What matters this week, from Goldman's FX Desk
The macro picture and market reactions became more complex last week. On one hand global activity and hence demand remain solid. Last week’s global PMIs have been very strong and now stand at exceptionally high levels with a few exceptions. The US labour market continues to perform strongly. But on the other hand, Oil prices continue to be the main focus, as market participants continue to debate the risks for supply disruptions. The sudden shift to a much more hawkish stance by the ECB highlights that inflation targeting central banks may have to act to keep inflation expectations anchored. And our US team has highlighted that the rise in oil prices could reduce growth in the second half of the year.
In a relatively data-light week, the main focus will therefore be on policy developments again. First, the instabilities in the MENA region will remain key, with heightened focus on potential demonstrations in Saudi Arabia on Friday, March 11. The second political development is the intensification of Eurozone sovereign negotiations ahead of the “grand bargain” summit on March 24/25. Finally, the US budget negotiations remain a critical issue and there are some tentative signs that the policy consensus shifts slightly towards more frontloaded fiscal tightening. Bond issuance will be focus point in that context. The US is scheduled to issue $66bn worth of Treasuries in maturities ranging from 3-30 years. Portugal will tap the market with a small issuance despite the fact that last week the national railway company failed to raise government guaranteed debt. Merkel and Schaeuble are scheduled to speak towards the end of the week ahead of important regional elections in Germany. On Friday, Eurogroup leaders meet for another summit, trying to agree on measures to finally put the sovereign crisis behind.
Comments from central bankers will also remain a key source of uncertainty affecting FX markets. We have already witnessed series of monetary policy surprises in recent weeks and this will likely persist as the growth-inflation trade-off from rising oil prices is different for different countries and a challenge for monetary policy makers. Policy meetings are scheduled in the UK, New Zealand, Malaysia and Korea. ECB and Fed speeches are scheduled for Monday.
On the data front, we will look at consumer prices and industrial production numbers in a large number of countries. US trade balance and retail sales are probably the most important data releases outside global CPI and IP numbers.
Monday, 7 March
Taiwan Trade Balance (Feb): As one of the first non-survey based data releases, the Taiwanese export numbers deserve some attention as they may shed more light on the global demand picture.
Fed Speak: Lockhart and Fisher are schedules to speak on the economic outlook.
ECB Speak: Trichet is scheduled to speak at the margin of the regular Basel Central Banker Meeting.
Also Interesting: Norway IP (GS +1.0mom, consensus +0.9), Taiwan CPI, Hungarian vote on MPC members.
Tuesday, 8 March
German Manufacturing Orders (Jan): We expect a rise of +2.0% mom (consensus +2.5%) after the -3.4% drop in Dec.
Wednesday, 9 March
German Industrial Production (Jan): We expect a rise of +2.0%mom (consensus +1.7%) after a -1.5% drop in December.
Thailand CB Meeting: We expect the Bank of Thailand to hike rates by 25 bp, bringing the policy rate to 2.50%, in line with the consensus. We currently forecast an additional 50 bp of hikes on top of that for 2011, taking the policy rate to 3.00% by end-2011.
Portugal 2yr Bond Auction. After last weeks failed attempt by the Portuguese national railway company to issue government guaranteed debt, it will be interesting to see if Portugal can place this small issuance (up to EUR 1bn). Important in the context of the sovereign discussions.
Also Interesting: Swedish IP (GS +1.0%mom, consensus +0.8), Swiss CPI (GS +0.3%yoy, consensus +0.4), Japan machinery orders (Jan)
Thursday, 10 March
RBNZ Meeting: We expect the RBNZ to cut the OCR by 25bps to 2.75% in response to the recent traumatic events Christchurch. Consensus is split three ways, with 5/10 analysts having RBNZ on hold, 3/10 opting for a 50 bps cut, and the remainder looking for a 25 bps cut. There is therefore clearly a risk of a 50 bps cut. In addition, the RBNZ will release the latest quarterly Monetary Policy Statement, in which it will update its forecasts post earthquake.
Australia Employment report (Feb): Consensus forecasts a net employment change of +20k, following the rise of +24k in January. The unemployment is expected by consensus to remain unchanged at 5% from January, with the participation rate stuck around 65.9%. Unlike the US, the participation rate has over the past year trended up, rising from 65.3% Feb-2010.
Korea BOK meeting: The strong January activity and outlook numbers, together with the higher-than-expected inflation for February, has increased the odds of a 25-bp hike. We have therefore brought our rate hike call back to March from April.
Japan GDP revisions (Q4 2010): GDP is set for a downward revision. We expect -1.3% qoq annualized growth (consensus -1.2%) versus the preliminary -1.1%. We maintain our view that GDP growth will be positive from 1Q2011, supported by an improvement in exports.
China Trade Balance (Feb): February exports growth will likely fall to 5.0% yoy, down from 37.7% yoy in January. Consensus expects much better export growth at 27.1% yoy. Note that despite the large fall in its yoy growth rate, this still would imply a very robust mom ann. growth of around 43.4% in February.
UK Industrial Production (Jan): We expect a rise of +0.5%mom (consensus +0.4%) after a similar 0.5% rise in December.
UK MPC Meeting: We and the consensus expect unchanged rates and litte additional information compared to the latest minutes and Inflation Report .
Germany - Merkel Speech ahead of regional elections: The focus will be on anything related to the European sovereign situation.
US Trade Balance (Jan): The trade deficit should widen slightly in January, driven by a pickup in imports. (GS and consensus: -$41.5bn after -$40.6bn)
US Unemployment Claims: Consensus is looking for a small rebound to 378k from 368k last week.
Brazil Copom Monetary Policy Meeting Minutes: We will be looking for the latest inflation forecast and underlying assumptions.
Also Interesting: Swedish CPIF inflation (GS +1.5%yoy, consensus +1.4), Norway CPI-ATE nflation (GS +0.8%yoy, consensus +0.9), Malaysia IP, Italian IP, French IP, German trade balance, Peru CB meeting.
Friday, 11 March
Malaysia CB meeting: We expect Bank Negara Malaysia to remain on hold at this meeting, in line with the consensus. We believe they would likely adjust the statutory reserve requirement and other macro-prudential measures on lending first, before considering another hike in the policy rate.
China CPI (Feb): We believe yoy CPI inflation is likely to rise to 5.1% yoy from 4.9% yoy in January (Consensus +4.8%).
China Industrial production, retail sales, fixed asset investment (Jan-Feb): We expect January-February industrial production growth to rise to 14.0% yoy from 13.5% in December. Fixed asset investment growth is likely to rebound to around 27.0% yoy in January-February from 21.9% yoy in December.
India Industrial Production (Jan): We expect industrial production growth to come in at 3.4% yoy in January, after softening to 1.6% yoy in December due to improvement in activity in January. The Infrastructure Index and PMI are corroborating that.
Saudi Arabia Protests Anonymous groups have called for a day of nation protests in Saudi Arabia. The Authorities have already started to remind the population that any form of public protest, assembly or sit-in is illegal.
Canada Employment Report (Feb): Consensus expects net employment change to be 24.9k, down from 69.2k in January. The unemployment rate is forecast by consensus to fall to 7.7%, down from 7.8% in January.
Eurogroup Summit on Competitiveness: Another high level gathering among Eurogroup leaders to agree on outstanding issues before the 24/25 summit that aims at finally putting behind the sovereign crisis.
UK PPI (Feb): Given the uncertainty about the UK monetary policy outlook, any inflation data from the UK has to be seen as relevant. Core PPI is expected to rise by 0.8%mom (GS) compared to +0.7% in January. Consensus is looking for a smaller rise of only +0.4%.
US Retail Sales (Feb): Retail sales rose less than expected in January, although the core component was in line with expectations. For February strong same-store and auto sales suggest that retail sales rose sharply (GS +1.6%mom, consensus +1.0).
US Consumer Sentiment: Consensus expects the UMich measure to have declined to 76.5 from 77.5.
From Goldman Sachs FX