Analysts at Nomura note the key economic events for the week ahead.
United States | Data preview
“We expect core CPI inflation to accelerate towards its trend in December although some downside risks persist.
NY Fed Survey of Consumer Expectations (Monday): Although lower than when the survey was started (mid-2013), consumer inflation expectations remained in a stable range in the New York Fed’s November survey. Elsewhere, the labor market, earnings and spending expectations all improved. Possibly reflecting the tax reform debate, median one-year ahead government debt growth expectations increased sharply to 7.8%, the highest reading since November 2015. However, one-year ahead expectations on tax changes remained relatively unchanged, possibly reflecting the substantial public uncertainty around the new tax law. With low unemployment and steady income growth, we expect consumer expectations to remain well within positive territory in the near term.
Consumer credit (Monday): Consumer credit has expanded at a healthy pace. In October, consumer credit expanded a healthy $20.5bn after increasing $19.2bn in the prior month. Low unemployment and strong consumer confidence will likely remain favorable for continued credit expansion. We expect continued increases in this measure.
JOLTS (Tuesday): Job openings decreased slightly in October, driven by a drop in wholesale trade vacancies. However, the ratio of vacancies to unemployed workers, a common measure of labor market tightness, ticked up to 0.92, the highest reading in the JOLTS survey. By this metric, the labor market tightened significantly during 2017 with October marking the highest 10-month increase since July 2015. The quits rate for private industries was unchanged at 2.4% as workers remain confident in their outside employment options. We expect labor demand to remain elevated as the late-cycle expansion continues.
Import prices (Wednesday): Topline import prices increased 0.7% m-o-m in November, driven by a sharp increase in petroleum prices. Prices for non-auto imported consumer goods showed only a modest increase of 0.1% m-o-m, while remaining stable on a y-o-y basis. In line with this development, CPI core goods prices excluding apparel products rose in November. We expect modest increases in ex-petroleum import prices for December, which would be available before the release of December CPI report. Note that our December CPI forecasts may be subject to revisions based on the December import prices and PPI data.
Wholesale inventories (Wednesday): In the advance estimate by the Census Bureau, wholesale inventories rose strongly by 0.7% m-o-m in November, after falling 0.4% in October, driven by a strong increase in the stock of nondurable goods. It is possible that some of the increase was partly driven by fluctuation in energy prices.
Initial jobless claims (Thursday): For the week ended 30 December initial claims rose 3k to 250k, raising the four-week moving average to 242k. Claims data can sometimes fluctuate more during the December-January months due to swings in seasonal hiring. Incoming data point to sustained momentum in the labor market. We expect initial claims to remain low by historical standards, consistent with the strong labor market.
PPI (Thursday): Topline producer prices rose 0.4% m-o-m in November, driven by a strong increase in energy prices. Excluding volatile food, energy and trade (wholesalers’ margin), producer prices were up 0.4%. Pipeline pressure on consumer prices appears to be modest. The inflation of PPI for intermediate goods has been accelerating, in line with steady upward pressure on input prices. However, the prices of finished goods and consumer goods have not responded strongly. Elsewhere, service prices which make up a large share of the PPI rose modestly by 0.2%. We expect service prices to continue rising at a steady pace. As spikes in energy prices caused by the hurricanes revert, aggregate PPI inflation will likely return to its previous trend in December. Excluding food, energy and trade components, we expect modest PPI inflation. Note that our December CPI forecasts may be subject to revisions based on the December import prices and PPI data.
US Budget (Thursday): According to the Treasury’s monthly budget statement, November posted a budget deficit of $138.5bn, slightly higher than one year earlier. The US Treasury has been carrying out so-called “extraordinary measures” since the debt limit was reinstated on 9 December. These extraordinary measures will last into late March or early April but their exact expiration, the so-called “X-date”, remains uncertain. With changes in tax policies, unusual tax collection patterns could occur during the early months of 2018. This uncertainty causes some complications for projecting how long the extraordinary measures will last. We will be tracking revenues and outlays in the weeks ahead to get a better estimate of the X-date.
CPI (Friday): We expect core CPI in December to increase 0.2% m-o-m, a slight acceleration from November’s 0.1%, but maintaining the y-o-y rate at 1.7%. Among core service components, we think rent and homeowners equivalent rent continued to slow in December. Rent will likely remain a drag to our core inflation outlook over the medium term. Rental vacancy rates are rising, reflecting an oversupply of newly built apartment units relative to demand. Considering a high number of apartment units still under construction, the supply-demand imbalance will likely continue at least for the near term. Elsewhere, we expect a modest rebound in medical care service prices, which fell for the first time since May 2017, driven by a sizable 0.8% drop in physicians’ services. However, uncertainty remains high considering the decreasing response rate of the survey sample for the estimation of medical care prices. This development may have exacerbated volatility in the medical care price index. Among core goods, reflecting higher demand for used cars following major hurricanes, used car prices likely showed another solid increase in December. However, looking ahead, rising supply from rental car companies and off-lease vehicles could add more downward pressure on new and used vehicle prices. In addition, we think apparel prices rebounded December after a sharp decline in November which, was likely amplified by a seasonal adjustment process.
Among non-core components, food prices likely increased decently by 0.2% m-o-m in December. Food prices in November were essentially flat (+0.022%), falling short of our expectation as food-at-home prices unexpectedly declined. For December, we expect a rebound in this measure. By contrast, energy prices likely fell sharply by 1.0% m-o-m, driven by a notable decline in retail gasoline prices. Altogether, we expect a 0.1% increase in topline CPI, which would translate to a 2.0% y-o-y gain. Our forecast for CPI NSA is 246.380. Note that our December CPI forecasts may be subject to revisions based on the December import prices and PPI data.
Retail sales (Friday): We expect a robust 0.6% m-o-m increase in nominal core retail sales in December. Against the backdrop of low unemployment and elevated consumer confidence, consumer spending in December was likely strong. Real consumer spending on core goods was a solid driver of GDP growth in Q3. This trend likely continued in Q4. Consumer vehicle sales likely rebounded in December, following a modest decline in November. December total light vehicle sales, reported by WardsAuto, exceeded our and markets’ expectations and suggested that sales at auto and auto parts dealers in December could increase decently. By contrast, sales at gasoline stations likely fell as retail gasoline prices trended lower in December relative to the level in November. Excluding auto sales, we expect a healthy increase of 0.4%. Altogether, we expect a 0.5% increase in total nominal retail sales.
Business inventories (Friday): Advance estimates by the Census Bureau indicate strong inventory growth for wholesalers and a modest gain for retailers in November. Further, incoming data suggest durable goods inventories at factories rose modestly from October. Altogether, we expect a decent increase in business inventories in November.
Euro area | Data preview
Euro area industrial production and UK BRC retail sales are in focus this week.
German factory orders (Mon): We expect German factory orders to increase 1.7% m-o-m in November following a 0.5% m-o-m increase in October. An outcome in line with our expectations would take November’s level 1.0% above the average for Q3, suggesting strong industrial output growth in coming months.
German industrial production (Tues): We expect German industrial production to increase 2.2% m-o-m in November, following a 1.4% decrease in October. We expect a strong rollback in November’s production rate following two consecutive monthly declines.
UK BRC retail sales, Dec (Tues): This BRC report will be watched closely, with December being the most important month for retail sales over the year. However, to judge Christmas sales in their entirety it is important to also factor in pre-sales in November (growth was modest according to the BRC) and post-sales in January.
UK Industrial production, Nov (Weds): Surveys (CBI and PMI) point to continued growth in manufacturing production in the official November report. While we forecast a further rise in manufacturing output, we should highlight the risk of a fall (the series can be volatile) after a string of six monthly increases between May and October.
UK Trade, Nov (Weds): The national accounts detail published in December revealed that real exports of goods and services have performed far better over the past two years since sterling began depreciating than had been originally reported. Rather than being at the bottom of the G7 pack the UK is now, following the revisions, at the top. As for the monthly trade balance we forecast a similar deficit in November to October (a little wider £10.5bn).
Euro area industrial production (Thurs): We expect euro area industrial production to increase 1.0% m-o-m in November, following a gain of 0.2% m-o-m in October. An outcome in line with our expectations would take November’s IP level 1.3% above the average for Q3.
Japan | Data preview
The economy is solid overall; we expect an improvement in grassroots sentiment.
December Economy Watchers Survey – current conditions DI (Friday): We forecast a slight rise in both the current conditions DI and the future conditions DI. The economy is solid overall and we see no convincing reason to expect sentiment to deteriorate. At this stage, few related indicators for December are available, but the reading Japanese manufacturing PMI has risen in the last two months. Both the current conditions DI and the future conditions DI are close to record highs – we therefore see only limited scope for further increases, but, that said, also see no reason to believe they have peaked. Even if readings for the December current conditions DI and the future conditions DI were not to rise in line with our forecasts, we see no immediate need to interpret this as evidence of weak economic sentiment.
Asia | Data preview
We forecast slower December export growth in China while CPI inflation likely rose in December.
China: We expect a visible moderation in PPI inflation in December due to a high base from last year and weakening investment demand from the cooling property sector, although there are some upside risks to our forecast, as the price sub-indices of the official PMI rose in December. High-frequency food price data suggest CPI inflation should rebound slightly, likely partly due to below-normal temperatures in December. On trade, we expect export and import growth to decline in December on unfavourable base effects, which should culminate in a narrower trade surplus. We expect mild declines in new RMB loans and aggregate financing on seasonal factors, while M2 growth should rise modestly in December, boosted by a favourable base effect. Our FX strategists believe China’s headline FX reserves rose by USD10.0bn to USD3,129.3bn in December. After adjusting for FX and coupon effects, we estimate FX reserves were flat, after falling by USD22.5bn in November.”