ZeroHedge.com:
As we arrive at the final week before Christmas when markets are their most illiquid, there’s plenty of newsflow from the weekend for markets to digest this morning as DB’s Henry Allen recaps this morning. In particular, there was the announcement from the US that Senator Joe Manchin of West Virginia wouldn’t be able to support the Build Back Better Bill, which has been the subject of intense negotiations over recent weeks and marks a significant blow for President Biden’s economic agenda.
Meanwhile on the Covid front, there was a further ratcheting up of concerns about the Omicron variant, with the Netherlands becoming the latest European country to go back into lockdown as of yesterday, as cases continue to spread elsewhere. But otherwise, the events calendar is looking fairly quiet for now in this holiday-shortened week, with just a few lower-tier data releases and the occasional central bank speaker.
As shown in the chart below, this week the focus will be on the US PCE core prices, current account, leading indicators, housing data and consumer confidence. CPI in Japan. Current account and consumer confidence in the Euro area. GDP in the UK and Canada. In Emerging Markets, there are monetary policy meetings in the Czech Republic and Thailand.
Since there are few market moving events on deck, let’s take a closer look at the recent Omicron developments, since that remains one of the biggest issues for markets right now and has significantly clouded the outlook moving into year-end. In a nutshell, the news over the weekend from Europe has only pointed in the direction of further restrictions across multiple countries, with the Netherlands being the most severe as a full lockdown was announced by the Prime Minister on Saturday that leaves just supermarkets and essential shops open, with even schools shut. When it comes to socializing, people will not be allowed to receive more than 2 visitors aged 13 and over per day, although over 24-26 December, New Year’s Eve and New Year’s Day, this will be raised to 4 people.
Elsewhere in Europe there was a similar pattern towards tougher measures, with the Irish PM announcing on Friday evening that there would be an 8pm closing time for bars, restaurants and theaters, among others, which would last from today until January 30. Over in Spain, Prime Minister Sánchez said in a televised address yesterday that he’d be meeting with regional leaders virtually on Wednesday to look at measures for the weeks ahead.
In Italy, it’s been widely reported that the government is looking at further measures to contain the spread as well, and they’re set to meet on Thursday to discuss these, whilst here in the UK, Health Secretary Javid was not ruling out further restrictions this side of Christmas. Separately in the US, President Biden is set to deliver a speech about Covid and the steps that the administration will be taking, with Press Secretary Jen Psaki tweeting that Biden would also be “issuing a stark warning of what the winter will look like for Americans that choose to remain unvaccinated.”
For those after a bit more optimism ahead of Christmas, then a couple of DB research notes out on Friday about the new variant will definitely be of interest. The first by FX Strategist Shreyas Gopal looks at London, which is the epicentre of Omicron infections in the UK, and tracks cases there against those in the South African province of Gauteng a couple of weeks back. The good news is that if the relationship is similar, then that does suggest a peak in cases soon. The other note comes from DB’s head of rates research Francis Yared who shows that although deaths are starting to increase in South Africa, they’re currently on a much lower trajectory relative to cases compared to previous waves.
An important question for markets is whether these patterns from South Africa can be extrapolated over to the advanced economies, which have much higher vaccination rates on the one hand, but also much older populations on the other, so there are factors that could push in either direction. Keep an eye out on these leading indicators from South Africa, as well as London, since they’ll have implications for what could occur in the coming weeks elsewhere.
Away from Covid, the other main piece of news over the weekend came from the US, where the moderate Democratic senator Joe Manchin said that he couldn’t support the Build Back Better package that forms a key part of President Biden’s economic agenda, with much of his proposals on social programs and climate change. The news broke in an interview from Manchin on Fox News Sunday, when Manchin said “I can’t get there” when it comes to supporting the package, and follows direct negotiations that he’d been having with the president. Manchin’s support is crucial for the bill’s passage, since the Senate is split 50-50 between the Democrats and Republicans, with the Democrats having control only by virtue of Vice President Harris’ casting vote. So with zero Republican support for the package, that required every single Democratic senator on board with the proposals, giving Manchin enormous influence.
A statement from White House Press Secretary Jen Psaki in response to Manchin did not sound impressed, saying that his comments “are at odds with his discussions this week with the President, with White House staff, and with his own public utterances.” It went on to say that “we will continue to press him to see if he will reverse his position yet again, to honor his prior commitments and be true to his word.” Nevertheless, Manchin’s own written statement wasn’t using the language of compromise, saying that his “Democratic colleagues in Washington are determined to dramatically reshape our society in a way that leaves our country even more vulnerable to the threats we face.”
So the implication from Manchin is that Build Back Better won’t be happening this side of the mid-terms in its current form, and would require a fundamental rethink and meaningful slimming down were it to have any chance of passing.
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With that in mind, let’s take another quick look at the relatively sparse key economic data releases around the globe, courtesy of Deutsche Bank:
Monday December 20
- Data: UK December CBI industrial trends survey, US November Conference Board leading index
- Earnings: Nike, Micron
Tuesday December 21
- Data: Germany January GfK consumer confidence, UK November public finances, December CBI distributive trades survey, Italy November PPI, US Q3 current account balance, Euro Area advance December consumer confidence
Wednesday December 22
- Data: UK final Q3 GDP, France November PPI, US third estimate Q3 GDP, November Chicago Fed national activity index, existing home sales, December Conference Board consumer confidence
- Central Banks: ECB’s Holzmann speaks
Thursday December 23
- Data: Italy December consumer confidence index, US November personal income, personal spending, preliminary November durable goods orders, core capital goods orders, weekly initial jobless claims, final December University of Michigan consumer sentiment index, Japan November nationwide CPI (23:30 UK time)
- Central Banks: BoJ Governor Kuroda speaks
- Politics: Russian President Putin annual news conference
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Finally, looking at just the US, key events this week are the durable goods report and the core PCE inflation report on Wednesday. There are no major speaking engagements from Fed officials this week.
Monday, December 20
- There are no major economic data releases scheduled.
Tuesday, December 21
- 08:30 AM Current account balance, Q3 (consensus -$206.0bn, last -$190.3bn)
Wednesday, December 22
- 08:30 AM GDP (third), Q3 (GS +2.1%, consensus +2.1%, last +2.1%); Personal consumption, Q3 (GS +1.7%, consensus +1.7%, last +1.7%): We estimate no revision on net in the third vintage of the Q3 GDP report (previously reported at +2.1% qoq ar).
- 10:00 AM Conference Board consumer confidence, December (GS 110.0, consensus 111.0, last 109.5): We estimate that the Conference Board consumer confidence index increased by 0.5pt to 110.0 in December, reflecting modestly positive signals from other confidence measures.
- 10:00 AM Existing home sales, November (GS +3.0%, consensus +3.0%, last +0.8%): We estimate that existing home sales increased by 3.0% in November. Existing home sales are an input into the brokers’ commissions component of residential investment in the GDP report.
Thursday, December 23
- 08:30 AM Personal income, November (GS +0.2%, consensus +0.5%, last +0.5%); Personal spending, November (GS +0.5%, consensus +0.6%, last +1.3%); PCE price index, November (GS +0.54%, consensus +0.6%, last +0.63%); Core PCE price index, November (GS +0.38%, consensus +0.4%, last +0.43%); PCE price index (yoy), November (GS +5.60%, consensus +5.7%, last +5.05%); Core PCE price index (yoy), November (GS +4.52%, consensus +4.5%, last +4.12%): Based on details in the PPI, CPI, and import price reports, we forecast that the core PCE price index rose by 0.38% month-over-month in November, corresponding to a 4.52% increase from a year earlier. Additionally, we expect that the headline PCE price index increased by 0.54% in November, corresponding to a +5.60% increase from a year earlier. We expect that personal income increased by 0.2% and personal spending increased by 0.5% In November.
- 08:30 AM Initial jobless claims, week ended December 18 (GS 210k, consensus 205k, last 206k); Continuing jobless claims, week ended December 11 (consensus 1,815k, last 1,845k): We estimate initial jobless claims increased to 210k in the week ended December 18.
- 8:30 AM Durable goods orders, November preliminary (GS +2.5%, consensus +2.0%, last -0.4%); Durable goods orders ex-transportation, November preliminary (GS +0.5%, consensus +0.6%, last +0.5%); Core capital goods orders, November preliminary (GS +0.5%, consensus +0.7%, last +0.7%); Core capital goods shipments, November preliminary (GS +0.8%, consensus +0.5%, last +0.4%): We estimate durable goods rebounded 2.5% in the preliminary November report, reflecting strong commercial aircraft orders. We also expect firm gains in core capital goods orders (+0.5%) and core capital goods shipments (+0.8%), reflecting strong goods demand and higher prices.
- 10:00 AM University of Michigan consumer sentiment, December final (GS 70.6, consensus 70.4, last 70.4): We expect the University of Michigan consumer sentiment index increased by 0.2pt to 70.6 in the final December reading.
- 10:00 AM New home sales, November (GS +3.8%, consensus +3.4%, last +0.4%): We estimate that new home sales increased by 3.8% in November, reflecting increases in housing permits and mortgage applications.
Friday, December 24
- There are no major economic data releases scheduled.
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