Monetary policy meeting minutes from the US Federal Reserve and the European Central Bank may attract more attention than usual in the coming seven days in a relatively subdued week for economic indicators. The Reserve Bank of Australia will also be publishing the minutes of its last policy meeting. In terms of data, flash Eurozone PMIs, UK labour market report and inflation numbers out of Japan and Canada will be the main highlights.
Japan reports inflation data
The week will start with monthly trade figures from Japan on Monday. After a strong performance in 2017, Monday’s data will reveal whether exports kept pace at the beginning of 2018. Exports are forecast to rise by an annual rate of 10.3% in January, while imports are expected to increase by 8.3%. The Nikkei manufacturing PMI will follow on Wednesday. It will be interesting to see whether the preliminary February report shows any evidence of a loss in business confidence from the recent turmoil in the markets as well as any impact from a stronger yen. On Friday, inflation will come into focus as the January CPI figures are released. The annual rate of core CPI (the Bank of Japan’s targeted measure) is expected to ease back 0.1 percentage points to 0.8% year-on-year in January, showing the BoJ still has some way to go in achieving its 2% target.
Aussie wage growth to be eyed
The Australian and New Zealand dollars have been heading higher during the past week even though both nations’ yield premium with the United States on 10-year government bonds has been wiped out, with the Australian-US spread now having turned negative. With the moves being mostly driven by US dollar weakness and risk sentiment, which the aussie and the kiwi are both very sensitive to, economic data out of Australia and New Zealand next week may struggle to make a mark in forex markets.
Nevertheless, any surprises would still have the potential to move the markets, particularly Australian pay figures. The wage price index is forecast to edge up to an annual rate of 2.2% in the final quarter of 2017 from the prior 2.0%. The RBA’s Assistant Governor Luci Ellis said this week that wages are expected to pick up "but not immediately and then only gradually". A weaker than anticipated number could dampen the aussie’s recent gains. Investors will get to hear more views from the RBA next week as the central bank publishes the minutes of its February policy meeting on Tuesday.
In New Zealand, retail sales numbers on Thursday will be important to watch as they will be an indication as to whether consumer spending bounced back in the fourth quarter following the slowdown in the previous quarter as a result of the uncertainty created by last September’s inconclusive election.
Eurozone growth to cool slightly in February
The flash PMI readings for the Eurozone from IHS Markit are due on Wednesday and are expected to show economic activity moderating slightly in February. The composite PMI is forecast to fall from 58.8 in January to 58.5 in February with both of the index’ constituents, the manufacturing and services PMIs declining too. Germany’s closely watched Ifo and ZEW business confidence surveys are also forecast to display a dip in February, with the protracted CDU-SPD coalition talks possibly weighing on sentiment. The ZEW economic sentiment index is out on Tuesday and the Ifo business climate will follow on Thursday.
The euro area’s final CPI print will round up the week on Friday. No revision is expected to January’s preliminary reading of 1.3%. The figure remains below the ECB’s target of close but below 2% and the central bank will likely stress this in its accounts of the January policy meeting, which are due on Thursday. While the minutes are unlikely to disclose anything new, they could still surprise and move the euro given the varying views among policymakers about the timing and pace of stimulus withdrawal. The single currency’s recent sharp appreciation could also prompt some fresh opinions on the exchange rate.
UK employment report in focus
After this week’s stronger-than-expected inflation data in the UK, all eyes will be on Wednesday’s labour market report, which will contain the latest wage growth estimates. The UK’s unemployment rate is forecast to stay unchanged at 4.3% in the three months to December, while average weekly earnings are also expected to hold steady, at 2.5% y/y in the same period. Another buoyant set of figures would further fuel expectations of a May rate hike by the Bank of England, while the BoE’s governor, Mark Carney, may use the inflation report hearing before Parliament on Tuesday to reiterate the Bank’s hawkish views.
All of this could push the pound even higher, which this week scaled back above the $1.41 level. However, a possible downward revision to UK GDP growth on Thursday could dent the current upside momentum, though the consensus forecast is that the second estimate of fourth quarter growth will remain unrevised at 0.5% quarter-on quarter.
Attention on Canadian inflation and retail sales figures
Unlike the aussie and the kiwi, the Canadian dollar took a much heavier beating from the recent market turbulence, falling to a 6-week low of C$1.2683 on February 9. Recent data has also been weighing on the loonie as it has been somewhat disappointing. But retail sales and inflation numbers due on Thursday and Friday respectively could help the currency recover further if they come in on the positive side. Retail sales are expected to rebound from 0.2% to 0.7% month-on-month, while inflation is anticipated to remain unchanged at 1.9% y/y.
South of the border, it will be a muted week in the United States, with the only major releases being the IHS Markit manufacturing and services PMIs for February and existing home sales for January, all due on Wednesday. A bigger highlight for the markets will probably be the FOMC minutes of the Fed’s January meeting, which will be published on Wednesday. The Fed sounded a fairly confident tone on the economy in its press statement after the January meeting, signalling that a March rate hike is on the way. The minutes are not likely to deviate much from the statement, but investors will be sifting through them to assess the balance of views of the new 2018 voting members of the committee for possible clues on their voting bias.
