Previewing The Key Macro Events In The Coming Week
In the upcoming week the key focus on the data side will be on US payrolls, which are expected to be broadly unchanged and the services PMIs globally, including the non-manufacturing ISM in the US. Broadly speaking, global services PMIs are expected to remain relatively close to last month's readings. And the same is true for US payrolls and the unemployment rate. On the policy side there is long lost with policy meetings but we and consensus expect no change in any of these: RBA, BoJ, Malaysia, Indonesia, ECB, Poland, BoE, BoC, Brazil, Mexico. Notable macro issues will be the ongoing bailout of Cyprus, the reiteration of the OMT's conditionality in the aftermath of Grillo's and Berlusconi's surge from behind in Italy. China's sudden hawkishness, the BOE announcement and transition to a Goldman vassal state, and finally the now traditional daily jawboning out of the BOJ.
- China Services PMI (Feb): The non-manufacturing Purchasing Managers’ Index fell to 54.5 in February from 56.2 in January.
- Confirmation Hearing for BOJ Leadership Nominees: Given how much FX markets focus on potential policy changes at the BOJ after the nomination of the new leadership, the confirmation hearing could become an important driver of the JPY.
- Also interesting: Fed Yellen Speech, Spanish unemployment (Feb), UK Hometrack house prices (Feb), UK Construction PMI, Turkey consumer prices (Feb).
- Global Services PMIs (Feb): Broadly speaking, global services PMIs are expected to remain relatively close to last month's readings.
- US Non-Manufacturing ISM (Feb): Consensus expects 55.0 after 55.2 in Jan.
- RBA Meeting: The strong consensus view is that the RBA will retain a 3.00% cash rate at its March meeting, albeit with an explicit easing bias intact. Financial markets also perceive the RBA to be in ‘wait and see’ mode – ascribing just an 18% chance of a rate reduction this Tuesday.
- Also interesting: Taiwan and Philippines CPI, Fed Lacker Speech, Australia Balance of Payments (Q4) and Retail sales (Jan).
- US Factory Orders (Jan): Consensus expects -2.2% mom after +1.8% in Jan.
Australia GDP (Q4): We currently expect GDP growth of +0.5% qoq - as rising consumption, housing construction & net exports, offsets weakness in company profits & business investment. In contrast, current RBA forecasts imply stronger growth of +1.2% qoq in the quarter. Consensus expects a +0.6% qoq growth.
- Brazil central bank policy meeting: GS and consensus expect unchanged SELIC at 7.25%.
- Poland monetary policy meeting: We continue to think that the Polish MPC will keep the base rate on hold, at 3.75%. This is more hawkish than market pricing, which suggests around 60% probability of a cut next week and around 50bps more in cuts until end-2013. Consensus is skewed to another 25bps cut in March.
- BoC monetary policy meeting: GS and consensus expect unchanged rates at 1.00%
Also interesting: Fed's Beige Book, Fed Fisher and Plosser Speeches, ADP Employment Change (Feb), Eurozone GDP (Q4)
- BOJ Meeting: Ahead of the leadership change and after the increases in the APP announced at the previous meeting, we do not expect any mayor change at this meeting.
- ECB Meeting: Consensus expect no change in policy, some expect a 25 bps rate cut.
- BoE Meeting: Consensus expects no change in BoE policy at this meeting. Goldman expects the Bank of England to engage in further easing in the coming months, in line with the arrival of its very own Mark Carney's "but this is likely to come through credit easing initiatives, which would likely be announced in conjunction with “other UK authorities”.
- US Trade Balance (Jan): Consensus expects a $43bn deficit after $38.5bn in December.
- Also interesting: Australia, Chile and Taiwan Trade data, US Weekly Claims, Fed supervisory stress test, Hungary IP, Brazil IP, Mexico inflation, Japan GDP (revised).
- Japan Balance of Payments (Jan): Customs-cleared trade data for January showed exports up 6.4% yoy, the first rise in eight months. Meanwhile, imports rose 7.3%, resulting in a ¥1.6 tn trade deficit. the income account balance remained around a ¥1 tn surplus while the service account showed a somewhat larger deficit yoy. As a result, the current account in January would be -¥768.5 bn, the largest deficit within a statistically comparable timeframe (i.e. since 1985).
- China Trade Balance (Feb): Exports and imports growth will likely fall substantially as the Chinese New Year distortions get reversed.
- US Non-farm Payrolls (Feb): Consensus expects +160k after +157k in Feb. GS expects +150k. GS and consensus expect the unemployment rate to remain unchanged at 7.9%.
- Mexico central bank policy meeting: In our view the MPC will likely wait for more data in order to ascertain whether the current disinflation trend continues and consolidates, and also whether domestic demand will require monetary stimulus. As such, we expect the central bank to hold this week, but assess very close to a 50% probability of a 50bp-75bp once-off rate cut between late April and early July.
- Also interesting: China Money Supply and Loan Data (Feb).
The same data as the Goldman summary above, from the visual perspective of SocGen:
And again from SG, here are the Top Issues for the week ahead:
EUROGROUP TO REITERATE GERMAN DIET
Monday’s Eurogroup meeting (ahead of the 14-15 March EU Council) is set to discuss a bailout for Cyprus, but with still apparent divides over the shape of a bailout (and notably whether bank depositors should take losses), the risk is that no final agreement will be reached this week. When we log in to watch the press conference (with the indicative starting time of 19h00 CET) we’ll be looking for any hints of additional softening in what we long ago termed the “German Diet” of austerity and structural reform. Our expectation is there will be none, which will be a clear message to Italy’s future government.
MARKET ISSUES: The euro debt crisis has no easy overnight fix. Last year, the spring brought a reality check on just what the LTRO could and could not achieve. It seems that the time has now come for one on the OMT.
OMT HAS CONDITIONALITY, BUT THE ECB CAN DO MORE
Market consensus (and our own view) is that there will be no tangible action at this week’s ECB meeting. The press conference, however, will be given close scrutiny. We expect President Draghi to deliver the simple message that OMT comes with the strict conditionality of an ESM programme, but when it comes to the economy and banks the ECB could do more with a potential future rate cut and additional LTROs.
MARKET ISSUES: This message should come as no surprise, but the reminder that the OMT comes with full-blown ESM conditionality is never agreeable. We expect the March Sentix investor sentiment reading to post a greater-than-consensus decline (to ?8.0), indicating that already sentiment has suffered in the fallout from the Italian election.
CHINA TO BE LESS DOVISH ON SHORT-TERM STIMULUS
The slogan “making progress while maintaining stability” set at the Central Economic Work Conference in late 2012 is set to dominate the National People’s Congress (NPC) from 5 March to 17 March. We expect the 7.5% GDP growth and 4% CPI targets to be maintained, but broad money growth may be lowered to 13-13.5% from 14%. If confirmed, this would lend further support to Wei Yao’s view of more pre-emptive monetary policies and thus less upside to economic recovery. On structural reform, the NPC is a venue more for setting frameworks, rather than concrete measures. Nonetheless, two measures should be voted on: (1) an amendment to the land management law to give a greater slice of land sale revenues to farmers and (2) a proposal to merge the troublesome Ministry of Railways into the Ministry of Transport.
MARKET ISSUES: Hopes of more short-term policy stimulus are set to be disappointed, but a more aggressive stance on structural reform should be reassuring for long-term stability.
US SILVER LINING
Midnight Friday the sequester kicked in and, with that, $85bn of cuts. Our forecast already discounts about half the cuts and we still see some chance for some of the cuts to be legislated away. The silver lining, as highlighted in this week’s US Focus, is that this will ease market fears of an early QE exit and all the more so coupled with Ben Bernanke’s dovish testimony last week. On the data front, the February employment report is centre-stage and we look for +225K non-farm payrolls – the highest reading in three months. MARKET ISSUES: Signs of housing recovery coupled with increased clarity on the policy front
should pave the way for a sustainable recovery. The sweet spot will be the combination of continued QE and better economic news.
TEMPTING, BUT NO BOE ACTION THIS WEEK
Cracks in the MPC voting, as we have seen of late are typically a sign that a policy change is imminent. We expect that the more worrying inflation profile, further exacerbated by sterling weakness since the UK downgrade will keep the BoE on hold this week. Moreover, the February Inflation Report would have been a more opportune timing for a move.
MARKET ISSUES: Expectations are set to remain in place for further BoE easing action – all the more so as Mark Carney’s arrival date approaches.
BOJ AWAITS ITS NEW LEADER
We see no action from the BoJ this week ahead of the upcoming leadership change. Focus now is on the nomination process as Prime Minister Abe seeks parliamentary support for his candidate, Mr Kuroda.
MARKET ISSUES: As we discussed in BoJ's challenge for a regime change, we expect the new BoJ leadership to be one fully supportive of Abeconomics and expect to see a substantial expansion of monetary.
RBA ON HOLD
RBA Governor Stevens noted in his recent testimony that there is already considerable stimulus in the pipeline. Moreover, AUD depreciation is an additional argument against easing this week. We do, however, expect the RBA to maintain a dovish tone.
MARKET ISSUES: No change from the RBA is the market consensus. The global mood on risk is set to be the more important driver this week.
CBR ON HOLD
Although recent economic news has been unimpressive, the Central Bank of Russia appears concerned by accelerating inflation and, although Chairman Ignatiev expects to see a decline in inflation over the coming months, we see no change in the policy stance this week.
MARKET ISSUES: We continue to see room for a future rate cut.
Source: Goldman, SocGen
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