While nobody has any idea just what lies in store in the coming week which is expected to be abnormally volatile, here is a summary of the key economic events from Goldman's FX desk.
It all came at once last week with the major drivers of market price action rolling across the newswires on Friday. Front, back and centre stage was dominated by the still unfolding tragedy in Japan. First and foremost our thoughts are with those affected by the situation. In terms of asset markets, it is tough to draw concrete conclusions until we have a greater handle on the monetary cost of the disaster which is likely to run into trillions of Yen. There are also many potentially offsetting economic forces at work after a natural disaster, which we will try to assess in coming days and weeks.
The Eurozone summit arguably produced a positive surprise in that steps have been taken to a final political deal at the European council meeting of 24/25 March. Ahead of the summit, there was widespread sceptism that any news would emerge. As Francesco Garzarelli et al point out, other encouraging incremental steps at this stage include (i) more generous bi-lateral lending terms for Greece; (ii) a (yet-to-be-clarified) statement about upsizing the EFSF’s effective lending capacity to the full EUR 440bn; and (iii) the decision to allow the latter (and its successor, the ESM) to intervene directly in primary government debt markets, but ‘as an exception’ and only in countries part of a conditional assistance program. Less encouraging is the fact that the progress on a broader governance structure seems patchy. Broadly we conclude that the announcements on Friday should be marginally positive for EMU sovereign risk premia and therefore positive for the Euro.
With everything else that was going on, Saudi Arabia’s ‘day of rage’ drew little remark, neither did the ongoing fighting in Libya. Clearly developments in the Middle East will need to be monitored, but for the time being, oil prices (Brent) appear to have stabilised.
The week ahead will continue to focus on developments in Japan and the Middle East and any further political commentary associated with the European summit. The BoJ has shortened its monetary policy meeting to one day on Monday. In addition to pledges to provide ongoing liquidity and the maintenance of financial stability, the BoJ may decide to extend the QE proposals from September in order to shore up confidence.
There will be several monetary policy meetings this week, including by the BoJ, Fed, RBI, Norges Bank and SNB. We expect the Fed to provide little new news, and for all other central banks to remain on hold except the RBI, where we expect a 25bps hike.
Monday 14 March
BoJ meeting – rates unchanged. In response to the natural disaster, the BOJ has signaled a strong commitment to supply ample funds to the short-term financial markets and is working with banks and other financial institutions to ensure a smooth response to potential withdrawals by depositors. The BOJ has also decided to shorten its next monetary policy meeting, scheduled for March 14-15, to a half day on the afternoon of the 14th.
China Money and credit growth: We and consensus expect M2 growth to be up 17%yoy, after 17.2% on the previous reading. We expect the amount of CNY loans made in February to be around RMB700b, down from RMB1.04trn in January. Consensus expects a smaller figure of RMB600bn.
India WPI (Feb): We forecast February WPI inflation to come in at 7.8%yoy, lower than the 8.2%yoy in January, mainly due to a fall in the prices of primary articles, especially fruits and vegetables. The consensus is also at 7.8%yoy.
Eurozone Industrial Production (Jan). Consensus expects a rise of 6.5%yoy after 8.8% previously
Tuesday 15 March
Philippines Remitances (Jan): Overseas remittance grew 8.1%yoy in December, after increasing 10.5%yoy in November.
US Empire survey (Mar). Consensus expects a rise to 16.10 from 15.7.
US TIC data (Jan): Given the focus on EM to DM rotation in the equity markets that month, it will be interesting to see how strong foreign buying of US equity is and also the extent to which US investors brought money home.
FOMC meeting: Unchanged rates are universally expected. The committee is unlikely to want to tighten financial conditions much with its Tuesday statement. The FOMC will likely acknowledge better news on employment, and perhaps also the recent uptick in longer-term inflation expectations, but we expect no changes to the forward-looking guidance on interest rates or asset purchases.
Brazil Retail Sales (Jan). Consensus expects a rise of 8.0%yoy, after 10.1% previously.
Also Interesting: RBA minutes, Polish CPI
Wednesday 16 March
Norges Bank meeting: Rates are expected to remain unchanged.
US PPI (Feb): We are in line with consensus, expecting a rise of 0.6%mom on the headline reading and 0.2% ex food and energy, after 0.8 and 0.5% respectively on the previous reading.
US Current Account Balance (Q4): We expect a current account deficit of USD110bn, as does the consensus. We will be inspecting the BBoP to discover the degree to which the current account was financed with longer-term capital inflows.
Thursday 17 March
New Zealand ANZ-Roy Morgan Consumer confidence for March is likely to give an indication as to the extent the Christchurch earthquake has continued to dent confidence. The last reading was 108.1, which represented a large drop on the January reading of 117.1.
Singapore non oil exports (Feb): Consensus expects a reading of 10.8%yoy after 20.9% previously.
RBI meeting: We and the consensus expect a 25bp hike bringing the repo rate to 6.75% and an equivalent hike on the reverse repo rate bringing the latter to 5.75%.
SNB meeting: rates are expected to remain unchanged. The question will be how hawkish will the bank sound given the strength of activity in Switzerland and that inflation is tracking roughly in line with the SNB’s forecast vs the continued strength of the currency. The recent hawkishness of the ECB is likely to feature in the SNB’s thinking.
US CPI (Feb): We and the consensus expect a rise of 0.4%mom on headline due to rising commodity prices and a rise of 0.1% on core. Higher energy prices are likely to push headline up notably.
US Industrial Production (Feb): Consensus expects a rise of 0.6%mom after a decline of 0.1% previously. We expect a rise of 0.7%.
US Philadelphia Fed Survey (Mar): Consensus expects a fall to 29.7 from 35.9 previously, which would represent a correction on the previous very strong reading. We expect a reading of 31.0.
US Unemployment Claims: After last week’s sharp rise in the weekly claims data, it will be interesting to see if this deterioration was temporary.
Friday 18 March
Canada consumer prices (Feb): Consensus expects a rise of 0.4%mom up from 0.3% on the headline reading. Core is also expected to rise by 0.4% from flat previously.
Chile GDP (Q4): We expect a rise of 5.6%yoy after 7.2% previously. In line with consensus. Also Interesting: Mexico Central Bank Policy Minutes.