ON DECK FOR TUESDAY, FEBRUARY 18
KEY POINTS:
- Canadian, UK, Aussie and US yields rise to start the week
- The last Canadian CPI before the March BoC meeting…
- …will focus on the trend in core readings
- RBA cuts and apologizes for doing so
- UK yields rise a touch on jobs and wages
- German investor expectations pick up
- US lazily returns from the long weekend
- Global Week Ahead—The Gulf with America (reminder here)
The focus upon returning from the long weekend in N.A. is upon the final Canadian CPI print before the next BoC decision, plus mildly hawkish UK data and an RBA cut that almost sounded like it came with a dismissive apology.
THE LAST CPI REPORT BEFORE THE MARCH BOC
Canada updates the last CPI report for January before the BoC’s next decision on March 12th although there will be other influential data before then such as jobs and wages and GDP plus Trump’s nutty tariff threats. Markets are on the fence about that meeting with roughly half of a 25bps cut priced.
It turns out that my estimate happens to be the same as consensus at 0.1% m/m NSA and 1.9% y/y, but Bloomberg’s consensus is missing several entries. The spread runs from -0.1% to +0.3%. The main drivers are the full month effects of the GST/HST cut instead of just the half month effect in December, typically positive seasonal effects, higher gas prices and probably warm shelter costs.
Regardless, the issue that is much more difficult to estimate is whether the BoC’s preferred core measures will remain hot again with some evidence in December that retailers crowded in the GST/HST cut that built upon a firm trend (chart 1). There is no doubt in my mind that underlying price pressures remain acute in Canada. The BoC has raised some debateable issues with trimmed mean, but weighted median is also trending too warmly. Every single month since May has seen the m/m seasonally adjusted and annualized readings for trimmed mean and weighted median CPI rise at 2%+. The three-month moving averages for weighted median CPI and trimmed mean CPI are both 3.2% m/m SAAR.
Chart 2 shows an estimate of the m/m effect of the GST-HST cut. The way Statcan captures it shows only half of the effects in December since it kicked in halfway through the month, whereas the January reading will show a full-month effect. The cut ended this past weekend and so only half of the effect will be captured in the other direction next month.
Canada also releases existing home sales for January this morning (9amET). It’s not a market moving gauge but offers a better real-time gauge of homebuying activity than, say, US resales because Canada records them on contract signings, not closings. The heavy amount of snow and cold over recent weeks may be a weight on multiple indicators.
GILTS UNDERPERFORM AFTER LABOUR MARKET READINGS
Gilts are mildly underperforming after growth in UK wages and jobs accelerated (charts 3–6). Wage growth picked up to 9.5% M/m SAAR in December which is the fastest pace since last February. Total employment was up by 73k in December, which is not great, but it’s the largest gain since last August. Payrolls were up by 20,682 in January. Job vacancies held steady at 819k in January (818k prior).
RBA CUTS, BULLOCK APOLOGIZES
The RBA cut its cash rate target by 25bps to 4.1% as widely expected. The trouble for the Australian rates curve hit when Governor Bullock’s press conference and opening remarks arrived. Bullock almost sounded as if she regretted cutting. She said point blank “I want to be very clear that today’s decision does not imply that further rate cuts along the lines suggested by the markets are coming.” Markets trimmed pricing for cumulative easing this year by about 7bps to less than 50bps of cuts.
GERMAN INVESTOR CONFIDENCE UP
German investor confidence increased in February entirely on the expectations component to the highest reading since July as the assessment of the present situation slipped to the weakest since October.
QUIET IN THE US
There is nothing of consequence on tap in the US today in a slow return from the long weekend. The first of the monthly regional manufacturing gauges covering the NY Fed’s district arrives at 8:30amET) and then NAHB homebuilder confidence including measures of prospective buyers in February follows (10amET). There will also be more Fed-speak.
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