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THE ECONOMIC WEEK AHEAD

Market Analysis
Week Ahead Picture

Main Macro Events This Week

It’s been a busy couple of weeks so far in February with politics dominating, though monetary policy issues were back in the spotlight with Yellen’s testimony and the ECB minutes indicating the bank mulled stepping back from QE via the capital key. There will be no want of global issues, data, and events ahead to keep the markets choppy. Of course, Mr. Trump will remain a focal point, especially as tax initiatives may be trickling out, though the border adjustment tax may be on the ropes. But there is also rising angst over the upcoming French elections after the Left considered combined forces. A Eurozone Finance Ministers meeting is on tap, with Greece bailout problems back in the spotlight. Attention is also turning to March — Beware of the Ides. There are two important events on the 15th, the FOMC meeting and the elections in the Netherlands. Each could have significant market consequences ahead.

United States: The U.S. calendar is a relatively lean one this week when markets reopen on Tuesday after the long President’s Day weekend. The February Markit Flash PMI (Tuesday) is likely to show a dip to 54.0 on manufacturing from 55.0. MBA mortgage market data are due (Wednesday), along with existing home sales forecast to rise 1.1% to 5.55 mln from 5.49 mln. Initial jobless claims may bounce back 8k (Thursday) to 247k for the week ended February 18. The week winds down with new home sales (Friday) forecast to rebound 6.3% to a 570k unit pace in January from 536k in December. Michigan sentiment (final) is expected to be left unrevised at 95.7 in February.

Fedspeak: The Fed minutes (Wednesday) will be scoured for clues on the policy stance, but the report has lost much of its impact in the wake of chair Yellen’s testimony and the strength in recent data on inflation, sales, production, and confidence. Of course, the Fed left policy unchanged at its February 1 meeting. The key for the report will be the degree to which policymakers thought a rate hike might be affected sooner rather than later. Meanwhile, there are only likely to be a minority of FOMC members who were factoring in fiscal stimulus into their outlooks, and the majority won’t front-run fiscal initiatives. Rather than the minutes, the markets will look to upcoming data, especially payrolls, to fine-tune March rate hike probabilities. Geopolitical risks and market impacts will also play a part. While Fedspeak will be important, Chair Yellen didn’t show any urgency for a March tightening, nor have the two voting doves, Evans and Kashkari. Minneapolis Fed centrist Kashkari will take part in a conversation on the economy and the role of the Fed (Tuesday) from 8:50 ET and Philly Fed hawkish Harker discusses the economic outlook from Wharton in Philadelphia from 12 ET. Governor Powell will give his update on policy and the economy (Wednesday). Later in the week (Thursday) Atlanta Fed centrist Lockhart will be “Looking Back on 10-years at the Federal Reserve Bank of Atlanta” from 8:35 ET. Yellen’s next scheduled speaking engagement is set for Friday, March 3 at an Executives Club of Chicago even.

Canada: The holiday shorted week is long on important economic reports. While markets are closed Monday for Family Day, Statistics Canada will release wholesale trade, which is expected to reveal a 1.0% m/m gain in shipment values during December. Retail sales (Wednesday) are seen expanding 0.1% in value terms during December.  But the ex-autos aggregate is expected to improve 1.0% after the 0.1% rise in November. The wholesale and retail reports will solidify the December GDP outlook. Average weekly earnings for December are due Thursday, and are expected to be consistent with a tame compensation backdrop. The CFIB’s Business Barometer survey of small and medium business for February will also be released Thursday. The January CPI (Friday) is expected to power higher by 0.4% m/m in January after the 0.2% drop in December. Annual growth is projected to accelerate to 1.7% y/y from the 1.5% y/y growth rate in December. Bank of Canada Senior Deputy Governor Wilkins participates in a panel discussion (Tuesday) at the Competition Bureau Ottawa, but the remarks will not be published on the Bank’s website.

Europe: The data calendar heats up with the second round of February confidence data in the form of Eurozone PMIs and the German Ifo, but with Eurozone Finance Ministers meeting at the start of the week, the Greek bailout problems will remain in focus and election jitters and Eurozone breakup concerns are also unlikely to go away. The latter has been fueling increased volatility in peripheral spreads over the German benchmark, but also yield curves in recent weeks, although speculation of possible “real” QE tapering also played a role, as growth remains robust and inflation spiked higher. Data releases include detailed Q4 GDP readings from Germany and the Eurozone. The German February Ifo Business Climate expected higher to 109.9 from 109.8, as strong orders are hoped to have lifted the expectations readings, but with inflation and import, as well as producer price inflation, rising sharply and political risks picking up, confidence indicators come with a slightly higher error margin than usual. Meanwhile PMI readings are expected to come in narrowly mixed across countries, but remain firmly above the 50 point no change mark. The Eurozone Manufacturing PMI is expected to rise to 55.2 from 55.2, while the services reading is seen at 53.8, slightly higher than the 53.7 in the previous month. At the same time inflation is moving higher and the Eurozone HICP reading is expected to be confirmed at 1.8% y/y, already broadly in line with the ECB’s upper limit for price stability. With core inflation stuck much lower at 0.9% y/y, the data does back Draghi’s view, however, that the uptick is driven mainly by base effects from energy prices, which means so far at least the ECB is content to ignore the rise and remain on course for a further expansion of the balance sheet. The calendar also includes final inflation numbers from France and Italy, as well as French national business confidence numbers. Germany sells EUR 1 bln of 30 year Bunds.

UK: Sterling came under pressure last week, losing ground to the G3 currencies, along with other European currencies and the dollar bloc units. One bearish driver has been data. The other bearish driver is the nearing start of the EU exit negotiation process, as there remains uncertainty about how the process will pan out. Markets will get a better hold on this once the negotiation gets under way. The UK data calendar schedule this week starts with the February CBI industrial trends survey (Monday), which expected to show a near steady +4 reading, in the headline total orders reading. Monthly government borrowing data is also up (Tuesday), ahead of the second-estimate of Q4 GDP (Wednesday), which is widely anticipated to come in unrevised at 0.6% q/q and 2.2% y/y. The February CBI distributive sales survey (Thursday) has us anticipating a moderation in the headline realized sales figure, to 24 from 26 in January. BBA mortgage approvals are also due (Friday).

Japan: The December all-industry index (Tuesday) is penciled in a -0.3% m/m, reversing November’s 0.3% gain, given the broad-based weakness in the tertiary index, with wholesale and retail trade lower. January services PPI (Thursday) should come in at 0.5% y/y from 0.4%. The accelerating price pressures are good news for the BoJ. Revised December leading and coincident indices are due Thursday.

Australia: The calendar has a double dose of Governor Lowe: The Reserve Bank of Australia governor speaks at the Australia-Canada Economic Leadership Forum in Sydney (Wednesday). And he appears before The House of Representative’s Standing Committee on Economics (Friday). The minutes to the February meeting will be released Tuesday. Recall the Bank held rates steady at 1.50%, matching expectations. Economic data features Q4 private capital expenditures (Thursday). The wage price index (Wednesday) is projected to grow 0.4% (q/q, sa) after the matching 0.4% gain in Q3.

New Zealand: The next meeting of the Reserve Bank of New Zealand is on March 23rd. The bank held the OCR steady at 1.75% last week, matching expectations.

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Andria Pichidi

Market Analyst

HotForex

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