Week In Focus: The Acronyms Dominate The Week, As FOMC, NFP & NAFTA Headline
Tuesday: Eurozone GDP (Q4, P)
Wednesday: FOMC MonPol Decision, Canadian GDP (Nov), Eurozone CPI (Jan, P), Australian CPI (Q4)
Friday: US Labour Market Report (Jan)
Monday will bring the release of the US PCE price index, alongside the personal consumption & income data (all for the month of December). Analysts look for core PCE to register a steady 1.5% in Y/Y terms, with personal income seen steady at 0.3% M/M.
The Federal Open Market Committee (FOMC) will issue its first monetary policy decision of 2018 on Wednesday. The Fed’s voting composition looks a little more hawkish this year with Mester (hawk), Williams (hawkish) and Barkin (unknown but presumed hawkish) all rotating on, although Bostic (dovish) adds some balance to the debate. UBS suggests that “the FOMC will have to update the statement a bit, but not a lot” (December’s statement is available here).
As a reminder the latest batch of economic projections confirmed that the Fed’s median expectation looks for tspanee hikes in 2018. The minutes of the December meeting showed that the Fed was still puzzled by low inflation, although, many participants still expect the tight labour market to push inflation upwards over the medium term, reiterating that the weakness in inflation was “transitory.” The recent uptick in oil prices will encourage the central bank, but core inflation remains sticky.
Looking forwards most expect the FOMC to hike in March, with CME Fed Fund futures currently pricing a 75% chance of hike in March. It is also worth noting that the January meeting will be the last to be headed by Janet Yellen, before Jerome Powell succeeds her. Powell represents a constant, in that his views are not expected to deviate too much from Yellen’s.
Friday will bring the release of January’s labour market report, with analysts looking for a headline Nonfarm Payrolls release of 178K against a prior 148K, average hourly earnings are seen steady at 0.3% M/M and the unemployment rate is also seen steady at 4.1%. ING suggest that “payrolls growth should be solid, although it has the potential to be buffeted around by the cold snap earlier in January. But wage growth, which is arguably more important for Fed policy these days, could be a bit of a let-down for markets. As is often the case, the data will fall foul of a quirk relating to the number of workdays in the month, which could easily result in an artificially low rate of wage growth. This is ultimately just noise, and tspanough the rest of 2018, firms are likely to continue to offer more generous pay packets in a bid to hire and retain staff. This is another reason why we expect the Fed to follow tspanough with tspanee hikes this year.” Capital Economics are relatively upbeat, with the consultancy estimating “that payroll employment growth rebounded to an above-trend 200,000 in January. That may have been enough to push the unemployment rate down to a new cycle-low of 4.0%, which would provide further reason to expect wage growth to trend higher this year.”
Over the border in Canada focus will fall on Wednesday’s November GDP release. There are no expectations for the release, and October’s print was flat in M/M terms. The BoC continues to focus on the output gap and CIBC believe that the release “should show a solid gain after a few lacklustre months. However, that would only keep us on track for a 2% quarter, around half the pace seen on average during the first half of the year.”
It is also worth noting that news over the weekend coming out of the latest round of NAFTA negotiations could dominate the region at the start of the week.
Other releases of note: Wednesday US ADP Employment Change (Jan), US Employment Cost Index (Q4), Chicago PMI (Jan), US Pending Home Sales (Dec) Thursday US Nonfarm Productivity (Q4), US Unit Labour Costs (Q4), US Markit Manufacturing PMI (Jan), US ISM Manufacturing PMI (Jan) Friday US Factory Orders (Dec), University Of Michigan Consumer Survey (Jan, F)
The release of the Eurozone’s preliminary Q4 GDP data on Tuesday will give us an indication of just how hot European growth was in 2017. The single currency zone’s growth was one of the focal points of 2017, and caught many off guard.
Wednesday will bring the release of the Eurozone’s preliminary January CPI data, with analysts looking for the headline to edge up to 1.5% Y/Y from 1.4% last time out. The flash Eurozone PMI releases revealed that “price pressures are running at their highest for almost seven years, accelerating further at the start of 2018. Higher oil prices have pushed up costs, but pricing power more generally has improved as demand outstrips supply for many goods, leading to a sellers’ market.” As a result, survey collators IHS-Markit suggested that “With such a strong start to the year, expect to see forecasters mark up their expectations of eurozone growth and inflation in 2018, and for policymakers to sound more hawkish.” Pictet Asset Management posit that “longer-term inflation expectations have started to become better anchored relative to the ECB’s target of close to, but below 2%. A wide range of soft indicators are now consistent with rising price pressures in a wide range of euro area countries and sectors. Ultimately, this is what will drive a cautious normalisation of the ECB’s monetary stance, if and when the soft evidence translates into hard (wage and core inflation) data.” Meanwhile ECB President Draghi noted that “domestic price pressures are still muted and recent FX volatility is a source of uncertainty.” Although he was of the belief that “that underlying inflation will gradually rise over the medium term,” while he also suggested that the euro-area’s outlook “is broadly balanced and could present upside surprises in the future.” In terms of monetary policy, Draghi opined that there is "very little chance" that the ECB will raise interest rates this year.
Other releases of note: Tuesday Eurozone Consumer Confidence (Jan), German CPI (Jan, P) Wednesday Eurozone Unemployment Rate (Dec) Thursday Eurozone Manufacturing PMI (Jan, F) Friday Eurozone PPI (Dec)
Thursday will bring the release of the manufacturing PMI with analysts looking for 56.5 against a prior 56.3. Last time out survey collators IHS-Markit noted that “the UK manufacturing sector ended 2017 on a positive note. Although December saw rates of expansion in output, new orders and employment slow from November’s highs, growth in all tspanee remained solid and well above long-run trends.” RBC suggest that “the collapse of Carillion, could be partially reflected in the surveys. To the extent that any adverse knock-on consequences for the company’s sub-contractors are captured in the survey responses this month, the skew of risks to this month’s PMIs appears to be on the downside.”
Other releases of note: Tuesday Public Finance Data (Dec)
Chinese PMIs will be in focus next week. January’s official manufacturing survey (which focuses on larger firms) will be released on Wednesday, with analysts look for a reading of 51.5 against a prior reading of 51.6. Last month’s release moderated from 51.8, as new orders and production growth eased, although export orders accelerated, as did input and output prices. Alongside the release Zhao Qinghe, a senior statistician with the National Bureau of Statistics, stated that “the data showed a continued improvement in the economic environment at home and abroad.” The official non-manufacturing PMI will hit on the same day, as ever there are no expectations for the release, and the prior came in at 55.0, accelerating from November’s 54.8, despite the easing present in the business activity sub-index.
The Caixin Manufacturing PMI (which focuses on smaller firms than its official counterpart) will be released on Thursday, with analysts looking for a moderation in the headline release, as the median expectation looks for 51.3, against the prior 51.6. Alongside the previous release survey collator Caixin noted that “Stronger increases in both output and new orders were seen in December compared to the previous month. Growth in input prices eased to a four-month low, while growth in output prices slowed marginally. Stocks of finished goods sspanank again in December, and stocks of purchases declined slightly. reinforcing the notion that economic growth has stabilized in 2017 and has even performed better than expected. However, we should not underestimate downward pressure on growth next year due to tightening monetary policy and strengthening oversight on local government financing.” Since then the Chinese economy registered 6.9% GDP growth in 2017, with officials pointing to relatively steady growth rates moving forwards.
In Japan focus will fall on December’s labour market report, with analysts expecting the unemployment rate to tick up to 2.8% from 2.7%, while the job-to-applicant ratio seen steady at 1.56. Japanese wage growth remains muted, which has kept a lid on inflation and left prices growth well shy of the BoJ’s 2% inflation target even alongside the Bank’s extra-loose monetary policy settings.
Wednesday will bring the release of Australia’s Q4 CPI release, with analysts looking for headline readings of 2.0% Y/Y and 0.8% Q/Q accelerating from the prior readings of 1.8% and 0.6% respectively. The trimmed mean measure is expected to come in at 2.0% Y/Y and 0.5% Q/Q. Fuel, tobacco and domestic airfares should be supportive for the release, although retail prices, notably in the food space, continue to be pressured by competition. Wetspac highlight that “while seasonality may be a factor for individual components, overall on ABS seasonal factors seasonality is not an issue for the December quarter CPI.” Although the bank notes that “the two-quarter annualised pace of core inflation is forecast to decelerate to 1.8%yr from 1.9%yr - below the bottom of the RBA’s target band.” ANZ focus on the methodologic changes, suggesting that “they will weigh on inflation and mean there is a higher-than-normal degree of uncertainty around the forecasts.”
Other releases of note: Tuesday: New Zealand Trade Balance (Dec), Japanese Retail Sales (Dec), Australian NAB Business Survey (Jan) Wednesday Japanese Industrial Production (Dec, P)