The Week That Will Be (12 January 2020)

This week we will find out:

  1. Who is winning the Trade Wars? – China Trade Balance (Tues) ahead of US/China sign Phase One Deal (Weds), EU Trade Commissioner visits US (Thurs)
  2. How are the markets doing? – Earnings from BlackRock (Weds) and US investment banks (JPM Tues / GS Weds / MS Thurs) in a world of lower vol, lower interest rates and lower fees
  3. How much stimulus will come in 2020? – US Inflation (Tues), UK Inflation (Weds), Fed Harker (Weds), ECB Lagarde (Thurs)
  4. How much is the world growing? – Fed Beige Book (Weds), US Retail Sales (Thurs), China GDP / Retail Sales / IP / FAI (Fri)


We already know:

  1. Trade Wars are here to stay.
    • Finally the world should see what’s actually in the 86 page document when it is signed on Wednesday
      • Last minute negotiations could hinge on Tuesday’s China Trade Balance data
    • Both sides will trumpet victory
      • It will give Trump momentum into the election
      • It removes a short-term headwind for risk appetite
    • But it’s not the end of the story
      • Either side could break the deal and enforcement is only policed by the two parties
    • The new EU Trade Commissioner arrives in the US the following day
    • And of course the UK/US and UK/EU Deals are still to come
    • Ongoing bilateral trade negotiations will be with us for years to come
  2. Liquidity risk is the real tail risk this year.
    • BlackRock is now expected to increase its dividend after a stream of inflows into its ETFs; a year ago it was cutting staff
    • In September, it was flat on the year; it then staged a ~25% rally, as did the other financials who also report this week (GS, Citi and MS):
    • What saved them all? Why the increase in the Fed’s balance sheet of course, with emergency repo ops instituted from October
    • But will their earnings tell the same tale, given that this new QE led to lower interest rates and lower volatility?
    • If not, it’s a sign that a liquidity risk haunts the markets
  3. More stimulus is still the name of the central bank game
    • The Fed wants to run the economy hot
      • Clarida last week emphasised “symmetry” – in other words, it’s not enough for inflation to hit its target, it must get above it: ‘At present, personal consumption expenditures (PCE) price inflation is running somewhat below our 2% objective, but we project that, under appropriate monetary policy, inflation will rise gradually to our symmetric 2% objective’
      • Tuesday we get core CPI, which correlates to PCE, but the Fed will be cutting whatever the result
        • Too low and they need to cut now
        • Too high and that’s just vindication for last year’s cuts
      • Fed Harker becomes a voter this year. Wednesday he gives a speech to OMFIF in New York – the audience will be international and markets-focused so it’s an ideal time to signal if he’s wavering on last year’s opposition to rate cuts
    • The BOE can signal rate cuts now that they can no longer be accused of dabbling in the politics of Brexit / Project Fear
      • Saunders speech (Weds) is in Northern Ireland
    • Lagarde speaks in Frankfurt (Thurs), she will have to contend with a reminder of the poor data from Germany and a lack of Eurozone inflation (Fri)
  4. The world is sputtering along, for now. 
    • US Retail Sales (Thurs) should confirm the consumer is keeping the economy afloat while the manufacturing sector struggles (Empire State Weds, Philly Fed Thurs, IP Fri)
    • China Industrial Production, Retail Sales and Fixed Asset Investment data (Fri) will show if trade war tensions are easing

To ignore this week:

  1. Germany 2019 GDP (Weds) – we already know it was a dreadful year for the Germany economy, now all eyes are on Lagarde and/or Merkel to do something about it 
  2. Germany Inflation (Thurs) –  as above
  3. UK Retail Sales (Fri) – Given the grim numbers on the high street for Christmas, we already know it’s bad
  4. Usually we ignore ECB Minutes (Thurs) which were scrubbed to banal death in the Draghi era. Will that change under Lagarde? We think not 

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