The Economic Week Ahead

Main Macro Events This Week

Political jitters have underpinned a safe haven bid in bonds through the month, while ongoing euphoria over “Trumponomics” has boosted equities to, or near, record highs. The strength of the bullish price action so far this year leaves the markets susceptible to a selloff, especially with a number of major risk events ahead. President Trump’s State of the Union (Tuesday) is the immediate wild card. National elections in the Netherlands (March 15) will be closely monitored. Other key events in March include FOMC and ECB meetings, and the reinstitution of the U.S. debt limit. There’s also an EU summit and the possible triggering of Brexit Article 50. Additionally, French presidential candidates are vying for attention ahead of elections on April 23. German politics also are coming into view, even well before the September vote.

United States: U.S. markets rallied last week on a combination of factors, but gains are at risk this week with President Trump’s State of the Union address (Tuesday) the biggest threat to the euphoria in equities. Politics will continue to dominate the headlines near term. President Trump delivers his first State of the Union address (Tuesday) and that could be a big wild card for the markets which are looking for specifics on the administration’s fiscal plans, especially with respect to deregulation, tax reform, including the border adjustment tax, infrastructure spending, and healthcare. The data slate is heavy with key reports on tap for the new year. The volatile January durable orders (Monday) are projected rebounding 1.0%. It will be interesting to see if orders bounce given the surge in investor enthusiasm on the “Trump effect.” The second look on Q4 GDP (Tuesday) should accelerate to a 2.2% pace from the 2.1% gain in the Advance report, supported by an expected consumption boost. Also slated is the Chicago PMI (Tuesday), seen jumping back to 54.0 in February after the unexpected drop to 50.3 in January. February consumer confidence (Tuesday) should edge up to 112.0 after dropping 1.5 points to 111.8 in January. March kicks off with the February ISM manufacturing index (Wednesday), expected to slide to 55.5 after rising 1.5 points. The reports on income and consumption for January (Wednesday) will help fine tune the Q4 and Q1 GDP outlooks. The ISM services index for February completes the week’s reports.

Fedspeak: will be closely monitored, but it’s likely to be too revealing regarding the March 14, 15 FOMC meeting result. Fed Chair Yellen highlights (Friday), but she’s speaking at an event before the Executives Club of Chicago. She won’t prejudge the upcoming decision, especially without benefit of the January jobs report (March 10). The hawkish Fed voter Kaplan starts off the week (Monday) with a speech. Another hawk, Philly Fed’s Harker speaks on the economic outlook (Tuesday). Also, the increasingly hawkish nonvoters’ SF Fed’s Williams and Bullard will also be on tap (Tuesday). Kaplan speaks again (Wednesday). The dovish governor Brainard will address the economic outlook (Wednesday). Fed hawk Mester speaks on leadership (Thursday). Friday is a busy day with the dovish voter Evans and hawkish nonvoter Lacker speaking on a panel. VC Fischer will discuss Fed policy decision-making at the Chicago Booth School’s annual policymaking forum. The Beige Book (Wednesday) for the upcoming FOMC will be released too. It should reiterate a moderate growth trajectory, continued tightening in the labor market, and some nascent signs of price pressures.

Canada: The BoC’s rate announcement is the main event (Wednesday). No change to the current 0.50% rate setting is projected. Recent economic data has added further reassurance that the projected recovery slated for this year is progressing roughly as anticipated, which should be enough to keep the cautiously optimistic tone from January intact. There are several important reports this week. Topping the list is Q4 GDP (Thursday), expected to grow at a 2.0% pace after the 3.5% rebound in Q3. December GDP (Thursday) is seen expanding at a 0.3% m/m clip following the 0.4% surge in November. The Q4 current account deficit (Wednesday) is projected to narrow to -C$9.0 bln from -C$18.3 bln in Q3, thanks to the dramatic return to a merchandise trade surplus in November and December. The industrial product price index (Tuesday) is expected to rise 0.7% m/m in January after the 0.4% gain in December, as gasoline prices surged higher during the month. The annual capital expenditures survey (Tuesday) will provide the always interesting business investment intentions, this time for 2017. The Markit manufacturing PMI for February is due Wednesday.

Europe: This week’s round of data releases will confirm the picture of stronger growth and rising inflation, with the Eurozone headline rate expected to come in bang in line with the ECB’s definition of price stability as below but close to 2%. But while this should be a time for jubilation for Draghi and finally a time the central bank to relax, mounting political risks mean the central bank’s helping hand is still needed. French election jitters may have eased somewhat and in Germany the euphoria over Socialist candidate Schulz is not only denting Merkel’s chances, but has also cut into support for Eurosceptics on the right end of the spectrum, the Dutch election (March 15) is drawing nearer and after markets were burned in last year’s U.S. and U.K. votes they are clearly taking no chances. This week’s data calendar focuses on the last set of confidence data for February as well as preliminary inflation numbers for February. Final PMI readings (Thursday and Friday) are unlikely to bring major surprises and are expected to confirm the Manufacturing PMI at 55.5 and the services reading at 55.6. These numbers were much stronger than initially expected and together with the robust German Ifo point to the risk of an upside surprise in the Eurozone ESI Economic Confidence indicator.

UK: The calendar this week is highlighted by the February PMI surveys. We expect the manufacturing PMI (Wednesday) to dip slightly, to a reading of 55.5 after 55.9 previously. The construction PMI has us anticipating a 52.0 reading, down fractionally from 52.2 in January. Other data includes the BoE’s report on lending for January. The BoE’s easing measures since the Brexit vote last year have driven many lending rates to historic lows, which should underpin the data.

Japan: Japan’s docket kicks off Tuesday with several important releases. Preliminary January industrial production is expected to rise 0.5%. A monthly decline hasn’t been posted since July, an encouraging sign for growth, although there’s downside risk from the slightly firmer yen this year on safe haven flows given political uncertainties in the U.S. and Europe. January retail sales are expected to remain in contraction. January housing starts should post a 3.0% y/y pace, down from 3.9% in December. January construction orders are due Tuesday as well. They’ve been choppy over the past year, but have slowed considerably since the 16.3% y/y pace in September, posting a -6.0% y/y pace in November, but rebounding 7.1% y/y in December. The MoF Q4 capex survey (Wednesday) is forecast jumping to a 1.0% y/y rate from -1.3% in Q3. The final February Markit manufacturing PMI (Wednesday) is estimated to have improved to 53.0 from January’s 52.7. The rest of the week’s releases come on Friday. January national CPI is expected to have accelerated slightly to 0.4% y/y from 0.3% y/y overall, but unchanged at a -0.2% y/y rate on a core basis. Tokyo February CPI likely slipped to -0.2% y/y overall. Inflation remains a real uncertainty for Japan, but signs of an emergence of global price pressures could be filtering through into Japan too. January unemployment is seen holding at 3.1%, with the job offers/seekers ratio steady at 1.43. January personal income and PCE are due, with the latter expected to fall to a -0.5% y/y clip from -0.3% y/y in December. Finally, February consumer confidence is penciled in at 43.5 from 43.2.

Australia: Australia’s calendar is data rich this week, in contrast to a poor RBAspeak slate. The highlight is Q4 GDP (Wednesday), expected to rebound 0.6% after the 0.5% tumble in Q3. The Q4 current account deficit (Tuesday) is seen narrowing to -A$7.0 bln from -A$11.4 bln in Q3. The trade report (Thursday) is projected to show a A$4.0 bln surplus in January after the A$3.5bln surplus in December. Building approvals (Thursday) are seen falling 0.5% m/m in January after the 1.2% drop in December. There is nothing from the Reserve Bank of Australia this week. The next event is the March 7 meeting, which we expect to reveal no change to the 1.50% rate setting.

New Zealand: New Zealand’s calendar has the January trade report (Tuesday). Trade prices are due on Wednesday. The next meeting of the Reserve Bank of New Zealand is on March 23rd. The RBNZ is expected to hold the OCR steady at 1.75%

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Andria Pichidi

Market Analyst


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