A Critical Week For Markets Begins: Preview Of The Main Events

A pivotal, catalyst-filled week for global markets is now underway as investors brace for the second US interest rate hike in 2 quarter, a Dutch election, the expiration of the US debt ceiling deal, the imminent invoking of Article 50 by Theresa May, the first G20 finance ministers' meeting of the Trump era and perhaps the disclosure of Trump's proposed budget.

While the key events on the US economic docket will be retails sales and Wednesday's CPI report, it is the slew of geopolitical and central bank-linked events and announcements which will have a profound impact on capital markets.

The most important, if mostly priced in, event is this FOMC announcement on Wednesday where the February employment report all but confirmed the Fed's view that the US labor market is at or very close to full employment, giving them a bright green light to raise rates at the March meeting and continue its message of further normalization. Traders view a quarter-point Fed hike this week as a virtual certainty and will be watching the central bank’s policy decision for signals on what will come next. Futures indicate the market is moving toward policy makers’ December projection of three rate increases in 2017. It would be the first year with multiple Fed hikes since 2006.

Another key event is the Dutch general election on March whose results should be known on Thursday morning. Focus will be on the performance of the anti-EU, anti-immigration party PVV, and party leader Geert Wilders' pledge to hold a referendum on EU membership. But current polls do not suggest that he is in a position to achieve an absolute majority, or form a governing coalition and take the country out of the EU. The current government will continue in office until a new coalition is formed (that can take weeks, or months). Geert Wilders' Freedom Party, which may be emerge as the biggest party from the elections, is unlikely to join the new government. Whether the perceived populist trend is shaken is the potential surprise.

Also on Wednesday the US debt ceiling limit expires on Wednesday and is due to be reinstated on Thursday absent some last minute breakdown in communication.

Additionally, UK Prime Minister May is expected to invoke Article 50 of the Treaty of Lisbon as soon as Tuesday. This begins the long goodbye from the EU. There is no surprise in the event, though perhaps the EU reaction (apparently they have prepared a reaction) has the potential to surprise.

Elsewhere, President Trump may also reveal his first budget outline for fiscal year 2018 on Thursday.

Speaking of Trump, the world's finance ministers and central bankers convene in the German spa town of Baden-Baden on March 17-18, their first meeting since Donald Trump's U.S. election victory in November where his protectionist stance on international trade is likely to be a key issue.

Then there are the other central banks:

  • The BoJ is expected to maintain the status quo for monetary policy, leaving its long rate and short rate targets unchanged at 0.0% and -0.1%, respectively.
  • The SNB is also expected to take no action. FX intervention will remain the central bank's main policy tool to alleviate some of the pressure on the CHF on Euro area election calendar risks.
  • The BOE is likewise expected to keep rates on hold.

In other data:

  • In the US, beyond the FOMC we have inflation numbers, housing data, industrial production and consumer confidence amongst others.
  • In the Eurozone, focus is on German ZEW and ECB speakers.
  • In the UK, beyond the BoE meeting, we mainly await labor data.
  • In Japan, we get BoJ decision, PPI, machine orders and tertiary index.
  • In Australia, we have labor data. While New Zealand releases GDP and current account.
  • In Scandies, beyond Norway’s C.B. meeting, Sweden releases labor and inflation numbers.
  • In Switzerland, The SNB holds monetary policy meeting on Thursday
  • In China, focus is on retail sales, fixed asset investments and industrial production

A summary of the economic events in the US is shown below:

And a breakdown of all global catalysts in the next few days:

DB's Jim Reid takes us through the week's key events day by day:

It’s a fairly quiet start to proceedings this week with little of interest in Europe this morning and just the labour market conditions index in the US this afternoon.

Tuesday kicks off in China where we’ll get the February retail sales, fixed asset investment and industrial production data. In Europe we’ll get the final February CPI revisions in Germany as well as the March ZEW survey and January IP for the Euro area. Over in the US tomorrow we’ve got February PPI and the NFIB small business optimism reading.

Wednesday starts in Japan where the final January IP revisions are due. Over in Europe we’ll get the final CPI revisions for France in February along with the January/ February employment numbers in the UK. Wednesday is a huge day in the US with February CPI, March empire manufacturing, February retail sales, January business inventories and the March NAHB housing market index all coming before the FOMC meeting outcome in the evening.

Thursday’s early focus will then be on the BoJ policy meeting outcome before the BoE outcome is then due around lunchtime. Data on Thursday includes Euro area CPI and US housing starts, building permits, initial jobless claims, JOLTS job openings and Philly Fed manufacturing index.

We end the week on Friday with Euro area trade data, US IP and the University of Michigan consumer sentiment index for March.

Away from the data the only notable central bank speak this week comes from Draghi this afternoon when he delivers the opening remarks at a conference. The draft Brexit law also returns to the House of Commons today following the House of Lords amendments so that is worth watching. President Trump is also due to meet German Chancellor Merkel at the White House on Tuesday. The other notable event is of course the Dutch election this Wednesday. China’s NPC also concludes on Wednesday while the US debt ceiling limit expires on Wednesday and is due to be reinstated on Thursday. The G20 finance ministers meeting also kicks off on Friday. So plenty to keep us busy.

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Finally, here is Goldman with a breakdown of key US events and consensus estimates:

The key economic releases this week are the CPI and retail sales reports on Wednesday. The March FOMC statement will be released on Wednesday at 2PM.

Monday, March 13

  • There are no major economic data releases.

Tuesday, March 14

  • 06:00 AM NFIB small business optimism index, February (consensus 105.6, last 105.9)
  • 08:30 AM PPI final demand, February (GS +0.1%, consensus +0.1%, last +0.6%); PPI ex-food and energy, February (GS +0.2%, consensus +0.2%, last +0.4%); PPI ex-food, energy, and trade, February (GS +0.2%, consensus +0.2%, last +0.2%): We forecast that headline PPI rose 0.1% in February, reflecting an increase in producer food prices but a retracement in energy prices. We estimate PPI ex-food, energy and trade services rose by 0.2%. Producer prices were stronger than expected in January, as headline PPI increased 0.6% (mom), supported by higher energy prices. Core inflation was also firm, as PPI ex-food, energy and trade services rose 0.2%.

Wednesday, March 15

  • 08:30 AM CPI (mom), February (GS flat, consensus flat, last +0.6%); Core CPI (mom), February (GS +0.15%, consensus +0.2%, last +0.3%) CPI (yoy), February (GS +2.7%, consensus +2.7%, last +2.5%); Core CPI (yoy), February (GS +2.2%, consensus +2.2%, last +2.3%); We expect a below-trend increase in core CPI in February, reflecting a decline in the communications category driven by the release of Verizon unlimited data plans, weakness in used car pricing, and increased discounting at mall-based retailers associated with delayed tax refunds. Our estimate of 0.15% (mom) for core CPI would result in the year-over-year rate decelerating 10bp to 2.2%. Owners’ equivalent rent inflation slowed further last month to +0.24%, a pace roughly consistent with industry sources that have shown deceleration in rent growth throughout 2H16. We look for a stable or modestly higher inflation reading in that category. On the positive side, we expect inflation to reaccelerate in the education and new cars categories, and we also expect a small boost from the partial-month impact of the January 22nd postage price hike (+2¢ for first class mail). Import prices have also firmed in recent months, with a 0.3% increase in import prices excluding fuels in February. Imported consumer goods prices also rose 0.2% for a second month; We expect a decline in seasonally adjusted consumer energy prices to weigh on headline CPI, where we estimate a flat month-to-month reading and a year-over-year acceleration of 20bp to 2.7% (due to base effects).
  • 08:30 AM Retail sales, February (GS -0.2%, consensus +0.1%, last +0.4%); Retail sales ex-auto, February (GS -0.2%, consensus +0.1%, last +0.8%); Retail sales ex-auto & gas, February (GS -0.2%, consensus +0.2%, last 0.7%); Core retail sales, February (GS -0.2%, consensus +0.2%, last +0.4%): We expect a 0.2% drop in February retail sales reflecting significant consumer cash flow disruptions caused by delayed tax refunds, which we estimate affected as many as 25-30 million households. Tax refund distributions converged back to normal seasonal levels by the first week of March, a few weeks after the legal deadline constraining the IRS had passed. However, the sharp pickup in distributions did not begin until after Presidents' Day weekend (Feb 18-20), suggesting that significant cash flow constraints affected millions of households for over half of the month. Additionally, the tax refund shortfall (relative to 2016) still totaled $15bn during the final weekend of February. Broadly disappointing same store sales reports from mall-based retailers provide additional evidence of the severity of the impact, in our view. On the positive side, non-store sales seem likely to pick up after a rare decline last month, though the same logic regarding consumer cash flow constraints suggests any rebound should be fairly muted. Factoring in these considerations, we estimate the key retail control gauge declined 0.2% (mom) following +0.4% in January. We also forecast a 0.2% decline in headline retail sales, as well as in the ex-auto and the ex-auto ex-gas components.
  • 08:30 AM Empire manufacturing survey, March (consensus +15.0, last +18.7)
  • 10:00 AM Business inventories, January (consensus +0.3%, last +0.4%); Consensus expects business inventories to increase 0.3% in January, following an increase of 0.4% in the December report.
  • 10:00 AM NAHB housing market index, March (consensus 65, last 65); Consensus expects the NAHB homebuilders’ index to remain at 65, following a 2pt decline last month. While the softening was fairly broad-based, the index remains not far from cycle highs.
  • 2:00 PM FOMC statement, March 14-15 meeting: As discussed in our FOMC Preview, we expect the FOMC to raise the target range for the funds rate by 25 basis points at the March meeting. In the post-meeting statement, we think the committee is likely to indicate that risks to the outlook are “balanced” (compared to “roughly balanced” previously). In the Summary of Economic Projections (SEP), we look for: (1) slightly higher median estimates for 2018-19 GDP growth; (2) unchanged unemployment projections but a slight upgrade to the 2017 core inflation projection; and (3) unchanged median dots for the funds rate, though risks are tilted to the upside.
  • 04:00 PM Total Net TIC Flows, January (last -$42.8bn)

Thursday, March 16

  • 08:30 AM Housing starts, February (GS +2.5%, consensus +1.1%, last -2.6%); Building permits, February (consensus -2.6%, last +5.3%): February weather featured unseasonably warm temperatures and below-average snowfall. Additionally, a sharp 58k rise in construction jobs is suggestive of an early start to the spring building season. Accordingly, we expect a 2.5% rise in housing starts, reversing the 2.6% pullback in January. We also believe favorable single-family fundamentals should help mitigate the negative impact of higher interest rates.
  • 08:30 AM Initial jobless claims, week ended March 11 (GS 240k, consensus 240k, last 243k); Continuing jobless claims, week ended March 4 (consensus 2,053k, last 2,058k): We expect initial jobless claims to edge down 3k to 240k, after rebounding sharply last week due to the reversal of temporary factors – specifically, the timing of New York school holidays and automotive plant shutdowns. Accounting for temporary factors, the trend pace of initial jobless claims continues to drift lower, and we also note the year-to-date improvement in several energy-producing states, where claims remained low again last week.
  • 08:30 AM Philadelphia Fed manufacturing index, March (GS +30.0, consensus +28.0, last +43.3): We expect the Philadelphia Fed manufacturing index to retrace lower to +30.0 in March, after unexpectedly jumping to a 33-year high of +43.3. The index is likely to remain at levels suggestive of moderate expansion in manufacturing activity.
  • 10:00 AM JOLTS job openings, January (consensus 5,562, last 5,501)

Friday, March 17

  • 09:15 AM Industrial production, February (GS +0.3%, consensus +0.2%, last -0.3%); Manufacturing production, February (GS +0.4%, consensus +0.4%, last +0.2%); Capacity utilization, February (GS +75.6%, consensus +75.5%, last +75.3%): We expect industrial production to increase 0.3% in February, likely reflecting a pickup in motor vehicle production and manufacturing production. Manufacturing production is likely to increase 0.4%, following a 0.2% rise in January. In the January report, industrial production fell 0.3%, mostly reflecting a weather-related drop in utilities.
  • 10:00 AM University of Michigan consumer sentiment, March preliminary (GS 97.5, consensus 97.0, last 96.3); We expect the University of Michigan consumer sentiment index to rebound in March after pulling back 2.2pt last month from a cycle high of 98.5. Our forecast of a 1.2pt rise to 97.5 reflects further improvement in consumer surveys in late February and early March. The Conference Board’s consumer confidence index also rebounded in February to a new 15-year high.

Source: GS, BofA, DB