Key market mover this week: Friday U.S. jobs report

Genevieve Signoret

Macro Views

This week

Markets this week will be fixated on Friday’s U.S. jobs report and its meaning for the March 17–18 FOMC decision.

We expect neither the Bank of England nor the European Central Bank to revise its monetary policy stance on Thursday.

For details on these and other market movers, please scroll down to our full annotated events calendar.

Last week

Politics

A deal for Greece

Greece reached a deal with the Eurogroup, the IMF and the ECB to extend the current bailout program by four months. The deal commits the Greek government to complete the reform program previously agreed while giving Greece flexibility over its primary surplus target.

The primary surplus is the difference between government revenues and government expenditures not counting interest on the debt.

Now Tsipras has to sell it

In Athens, last Thursday several hundreds of people protested the deal and the new government. On Friday night, Mr. Tsipras­—the Greek prime minister—announced new legislation to be sent to Parliament on Monday. The legislation will include some of the agreed reforms but also some laws aimed at providing the Greek populace some relief. “The country has come out of this difficult and hard process of real negotiation stronger and more proud,” said the Prime Minister.

It’s not over for Greece

The Troika (the Eurogroup, the IMF and the ECB) must approve Greece’s reform plans before April for funding to start to flow into Greece. They and Greece will need to reach a permanent agreement before July.

Ceasefire’s holding in the Ukraine

On Thursday, the Ukraine army said that for the first time in several weeks no Ukrainian soldier had been killed in battle. With one week of delay and after the victory in Debaltseve, the pro-Russian separatists seem to be respecting the Minsk ceasefire. Both sides have begun withdrawing heavy weaponry.

But Russian relations with the West remain tense

U.S. and European officials had warned that they could slap new sanctions on Russia. Meanwhile, Moscow has reached an agreement with Cyprus to dock its warships on the island, making things a little more complex.

Policy

Yellen redefines “patient”

In her 25 February testimony before Congress, Fed’s Chair Yellen changed the meaning of the Bank’s forward guidance. In the December’s press conference, Chair Yellen had specified that the word patient in the sentence “the Committee judges that it can be patient in beginning to normalize the stance of monetary policy” meant that there would follow at least a couple of meetings before the first rate hike. Now, its absence would mean that a move in the rate target could be considered “at any meeting”. We don’t see this as signaling a change in the FOMC’s stance; we think that Chair Yellen is just giving the Fed as much flexibility as she can to act.

We hold to our outlook for the Fed

Mrs. Yellen also said that the FOMC would be ready to raise rates when it was “reasonably confident” that inflation was moving back towards its 2 per cent target over the medium term. We hold to our view of a rate hike in the second half of 2014.

China joins the currency war

The People’s Bank of China (PBOC) set the daily fixing rate at $1=¥16.1475. The PBOC allows the yuan to trade 2% above or below this rate. For more details, see today’s entry on currency markets in La Carpeta Negra: China joins currency war, we revise down peso and euro.

Turkey’s central bank cuts it rate

The Central Bank of the Republic of Turkey cut its monetary policy rate yet again. The CBRT cut its monetary policy rate 25bp to 7.50%. The cut followed repeated demands for lower rates by President Recep Tayyip Erdogan.

Forward step for Mexico’s anticorruption reform

Mexico’s lower chamber passed a constitutional reform creating a new anticorruption body. The new body will be able to audit the three levels of government, but leaves the president untouchable. Next, the amendment has to be approved by the Senate. Then, finally, by more than half of Mexico’s 32 state legislatures.

Activity

U.S. Q4 2014 GDP was revised down

U.S. Q4 2014 GDP was revised down to 2.2% q/q saar from 2.6%, mostly because inventory investment was revised down (-0.7pp) and the trade deficit was revised wider (-0.2pp).

Financial conditions

Euro area money supply’s recovering

Money supply growth in the euro area continued to accelerate in January. M3, a broad measure of money supply, swelled by 4.1% from the previous year, marking an accelerating trend from year-on-year growth rates of 3.8% in December and 3.1% the month before. Credit continued to contract but at a slower pace than previously.

These excellent signs support of our central scenario view in which the euro area avoids deflation—by which we mean a downward trend in a broad range of prices, not just energy prices.

Prices

U.S. core CPI inflation held firm

U.S. consumer prices in January were lower than a year earlier. The U.S. Consumer Price Index was down 0.1% y/y in January from 0.8% the previous month.

Core inflation remained stable at 1.6%.

Inflation slowed in Japan

Japan’s CPI continued to slow down. Japan’s core CPI (which excludes energy and food) was down to 2.0% in January from 2.1% the month before. Despite the aggressive monetary policy stance of the Bank of Japan, inflation hasn’t sped up so far, and growth remains subdued.

The next week: the details

Events in red are those most likely to shake markets.

During the week

• Korea: International trade (Feb).
• Russia: Consumer prices.

Monday 2

• Global: Markit Manufacturing PMIs (Feb).  
• Korea: Industrial production (Feb).
• Euro Area: Consumer prices (Feb, flash), unemployment rate (Jan). Consumer prices were down by 0.6% y/y in January. They’re expected to fall again in February. Consensus: –0.5% y/y from –0.6% in January.
• USA: Personal consumption expenditures (Jan), PCE core inflation (Jan), ISM manufacturing (Feb). Last week’s CPI showed a negative headline inflation number, but a stable core. Consensus: no change at 1.3%  y/y.
• Brazil: International trade (Feb).
• Mexico: Remittances (Jan), IMEF PMI (Feb).

Tuesday 3

• Korea: Consumer prices (Feb).
• Turkey: Consumer prices (Feb).
• USA: Light vehicle sales (Feb), Fed speech: Yellen. Chair Yellen will speak on bank’s supervision at 7.15pm (Mexico City time).  Israel’s prime minister speaks at the U.S. congress. Benjamin Netanyahu, Israel’s prime minister, will visit the U.S. congress to warn Americans on the dangers of reaching a deal with Iran over their nuclear program. He comes under the invitation of Republicans and the visit is seen as an affront to President Obama who has taken a more diplomatic approach towards Iran. Mr. Netanyahu will face a snap election on March 17: the hearing is mostly seen as having electoral causes.

Wednesday 4

• Brazil: Industrial production (Jan), monetary policy meeting. Brazil’s economy is passing through a very hard time—some say the hardest since the 1990s. With a contracting economy and above-target inflation, the COPOM is expected to lift the Selic rate by 50bp. Consensus: Selic rate +50bp to 12.25%.
• USA: ISM non-manufacturing PMI (Feb), Beige Book.

Thursday 5

• Euro Area: Monetary policy meeting. We don’t expect any major change in the ECB’s monetary policy stance. We do expect President Draghi to detail how the extended QE program will be implemented. Consensus and TransEconomics: rate and asset purchase program unchanged.
• UK: Monetary policy meeting. We don’t see any development in the UK economy that could lead to a change in the Bank of England monetary policy stance. Consensus and TransEconomics: rate and asset purchase program unchanged.
• USA: Unemployment claims.

Friday 6

• Euro Area: GDP (Q4, second estimate).
• Germany: Industrial production (Jan).
• USA: Trade balance (Jan), non-farm payrolls (Feb), unemployment rate (Feb), consumer credit, Fed speech: Plosser. We expect the U.S. labor market to continue its recovery albeit at a slightly slower pace. Consensus: non-farm payrolls change, 240K (from 257K in Jan); unemployment rate, 5.6% (from 5.7% in Jan).
• Brazil: Consumer prices (Feb).
• Mexico: Consumer confidence (Feb).