Monday: China National People’s Congress, EZ, UK, US Services PMIs, US Non-Manufacturing ISM
Tuesday: RBA Rate Decision
Wednesday: AU, EZ GDP, ADP Employment Change, BoC Rate Decision
Thursday: JP GDP, ECB Rate Decision
Friday: BoJ Rate Decision, CA, US Labour Market
Nonfarm Payrolls on Friday will be the main data point from the US. Payroll growth is expected to remain at its steady pace seen recently of around 190K. The weekly jobless claims data – lowest since 1969 – and strong employment components in the ISM reports support suggestions that job creation will remain solid. As has been the case recently, focus will be on the average hourly earnings. Last month, stronger than expected earnings were the catalyst for the stock sell-off in the beginning of February as markets began to price in further rate hikes in 2018 amid building inflationary pressures. “In the short term, there is doubt over whether January’s 2.9% outcome will be sustained in February,” writes Westpac. “However, it is almost inevitable that 3.0% outcomes will become regular in 2018. Outcomes materially above this level however are still unlikely.” The new Fed Chair echoed this in his recent comments to Congress as Powell said the Fed is not currently seeing strong evidence for a decisive move higher in wages but that he did expect more wage increases.
Across the border in Canada, the Bank of Canada will hold their interest rate decision on Wednesday. This is a statement-only meeting – no Monetary Policy Report or press conference – and all analysts surveyed by Reuters expect the central bank to keep the overnight rate unchanged at 1.25%, after the hike in January. After a rip-roaring start to 2017, GDP growth slowed towards the end of 2017, but RBC expect the BoC to categorise this as “evolving roughly as expected since the January MPR.” The BoC should again highlight NAFTA negotiations as a risk to the outlook for business investment. On Friday, Canada also reports labour market data following last month’s shock decline in employment. The decline in employment was largely due to a large fall in part-time employment while full time jobs increased by 49K. RBC note that the decline was mainly influenced by a 21% increase in the minimum wage in Ontario while they also posit that other underlying metrics were strong. This month, the unemployment rate is expected to fall back to 5.8% and employment increase by 10K.
This week sees the ECB come to market with its latest rate decision as markets look to take stock on what discussions on curtailing stimulus have taken place at the Bank. Last time round, the central bank refrained from providing much of a blueprint as to how they intend to unwind their current stimulus programme after its current end-date of September.
With this in mind and the subsequent lack of clarity at this stage, Goldman Sachs believe this week’s meeting will be too premature for the Bank to unveil any major changes to its guidance on the next steps for the APP, albeit they could opt to remove their easing bias for the programme; a view backed by recent source reports. Instead, Draghi’s press conference is more likely to centre on what initial discussions have taken place at the ECB with just 6 months of sovereign bond purchases left for the Bank. However, Draghi often opts to keep his cards close to his chest and as such, any details will most likely have to be obtained via journalists during the Q&A or the meeting minutes in 4 weeks’ time.
In terms of other aspects of the release, the press conference will also see the latest staff economic projections which look set to not be subject to any major revisions with the ECB remaining confident in the Eurozone’s growth prospects in 2018. Additionally, Draghi will also likely be probed again on his view on the EUR exchange rate (despite it seeing little deviation from the levels seen in January on a trade-weighted basis) after previously branding it as a source of uncertainty in January.
Another key factor to be aware of in the coming week will be any EU response to the US steel and aluminium tariffs. The EU Trade Commissioner said on Friday that the EU is discussing measures as a possible retaliation with suggestions that any measures could come as early as Monday. It will also be interesting to see any response to UK PM May’s Brexit speech on Friday although details of hers and the government’s position on Brexit were, as usual, few and far between.
Elsewhere across the continent, politics looks set to dominate the narrative at the start of the week ahead of Sunday’s Italian general election and German SPD vote. Please click here for a preview of Sunday’s Italian election and here for a primer of the German SPD vote.
In Australia, the RBA meet on Tuesday with the Official Cash Rate expected to be kept unchanged at 1.50%. Since the last RBA meeting, Governor Lowe has come out and tempered expectations of a hike in March and nearby meetings. “The Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy,” Lowe said on the 8th February. The statement accompanying the decision will likely echo the recent comments from Lowe as they stress their data dependence. In Lowe’s statement to the House of Representatives, he said that future moves will depend on the extent and progress made towards reducing unemployment and having inflation return to target. With that in mind, Capital Economics expect the RBA to keep interest remain on hold throughout 2018 and H1 2019, a long way past the consensus view of later this year. On Wednesday, Australia releases Q4 growth figures. Expectations are for growth to slow marginally to 0.5% in Q4 from 0.6% in Q3, meaning growth was 2.3% in 2017. RBC note trade was likely a drag on growth in the fourth quarter although some recovery in household consumption – after a weak Q3 – as well as continued public spending and improving private capex suggest firmer domestic demand.
On Friday, the Bank of Japan meets, and the Central Bank is again expected to keep the interest rate and monetary policy instruments unchanged. This is the last meeting with deputy governors Nakaso and Iwata before BoJ veteran Amamiya and reflationist Wakatabe take over the roles. Although nothing is expected at this meeting, it will be interesting to see if BoJ Governor Kuroda doubles down on his comments made on Friday when he said they will start thinking about how to exit their stimulus programme around the fiscal year beginning in April 2019, the first time the BoJ has provided explicit guidance on exiting policy. “The shift from Kuroda is critical heading into next week’s policy decision, and positioning remains overwhelmingly bearish leaving JPY vulnerable to adjustment,” writes Scotiabank.
China’s parliamentary season also kicks off this week where politicians and senior government figures review the previous year and set laws and targets, including GDP growth, for the year ahead. One of the main laws that is expected to get passed is an amendment that will lift presidential term limits, potentially allowing current President Xi Jinping to remain in power for longer, indefinitely if he so wishes. There have also been suggestions that a new head of the PBoC could be appointed. Liu He, an economist and aide to President Xi, has emerged as the frontrunner for the role, while He is also expected to be named vice premier in charge of economic and financial issues.