The old notion of the “new normal” has been turned on its head in the months since Brexit and the Trump election. The slow growth, secular stagnation theme has been morphing into one of rising animal spirits and a reflation trade that could eventually manifest into a global cyclical upturn. And thus, the FOMC is readying its third-rate hike, while the ECB is subtlety shifting toward a neutral stance. Meanwhile, the rise of populism and the heightened political uncertainties will remain a major risk to the more optimistic outlook.
United States: In the U.S., the FOMC takes center stage and is universally expected to hike rates another 25 bps to a 0.75% to 1.00% policy band. This would be the third tightening of the cycle. And it appears that the FOMC is ready to begin the normalization process in earnest. Key for the outlook will be the Fed’s dot plot, as well as any discussion regarding the balance sheet. Given the improved data and more hawkish rhetoric, it’s likely the Fed will confirm its three-tightening dot plot from December, and we expect additional 25 bps moves in June and September. There is risk the central tendency forecast shifts to four hikes this year. Along with the FOMC, the data slate is heavy with several important reports. CPI (Wednesday) and retail sales (Wednesday) headline as they are key factors in the policy equation. February CPI is expected to be unchanged after a 0.6% surge in January. The March Empire State (Wednesday) and Philly Fed manufacturing (Thursday) surveys are likely to show a slower pace of expansion than seen in February. The Fed’s February industrial production release (Friday) is expected to show a 0.2% bounce thanks to the solid indications from the nonfarm payroll report. Housing reports are also due too, including the NAHB homebuilder survey for March (Wednesday). It’s dipped in January and February from 69 in December, the highest since 2005. February housing starts (Thursday) are seen bouncing to a 1.255 mln, while consumer sentiment (Friday) should rise further to 97.0 in March after edging up 0.6 points to 96.3 in February.
Canada: Canada’s docket of economic data and events is thin this week. The only top tier report is manufacturing (Friday). The ponderously named National Balance Sheet and Financial Flow Accounts is released Wednesday. The report contains the household debt ratio, which we suspect saw another record high in Q4. February existing home sales (Wednesday) and the February Teranet/National Bank home price index (Tuesday) are also due out.
Europe: Data releases this week mainly focus on final February inflation numbers, but also include the first confidence reading for March in the form of the German ZEW (Tuesday). The investor confidence reading underperformed other sentiment numbers in February and expected to bounce back somewhat this month to 13.2 from 10.4. Against that, Eurozone industrial production numbers for January (Tuesday) will seem too backward looking to change the outlook. Final February inflation data, meanwhile, is not expected to hold major surprises and a confirmation of the French reading (Wednesday), the Spanish (Tuesday), the German HICP (Tuesday) and the Italian HICP (Wednesday), is expected, which is in line with consensus and would leave the overall Eurozone rate (Thursday) at 2.0%. This is in line with the ECB’s upper limit for price stability. But, the uptick is mainly driven by oil prices and base effects, and with core inflation still low at just 0.9% y/y, the data is not sufficient to prompt a radical change in ECB policy.
UK: The calendar features the March BoE Monetary Policy Committee meeting (announcement and minutes due Thursday), which is widely expected to leave the repo rate at 0.25% and QE settings unchanged, both by unanimous vote. Data releases this week are thin on the ground, highlighted by the monthly labour market report (Wednesday), which expected to show the unemployment rate remaining unchanged at the cycle low of 4.8%.
Japan: The BoJ announces its policy intentions on Thursday after its 2-day meeting. No policy changes are expected, keeping short term rate at -0.1%, and targeting a zero yield for 10-year bond. The bank is likely to maintain a wait and see stance to see how the modest recovery pans out. As for data, revised January industrial production is due Wednesday.
Australia: Australia’s calendar is highlighted by the employment report (Thursday), which is expected to reveal a 10.0k gain in February after the 13.7k rise in January. The unemployment rate is projected at 5.7%, matching the 5.7% rate in January. Reserve Bank of Australia Assistant Governor (Financial System) Bullock speaks at the Bloomberg Breakfast (Tuesday).
New Zealand: New Zealand’s calendar has Q4 GDP (Thursday), expected to show a 0.8% gain (q/q, sa) after the 1.1% growth rate in Q3. The current account (Wednesday) is anticipated to narrow to NZ$2.5 bln in Q4 from NZ$4.9 bln in Q3. The next meeting of the Reserve Bank of New Zealand is on March 23rd. We expect RBNZ to hold the OCR steady at 1.75%.
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