Main Macro Events This Week
“All politics is local,” quipped Tip O’Neill. But, as seen in recent election results, politics have become a very global affair and have underscored President Obama’s line, “elections have consequences.” Indeed, politics have dominated the landscape since the June 24 Brexit surprise and then the November 8 Trump shocker. So far, the ramifications have been a boon for investors as expectations for a more business friendly environment have manifest in hefty equity gains. While politics will remain a major risk ahead, especially with Brexit negotiations on the immediate horizon, and upcoming elections in the Netherlands (March 15), France (April 23) and Germany (September 24), monetary policy will be at the forefront this week as Fed Chair Yellen presents her Monetary Policy Report (Tuesday).
United States: Fed Chair Yellen should headline this week when she goes the Senate Banking Committee (Tuesday), after which she’ll go to the House Financial Services Committee (Wednesday). Key for the markets will be her outlook on the normalization path, including the balance sheet. The data calendar will be of importance too, led by January CPI and retail sales, which will have longer run implications for Fed policy. Production and housing figures also awaited (all due Wednesday). Price pressures have been on the rise as oil prices have stabilized higher, though the trajectory is still rather shallow, thanks in part to the firmer dollar. Remember too that the February 1 FOMC statement even dropped its mention of transitory effects capping inflation. CPI is forecast rising 0.4%, thanks to higher energy costs, with the core rate up 0.2%. Retail sales are expected to inch up 0.1% in January versus December’s 0.6% jump. February manufacturing reports also are due this week. The Empire State manufacturing index (Wednesday) is projected rising 2.5 points back to 9.0 after slipping 1.5 points to 6.5 in January. The Philly Fed index (Thursday) should tumble to 15.0 after increasing 3.9 points to 23.6 in January, which was the strongest since December 2014. January housing starts (Thursday) should hold steady at the 1.226 mln pace, after rebounding 11.3% to that rate in December. The February NAHB homebuilder sentiment survey is also on tap (Thursday).
Canada: The Canadian calendar has manufacturing and housing data feature on this week’s docket. The January Teranet/National Housing Price Index is due Tuesday. January existing home sales (Wednesday) are projected to expand 3.0% y/y after the 5.0% y/y drop in December. The international securities transactions report for December is due Friday. The Bank of Canada is silent this week. Prime Minister Trudeau meets President Trump in Washington D.C on Monday.
Europe: As pressure on the EU and Eurozone increases and political risks from the inside and outside mount it seems officials are trying to close ranks, at least on the monetary front. ECB’s Mersch signaled that the central bank may drop the reference to the possibility of another rate cut, while Germany is scaling back its ambitions to get the G20 to push for less accommodative policies. Both moves may reflect pragmatic decisions in the light of strong data and a changed global political landscape, but they also bring Draghi and Merkel closer together. At least current leaders seem eager to try and convince the world that while differences of opinion remain, they will fight hard to keep Europe’s unions together beyond what is promising to be a challenging year.
The raft of data releases this week will mainly be backward looking and confirm the picture of an ongoing recovery and rising inflation. The most interesting number may be German ZEW investor confidence for February, which will show how unsettled investors are by the mounting political risks and the growing tensions between the new U.S. administration. The data is releases on Tuesday, which will include German and Eurozone Q4 GDP numbers as well as final German inflation data for January. Italian GDP meanwhile continues to trail behind and expected to be unchanged. This combination should see overall Eurozone Q4 GDP confirmed 0.5% q/q, with domestic demand the main driving factor as the ECB continues to lend a helping hand. The full calendar also includes Eurozone production, trade and current account data for December, but with the focus on the Q4 GDP numbers these are unlikely to move markets or change the outlook. There is also ECBspeak from Nowotny and Coeure, which will be scrutinized for a change in tone.
UK: The UK calendar is highlighted by January inflation data (Tuesday), where a rise in the headline rate to 1.9% y/y is expected, after 1.7% y/y in December. In-line data would be consistent with BoE projections, based on y/y gains in energy prices and the significant y/y decline in sterling. The central bank reaffirmed in the February edition its quarterly Inflation Report that it expects CPI to top out at 2.8% y/y in the first half of 2018. Hawkish-leaning BoE MPC member Forbes subsequently warned that the inflation risks might be higher than the BoE’s projections suggest, although she also said that growth risks might quickly resurface when EU exit negotiations start next month. The monthly labor market report is also due (Wednesday), covering November and January. The headline claimant count is expected to rise by 1.1k in December after falling 10.1k in November. The official November ILO unemployment rate is expected to continue at the cycle low of 4.8%. Average household income in the three months to November is expected at 2.8% y/y growth, unchanged from the rate seen in the prior month. Official retail sales data for January is also up on Friday.
China: China’s docket starts with January loan growth and new yuan loan reports (tentatively Monday) with the former seen up 13.6% y/y from 13.5% y/y, and the latter expected up CNY 2,000 bln from 1,040 bln. January CPI (Tuesday) is expected to heat up to 2.4% y/y from 2.1% y/y, while PPI is seen accelerating to 6.0% y/y from 5.5% y/y in December
Japan: The preliminary Q4 GDP (Monday) is expected at 1.0% y/y, slowing slightly from the 1.3% Q3 outcome. Revised December industrial production (Tuesday) is on tap too. It slipped to a 3.0% y/y pace after bouncing 4.6% y/y in November.
Australia: The calendar has employment (Friday), expected to show a 15.0k gain in January after the 13.5k rise in December. The unemployment rate is seen at 5.8% in January, matching the December reading. The Reserve Bank of Australia’s Head of Economic Analysis Department Alexandra Heath speaks and participates in a panel at the Australian Business Economists (ABE) Forecasting Conference, Sydney (Tuesday). Assistant Governor (Economic) Luci Ellis participates in a panel at the 2017 Australasian Housing Researchers Conference, Melbourne (Wednesday).
New Zealand: This week’s calendar has retail sales (Friday), expected to improve 1.1% in Q4 (q/q, sa) after the 0.9% increase in Q3. The next meeting of the Reserve Bank of New Zealand is on March 23rd. The bank held the OCR steady at 1.75% last week, matching expectations.
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