ON DECK FOR WEDNESDAY, FEBRUARY 15
KEY POINTS:
- Dollar bulls in charge post US CPI, ahead of retail sales
- US retail sales expected to post a strong gain
- UK core CPI posts weaker than normal January…
- …on the heels of softer wage growth…
- …driving BoE pricing lower…
- …but with another round of data before the March meeting
- Canadian releases unlikely to impact markets
Global markets continue to be in mild risk-off mode this morning in the wake of yesterday’s US inflation figures (recap here). US and Canadian equity futures are slightly in the red, while the dollar is gaining ground against most crosses. European cash equities range from flat (London) to up 1% (Paris). The biggest mover among sovereign curves is a rally in gilts following a soft core CPI reading.
The main global highlight into today will continue to be US macro releases. This time the focus is upon retail sales for January that could demonstrate how markets overreacted to December’s soft patch.
Most estimates for US retail sales range from around 1½% m/m SA to 2½%. I put in 2.2%. An 18.3% m/m SA rise in vehicle sales could alone add over 2 ppts in weighted terms. Higher gas prices will also contribute a touch. So could generally higher CPI. Key will be sales ex-autos and gas that most expect to be strong. Also key will be volumes after adjustments.
I still think that US retail was soft in December because sales got pulled forward into earlier in the season up to October due to earlier than usual discounting and fear of shortages given still fairly low inventories to sales (chart 1). A second reason was that spending rotated somewhat toward services away from goods into the holidays. In any event, the overall 4th quarter saw a solid gain in consumer spending and January could begin to extend that into Q1.
The US also updates industrial output for January this morning (9:15amET) with a modest rise expected.
UK core inflation fell by more than is typical in m/m NSA terms during January compared to past months of January. January is usually a soft seasonally unadjusted month (as per UK convention) but the -0.9% m/m decline was bigger than usual. That dragged the year-over-year core CPI rate down by half a point to 5.8%. The result drove sterling to be weaker and among the weakest crosses relative to the USD this morning, while the gilts curve bull steepened with a 10bps drop in the 2-year yield. Market pricing for the March 23rd BoE decision moved about 6bps lower and terminal rate pricing dropped by 17bps to price about another ½% of cumulative hikes from here.
Pair the UK core CPI reading with the soft UK wage figures in m/m terms from yesterday and perhaps markets are right to ease off BoE pricing. Or maybe it’s noise and they overreacted to one reading and with another CPI print and another set of job and wage readings due before the BoE’s next decision.
Several Canadian indicator updates are on tap but none of them are likely to impact markets. Statcan already issued preliminary guidance for manufacturing and wholesale figures (8:30amET) with details pending while the pair of pending housing updates rarely affects markets. They will include housing starts during January (8:15amET) and existing home sales for January (9amET).
Colombia’s economy is expected to mildly contract when Q4 GDP figures land (11amET).
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