ON DECK FOR THURSDAY, JANUARY 26
KEY POINTS:
- Little market follow-through on the BoC
- US Q4 GDP is expected to be strong…
- ...as consensus once again had to rapidly mark up growth
- Consensus is playing games with Canadian jobs data
- BCCh expected to extended pause, watch cut guidance
- US jobless claims defying pink slips so far
- SARB expected to hike again
There is a little more constructive tone across global asset classes this morning. Stocks are gently higher across US and Canadian futures plus European cash markets. The Hang Seng returned from holiday to post a 2.4% gain. Sovereign yield curves are slightly bear steepening in the US, UK and with more mixed effects across EGBs. The USD is little changed with few outlier movements across individual crosses. There is little evidence of any material follow-through on the BoC’s communications yesterday (recap here) with the Canadian front-end slightly outperforming cheaper US Treasuries but perhaps on inflation concerns the Canada curve is bear steepening a little more than other curves.
The main focal point will be US Q4 GDP (8:30amET) that is expected to be strong. Overnight developments were very light and only included a pair of Asian Q4 GDP releases and notably a big upside surprise in the Philippines.
Forecasts for US Q4 growth have been rapidly marked up by consensus compared to just before the holidays (chart 1). Consumption should contribute around 2½ percentage points to GDP growth on its own. Most estimates land within a range from 2% – 3 ½% (Scotia Economics 2.8%). Yes it’s backward looking, but that doesn’t mean it should be ignored. A main reason for this point is that consensus has been excessively bearish while forecasting Q3 GDP and Q4 GDP and each time put into a position of having to rapidly mark up forecasts as the US economy rebounded in 2022H2 after distorted softness in 2022H1 GDP. That is perhaps revealing of the average forecaster’s psyche in being hardwired to expect gloom only to have to rapidly pivot.
Canada updates the lagging payrolls data this morning (8:30amET). Payrolls lag way behind the Labour Force Survey with data only for November arriving today, and payrolls exclude small businesses which can matter enormously in an economy like Canada’s. Some voices have been very quick to pounce on the fact that October’s LFS job gain of 91,700 jobs was out of touch with the payroll figure that registered a mild drop of about 5,400. Conveniently ignored is that fact that SEPH payrolls reported much stronger job growth than LFS did for pretty much most months prior to that this year (chart 2). In fact, SEPH payrolls registered almost 290,000 more jobs created from June through September than the Labour Force Survey. Sure, pick the one month when payrolls undershot LFS and cry from the roof tops that gains registered by LFS have been fake. Talk about cherry-picking data! Over time, the two measures have been nearly identical in what they’ve said about cumulative job growth since the start of the pandemic (chart 3).
Chile’s central bank is expected to extend its pause at 11.25% (4pmET); Scotia’s Santiago-based economist is the lone economist expecting a rate cut and has an aggressive easing profile going forward (chart 4).
Will US initial jobless claims still hold below 200k or around there (8:30amET)? They have thus far defied the headlines about rising layoffs either due to lags, data quality issues (California in particular) and/or because layoffs are being reabsorbed into the job market by filling some vacancies.
Other macro reports will inform US cap-ex momentum (8:30amET) and new home sales (10amET).
South Africa’s central bank is expected to hike again this morning (8–9amET).
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.