The most notable event in this traditionally quiet post-payrolls week is Janet Yellen's Humphrey Hawkins testimony before Congress set for mid-week. In terms of economic data releases, the US retail sales (Exp. 0.05%) is on Thursday and consumer sentiment survey is on Friday (consensus 80.5). We also have IP numbers from Euro Area countries and the US. Most recent external account statistics are released from Japan, China, India and Turkey. It is also interesting to track CPI data in Germany, Spain and India, given the ECB and RBI currently face diverging inflation challenges and may be forced into further action. Finally, we have Q4 GDP data from the Euro Area economies (Friday).
Monday, 10 February
- Israel MPC minutes
- France IP (Dec): consensus +1.0%yoy, previous +1.5%yoy
- Italy IP (Dec): previous +1.4%yoy
- Also interesting: Japan Consumer Confidence (Jan), Canada Housing Starts (Jan), Taiwan Trade Balance (Jan), Romania Trade Balance (Dec)
Tuesday, 11 February
- US Fed speakers: Yellen (FOMC voter) presents (semi-annual) monetary policy report to House Financial Services Committee
- Japan Tertiary Industry Index (Dec): consensus -0.2%mom, previous +0.6%mom
- Japan Machinery Orders (Dec): consensus -4.0%mom, previous +9.3%mom
- Also interesting: US Wholesale Trade (Dec), Israel Trade Balance (Jan), Philippines Trade Balance (Dec)
Wednesday, 12 February
- UK BoE Inflation Report. We expect the MPC to replace its existing forward guidance framework with one based on a broader range of variables, perhaps with a greater emphasis on wage developments.
- US Fed speakers: Bullard (FOMC non-voter), Lacker (FOMC non-voter)
- US Federal Budget Balance (Jan): consensus USD-28.5bn, previous USD+53.2bn
- Euro Area ECB speakers: Draghi, Praet
- Euro Area IP (Dec): consensus +1.6%yoy, previous +3.0%yoy
- China Trade Balance (Jan): consensus USD+22.35bn, previous USD+25.6bn
- India CPI (Jan): consensus +9.5%yoy, previous +9.9%yoy
- Also interesting: Japan Corporate Goods PI (Jan), Switzerland CPI (Jan), India IP (Dec), Czech Republic CA Balance (Dec), Poland CA Balance (Dec)
Thursday, 13 February
- US Fed speakers: Yellen (FOMC voter) presents monetary policy report to Senate Banking Committee
- Sweden MPC: consensus has policy (repo) rate unchanged at 0.75%
- Indonesia MPC: consensus has policy rate unchanged
- South Korea MPC: consensus has policy rate unchanged at 2.50%
- Peru MPC: GS has policy rate unchanged at 4.00%
- US Retail Sales (Jan): consensus +0.0%mom, previous +0.2%
- US Business Inventories (Dec): consensus +0.4%, previous +0.4%
- US Initial Jobless Claims: consensus 330K, previous 331K
- Germany Harmonized CPI (Jan, final): GS +1.2%yoy, consensus +1.2%yoy, previous +1.2%yoy (flash)
- Turkey CA Balance (Dec): consensus USD-7.60bn, previous USD-3.94bn
- Also interesting: UK RICS Housing Market Survey (Jan), Canada New Housing Price Index mom (Dec), Argentina CPI (Jan)
Friday, 14 February
- Russia MPC: Consensus has policy rate unchanged at 5.50%. The CBR is expected to shift toward a more hawkish bias, emphasizing risks to inflation expectations from the recent Ruble depreciation and the need for tighter monetary policy in order to meet medium-term inflation targets.
- Mexico MPC minutes (Jan)
- Colombia MPC minutes (Jan)
- US U. of Michigan Consumer Sentiment (Feb, prov.): consensus 80.5, previous 81.2
- US Industrial Production (Jan): consensus +0.2%, previous +0.3%
- US Capacity Utilization (Jan): consensus 79.3%, previous 79.2%
- Euro Area GDPs (Q4): previous +0.1%qoq
- China CPI (Jan): consensus +2.4%yoy, previous +2.5%yoy
- China PPI (Jan): consensus -1.6%yoy, previous -1.4%yoy
- Spain Harmonized CPI (Jan, final): previous +0.3%yoy (flash)
In table format:
Finally, the key issues and concerns for the coming week:
LOOKING FOR US FORWARD GUIDANCE CLUES
At 6.6% in January, the US unemployment rate is now close to the 6.5% the Federal Reserve initially set out in its forward guidance. The Fed already softened this guidance in December, noting that “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal”.
When Chairman Yellen testifies before both House and Senate committees this week, markets will be watching closely for clues as to how the Fed could further reformulate its guidance. Last week, Boston Fed President Rosengren suggested placing emphasis on the broader measures of unemployment. Richmond President Lacker, for his part, hinted that greater emphasis on the Fed?s own summary of economic projections could be an option. The FOMC next meet on 18-19 March.
BOE TO UPDATE FORWARD GUIDANCE
The framework was only launched last year alongside the August Inflation Report. The original predictions of the unemployment rate contained in that report forecast that the 7% threshold would not be reached over the three year forecast horizon. It falls to 7.1% by Q3 2015 and then stays at that level for the next year. In the revised November forecasts, the rate falls to 7% by Q4 2014 and then continues falling to 6.6% by Q4 2016. Moreover, since November the rate has fallen to 7.1% and we expect the 7% figure to be reached within the next few months.
This confronts the MPC with the urgent task of updating its forward guidance. Although the MPC was careful to emphasise from the outset that the threshold was only a staging post at which to reassess the state of the economy, rather than a trigger point for rate increases, the market ignores such nuances. The market concludes that the first rate increase cannot be long delayed. We disagree with that view because it misunderstands the nature of forward guidance. The unemployment rate forecast in conjunction with the threshold is simply a signalling device to tell the markets, and at least as important the public, that it has no intention of raising rates until it is sure the state of the economy warrants it, i.e. not yet.
So the framework needs to be updated and Carney told us in his Davos comments that this update would ?begin? in the Inflation Report. We see the main options as being:
1. Most likely! Drill down into the labour market to specify a broad range of labour indicators to monitor ? this could be sold as an extension or development of the current approach.
2. Lower the threshold ? unlikely as the unemployment rate keeps catching out the MPC and Weale is opposed to the idea.
3. Publish MPC members’ individual forecasts of the date of the first rate increase ? this is attractive but the Court of the Bank of England is opposed to individual forecasts.
4. Publish a median forecast of members’ rate forecasts or a rate path ? runs contrary to the analysis in the original guidance document.
5. Mervyn King forward guidance ? i.e. go back to the pre-Carney approach. This is unlikely to be acceptable as it would acknowledge that introducing forward guidance was a mistake.
We see option (4) as most likely.
EURO AREA Q4 GDP AT STALL SPEED
We expect France to be the strongest link on GDP growth clocking in at 0.4% qoq in Q4 and proving that PMI indicators must be taken with a pinch of salt when it comes to forecasting output. Germany is expected to post a gain of 0.2%, the same number as the euro area aggregate. Overall, this is still a story of a very weak recovery as highlighted by ECB President Draghi.
BOK ON HOLD
In line with consensus, we expect the Bank of Korea to keep rate unchanged at 2.5% this Thursday. Recent economic data have been somewhat better than feared. Combine this with recent turmoil in EM markets and the arguments stack up against a move this week. Low inflation will nonetheless keep hopes of future rate cuts alive with the January headline at just 1.1% (core 1.7%). Our view remains for rates to stay on hold in 2014.
NO MOVE, BUT WATCH CBR PRESS CONFERENCE
Although the domestic economy warrants a rate cut, currency weakness, the recent tumult in EM and fears of inflation pass-through will keep the CBR on hold this week. The 14 February will nonetheless offer a press conference which should offer some interest. We expect the CBR to remain on hold during the first half of 2014
and only see scope for a cut during the second half of the year.
Source: Goldman, BofA, Socgen