This is the last Saxo Spotlight for 2022. Our first edition for 2023 will be on 9 January. We would like to wish all our readers a safe and enjoyable festive season.
US November PCE may be on course for further easing for now
US inflation is cooling, but we argue that the debate at this point needs to move away from peak inflation to how low inflation can go and how fast it can reach there. Fed’s preferred inflation gauge, the Core PCE, will continue to remain in focus especially after Powell has highlighted it a key metric recently at both the Brookings Institute and the December FOMC press conference. However, PCE may now slow as rapidly as CPI with the two key restraining components – goods and energy – likely to play a smaller part in PCE. Expectations are for a November reading of 4.7% YoY reading vs a previous reading of 5.0% YoY while core is expected to come in at 5.5% YoY from 6% YoY in October. Still, risks to inflation remain tilted to the upside going into 2023 as financial conditions have been easing and China reopening brings a fresh wave of inflation risks. Therefore, despite a soft PCE, it will remain hard for the Fed to part with its hawkish stance. The first of 2023 will bring December ISM prints, which will be key to watch after the flash S&P PMIs indicated quickening economic concerns. The FOMC minutes from the December 14 meeting will also be due on January 5.
The focus of China’s economic data during the three festive weeks will be on PMIs
The economic calendar is light in the three festive weeks ahead in China and the primary focus will be on the official NBS Manufacturing PMI and Non-manufacturing PMI scheduled to release on Dec 31, 2022, Caixin China PMI Manufacturing on January 2, 2023, and Caixin China PMI Services on January 4, 2023. These reports cover the month of December 2022 when China across the country has substantially exited from stringent Covid containment restrictions. As high-frequency data are yet to show meaningful pick-ups in economic activities, these December PMI readings are expected to stay in the contractionary territory.
Watch for Bank of Japan’s policy review hints, Japan CPI also due later in the week
The Bank of Japan is set to meet on Tuesday this week, and no change is expected in its monetary policy stance. The BOJ is expected to keep rates unchanged at -0.1% while maintaining its cap on the 10-Year JGB at 0.25%. Even as inflation increased to 3.6% YoY in October, the BOJ remains focused on achieving wage inflation before it considers a shift in policy stance. However, keep an eye out for any comments about a monetary policy review, which can trigger a strong JPY correction. There have been some mentions by BOJ members regarding a review of how monetary policy is conducted, they have generally been dismissed. While the timeline is still expected to be closer or after Governor Kuroda’s retirement in spring, any notes on who will succeed him or what policy change can be expected would be critical. Japan will also release November’s CPI on Friday. Expectations are for an uptick in core to 3.7% YoY while the headline gets closer to 4% YoY.
RBA minutes remain on watch to confirm a dovish bias
Despite the major global central banks maintaining their hawkish stance last week, the minutes from the Reserve bank of Australia’s December meeting will likely confirm a dovish bent. This comes despite a strong labor market report last week, that showed strong hiring demand and record low unemployment rate may continue to fuel more inflationary pressures especially as China’s reopening and policy stimulus gathers further traction in 2023. This could mean an environment for underperformance for Aussie assets for now, after AUD was the weakest G10 currency against the USD last week.
Key earnings this week
Earnings to focus on this week are Nike (NKE:xnys), FedEx (FDX:xnys), and Carnival (CCL:xnys). As Peter Garnry highlighted in his note, with recent sell-side analyst upgrades, the pressure is on Nike to deliver on the outlook for 2023. For FedEx, the situation is completely opposite as revenue expectations have come down to zero growth over the two next quarters suggesting a hangover for the logistics company following the boom days of the pandemic.
- Monday: HEICO
- Tuesday: Nike, FedEx, General Mills, FactSet Research Systems
- Wednesday: Toro, Micron Technology, Cintas, Carnival
- Thursday: Paychex, CarMax
- Friday: Nitori
Key economic releases & central bank meetings this week
Monday 19 December
- Malaysia Trade (Nov)
- Germany IFO surveys (Dec)
- US NAHB Housing Market Index (Dec)
- EU Energy Ministers Meeting
Tuesday 20 December
- China Loan Prime rate 1Y/5Y
- Germany PPI (Nov)
- Japan BOJ Interest Rate Decision
- Taiwan Export orders (Nov)
- US Building Permits, Housing Starts (Nov)
Wednesday 21 December
- South Korea 20 Days exports and imports (Dec)
- Canada CPI (Nov)
- US consumer confidence (Dec)
Thursday 22 December
- Bank Indonesia meeting
- Taiwan Unemployment rate (22 December)
- UK GDP (Q3 F)
- US Initial jobless claims (Dec 17) and 3Q GDP Final
Friday 23 December
- Japan CPI inflation (Nov)
- Taiwan Industrial output (Nov)
- Singapore CPI inflation (Nov)
- US Durable goods orders, personal Income, Core PCE price index, and new home sales (Nov)