The Economic Week Ahead

Joining the broadening chorus, Fed Chair Yellen confirmed on Friday, “At our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.” That’s about as close as you’ll get to Fed semaphore for “we are going to hike in March, unless something extraordinary thwarts us.” Of course, all eyes will now be riveted on Friday’s February jobs report, which would have to severely miss to prevent the FOMC from pulling the trigger on the 15th.

United States: The economic calendar gets down to brass tacks with the employment report, released with just a week to go before the March FOMC decision. As Yellen implied, we’re going to get a hike in March unless the data fail to move in line with expectations. A 215k February nonfarm payroll increase is expected to beat the 156k December headline, but to fall short of the 227k January rise, with a 220k private payroll gain. The report faces upside risk from rising producer sentiment and consumer confidence, 44-year lows in initial claims, a surging stock market, and a solid ADP surge. As for data, the rest of the week, January factory goods orders are forecast to rise 1.4% from 1.2% in January (Monday), while inventories may rise 0.2%. Risk is to the upside given stronger durables. The trade deficit is expected to expand in January (Tuesday) to -$49 bln, while consumer credit may increase to $20 bln in January as well. MBA mortgage market data is due (Wednesday) and the February ADP Employment report should post a solid 220k gain for the month, but below the January figure of 246k. Q4 productivity is set to be revised up to 1.5% (Wednesday) from 1.3%, while wholesale sales may bounce 0.8% and inventories sink 0.1%. Import prices may rise a mild 0.1% in February (Thursday) in part due to the firm dollar, though oil prices picked up last month, but export prices may sink 0.2%. Initial jobless claims are forecast to rebound 24k to 247k (Thursday) after marking 44-year lows last week. In addition to the employment report (Friday), the February Treasury budget gap may widen to -$195 bln.

Fedspeak: winds down for the blackout period ahead of the March 15 FOMC, but not before Minneapolis Fed dove Kashkari discusses his favorite topic of “Too Big to Fail” (Monday) before the National Association for Business Economics (NABE).

Canada: There is plenty of economic data on offer this week in Canada, with the trade and jobs reports the highlight of a full calendar. The January trade balance (Tuesday) is expected to improve to C$1.0 bln from C$0.9 bln in December. A 20k gain in employment (Friday) is projected for February after the 48.3k rise in January, while the unemployment rate is seen steady at 6.8%. Housing starts (Wednesday) are anticipated to slow to a still firm 200k growth rate in February from 207.4k in January. Building permit values (Wednesday) are seen falling 1.0% in January after the 6.6% tumble in December. An 82.5% reading is projected for capacity utilization (Thursday) following 81.9% in Q3. Productivity growth is expected to moderate to a 0.3% pace (q/q, sa) following the unsustainable 1.2% surge in Q3. The new home price index (Thursday) is projected to deliver a 0.2% m/m gain in January on the heels of the 0.1% rise in December. IVEY PMI for February is due Tuesday. While top tier economic data is abundant this week, Bank of Canada speakers are absent. The next scheduled appearance is from Deputy Governor Schembri on March 22nd, while we do not hear from Governor Poloz until March 28th.

Europe: After a robust round of Eurozone PMI numbers and especially the uptick in HICP inflation to 2.0%, the focus is on the ECB meeting (Thursday), which will also bring the updated set of staff projections. We don’t expect huge changes to the growth outlook, although better than anticipated PMI and Ifo numbers have lifted the chances of stronger than hoped Q1 GDP. Data releases this week are unlikely to change the outlook dramatically. German manufacturing orders will likely attract the most attention, as it is the only forward looking number in the calendar. Eurozone Q4 GDP, by contrast, is the most backward looking and expected to confirm growth rates of 0.4% q/q and 1.7% y/y, in line with preliminary numbers. The focus will likely be on the breakdown, which will be released for the first time, and should confirm that domestic demand and consumption remain the main drivers of the recovery. German and French production numbers for January are likely to bounce back from the contraction at the end of last year and we are looking for a rebound in German production of 3.0% m/m, after the -3.0% m/m decline in December, while French production is seen up 0.9% m/m.

UK: A bigger decline that had been widely anticipated in the UK’s PMI February surveys has painted a picture of a stagnating economy with businesses facing higher operating costs and slowing consumer demand. This comes with the start of negotiations to leave the EU now just around the corner, which we expect to quickly bring some contentious issues into the limelight (and risk of Scotland’s SNP making another attempt to break from the UK). The UK calendar this week starts with the BRC retail sales report for February (Monday), which will be of interest amid concerns that consumers are tightening their belts, and the Halifax house price report, also for February (Monday). The next data of note will be production figures for January at the tail end of the week (Friday), which expected to show industrial output dipping 0.4% m/m while rising 3.0% y/y.

Japan: The second look at Q4 GDP (Wednesday) is forecast improving to a 1.5% q/q pace from the initial 1.0%. Strong Q4 capex spending supports this view. The January current account surplus (Wednesday) likely narrowed to JPY 500.0 bln from 1,112.2 bln previously. The March MoF business outlook survey (Friday) is seen improving to 9.0 from 7.5 for the large manufacturers.

Australia: Australia’s calendar features the Reserve Bank of Australia’s meeting (Tuesday). No change is expected to the current 1.50% rate setting. Economic data is headlined by January retail sales (Monday), projected to improve 0.2% m/m after the 0.1% dip in December. Housing investment (Friday) is seen dipping 0.5% in January after the 0.4% gain in December. ANZ job ads (Monday) and the Melbourne Institute inflation measures (Monday) are also due.

New Zealand: New Zealand’s calendar has January building permits (Monday), Q4 manufacturing (Wednesday) and retail card spending (Friday). The next meeting of the Reserve Bank of New Zealand is on March 23rd.

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Andria Pichidi

Market Analyst


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