Macroeconomics: The Day Ahead for 28 April

The day’s data schedule is both heavily front-loaded and unlikely to offer much in the way of inspiration to markets, which will be more interested in the FOMC meeting, the Biden infrastructure spending bill speech to Congress and a further rash of corporate earnings. There are UK BRC Shop Prices, Japan Retail Sales, Australian Q1 CPI and German & French Consumer Confidence to be digested, with US Goods Trade Balance and Canada’s Retail Sales ahead. There are auctions in the UK (10-yr I-L) and Germany (15-yr), while UK and European Banks, Apple, Boeing, eBay, Ford and Qualcomm are likely to be among the corporate earnings headline makers. As was already hinted at last week by various OPEC+ sources, the OPEC+ ministerial meeting will not take place tomorrow, and IF a change to the current production agreement is needed, then ministers will meet again on 1 June, by which time there should be a bit more clarity on where JCPOA talks with Iran are going, and how much demand recovery will be restrained by the latest infection rate surge. Of the overnight data, the jump in UK BRC Non-Food prices (-1.7% y/y vs. prior -4.0% y/y) may have been distorted by base effects, but offers a further confirmation of pipeline price pressures feeding into headline inflation as has been suggested by PPI readings. Japan’s better than expected Retail Sales (5.2% y/y vs. expected 4.7%) are encouraging, but with the latest round of lockdown measures are unlikely to persist in the near term. Meanwhile Australia’ weak core CPI (Trimmed Median at a record low of 1.1%) offer the RBA plenty of justification for its very dovish stance, above all compared to Canada where core CPI is still very close to target), even if various govt measures served to pull down both housing and education related prices. Finally, the setback in Germany’s Consumer Confidence (-8.8) while France’s measure held at 94 owes everything to lockdown measures, tightening in Germany, while easing in France.

** U.S.A. – FOMC meeting / Biden addresses Congress **

The Fed is very unsurprisingly expected to hold its policy rate at 0.0-0.25% and IOER (interest on Excess Reserves) at 0.1%, though there is some speculation that it might have to adjust the latter up by 5 bps to counter further downward pressure on front end USD yields/rates as the Treasury continues to bring down its Balance at the Fed to pre-crisis levels (some $400 Bln will move from the Fed into the banking system in May). While the latter would be a technical adjustment, the risk that many market participants, who are these days rather clueless about how money markets functions, to misinterpret such an adjustment looks to be large. Be that as it may the ‘patience’ and ‘outcome based’ (i.e. reactive) narrative will be maintained with an emphasis on any uptick in inflation as very likely to be transitory. While they will acknowledge the pick-up in economic activity and labour demand (very notable in yesterday’s Consumer Confidence), as well as a boost from fiscal policy, they will doubtless stress that there remains a lot of slack in the labour market. Powell will also emphasize that it is still too early to even have a discussion about a tapering timetable, and more than likely eschew from making any comments on fiscal policy, even though the scope and size of what actually materializes in terms of the Biden infrastructure spending bill may well have a bearing on monetary policy. So what of that Biden address to Congress? Yes it may offer some extra details on the ‘American Jobs Plan’, but as the likes of Senator Manchin and the ‘moderate’ Democrats have already rejected it in its current form, it is a question of what they will agree to, above all in terms of how it will be paid for, with the Wealth tax just one element, particularly given that many Democrats and indeed some Republicans in high locla tax states pushing for the SALT (state and local tax) releief cap of $10K imposed to pay for the Trump tax cut in 2017 to be lifted. As such, the real issue is what compromises will be cooked up in Congress and will they be sufficient to pass this in some watered down form, given that a number of Democrats also oppose using remediation to pass this bill.