- Senate Democrats are setting the table for passage of President Biden’s proposed $1.9 trln relief bill; there were glimmers of possible bipartisanship in some of the votes; US January jobs data is the highlight; Canada also reports January jobs data; Colombia reports January CPI
- German data is showing further signs of weakness; BOE delivered a less dovish than expected hold; Deputy Governor Ramsden said he envisions slowing the pace of QE later this year
- Japan reported December household spending; RBA released its quarterly Statement on Monetary Policy; Indonesia Q4 GDP data came in around expectations; India kept rates on hold at 4.00% as mostly expected; Chinese tech giant Alibaba placed $5 bln in international bonds in maturities of up to 40 years
The dollar is consolidating its gains ahead of the jobs data. DXY traded today at the highest level since December 1 near 91.602 and the clean break above 91.428 yesterday sets up a test of the November 23 high near 92.80. The euro traded today at a new cycle low near $1.1950 but has since recovered a bit. It is on track to test its November 23 low near $1.18 but the break below $1.1975 signals deeper losses to $1.1745. Sterling is outperforming after the BOE yesterday delivered a less dovish than expected hold (see below). It traded back above $1.37 but may have trouble making further headway if the dollar continues to gain. USD/JPY is trading at the highest level since November 11 and is testing that day’s high near 105.70. After that is the October high near 106.10 and then the September high near 106.55.
Senate Democrats are setting the table for passage of President Biden’s proposed $1.9 trln relief bill. With Vice President Harris casting the tie-breaking vote, the 51-50 vote straight down party lines starts the process that would allow the bill to pass by a simple majority rather than by 60 votes. Democrats say they are still hoping for a bipartisan bill but they are clearly positioning for the possibility that no Republicans will support it. Republicans expressed dismay that their $618 bln offer was being ignored. We believe Biden is serious about a bipartisan solution but he and Democratic Senators are flexing their muscles to show that they won’t allow stimulus efforts to be slowed or derailed.
There were glimmers of possible bipartisanship in some of the votes. For instance, an amendment seeking to prevent $1400 stimulus checks from going to wealthier families passed by an overwhelming 99-1 vote, though it did not specify any threshold income level for receiving aid. Elsewhere, 60 senators blocked a proposal from Senator Cruz that opposed an expansion of work-related visas until the economy fully recovers. That vote suggests a possible compromise on an immigration deal later this year.
US January jobs data is the highlight. Bloomberg consensus for NFP started out at 100k, fell to 75k, fell again to 50k now, and then rose to 105k today. We suspect the whisper number is closer to 200k after the stronger than expected ADP reading of 174k. The unemployment rate and average weekly hours are seen steady at 6.7% and 34.7, respectively. December trade (-$65.7 bln expected) and consumer credit ($12 bln expected)will also be reported.
One final word on yesterday’s weekly claims. Regular initial and continuing claims came in lower than expected, with initial claims of 779k the lowest since late November and continuing claims of 4.59 mln the lowest since March. Elsewhere, emergency PUA and PEUC continuing claims fell by around 400k total for the BLS survey week, which is another supportive sign for today’s jobs data. Signs point to some modest healing is being seen in the labor market as 2021 gets under way and hopefully that will be reflected in NFP.
Canada also reports January jobs data. A drop of -40.0k is expected vs. a revised -52.7k (was -62.6k) in December. Of note, the December drop was due largely to part-time jobs (-95.4k), which offset a 42.7k gain in full-time jobs. Unemployment is expected to rise to 8.9% from a revised 8.8% (was 8.6%) in December. If so, this would be the second monthly rise from the cycle trough of 8.6% in November and would move further above the pre-pandemic rate of 5.7% from last February. For now, fiscal policy will bear the load of stimulus as the Bank of Canada is likely to remain on hold for now. December trade and January Ivey PMI will also be reported.
Colombia reports January CPI. Headline inflation is expected at 1.65% y/y vs. 1.61% in December. If so, inflation would accelerate for the second straight month while remaining well below the 2-4% target range. Last week, the bank delivered a hold at Governor Villar’s first meeting. The vote was 5-2, the same as it was back in December. That means Governor Villar voted with the hawks this time. The bar for another cut looks high but we can’t rule it out entirely as the recovery is limited by new restrictions in the major cities.
German data is showing further signs of weakness. December factory orders came in at -1.9% m/m vs. -1.0% expected and a revised 2.7% (was 2.3%) gain in November. Data are showing the impact of the latest lowdown, especially retail sales plunging -9.6% m/m in December. What’s worse, forward looking indicators such as the IFO surveys are already pointing towards a deeper deceleration, which we fear will be extended by the vaccine delays. We see downside risks to the German IP and trade data next week. And as the largest economy in the eurozone, the entire region is facing downside risks going forward.