Macroeconomics: The Day Ahead for 12 March

Major data is quite plentiful today, though US CPI gets top billing, with Japan’s PPI and Q1 BSI survey, and UK Unemployment and Average Weekly Earnings to digest ahead of US NFIB Small Business Optimism, and Indian CPI and Industrial Production. While there are quite a number of central bank speakers scheduled, their topics are either macroprudential or only tangential to monetary policy, with EU Finance Ministers also set to meet. In the commodity space, both OPEC and the US EIA publish their respective monthly Oil Market Reports, while the UK hosts the Energy Transitions 2024 conference. Govt bond issuance is plentiful with the UK and US selling 10-yr, Germany 2-yr and the Netherlands 6-yr, following on from the 5-yr JGB auction. Comments overnight from Japanese officials appeared to be implicitly pushing back on the idea of an end to negative rates at next week’s BoJ meeting, with Finance Minister Suzuki noting Japan is ‘not out of deflation yet’, while BoJ’s Ueda noted some weakness in the economy.

** U.K. – Jan/Feb Unemployment & Average Weekly Earnings **

The labour data were uniformly somewhat weaker than expected, with headly Average Weekly Earnings dropping to 5.6% from 5.8%, and basic pay easing slightly to 6.1%, both much too high of BoE comfort, but at least continuing to decelerate. HMRC Payrolls were weaker than expectations at 20K above all net of the downward revision to Jan to 15K from 48K, while LFS Employment posted a drop of -21K against forecast of +5K, and Vacancies eased somewhat to 908K, but still remain well above the pre-pandemic peak. While labour demand is clearly easing, and yesterday’s KPMG/REC and Reed data point to a further deterioration ahead, the BoE will want to see a sharper deceleration in wages before it embarks on any easing.

** India – February CPI, Jan Industrial Production** 

CPI is expected to be little changed at 5.07% y/y, though easing Food Prices and a likely further drop in core CPI impart some downside risks to the consensus estimate, which at the margin could prompt the RBI to tone down its hawkish bias. Industrial Production is finally expected to show some stability, as holiday timing base effects are removed from the equation, with a modest pick-up to 4.1% y/y from 3.8% expected, with surveys imparting a slight upside risk.

** U.S.A. – February CPI, NFIB Small Business Optimism **

Ahead of CPI, the NFIB Small Business Optimism will bear some scrutiny, above all given that the already published Employment components saw a sharp 7 pt drop to 19% in Net Compensation Plans, the weakest level in 3 years, with Plans to Hire slipping further to 12%, weakest since the depths of the pandemic in May 2020, with the headline index seen recovering to 90.5 after hitting a 13-month low of 89.9 in January. The consensus for CPI looks for headline to rise 0.4% m/m for an unchanged 3.1% y/y, while core is seen up 0.3% m/m, y/y to dip back 0.2 ppt to 3.7%, i.e. improving directionally. In the detail, a strong rise in gasoline prices is likely to pace the headline rise, while Housing OER should ease back from the unexpectedly strong 0.6% m/m rise in January, and used auto prices are likely to dampen the upward pressures; start of year price hikes may also continue to exercise some residual upward pressure. But overall the report is likely to keep the Fed cautious given that 3-mth annualised rates would, if forecasts are correct, stand at 3.6% headline (vs. Jan 2.8%), with core unchanged at 4.0%, hardly indicative of being on a clear path back to 2.0%.