Key Events In The Coming Week
In addition to telling everyone to short the euro and go long the dollar (wink) Goldman Sachs is kind enough to summarize what the recurring Eurocentric rumor-based headlines of the coming week will be.
From Goldman Sachs
This past week brought a powerful reminder to the markets of just how dovish key players at the Fed remain, with the FOMC statement essentially doubling the conditional commitment period for the Fed Funds target range and Chairman Bernanke sounding quite open to further unconventional policies if the recovery remains weak. The advanced Q4 GDP print on Friday played into a weak recovery, with a strong contribution to growth from inventories casting doubt over the strength of growth in Q1.
With the Fed once again signaling its dovish stance, and with overall FX positioning remaining very close to max long USD on our metrics, the dominant theme for the week continued to be a recovery in high-beta currencies against USD, a theme that has prevailed since the start of the year (Figure 1). Even with the recent rebound in high-beta FX, many of these currencies remain significantly weaker than their mid-2011 levels (Figure 2), so that there is certainly plenty of room for the recent rally to continue. In the wake of the FOMC, and with relatively positive developments in Europe ahead of this Monday's EU Heads of State summit, we are very much in this camp, and recommended three tactical USD shorts this week against EUR, CAD, and MXN.
The week ahead starts with the EU Heads of State Summit, where discussions will be focused on finalizing negotiations around the fiscal compact, where we think important progress has been made, not least by allowing individual countries to police each other's budget policies. Attention will also be squarely focused on Greece, where negotiations over PSI continue, in addition to negotiations between the Troika and the government. The IMF mission is scheduled to remain in Athens at least through Friday. The week also brings important bond auctions, starting with Italy on Monday (at 5- and 10-year tenors), followed by France and Spain on Thursday. Outside of Europe, key data include the slew of global PMI's on Wednesday. Consensus sees China's PMI slipping below the 50 threshold in January. We are slightly more cautious than consensus on the ISM, expecting an essentially unchanged reading. The week ends with the all-important nonfarm payroll release. We think nonfarm payroll growth probably slowed somewhat in January given less of a boost from favorable weather and seasonal factors. However, we think the pace of employment growth, combined with weak labor force participation, may still be enough to pull the unemployment rate down a touch.
Monday Jan 30th
Philippines GDP (Q4). We expect the Philippines’ Q42011 real GDP to grow 4.0% yoy, compared to 3.2% yoy growth in the previous quarter. Weak exports continue to weigh on growth, while resilient domestic consumption provides some buffer. Consensus expectations stand at 3.8% yoy.
EU Heads of State Summit
Italy bond auction
US Core PCE Price Index (Dec). We expect the year-over-year rate of core PCE growth to peak at 1.8% in this report, just below the Fed’s formal target for (headline) PCE inflation. Consensus expects an unchanged reading of 1.7% yoy.
Tuesday Jan 31st
Taiwan GDP (Q4). We expect Taiwan’s Q42011 real GDP growth to slow to 3.0% yoy, down from 3.4% yoy in Q32011 on the back of weak exports. Consensus is for 2.8% yoy growth.
Korea Industrial Production (Dec). We expect industrial production to rebound given the strong exports in December. Flash GDP data for Q42011, however, suggests that services output was weak. Consensus expects 4.1% yoy growth, down from 5.6% yoy in November.
Malaysia Central Bank Meeting. We expect Bank Negara Malaysia to keep the policy rate on hold at 3.00%. The Bloomberg consensus expectation is also for the policy rate to stay at 3.00%.
US Chicago PMI (Jan). We expect a reading of 61.0, below consensus of 63.0 and down from December (62.2).
Wednesday Feb 1st
Korea CPI (Jan) We expect headline CPI inflation to rise sequentially on the Lunar New Year effect and increases in medical insurance fees, but to grow less than in January 2011. We expect inflation to decline below 4.0% yoy in January from 4.2% yoy in December. Consensus expects a reading of 3.6%.
Korea Trade Balance (Jan) We expect January exports growth to slow to high-single digit compared to a year ago, given the weak 20-day exports data and the Lunar New Year effects. We also expect the trade balance to be in deficit on weak exports and seasonally-strong energy imports. Consensus expects export growth to slow to 1.2% yoy in January, down from a revised 10.8% in December.
Global PMI's (Jan) Consensus expects China's official PMI to dip back below 50 in January, to a reading of 49.6 from a December reading of 50.3. Consensus for the final Euro zone PMI is for an unchanged reading of 48.7 from the flash release for January.
US ISM (Jan) We expect the ISM manufacturing and nonmanufacturing indices to be roughly stable in January, reflecting ongoing moderate growth in economic activity. Our forecast is for 54.0 from 53.9 in December. Consensus expects 54.5.
Thursday Feb 2nd
France and Spain bond auctions
US initial claims (Jan 28) Consensus expects a reading of 370k, against the previous reading of 377k.
Bernanke testifies before House Budget Committee
Friday Feb 3rd
US Nonfarm Payrolls (Jan) We expect a reading of 125k, below consensus which is at 150k, and down from 200k in December. We expect the unemployment rate to remain unchanged at 8.5%, in line with consensus
US ISM Non-manufacturing (Jan) We expect a reading of 53.0, below consensus of 53.3 but up from the December reading of 52.6.
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