Monday: No major events
Tuesday: US CPI, UK Spring Budget
Wednesday: US Retail Sales, US PPI
Thursday: SNB Rate Decision, Norges Bank Rate Decision, NZ GDP
Friday: US Housing Starts/Building Permits, EZ CPI (Final Reading), Quadruple Witching
North America – Fed enters blackout period with inflation data the main releases
The main data point from the US in the coming week will be US CPI on Tuesday. Expectations are for inflation to have increased 0.2% M/M, meaning the Y/Y rate should remain steady 2.1%. The core measure is expected to increase 0.2% M/M, again keeping the Y/Y rate at 1.8%. The equity sell-off in the beginning of February was in part due to stronger than expected CPI, although the main catalyst appeared to be stronger than expected average hourly earnings. Nevertheless, signs that inflation remained strong in February could again spook markets ahead of the Fed’s March meeting. With the Fed entering their blackout period on Saturday 10th March, there is no window for members of the FOMC to clarify how the data may impact their decision and forecasts. In terms of the data, RBC do not expect gasoline prices to have had a major impact on prices this month as the modest advance in February was close to the anticipated seasonal change.
Another data highlight could be the TIC data released on Thursday. Although this data is not usually a market mover, it may start getting more attention given the Trump administration’s disdain for China and the fact that China is the largest foreign holder of US Treasuries. Last month, the data showed that Chinese holdings of US Treasuries rose by the most in seven years in 2017, signalling that the country is still showing strong demand for US paper. However, officials from the country have recently recommended that they could slow or halt their purchases of US Treasuries after the declines seen recently. Participants will be scouring this data for any clues that China has altered its policy regarding US Treasuries and to see if the recommendations have been enacted by those in power.
Otherwise, much of the focus in the US will be on the fallout from the labour market report on Friday which showed strong job creation but wages were soft, rising just 2.6% Y/Y, down from a revised 2.8% in January. The report was seen as a “goldilocks” report for equity bulls, strong job creation but soft enough earnings for some to suggest three hikes in 2018 would be reasonable, not the four rate hikes some had been expecting after the improving data in the early part of this year.
Europe/ UK – UK presents semi-annual budget, SNB and Norges Bank to set interest rates
Aside from the usual Brexit-related ‘developments’ (ahead of the EU summit on March 22nd-23rd), focus on the domestic front for the UK next week will fall on the latest Spring Statement from UK Chancellor Hammond. However, in comparison to the Autumn Statement, this will likely be a more low-key affair with this week’s offering merely an update on the Office for Budget Responsibilities’ forecasts for the UK economy. On that front, as the global growth environment remains encouraging and 2017 growth exceeded the OBR’s forecasts (1.7% vs. Exp. 1.5%), the OBR are expected to lift their 2018 projection to 1.6% from their previous view of 1.4%, according to UBS. As such, this will ease some pressure on future borrowing requirements, albeit in an environment of potentially higher than previously anticipated interest rates. In terms of 2018 Gilt issuance itself, HSBC look for 2018/19 sales to fall by GBP 12bln to GBP 103.1bln with UBS expecting issuance to fall below GBP 100bln to GBP 98.2bln, Deutsche Bank look for GBP 104bln.
Elsewhere in the region, central bank activity will be a key focus with rate decisions from the SNB and Norges Bank.
Starting off with the former, the SNB are once again to stand pat on rates with their main policy rate to remain at -0.75%. Aside from the rate, Citi suggest the Bank “may upgrade its growth and inflation forecasts slightly, but also has to contend with a (partially self-inflicted) stronger Swiss Franc compared to the beginning of the year”. Elsewhere, it is also seen as too early for the bank to transmit any overtly hawkish signals such as removing their ‘highly valued’ label on the CHF or indicate an imminent rate hike.
For the Norges Bank, expectations are for the Deposit Rate to be unchanged at 0.5% with focus instead falling on the Bank’s projections for their next rate move given last Friday’s inflation data. To recap, domestic inflation for Norway hit 2.2% in February and thus above the Bank’s new 2% target, albeit with the preferred CPI ATE measure still lagging after printing at 1.4%. As such, this saw Nordea bring forward with their expectations for the first Norges hike to September 2018 from their previous view of December 2018. Subsequently, this has led focus to be placed on whether the Norges Bank will bring forward their own expectations of the next move up which was previously revised in December to Autumn 2018 from Summer 2019. However, ING caution that the Feb inflation report is likely to be more of a temporary phenomenon with potential downside risks to inflation prospects from the ‘firmer NOK’ seen since the start of the year.
Asia-Pacific – Trade protectionism and geopolitics to take centre stage
The data highlight from the Asia-Pac session is New Zealand GDP on Thursday (Wednesday evening UK time). Expectations are for the economy to have grown 0.8% in the quarter slightly higher than the Reserve Bank of New Zealand forecast of a 0.7% rise in its February Monetary Policy Statement. Capital Economics expect some of the improvement in growth to stem from positive momentum in the housing market. “The pick-up in activity in the housing market at the end of last year should have filtered through to stronger activity in real estate services,” chief Australia and New Zealand economist Dales said. New Zealand GDP was also affected by the Lions tour in 2017 and Dales expects retail activity to have bounced back from the dip seen in Q3 when the Lions tour boost faded.
With data releases and central bank events light – the BoJ releases minutes but from the meeting before last – focus in Asia will ultimately fall on geopolitics and trade rhetoric. Late last week, reports suggested that US President Donald Trump had agreed to meet with Rocket Man North Korean Supreme Leader Kim Jong-un by May of this year. The apparent thawing of tensions on the Korean peninsula and the willingness of Kim Jong-un to hold talks could support riskier assets going forward. “Geopolitics will continue to weigh on markets, but we think this will be a less defining feature,” said Kerry Craig, a strategist at JP Morgan Asset Management. “But it is early days and almost impossible to say that the tensions will disappear completely,” Craig added.
Meanwhile, the responses to Trump’s steel and aluminium tariffs should begin to pick up pace in the coming week. The EU has already threatened a “firm” response to the US tariffs which were put in place on Thursday and will go into effect in 15 days. However, Canada and Mexico were exempt from the tariffs while NAFTA negotiations continue. China’s response will be closely watched by global leaders after China’s steel and metals associations demanded retaliation, urging the Chinese government to target US imports including coal, agricultural products and electronics.