Main Macro Events This Week
The Allies’ joint missile strikes on Syria’s chemical weapons facilities were largely anticipated by the markets, which traded cautiously on Friday into the weekend. The limited and targeted strikes by the US, UK, and France were met with little resistance. And though condemned by Russia, whose Ambassador to the U.S. Antonov warned that “such actions will not be left without consequences,” there was no immediate retaliation. and that a “pre-designed scenario is being implemented,” there was no immediate reaction. At the U.N. the Security Council rejected the Russian resolution to condemn the action. Meanwhile, President Trump said he is “prepared to sustain” the strikes if the use of chemical weapons is not stopped, but he assured that the U.S. does not seek an indefinite presence in Syria.
This shaky geopolitical atmosphere will leave the markets on tenterhooks amid fears that, as Defense Secretary Mattis said could “escalate out of control.” Along with that worry, the markets will turn their attention to fundamentals including earnings and data, while tariffs remain a factor.
United States: US attention will be focused initially on Syria and the aftermath of the strike. While there’s still considerable uncertainty, the event could actually underpin equities if it appears the targeted, one-off attack was successful, while not drawing Russia directly into the conflict. A big week of earnings will via for the spotlight with several important reports due. There’s a lot of key data as well, though the numbers may be overshadowed by the exogenous events. Fedspeak will dominate the airwaves with at least 10 speakers on tap. Trade and tariff machinations have been temporarily pushed into the background.
As for data, March retail sales (Monday) headline the data slate. The markets are looking for some confirmation of a rebound in consumer activity following disappointing consumer spending results so far this year. Also important is the Fed’s March industrial production release (Tuesday). A 0.3% gain is expected after surging 0.9% in February. Capacity utilization is projected t 77.6% from 77.7%. Risk to production is to the upside, however, given strong factory employment, and still robust manufacturing ISM and PMI data. The Empire State index (Monday) should fall to 17.0 in April, after surging 9.4 points to 22.5 in March, the highest since October. The April Philly Fed index (Thursday) is expected to slip to 21.0 after falling 3.5 points to 22.3 in March. It was as high as 28.8 in October. March housing starts (Tuesday) will be significant as we enter the important spring season for housing when activity picks up. Starts are expected to bounce 1.9% to a 1.260 mln pace, only partly recouping the 7.0% drop to 1.236 mln. Other data this week includes February business inventories (Monday), estimated to rise 0.6%, following a 0.7% gain in January. The February TIC report on Treasury capital flows (Monday) will be closely monitored for any indication of reduced Chinese demand, though it will be impossible to know for sure what’s behind the flows.
Canada:The Bank of Canada’s policy announcement (Wednesday) is front and centre this week. No change is anticipated to the 1.25% rate setting, along with a cautiously constructive growth outlook salted with trade uncertainty. An as-expected outing from the Bank of Canada would maintain the base-case for further gradual rate hikes this year. The Bank releases the Monetary Policy Report alongside the announcement, and Governor Poloz holds the usual press conference. GDP is on track to undershoot the BoC’s 2.5% estimate in Q1, so it will be interesting to see how they view growth prospects for this year and next. February manufacturing (Tuesday) is seen rebounding 1.0% (m/m, sa) after the 1.0% drop in January. March CPI (Friday) is expected to expand 0.4% (m/m, nsa) after the 0.6% surge in February. Retails sales (Friday) are anticipated to improve 0.5% in February after the 0.3% gain in January.
Europe: Syria, geopolitical risks, and trade jitters continue to hang over the Eurozone and are starting to weigh on confidence. The output gap may or may not have closed already, but there are clearer signs now that growth momentum is already starting to slow down. That is unlikely to prevent the ECB from phasing out QE by the end of the year, but the minutes from the last meeting have made pretty clear that the discussions about the end of asset purchases hasn’t advanced very far yet. So the April 26 meeting is unlikely to bring major changes, as officials take a wait and see approach. The hawks at the ECB may be shifting the focus of the discussion already to the possible rate hike path, but the doves remain in a majority for now and this week’s round of data releases are unlikely to change the balance at the central bank.
The final reading of Eurozone March HICP (Wednesday) is widely expected to confirm the headline rate at 1.4% y/y, up from 1.2% y/y in February, but this is largely due to base effects from energy and food prices, as well as the earlier timing of Easter. Meanwhile German ZEW Investor Sentiment (Tuesday) is expected to fall further, with heightened market volatility likely adding to the error margin for the forecasts. A reading of 2 in April, down from 5.1 in March, is expected. Anything short of a major surprise to the upside will add to concerns that growth momentum is already starting to slow down, while the ECB is mulling exit steps.
UK: This week’s calendar brings top-tier releases which should, cement expectations for the BoE to hike the repo rate by 25 bp in May. The data are highlighted by February labor market data (Tuesday), March inflation data (Wednesday), and the official March retail sales report (Thursday). The CPI should remain unchanged 2.7%, above the BoE’s 2.0% target, and the unemployment rate at the multi-decade 4.3% low . Of particular interest from the labor figures as markets fine-tune expectations for a May tightening will be average household earnings, which expected t to lift to a new cycle high rate of 3.0% y/y in the three months to February. BoE policymakers have been explicitly mentioning signs of rising wage pressures in justifying hawkish-leaning guidance of late. As for retail sales, a 0.6% m/m decline (median -0.5%) in March is expected, which will be payback for the strong 0.8% m/m gain in the month prior.
Japan: revised February industrial production is due Tuesday. Production bounced 4.1% in February after dropping 6.8% in January. The 12-month pace was 1.4% y/y. The March trade report (Wednesday) is expected to show a widening in the surplus to JPY 600.0 bln from 2.6 bln previously. March national CPI (Friday) is pencilled in at a cooler 1.0% y/y overall from 1.5% previously. The core reading should slip to a 0.9% y/y clip from 1.0% in February. The February tertiary industry index (Friday) is forecast rising 0.2% versus the 0.6% decline in January.
China: releases Q1 GDP (Tuesday), expected at a 6.7% annual clip versus the 6.8% in Q4. March industrial production (Tuesday) should rise to a 6.3% y/y rate from 6.2% previously, while March retail sales (Tuesday) are forecast at 9.5% y/y from 9.4%. March fixed investment (Tuesday) is seen slowing fractionally to 7.8% y/y from 7.9%.
Australia: The RBA releases the minutes to the April meeting (Tuesday), where they held rates steady at 1.50% and maintained a statement that is consistent with an eventual rate hike. The employment report (Thursday) is expected to reveal a 20.0k gain in March after the 17.5k rise in February. The unemployment rate is seen declining to 5.5% in March from 5.6% in February.
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