posting higher prints. China followed the trend and exhibited higher than expected headline inflation prints due to higher food prices. We have discussed the impact of higher food prices on EM inflation quite extensively this past year and we continue to watch the massive spike in traded international food prices with great interest and caution. In response China hiked the reserve requirement ratio again last week signalling more tightening ahead. Related to possible additional administrative measures, over the weekend press reports emerged that a number of large banks have reached annual lending quotas. So far the response of risky assets to this policy shift was negative. Outside China, the Band of Korea will meet on Tuesday, where we expect a hike by 25bp (consensus is for unchanged).
The ongoing tensions in Eurozone bond markets brought the market’s attention back to the looming problems in the European periphery, this time around with spreads in Ireland and Portugal widening and liquidity conditions deteriorating rapidly. The market is now assessing the probability that a country accesses the EFSF in the near future. Under these circumstances and with the positive surprises in US data fresh in mind, the market pushed the EUR off the highs, down from almost 1.41 to lows around 1.36. The upcoming Eurogroup and Econfin meetings on Tuesday and Wednesday will be key to watch.
The long awaited G20 meeting finally came with a disappointing statement even compared to our own expectation for very slow and gradual progress in global economic coordination. The prospect of capital controls emerging post the G20 meeting, added to the overall uncertainty underpinning a volatile week for risky assets. After weeks of rumours and speculation, the Bank of Korea could possibly announce some capital account measures at the policy meeting on Tuesday.
Further Upside Surprises in US Data?
The week ahead is reasonably light in terms of data. In the US the key releases to watch include retail sales, IP and the Philly Fed. On balance we expect better prints compared to consensus. This is likely to maintain the momentum of positive US surprises. As European tremors escalate the ongoing positive momentum in US data is unlikely to be EUR friendly in the near term.
The Philly Fed will also give us a forward looking signal with respect to broader PMI trends in the US...
Next week will include a number of interesting events for monetary policy. The Bank of Korea will likely raise rates by 25bps, as mentioned above, which should help our short INR/KRW trade. Chile will continue normalizing rates by 25bps per meeting, while Philippines’ and Colombia’s central banks will likely stay pat. In the UK the minutes of the last MPC meeting will be interesting to watch in case there is a shift in the overall dovish tone.
More importantly, there will be a POMO every single day of the upcoming week, which will add ~$30 billion to the Fed's total UST/TIPS holdings. Traders will be nervous to confirm whether the new POMO regime will be a dud after Friday's inaugural POMO ended up being a disaster for POMO-bulls.
US Retail Sales(Oct) We expect a 0.8% print for retail sales ex autos relative to consensus expectations of 0.4%.
US Empire Survey (Nov) Consensus expects at marginal drop to 14 from 15.7 last month.
Korea Monetary Policy Meeting. We think the BOK will likely raise rates by 25bps, while the market expects rates to stay flat at 2.25%.
US Industrial Production (Oct) We expect that IP grew 0.5% mom in October while consensus expects a 0.3% print.
US TIC Portfolio flows (Sep) After a bumper inflow in August and with growing expectations in September of QE2, overall inflows could again be very strong. However, if the pattern of previous months holds, there will be fairly little net US inflow outside Treasuries.
Chile Monetary Policy Meeting The central bank in Chile continues on its policy rate normalization path. We expect them to maintain a 25bps pace of tightening bringing rates to 3%, in line with consensus.
US CPI (Oct) Headline inflation is bound to rise by 0.29% mom (consensus is 0.3% as well). But core inflation trends should remain anaemic (0.06%mom).
US Jobless Claims After the drop to the bottom of the multi-month range last week, there could be more focus on this data release than usual.
UK Minutes of MPC Meeting The consensus expectation is for an 8-1 vote in favour of unchanged policy. What will be more important to watch, is the general tone of the minutes and, in particular, we will be watching whether the sentence depicting the dovish bias of the Committee – “some members felt the likelihood that further monetary stimulus would become necessary had risen in recent months” – is retained.
US Philly Fed (Nov) The Philly Fed survey will likely come out at an index level of 6,[->] according to our forecasts, slightly above consensus expectations of 5. But we will be watching the momentum in the new orders to inventories ratio to make inference on growth implications. This will be an input for our GLI as well.
Philippines Monetary Policy Meeting We expect the central bank to remain on hold for the remainder of the year.
Colombia Central Bank Meeting We do not expect Colombia to change rates from current levels of 3%.
From Goldman Sachs and Zero Hedge