On Deck for Friday, January 20


  • Mild risk-on sentiment to end the week
  • Yen slips post Japanese CPI
  • Chinese banks hold LPRs
  • UK retailers disappointed
  • Canadian retail sales dipped in November, December guidance key
  • Retail sales understate consumer strengths, especially in Canada
  • US existing home sales probably fell

I don’t want to jinx it, but daily risk-on-risk-off oscillations are so far leaning toward risk-on to end the week. Fresh global developments are fairly light. Mild gains are being registered across equity benchmarks as sovereign bond yields climb across the US, Canada, UK, EGB and AU/NZ curves with slightly lower Japanese yields post-CPI the mild exception. Currencies are mixed as the NZ$/A$ lead gainers and the yen leads decliners.

Chinese banks left their 1- and 5-year Loan Prime Rates unchanged including the key 5-year rate that matters to their property markets. The PBoC injected more cash into the financial system to manage withdrawals into the Lunar New Year holiday which is standard conduct around the seasonal needs but a little more amplified this year because of past restrictions around the holiday.

Japan’s inflation climbed to 4% y/y on headline and ex-food as expected with ex-f&e rising to 3% and a tick below consensus (chart 1). The yen started to depreciate in the immediate aftermath of the update. BoJ watchers should still remain focused upon Spring wage negotiations and the transition from Governor Kuroda to his successor in April.

Chart 1: Japan Headline Inflation

Canada will update retail sales (8:30amET). Statcan has already guided that Canadian headline sales probably slipped but it’s November data. Canada, however, will also provide a sneak peak at early estimates sans details for December. Like elsewhere, services spending was more buoyant than other holiday seasons and especially in Canada and it is not captured in retail sales (chart 2). If you only judge the consumer based upon retail sales then you risk missing the plot in terms of the ongoing rotation toward services.

Chart 2: Strong Canadian Restaurant Activity

Ugh. UK consumers sharply disappointed consensus estimates for retail sales in December. Sales fell 1% m/m (consensus +0.5%) and ex-gas fell by 1.1% m/m (+0.4% consensus). As in the US, be careful with the figures as an indication of total consumer spending because measures of services spending were firmer this holiday season than the prior two, such as flights and restaurant reservations. Charts 3 and 4.

Chart 3: UK Retail Sales Volumes Still Trending Lower; Chart 4: UK Restaurant Reservations

Mexican retail sales fell 0.2% m/m in November. US existing home sales (10amET) probably slipped again given sliding pending home sales.

Fed-speak returns including Governor Waller who recently said the Fed has “a ways to go” before stopping hikes (1pmET) and Philly Fed President Harker (9amET) who is unlikely to depart from a similar narrative in multiple appearances thus far in the new year.

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