E One-Handed

Beware the one-handed economist. As we learned from FOMC Powell yesterday, the FOMC can be patient on one hand and nervous on the other with inflation data central to their pause in tightening along with financial conditions. The rally up in equities this week balances against the US CPI this morning. The role of oil bouncing with equities and the role of better US/China trade talks supports renewed global growth views and adds to the one-handed risks for today. Against this, we have the US government shutdown, the weakness in retail sales and autos in China and Europe and the ongoing uncertainty from emerging markets. One has to respect the calendar in the week ahead and remember its Friday to get the full picture for why a one-handed market seems particularly scary today – with China growth data, US 4Q earnings a one-two punch risk. All that puts the stories from overnight into perspective with weaker Japan household spending, lower EcoWatchers survey, smaller C/A surplus, weaker Italian industrial production, weaker UK industrial production all pointing to trouble in 4Q that sets the momentum for 1Q and beyond. The risk barometer to watch isn’t the CNY – its expensive here – nor is it the EUR at 1.15 as the ECB looks as confused as the FOMC. Rather, the safe-haven story to respect should it start to move today or next week is JPY with 107.50 the pivot to watch for a return to flash crash 105 barriers. 

Question for the Day: Are economists too bearish on recession risks for 2020? The WSJ reports today that a survey of economists showed 25% see a recession in the near term, the most since Oct 2011, and up from 13% in 2018 survey, with over half seeing the start of the downturn in 2020 with about a quarter pushing it to 2021. The key trigger for a US slowdown comes from China, Europe, and Japan.  

The focus for trading markets will be in the policy responses outside of the US to the soft-patch bleeding into a recession in the rest of the world. The markets are telling us today that the ECB isn’t dovish enough, that the Japanese need something more and that China is still in trouble despite the big push for fiscal stimulus. The data from China in the week ahead is likely to be crucial to keeping markets sanguine compared to economists. 

What Happened?

  • Japan November household spending -0.6% y/y after -0.3% y/y – weaker than -0.1% y/y expected– 3rd straight decline. Average incomes rose 1.8% y/y in real terms to Y455,644. Food fell 2.2%, fuel/water fell 10%, medical -5.2% y/y, culture/recreation -2.3% y/y, furniture -1.8% y/y, while housing +18.6%, education +7.5% y/y. 
  • Japan November current account surplus Y757.8bn after Y1.309trn – near expectations of Y570bn– still off 43% due to oil imports. The goods trade remained in deficit at Y559.1bn vs. a Y199.1bn surplus in 2017. Exports were up 1.9% y/y to Y6.918trn while imports were up 13.5% yy to Y7.477trn. The primary income account rose 8.2% to Y1.438trn. 
  • Japan December EcoWatchers survey 48 from 51 – weaker than 49 expected. The outlook survey fell to 48.5 from 52.2. 
  • Australia November retail sales 0.4% m/m after 0.3% m/m – more than 0.3% m/m expected. The rise was led by household goods rose 1.2% m/m, clothing and footwear rose 1.5% m/m with Black Friday sales noted by the ABS as key while other retailing -0.1% m/m with cafes/restaurants also -0.1% m/m. Trend for turnover is 0.2% m/m/m, 3.6% y/y. 
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