Monday: Presidents’ Day holiday (US)
Tuesday: RBA Minutes
Wednesday: FOMC Minutes, BoE Governor Carney testimony
Thursday: ECB minutes, UK GDP (2nd release)
Friday: Japan CPI, EZ CPI (final reading), Fed publishes Chair Powell’s semi-annual report
On Wednesday, the FOMC release their minutes from the January meeting. In Yellen’s last meeting at the helm, the Fed kept the FFR unchanged in a unanimous vote. The main takeaway from the meeting was the decision to alter their language in regards to inflation, removing the phrase that inflation was to “remain somewhat below 2% in the near term”. The other change, which RBC notes was important, was the addition of the word “further”, as in “further gradual increases” will be necessary. The bank posits that this is a preamble to perhaps a more forceful tone on rate hikes as the year progresses. Markets also viewed this change in language as a hawkish shift – potentially opening the way for a rate hike in March – and will be looking towards the minutes for confirmation that another rate hike is coming.
What may be of greater importance for Fed watchers is the publication of new Fed Chair Powell’s first semi-annual policy report on Friday (Powell does not testify to Congress until 28th February). Powell’s Fed is widely expected to follow the same path that Yellen’s Fed had undertaken – gradually normalising rates – but this will be one of the first opportunities for Powell to stamp his mark on the Committee. Since the last meeting, US wage and inflation data has been stronger than expected, prompting some volatility in markets but it’s worth noting that the Fed will have another set of labour market data before the next meeting in March, which should show whether the higher than expected earnings in January were an anomaly or the beginning of an upward trend.
Markets will be looking out for whether Powell views the recent market volatility as a threat to financial stability or whether he sees the recent shakeout as healthy. Powell recently said that the Fed would “remain alert” to financial stability risks and he is likely to expand on this somewhat during his testimony. Other speakers throughout the week include Harker, Quarles, Dudley, Bostic & Williams (voters in bold).
Other releases of note during the week – Mon: Presidents’ Day holiday. Wed: US Manufacturing and Services PMI, Existing Home Sales. Fri: Canadian CPI.
This week sees the release of the ECB’s account of the January meeting which saw the central bank refrain from providing much of a blueprint as to how they intend to unwind their current stimulus programme after its current end-date of September. During his press conference, Draghi gave little away in terms of what discussions had taken place. Despite this, markets will be on the look-out for any hints of timing for the ECB to alter their language around forward guidance; something that was touted to happen in the early stages of this year as revealed by the December minutes. Any clarity around this issue could set up market expectations for the ECB’s March meeting which could be decisive for the ECB to outline their plans for 2018. Additionally, focus at the previous conference fell on the ECB’s assessment of recent FX volatility, something that at the time Draghi described as a source of uncertainty. This was then followed up by source reports suggesting that rate setters are split on their views regarding their next move given the recent EUR move, therefore any clarity on this issue will be welcomed by the market albeit the recent extension of USD weakness may leave any stated views slightly out-of-date.
Across the Channel in the UK, aside from any Brexit updates from the slew of upcoming speeches by May et al, focus will fall on the latest domestic labour report. In terms of earnings figures, RBC argue that “The December average earnings numbers are likely to be left somewhat in the shadow of confirmation from the BoE regional agents’ survey on pay, showing settlements averaging an increased 3.1% rate for 2018”. Therefore, the coming months of data are likely to be pivotal in confirming the findings of the BoE’s survey and as such, a strong labour report could be enough to tip the scale in favour of the hawks for lifting rates in May, while a soft report could cause the MPC to delay their next month and instead present August (or beyond) as a more realistic timeframe to take rates to 0.75%. However, ING caution “that it is early days, and the year-on-year numbers will creep up over coming months purely on base effects (last winter was very poor for wages).” The Bank of England Governor and some of his cronies on the MPC testify on the inflation report to the Treasury Select Committee on Wednesday. Markets will be keeping an eye out for comments on whether they see May as a viable option to hike rates.
Other notable data releases for the region includes Eurozone CPI, albeit final readings, which are rarely subject to major revisions from their initial prints. However, it is worth nothing that the M/M is set to see a marked fall to -0.9% from the Dec reading of 0.4%. Elsewhere, traders will be presented with the secondary reading of Q4 UK GDP which will be accompanied by the latest expenditure data, however, RBC suggest that incoming information suggests that this is unlikely to lead to any revision to the initial 0.5% Q/Q print.
Other releases of note during the week: Mon: Eurozone current account. Tue: GE and EZ ZEW, UK CBI Industrial Trends, EZ Consumer Confidence. Wed: EZ PMIs, Bank of England Testimony to Treasury Select Committee. Thu: German IFO. Fri: German GDP
In the Asia-Pacific region, the key releases come from Australia with the RBA publishing minutes from their latest meeting and the Australian Bureau of Statistics reports wage data on Wednesday. Philip Lowe, the RBA governor, has recently played down expectations for a hike in the near term, saying that the timing of a move “will depend on the extent and pace of progress that we make in reducing the unemployment rate and having inflation return to target”. He added that he expects this progress to be only gradual, indicating that the board does not see a strong case for a hike in the near term. Economists as CBA say that the RBA’s recent communication has struck a helpful balance between taking an optimistic stance on the economic outlook while managing to hose down interest rate expectations. The minutes are expected to echo these recent communications, signalling that rate hikes are still some way off and when they do come, are expected to be at a gradual pace. Australian wage data will be carefully watched for signs of inflationary pressures building in the pipeline. Markets expect the wage price index to increase 0.5% in Q4, the same rate of growth as Q3.
Japanese CPI is released on Friday with focus again likely to be on the core measures. CPI ex-fresh food is seen remaining stable at 0.9% Y/Y with CPI ex-fresh food and energy seen steady at 0.3%. In terms of the headline, Capital Economics expect a surge in fresh food prices to lift inflation to a four year high of 1.5%, up from 1.0% in December. The Bank of Japan will, as always, be closely watching this data, particularly with the new Deputies who are said to be advocates of bold monetary easing to lift inflation.
Other releases of note during the week: Chinese Lunar New Year, Tue: NZ GlobalDairyTrade auction, Fri: NZ Retail Sales