Macro Events & News

FX News

European Outlook: The global stock market rally continued in Asia overnight, as investors continue to celebrate Trump’s speech in Congress, which was short on details, but struck a more cautious tone and managed to revive risk aversion. The ASX outperformed and closed with a 1.3% gain, while the Nikkei was up 0.9% at the close. FTSE 100 and DAX managed to close above key levels of 7300 and 12000 respectively, but U.K. and U.S. futures are narrowly mixed, indicating that at these high levels investors are starting to get cautious again and may want to see more details from Trump, especially as the Fed is eying a March rate hike and the combination of strong growth and rising inflation is putting pressure on Draghi in Europe. Today’s preliminary Eurozone HICP could well hit 2.0%, after stronger than expected German numbers yesterday. The calendar also has Swiss Q4 GDP, German import prices, and Eurozone PPI and labour market data.

Fedspeak: Dallas Fed’s Kaplan reiterated the view that rates should rise in a gradual way, a process the Fed should begin to stay ahead of inflation heating up and avoiding the need to hike rates dramatically. He views economic growth as sluggish by historical standards, but relatively healthy given demographics. Kaplan is taking part in a moderated Q&A session that should soon be drowned out by the Beige Book. There is nothing new in these pronouncements so far to provide any insight into timing of the next hike, as March odds improve.

US income report: revealed a 0.4% January income rise that beat assumptions after expected boosts in the Q3 and Q4 figures. Yet, we also saw a lean 0.2% consumption rise with a 0.3% “real” drop that undershot estimates after big boosts in Q4 to leave a disappointing report. The U.S. ISM rose to a 30-month high of 57.7 from 56.0 in January and 54.5 in December, as the index continues to climb from the 47.9 expansion-low in December of 2015 toward the 60.0 cycle-high in February of 2011. Yesterday’s ISM report adds to the upside risk for our 210k February nonfarm payroll estimate, though the employment component fell to 54.2 from a 29-month high of 56.1. The ISM-adjusted average of the major producer sentiment surveys to rise to the same 56 cycle-high previously seen in February and March of 2011, versus 54 in January, 53 in December, 52 in November, 51 in October and 50 in 4 of the 5 months through September. A factory sector rebound that is lifting sentiment, consumer confidence and small business optimism in the face of rising oil prices, a reversal in the inventory headwind, and hopes for deregulation and fiscal stimulus in 2017, might be consider as a possible scenario. The economy still faces lingering headwinds from a sluggish world economy and a strong dollar.

Canada: Bank of Canada Remains Attentive to Uncertainties. The Bank of Canada delivered the widely-expected lack of change to the 0.50% rate setting. The recent run of encouraging economic data was downplayed, with material excess capacity highlighted. There was little change from the cautiously constructive outlook in January, which in our view keeps a potential easing on table while maintaining the base case scenario for no change in rates for an extended period.  Hence, the Bank maintained a focus on uncertainty to the outlook. while downplaying improvement in CPI and what is shaping up to be firmer growth in Q4 than they had anticipated. The bounce in January CPI was due to temporary factors while challenges still faced by exports apparently temper any optimism that would stem from an overshoot of their Q4 GDP projection of 1.5%. Also, employment gains may be evident, but wages and hours worked still reflect persistent slack in Canada. The announcement was a bit more focused on caution versus optimism than we had anticipated. But Poloz has been very dovish and repeatedly been burned on the emergence of the long-awaited recovery, so an abundance of caution is quite consistent with how the Bank has operated in recent years.

 Main Macro Events Today

  • GBP Construction PMI – February PMI in Construction expected to be unchanged from 52.2 last time.
  • Euro Core CPI – Eurozone HICP inflation is set to reach 2.0% and thus hit the upper limit for price stability with today’s February release, after higher than expected German and Italian numbers this week. The German rate jumped to 2.2% y/y and while base effects from energy prices are the main reason for now, Bundesbank President Weidmann highlighted that inflation projections, should be revised considerably higher, not just for the Eurozone.
  • CAD GDP – Canadian GDP is expected to slide to 0.3% after rising 1.0% to 0.4% in January.

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Andria Pichidi

Market Analyst


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