ON DECK FOR MONDAY, DECEMBER 15
KEY POINTS:
- Markets are in a positive mood outside of Asia
- Canadian CPI—No reason to be blue, it’s only one of two
- Chilean markets likely to respond favourably to election outcome
- China’s economy disappointed in November…
- ...as consumer spending struggles, house prices remain in freefall
- Japan’s Q4 Tankan survey reinforces BoJ Governor Ueda’s resilience
- Canadian home sales slip, housing starts & manufacturing due out
- Global Week Ahead—Too Soon? (reminder here)
The market mood is generally constructive to start a jam-packed week with a dozen central banks on tap, plus two US nonfarm payroll readings, one US CPI reading for November, Canadian CPI (today), and key UK data pre-BoE among others.
Stocks outside of Asia are rallying a touch including mild gains in NA futures and European cash. Asian equities started the week on the back foot with declines across China and Japan. Sovereign bonds are slightly richer outside of Japan.
There are few new catalysts aside from weak China macro data. Most of today's improved risk appetite across western markets could just be a bounce back from Friday's sell off when US tech led the decline.
CHINA'S ECONOMY DISAPPOINTS
China registered softer readings for the month of November that indicate growing downside risk for consumers.
Retail sales only grew by 1.3% y/y (2.9% prior and consensus). They have fallen in four out of the past six months in m/m seasonally adjusted terms and posted very mild gains in the other two (chart 1).
What is not helping is that house prices continue to fall with new home prices down -0.4% m/m for the thirtieth straight decline and for a y/y decline of just under 3% (chart 2). Resale home prices were down 0.7% for the 31st straight drop. Falling house prices mean relatively inelastic demand for money as we see in the previously covered figures for financing activity at the end of last week. Folks who aren’t buying homes are less likely to buy the junk we put in them.
Industrial production slightly missed expectations at 4.8% y/y (5% consensus). That has been holding up a bit better (chart 3).
CHILE'S ELECTION LIKELY TO SUPPORT RISK APPETITE
A classic right versus left final round led to victory for the right wing candidate in yesterday's Chilean election. It wasn't even close. José Antonio Kast won an estimated 58% of the popular vote and handily defeated the communist candidate, Jeannette Jara. The outcome was generally expected after the first round election revealed strong support for right-of-centre candidates that coalesced around Kast. American writers interpret this as a hemispheric turn toward more conservative leaders because of Trump, assuming Trump is conservative, which I doubt, while also ignoring Canada’s election outcome earlier this year. Maybe, just maybe not everything revolves around the US versus local drivers. Did I mention the other candidate was a communist??!
The COP is appreciating slightly early in the Monday session which extends the currency’s terrific run since early April during which it has appreciated by about 10% to the dollar.
JAPAN'S TANKAN POINTS TO RESILIENCE
Japan’s Q4 Tankan survey registered small improvements at large and small manufacturers as well as smaller non-manufacturing businesses but unchanged readings at larger non-manufacturing businesses.
CANADIAN CPI HEADLINES CANADA FOCUS
Canada updates one of two CPI readings before the next Bank of Canada meeting on January 28th. They may impact markets but I wouldn't look for any serious policy implications with the BoC signalling a prolonged pause and in more of a forward-looking mindset.
The November reading (8:30amET) is expected to post a soft headline gain of 0.1–0.2% m/m seasonally unadjusted that would leave the year-over-year rate around 2 1/4%.
Key will be core measures. They're not exactly cool as charts 4 and 5 demonstrate in m/m terms and seasonally adjusted at annual rates.
Canada also offers housing updates today. Existing home sales slipped by -0.6% m/m SA and were down by just over 10% y/y. Sales have fallen in two of the past three months. New listings were down 1.6% m/m, signalling a lack of new supply held back sales. The sales to listings ratio moved up half a point to 52.7%. Months of inventory stood at 4.4 and has been floating around that level for five months.
Housing starts are up next (8:15amET).
Finally, manufacturing conditions in October (8:30amET) are expected to retreat somewhat from September's huge 3.3% m/m SA gain in shipments.
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