The Economic Week Ahead

Main Macro Events This Week

Inflation fears have consumed the markets this year, and especially in recent sessions. And price dynamics will remain a major focal point going forward since they are a key to central bank policy decisions, which in turn are crucial factors for the markets. Of course the other necessary input for central bankers, as well as the markets, is growth. And there will be plenty of data on both of those elements from around the globe this week, along with Fedspeak and the minutes from the latest FOMC and ECB policy meetings, to add insight.

United States:In the U.S., the markets are closed Monday for Presidents’ Day. But when action resumes, it will be all about inflation and what it means to the Fed outlook. Most of this month’s major reports on prices are out of the way, but the Fedspeak calendar is heavy and will provide the markets their first real chance to hear what policymakers have to say on both the inflation and growth fronts. Most crucial, perhaps, will be Fed’s written Monetary Policy Report on Friday ahead of Chairman Powell’s February 28 testimony. Also on tap are the FOMC minutes to the January 30, 31 meeting. As for supply, the Treasury is selling $258 bln combined in bills, coupons, and an FRN. Data is thin with just January existing home sales, the Markit PMIs, and initial jobless claims. The FOMC’s release of the Monetary Policy Report (Friday, 11 ET) could be the most important event of the week. This will be the first major action coming out of the new Powell Fed. Fedspeak since last month’s meeting has shown policymakers believing further tightening will be appropriate. In the January policy statement, the markets zeroed in on the Fed’s inclusion of the word “further,” which Dudley later clarified it was meant to show the Fed had more confidence in the economy. Look for a lot of talk about the economic implications from tax reform, wheree Committee is expected to take a cautiously optimistic view on growth, with some concern that a boost to output could push inflation pressures higher.

This week’s data highlights include January existing home sales and weekly initial jobless claims. Home sales (Wednesday) are expected to slide 0.9% to a 5.520 mln clip, after December’s 3.6% drop to 5.570 mln. Initial jobless claims (Thursday) for the February 17 week will be scrutinized at it coincides with the BLS survey week.  Also on tap this week are January leading indicators (Thursday) and the February Markit PMIs.

Canada: In Canada, the markets are closed Monday for the Family Day holiday. The data docket provides the final ingredients for the December GDP projection, with wholesale sales (Tuesday) and retail sales (Thursday) due out this week. The CPI (Friday) projected to rebound 0.4% m/m in January after the 0.4% drop in December. The CPI should slow to a 1.5% y/y pace from 1.9% y/y thanks to an easy comparison with an elevated January of 2017, which was when CPI jumped 0.9% m/m and expanded at a 2.1% clip due to sharply higher energy prices. Average weekly earnings (Friday) are seen rising 0.3% m/m in December after the 0.6% bounce in November.

Europe: The ECB is still pumping cash into the economy and likely to do so until the end of the year. And, rate hikes are unlikely to be on the agenda until Q2 next year at the earliest. So, the markets still have a long time to adjust to the changing environment. Nevertheless, with ECB’s net asset purchases likely coming to an end this year, Eurozone peripheral bond markets, along with stocks, are likely to remain twitchy as long yields slowly but steadily trend higher. Eurogroup and Ecofin meetings (Monday) aside, the week also bring the release of the minutes to the January council meeting (Thursday), which will be scrutinized for indications of how far the ECB’s discussions about the expected change in guidance have progressed. A growing number of council members expected to argue for a change in language as the ECB heads toward the March meeting, which will also include updated staff projections.

Data releases focus on confidence readings for February. The German ZEW Investor Sentiment (Tuesday) expected to dip to 19.0  from 20.4 in January. The February Eurozone manufacturing PMI (Wednesday), meanwhile, is seen falling to 59.4 from 59.6, while the services reading slips to 57.8 from 58.0. Those should leave the composite at 58.5, down from January’s 58.8. Finally the February German Ifo Business Climate (Thursday) is expected to correct to 117.4 from 117.6 in January. Though all are seen posting slight declines, the indices will nevertheless remain at very high levels.The second reading of German Q4 GDP (Friday) is expected to confirm the preliminary growth rate of 0.6% q/q. And with confidence indicators remaining at high levels, the picture is still one of ongoing robust growth going forward. Final Eurozone HICP inflation (Friday), meanwhile should be confirmed at just 1.3 % y/y, with core inflation at just 1.0% y/y, far below the ECB’s 2% target. So, the data will provide something for both the hawks and the doves to argue over.

UK: The data calendar is relatively busy this week, highlighted by the February CBI surveys on industrial trends and the retail sales (Tuesday and Thursday, respectively), labor data coving December and January (Wednesday), and the second estimate of Q4 GDP (Thursday). Brexit negotiations, now very much at the sharp end, will continue this week. The EU’s chief negotiator Barnier on Friday clarified that the UK’s red lines meant that a Swiss or Norway type model would be out of the question, affirming, once again, that the British government’s have-cake-eat-it approach (maintaining access to the single market without observing the EU’s four freedom of movement pillars for goods, services, capital and people) is simply out of touch with reality.

Japan: In Japan, the December all-industry index (Wednesday) should rise 1.4% m/m versus the 1.0% November increase. January CPI (Friday) is seen accelerating to 1.4% y/y from 1.0% overall, and up 0.9% y/y on a core basis, unchanged from December’s clip. January services PPI (Friday) is penciled in at an unchanged 0.8% y/y.

Australia: the wage price index (Wednesday) is expected to rise 0.5% in Q4 (q/q, sa) after the identical 0.5% gain in Q3. Wage growth is projected at 2.0% y/y in Q4 after the 2.0% pace in Q3. Construction work done (Wednesday) is anticipated to pull-back 12.0% after the 15.7% bounce in Q3 (q/q, sa). Reserve Bank of Australia Assistant Governor (Financial System) Bullock appears at the Responsible Lending and Borrowing Summit, Sydney (Tuesday). The minutes to the RBA’s February meeting will be released Tuesday.

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Andria Pichidi

Market Analyst


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