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the Economic week Ahead

Market Analysis

Main Macro Events This Week

President Trump stressed “when the United States grows, so does the world,” in Friday’s WEF Davos speech. That sentiment was illustrated last week as the IMF revised its 2017 global growth forecast up to 3.7%, and to 3.9% for 2018 and 2019, citing in part the stimulative impact from the U.S. tax cuts. This year’s growth would be the fastest and broadest since 2011 when the world was recovering from the financial crisis. This week’s slate of events and data should further underpin the current theme of improved global growth.

United States: The U.S. has a very full slate of events and data as the first month of 2018 comes to an end. However, it’s not clear any will have significant impact on current market trends of rising stocks and yields, and a weaker dollar. The calendar includes an FOMC meeting (Tuesday, Wednesday), President Trump’s State of the Union (Tuesday), the Treasury refunding announcement (Wednesday), and key data culminating with the January jobs report (Friday). Earnings will be announced all through the week (this is the heaviest week of the season).President Trump will deliver his first State of the Union on Tuesday. Reports are that most of his speech will cover domestic issues, and especially his trillion dollar infrastructure plans. A $716 bln request for defense spending was leaked last week, and later confirmed by the White House. Meanwhile, the government will quickly have to revisit the potential for another government shutdown as the current continuing resolution expires February 8. Additionally, the Treasury is quickly running out of borrowing authority, perhaps as soon as early March. With that threat overhanging, the debt managers will announce Q1 and Q2 financing projections (Monday) ahead of the February refunding (Wednesday).

The data calendar is loaded with many of the key reports for the month and will give early reads on various sectors of the economy at the start of 2018. As always, the nonfarm payroll release (Friday) will be the highlight. December personal income and consumption (Monday) will help fine tune GDP forecasts, though they will be a bit anti-climactic after the Q4 GDP report last Friday.The PCE price data will be crucial. It’s the figure the FOMC uses, and the headline index is likely to edge up 0.1%, though the core should increase 0.2%. The Q4 employment cost numbers will be an important update on wages and benefits.  Q4 productivity and unit labor costs (Thursday) will also be awaited. Also important is the manufacturing ISM report. U.S. manufacturing has seen a resurgence and has become quite robust globally.Along with those numbers, other releases this week include the January ADP report (Wednesday). Consumer confidence (Tuesday) likely increased to 125.0 from 122.1 thanks to passage of the tax legislation and the ongoing gains on Wall Street.

Canada: Canada’s calendar is one of the few lean ones this week. November GDP (Wednesday), the only top tier report, is expected to rise 0.3% (m/m, sa) after the flat reading in October. Retail, manufacturing, and wholesale shipment volumes improved in November, while the outlook for the mining, oil and gas sector is positive. The industrial product price index, also due Wednesday, is projected to drop 0.5% in December (m/m, nsa) after the 1.4% gain in November, as gasoline prices declined, commodity prices eroded and the loonie strengthened. The MLI leading indicator for December and the January Markit Canada manufacturing PMI are due Thursday.

Europe: it’s a very busy week for the Eurozone calendar. But with data likely to give both doves and hawks something over which to argue, the numbers are unlikely to change the overall outlook for the ECB going forward.  This week’s data calendar has preliminary inflation stats for January, the final set of confidence data in the form of the ESI and preliminary Q4 GDP numbers. The Eurozone GDP growth (Tuesday) for Q4 expected to show a slight deceleration in the quarterly growth rate to 0.5% q/q from 0.6% q/q in Q3. Looking ahead confidence remains very strong and the Eurozone ESI economic confidence indicator (Tuesday) is seen rising to 116.3 from 106.0, after preliminary consumer confidence jumped higher and composite PMI numbers also surprised on the upside.

UK: Fundamental and political positives have been combining to support what is the most positive investor sentiment toward the UK since the vote to leave the EU in 2016.On the economic front, the preliminary estimate of UK Q4 GDP beat expectations, which followed labour market data showing an unexpected 102k surge in UK employment. On the political front, there are also expectations for the EU and UK officials to agree on a post-Brexit transition period, most likely before the EU leaders’ summit in March. The UK calendar this week features December monthly lending data from the BoE (Wednesday), the January Gfk consumer confidence (Thursday), and the January Markit manufacturing and construction PMI surveys (Thursday and Friday, respectively).

Japan: December unemployment (Tuesday) is seen unchanged at 2.7%, while the job offers/seekers ration should nudge up to 1.57 from 1.56. December personal income and PCE are due Tuesday, with the latter expected up 1.0% y/y from 1.7% in November. December retail sales (Tuesday) should rise 2.4% y/y from 2.2% overall, and increase 0.5% from 1.4% for large retailers. Preliminary December industrial production (Wednesday) is seen rising 1.5% y/y from 0.5%, while January consumer confidence (Wednesday) should tick up to 46.0 from 45.7. December housing starts (Wednesday) are penciled in at down 0.2% from -0.4%. December construction orders are also due Wednesday. Thursday brings the January Nikkei/Markit manufacturing PMI, which is forecast to rise to 54.5 from 54.0.

China: releases the official CFLP January manufacturing PMI on Wednesday, which is expected to improve to51.7 from 51.6. The Caixin/Markit Manufacturing PMI (Thursday) is see at 51.8 from 51.5.

Australia: Q4 CPI (Wednesday) is seen accelerating to a 0.8% pace (q/q, sa) from the 0.6% pace in Q3. The CPI is anticipated to pick-up to a 2.1% y/y pace in Q4 from 1.8% y/y in Q3. There is nothing from the Reserve Bank of Australia this week. The Bank meets next week, and no change to the current 1.50% rate setting is anticipated. Import prices (Thursday) are expected to rebound 2.0% in Q4 (q/q, sa) after the 1.6% drop in Q3. Export prices (Thursday) are projected to rebound 3.0% in Q4 (q/q, sa) after the 3.0% drop in Q3.

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Andria Pichidi

Market Analyst

HotForex

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