Key Events This Slow Week: Core PCE, Housing, Consumer Confidence And BOJ

As everyone recovers from a breathtaking World Cup final, DB’s Jim Reid muses that it’ll be interesting to see whether market activity drops off a cliff this week as we approach Christmas even if there was lots of unfinished business after last week. The market doesn’t believe the Fed, with a pricing disconnect now opening up, and the market is now worried the ECB has upped its level of hawkishness which is also unsustainable for a continent that is in recession. Outside of the ECB’s Guindos and Simkus speaking today we won’t hear much from these two central banks before Xmas so there is unlikely to be much official follow-through to last week’s meetings. It will therefore be left to quite a full slate of data to move markets in what is likely to be a week low on liquidity.

The US consumer will be a big focus with consumer confidence (Wednesday) and personal income data, along with PCE inflation (both Friday). We’ll also see various housing market and business activity indicators from the US, as well as Japan’s CPI report and PPI numbers from Europe.

Elsewhere, the BoJ will be the last major central bank to make a monetary policy decision this year tomorrow. According to recent news flow, it could be a bit more interesting than usual.

In terms of some of the highlights now, we start with US housing. This is a big focus at the moment and today’s NAHB housing index (34 consensus  forecast vs 33 previously), tomorrow’s housing starts (1.400mn vs. 1.425mn) and building permits (1.500mn vs. 1.512mn), Wednesday’s existing home sales (4.25mn vs. 4.43mn) and Friday’s new home sales (600k vs. 632k) will all be important. The hard data is all expected to slow further from last month.

Probably more important is Friday’s income and consumption report which contains the latest reading on core PCE. DB economists think it should come in at 0.2% mom (vs. 0.2% previously), taking the YoY rate down three-tenths to 4.7% (as a reminder, the Fed expects the December print to rise to 4.8% in its latest wrong forecast). Normally core PCE is above core CPI but over the next 12 months DB economists think that anomalies in healthcare components between the two means that the former will edge above the latter at 3.2% for 2023 Q4/Q4 against 3.1%. Friday also sees the final revisions to the University of Michigan consumer sentiment, including the important consumer expectations of inflation.

Other business activity gauges for the US include durable goods orders on Friday, with both headline (DB forecast -3.5% vs +1.1% in October) and core (DB forecast unch vs +0.6%) seen showing signs of weakening by our US economists. Indicators of manufacturing activity from regional Feds are also due throughout the week. These releases will follow an array of downside surprises in activity-related gauges recently, including the fall in industrial production last Thursday.

Over in Europe, we will get PPIs from several countries starting with Germany tomorrow. As a reminder, the latest YoY reading stands at 34.5%, some way off the 45.8% peak reached in August. October’s report also showed the first MoM decrease in producer prices since May 2020 amid falling energy costs.

From central banks, all eyes will be on the BoJ tomorrow and we will also get minutes from their October meeting on Thursday.  The yen initially rallied as much as +0.61% this morning after Kyodo News reported on Saturday that Japan’s Prime Minister Fumio Kishida was looking to add flexibility around the 2% inflation goal and would discuss it with the next governor after Kuroda’s term ends in April. This follows Bloomberg last week reporting that a policy review is being considered for next year. However, some of the Japanese currency’s early gains today were reversed after a government spokesman denied the report and the Yen (+0.28%) is currently trading at $136.22.

Following the BoJ’s decision, the CPI report for Japan will be released on Thursday. DB’s Chief Japan economist expects the overall index to reach 3.9% YoY (vs +3.7% in October), the core index excluding fresh food to be up 3.8% (+3.6%), and core-core index excluding fresh food and energy to rise to 2.8% (+2.5%) as food and durable goods continue to be the key drivers of inflation.

Speaking of energy prices, EU energy ministers will meet today to resume talks regarding a natural gas price cap as well as other measures to cope with the energy crisis as winter looms.

Similar to the US, a number of sentiment indicators will be released in Europe. For Germany, they will include the Ifo survey today and the GfK’s consumer confidence reading on Wednesday. Manufacturing and consumer confidence will also be released for Italy on Friday.

Courtesy of DB, here is a day-by-day calendar of events

Monday December 19

• Data: US December NAHB housing market index, Germany December Ifo survey, Eurozone October construction output, 3Q labour costs, Canada November raw materials and industrial product price index
• Central banks: ECB’s Guindos and Simkus speak

Tuesday December 20

• Data: US November housing starts, building permits, Germany November PPI, Italy October current account balance, Eurozone December consumer confidence, October ECB current account, Canada October retail sales
• Central banks: BoJ’s decision, ECB’s Kazimir and Muller speak
• Earnings: Nike, FedEx, General Mills

Wednesday December 21

• Data: US December Conference Board consumer confidence, November existing home sales, UK December Lloyds business barometer, November public finances, Germany January GfK consumer confidence, Canada November CPI
• Earnings: Micron, Carnival

Thursday December 22

• Data: US December Kansas City Fed manufacturing activity index, November leading index, Chicago Fed national activity index, initial jobless claims, Japan November CPI, France November retail sales, Italy November PPI, October industrial sales
• Central banks: BoJ minutes of October meeting

Friday December 23

• Data: US November personal spending, income, PCE deflator, new home sales, durable and capital goods orders, Japan November nationwide department store sales, France November PPI, Italy December manufacturing confidence, economic sentiment, consumer confidence, Canada October GDP

* * *

Finally, courtesy of Goldman, here is a look at just the US, where the key economic data releases this week are the durable goods report and the core PCE inflation report on Friday. There are no major speaking engagements from Fed officials this week.

Monday, December 19

• 10:00 AM NAHB housing market index, December (consensus 34, last 33)

Tuesday, December 20

• 08:30 AM Housing starts, November (GS -2.5%, consensus -1.8%, last -4.2%); Building permits, November (consensus -1.4%, last -3.3%): We estimate housing starts decreased by 2.5% in November.

Wednesday, December 21

• 08:30 AM Current account balance, Q3 (consensus -$224.0bn, last -$251.1bn)
• 10:00 AM Existing home sales, November (GS -9.0%, consensus -5.2%, last -5.9%): We estimate that existing home sales declined 9.0% in November, following a 5.9% decline in October.
• 10:00 AM Conference Board consumer confidence, December (GS 101.5, consensus 101.0, last 100.2): We estimate that the Conference Board consumer confidence index increased by 1.3pt to 101.5 in December.

Thursday, December 22

• 08:30 AM GDP (third), Q3 (GS +2.9%, consensus +2.9%, last +2.9%); Personal consumption, Q3 (GS +1.7%, consensus +1.7%, last +1.7%): We estimate no revision on net in the third vintage of the Q3 GDP report (previously reported at +2.9% qoq ar).
• 08:30 AM Initial jobless claims, week ended December 17 (GS 220k, consensus 225k, last 211k)

Source: DB, Goldman, BofA