With the Pacific G10 Macro Rates Team
Last week saw the market re-appraised the odds of tapering in the US, after the FOMC re-emphasised it would be a function of economic resilience. This was interpreted as a pushback on timing and resulted in the benchmark UST 10yr backing down below 1.10% after touching a 10-month high 1.18%.
In Europe, infection rates rolling over gave a glimmer of hope to those suffering under the latest lockdowns. However, the political landscape is changing, with the Netherlands government resigning after a fraud scandal, and the Italian governing coalition fracturing. Meanwhile the ruling party of Germanys CDU elected a Merkel substitute (Armin Laschet) to carry the liberal-moderate torch a bit longer. How long is less certain, as we assume with Merkel gone, the political stability in Europe’s most powerful economy is now less secure. BOE speeches showed limited appetite for negative rates.
Elsewhere, there was improved Chinese data after their CPI returned to positive after touching deflationary territory the previous month. There was restrained optimism from South Korea’s central bank due to the uptick in Asian based trade, but policy was left unchanged.
US: December core CPI printed +0.1% MoM (0.1% exp., 0.2% prev.) and +1.6% YoY (1.6% exp., 1.6% prev.). Core retail sales -2.1% MoM (-0.3% exp., -0.8% prev.) as Covid19 fear hit footfall. Industrial production was strong however, at +1.6% MoM (0.5% exp., 0.4% prev.) U. of Mich. released survey data showing sentiment, current conditions and expectations were weaker than previous but not significantly. Inflation expectations were also released showing upticks in the short-term measure at 3.0% (2.5% exp., 2.5% prev.) and the longer-term measure at +2.7% (2.5% prev.)
Canada: No tier 1 data
Eurozone: Eurozone November industrial production +2.5% MoM (0.2% exp., 2.1% prev.) annual -0.6% YoY (-3.2% exp., -3.8% prev.)
German 2020 Annual GDP -5.0% (-5.2% exp., 0.6% prev.) Italian restrictions in November hit retail sales, dropping by -6.9% MoM (0.6% prev.) and industrial production dropping -1.4% MoM (-0.4% exp., 1.3% prev.)
Sweden: Swedish December core CPIF +0.6% MoM (0.5% exp., 0.0% prev.) +1.2% YoY (1.1% exp., 1.1% prev.)
Norway: Norwegian core CPI -0.1% MoM (-0.1% exp., -0.4% prev.) with 3.0% YoY (3.1% exp., 2.9% prev.) and mainland GDP -0.9% MoM (-1.6% exp., 1.2% prev.)
Core machinery orders rose +1.5% MoM (-6.5% exp., 17.1% prev.) bringing the YoY measure to -11.3% (-15.3% exp., 2.8% prev.)
November Industrial Production dropped -0.1% MoM (0.5% exp., 1.3% prev.) on lockdown restrictions annualising at -4.7% YoY (-4.2% exp., -5.5% prev.)
Australia: No tier 1 data.
New Zealand: December measures of activity such as the ANZ Truckometer (Heavy) +0.4% MoM (+0.1% prev.) demonstrate the uptick in activity surrounding Asian based trade. However, with house sales at +36.6% YoY (29.6% prev.) the RBNZ will be under pressure to meet its macro-prudential objectives.
For further information on the Pacific G10 Macro Rates team, their experience and strategy please see belowRead the Strategy Information Sheet
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