Yellen spelled it out

Genevieve Signoret

Macro Views

Policy

For the Fed to start raising rates, core inflation need not and wage growth need not accelerate. But they cannot weaken, market-implied inflation expectations cannot drop further, and employment data has to keep improving. That’s our take from last Friday’s Yellen’s speech. We hold to our view: we expect the FOMC to start normalizing its monetary policy stance in the second half of the year.

Politics

Greece is running out of cash. The Syriza-led government sent a proposal for economic reforms last Friday aiming to hopes of securing short-term funding from the euro area. Euro area authorities rejected it. On Wednesday, Athens sent a new proposal. We expect an agreement to emerge to allow Greece an interim disbursement from the €7.2 billion in EFSF/IMF bailout programs it wasn’t supposed to need till later in the year, but risks are high.

Saudi Arabia supported by nine other Arab countries and Pakistan launched a military campaign in Yemen against the Iranian-backed Houthi militias. The Houthi militias had been holding Abd Rabbuh Mansur Hadi––Yemen’s President––under house arrest from 21 September 2014 until last Saturday. The Islamic State reported on Monday that it carried out bombings in Sana’s––Yemen’s capital––making things even more chaotic.

Activity

Markit PMIs showed manufacturing to be recovering in the euro area and China while slowing down in the USA and Mexico. In the USA, Markit PMI’s data was confirmed by the ISM manufacturing index which fell to a 2-year low to 51.5 in March from 52.9 in February.

The next week: the details

Events in red are those most likely to shake markets.

During the week

• India: Trade balance (Feb).
• Russia: Consumer prices (Mar).

Monday 6

• Global: Markets are closed in China, Germany, and the UK.
• USA: Markit Services PMI (Mar), ISM non-manufacturing PMI (Mar).  Last week, the manufacturing PMI pointed to a slowdown in that sector. We’d like to know if the services followed the same path. Consensus: 56.6 (from 56.9 in Feb).

Tuesday 7

• Global: Markit Services PMI (Mar),
• India: Monetary policy meeting.  Consensus: rate unchanged at 7.50
• USA: Jobs Openings and Labor Turnover (Feb), consumer credit (Feb). Now that the first hike is approaching, markets will become more sensitive to labor market data. This report includes three indicators in Janet Yellen’s dashboard.

Wednesday 8

• Japan: Monetary policy decision. Consensus and TransEconomics: rate and asset purchase program unchanged.
• Euro Area: Retail sales (Feb).
• USA: FOMC minutes. In its last meeting the FOMC dropped its forward guidance and downgraded the pace of US activity from “solid” to “moderate.” 
• Brazil: Consumer prices (Mar).
• Mexico: Consumer confidence (Mar).

Thursday 9

• Germany: International trade (Feb), industrial production (Feb).
• UK: Monetary policy decision. Consensus: rate and asset purchase program unchanged.
• Mexico: Consumer prices (Mar), Banxico minutes. Unlike several analysts we didn’t read a more dovish tone in Banxico’s last communiqué.  The reason? We hadn’t found the previous one to be especially hawkish. We expect Banxico to start lifting rates in the second half of the year, as soon as the Fed begins.

Friday 10

• China: Consumer prices (Mar). 
• Russia: Foreign trade (Feb).
• UK: Industrial production (Feb).
• Mexico: Industrial production (Feb). Mexico’s manufacturing sector started the year on a low note. Consensus: 1.8% (from 0.3% in Jan).