Week in Review
PMIs around the world were strong and generally surprised to the upside. The world economy seems to be entering Q1 with growth momentum that is a function of ongoing massive monetary stimulus. Bond markets have sold off with almost all of the yield increase coming from the real side as bond vigilantes indicating they are wiling to push Bernanke in an attempt to accelerate QE3. Inflation expectations are starting to jump on rising food price pressures.
In currency markets, the combination of higher US yields and positive risk sentiment kept most major currencies in ranges, though the Euro came under some pressure given the less hawkish ECB than expected by some, and given signs of slowing political progress regarding fiscal coordination in the Eurozone. The controversy about the EFSF potentially buying government bonds has been a concern for some Eurozone watchers.
The week ahead is relatively light on the data front with the US only reporting on the trade balance (likely wider), claims and consumer confidence. However, there will be a slew of speeches and testimonies from Bernanke and regional Fed Presidents, in particular early in the week. Outside the US the key policy event this week will be the BOK meeting with consensus now expecting a hike, whereas GS still thinks on balance that rates will remain on hold. The other important development to watch is China's return from a week-long holiday on Wednesday. With inflation pressures rising and the Government increasingly vocal in promising price stability further tightening measures are possible. China money supply and credit numbers will be particularly interesting in that context. Finally, the Turkish current account data will be interesting given TRY has shown some notable weakness in recent weeks.
Outside the macro data, the rapid sell-off in US rates and the impact on interest rate differentials will likely remain the most watched development for FX investors in the upcoming week. Finally, developments in the Middle East continue to deserve some attention, given the fluidity of the political situation and the potential spill-over into commodity markets.
Australia retail sales (Dec): GS and consensus both expect an increase of +0.5% after +0.3%. Even allowing for a solid rebound in nominal sales in December and the fact that retail prices have actually fallen on the back of extensive discounting, it appears very likely that retail sales volumes actually contracted in the December quarter.
Indonesia GDP (Q4): Consensus expects +6.3%yoy after +5.8%yoy in Q3.
German manufacturing orders (Dec) remain important to assess the strength of the German export machine. We expect some give back after a strong reading in November (GS: -1.0%mom, consensus -1.5%, Nov: +5.2%)
Also interesting: Norway industrial production (Dec: +0.1% mom, consensus: +0.5%)
Japan balance of payments (Dec): Given recent JPY appreciation the Japanese balance of payments may attract more interest than usual, in particular the trends in portfolio equity inflows.
Australia NAB Business Survey (Jan): The survey is likely distorted because of the floods in Queensland.
German industrial production (Dec) has likely been affected by cold weather and snow. We are clearly below consensus. (GS -1.0%mom, consensus +0.2%, Nov -0.7%)
Fed Speeches: Regional Fed Presidents Lacker, Lockhard and Fisher are scheduled to speak.
Also Interesting: Chile January CPI (+0.3% mom, consensus +0.3%), Hungary IP, last day of China’s Luna New Year holiday.
UK labour market (Jan): Given the confusion about the strength of the UK economy with weak Q4 GDP and strong business surveys, the labour market data and the IP due on Thursday will hopefully provide some clarification about the underlying trends.
US Fed Speech: Federal Reserve Chairman Ben S. Bernanke testifies at a hearing of the House Budget Committee on "The Economy, Jobs and the Budget." He is likely to reiterate his concerns that the fiscal policy remains accommodative in the near term but set on a path toward a zero primary balance (ex interest costs) over the long term.
Also interesting: Taiwan January CPI (GS 1.7%yoy, consensus 1.6%), Mexico January core inflation (+0.25% mom, consensus +0.42%)
Australia labour market (Jan):The January employment survey is the first published ABS release that will reflect the difficulty of data collection in flood and cyclone affected areas of Australia over coming months. As such, this month's report is subject to more than the usual amount of uncertainty. GS and consensus expect +15k.
Japan machinery orders (Dec): We forecast machinery orders (private sector excluding shipping and electric power), a leading indicator for capex, to rebound in December after three successive declines, albeit growing only 1.0% mom (Consensus: +5.0% mom)
Philippines central bank decision Bangko Sentral ng Pilipinas is likely to keep both the policy repo and reverse repo rates on hold in the upcoming policy meeting. Inflation stayed flat at 3.5% yoy in January, well within the central bank’s target range of 3.5%-5.5%. We believe this allows the CB to maintain a more accommodative policy setting to support the credit cycle in early-2011.Consensus also expects an unchanged reserve repo rate at 4.0%
China Money and Credit (Jan) Over the next 5 days the usual batch of Chinese money supply and credit numbers will get released. Will the Authorities tighten in response?
China Trade Balance (Jan): As an indicator for global demand, but also as an indicator for underlying appreciation pressures, China’s trade balance will be important to watch. Consensus is looking for a surplus of $10.2bn after $13.1 in December.
UK industrial production (Dec): It will be interesting to see if the IP number for December was affected by bad weather and snow. (GS: +0.5% mom, consensus +0.5%, November +0.4%)
UK MPC decision: GS and consensus expect unchanged rates at 0.5% The Bank’s new forecasts will signal higher medium-term inflation risks and – as Ben Broadbent has pointed out – it is possible that more members will vote to raise interest rates. But the chances of a majority voting for such a move are, in our view, low.
Norway Inflation (Jan) We expect underlying CPI-ATE inflation (which adjusts for tax changes and excludes energy products), to edge up to 1.1%yoy (from 1.0yoy) in line with consensus, but slightly above Norges Bank’s projection at 0.9%yoy. There is evidence to suggest that capacity utilisation might be tighter than assumed in the October MPR and that underlying inflationary pressures are slightly larger.
US weekly jobless claims After the mixed and slightly confusing payrolls report last week, the focus will remain on US labour market data to gauge how quickly the US economy improves.
Also interesting: French IP (Nov), Sweden IP (Dec), Italy IP (Dec).
Korea central bank policy meeting Bank of Korea is likely to stay on hold in February amid hawkish comments, though we do not rule out a surprise hike in the February meeting as was the case in January. Our base case remains for a hike in March. Consensus expects an earlier hike by 25bp to 3.00% at the upcoming meeting.
India industrial production (Dec) We expect easing in yoy momentum for industrial production due to high base effects +1.1% yoy in December, after rising 2.7% yoy in November.
Turkey current account (Dec) Turkey currently has the largest current account deficit across all countries we cover (in percent of GDP), and the external position has likely been a factor in the recent TRY weakness. Consensus expects a further widening in the deficit to -$7.0bn from -$5.9bn in November.
US trade balance (Dec) We expect a widening of nearly $3bn in the trade deficit in December, due to strong import growth. However, this is somewhat narrower than the $4.4bn assumed by the Commerce Department for the goods balance in its preliminary estimate for fourth-quarter growth (GS -$41bn, consensus -$40bn, Nov -$38.3bn).
US consumer confidence (Jan) The advanced reading of the UMich measure is expected to show marginal improvement but to remain far below historic averages (consensus 75 after Dec 74.2).
Also interesting: Taiwan January trade balance, Mexico January industrial production (GS: +0.4% mom), Canada trade balance.
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