A quiet week ahead

Genevieve Signoret

Macro Views

Last week

Politics

Benjamin Netanyahu, Israel’s prime minister, visited the U.S. congress to warn Americans on the dangers of reaching a deal with Iran over their nuclear program. Iran is competing with ISIS “for the crown of militant Islam”, he denounced. Mr. Netanyahu visited by invitation of Republicans; the visit was seen as an affront to President Obama, who has taken a diplomatic approach towards Iran. Mr. Netanyahu will face a snap election on March 17: the hearing was seen as a campaign event.

Iraqi forcessupported by Iran Shia militias have launched their largest military operation against ISIS so far. The campaign seeks to regain Tikrit—a Sunni 100-thousand–person city that was lost to ISIS last year. U.S. support was not required in this campaign. This attack is seen as the first step to take back Mosul.

Russia. Last Saturday, Boris Nemtosov—an opposition leader and a Ukraine’s advocate in the Kremlin—was murdered. Putin’s government nationalistic propaganda and the propagation of nationalistic groups has been blamed by many of this crime.

Policy

The European Central Bank (ECB) revised up its growth projections for the euro area and detailed QE implementation. ECB’s staff projections for euro area’s GDP growth annual rates are now 0.9% for 2014 (from 0.8%), 1.5% for 2015 (1.0%), and 1.9% for 2016 (1.5%). These numbers are considerably more optimistic than the analyst consensus view (1.20% for 2015 and 1.60% for 2016). The ECB will start buying government bonds in the secondary market on 9 March.  It will also continue buying covered bonds and asset-backed securities. “The combined monthly purchases of public and private sector securities will amount to €60 billion. They are intended to be carried out until the end of September 2016 and will, in any case, be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term,” the Bank stated. The euro closed at 1.08 euros per dollar on Friday: its lowest level since 4 September 2003. We forecast parity for 2016.

The Bank of England (BoE) maintained unchanged its monetary policy stance. The monetary policy rate stayed at 0.50% per annum and their asset purchase program at £375Bn. We’ll be looking forward to reading the minutes and learn whether the recently achieved consensus endured. We expect the BoE to start normalizing its monetary policy stance next year.

The People’s Bank of China cut both the benchmark one-year loan rate by 25bp to 5.35% and its one-year deposit rate also by 25bp to 2.50%. The cut came a few days before the National People’s Congress, at which event it was subsequently announced that the Chinese economy would continue to slow down.

The Federal Reserve Bank of India cut its monetary policy rate by 25bp to 7.5% in an unscheduled meeting. The decision came after last Saturday’s budget announcement that was received positively.

Brazil’s Copom raised the Selic rate by 50bp to 12.75%.

The National Bank of Ukraine raised its monetary policy rate 10.5pp to 30% in a desperate attempt to support its currency—the hryvnia—that has plummeted 80% against the dollar since April 2014.

Activity

The USA showed a solid  jobs report again yet, we still observe slack in the labor market. In February, the unemployment rate was down to 5.5% (from 5.7% in January)  and non-farm payrolls rose by 295K. But while the number of persons employed half-time for economic reasons is still too high at 6.6 million and wage growth continued sluggish at 2.0% year on year. The participation rate slipped to 62.8% from the January rate of 62.9%.

The National People’s Congress began last Thursday in Beijing. Li Keeping— the prime minister—announced that China’s economy was expected to grow 7.0% year on year in 2015. The Chinese has been slowing down since 2010, in 2014 it grew 7.4%. We expect growth to slow to below 7.0% in 2016.

Prices

U.S. PCE inflation continued to slow down. The headline number slowed down to 0.2%, while the core—the Fed’s favorite measure for inflation— remained steady at 1.3%. Core PCE inflation is gradually slowing down in trend: in October it was growing at 1.5% y/y.

The next week: the details

Events in red are those most likely to shake markets.

During the week

• China: Trade balance (Feb). Chinese trade activity has been trending down. The latest manufacturing data suggest that this won’t change any time soon. Consensus: exports,–3.8% y/y (from –3.2% in Jan); imports –9.9% y/y (from –19.7% y/y in Jan).
• India: Trade balance (Feb).

Monday 9

• Japan: GDP (4Q, second estimate).
• Euro Area: Eurogroup meeting. Greece will present its reform plan which has to be approved for funding to again flow. ECB QE begins. The ECB will start buying €60Bn worth of private and public assets per month.
• Germany: Trade balance (Jan).
• Mexico: Consumer prices (Feb).
• Turkey: Industrial production (Jan).

Tuesday 10

• China: Consumer prices (Feb).
• Euro Area: EcoFin meeting.
• USA: Job Openings and Labor Turnover JOLTS (Feb). Last Friday’s jobs report confirmed that the U.S. labor market upward momentum continued last month. But it hasn’t yet recovered: neither the underemployment rate, real wages, nor labor turnover returned to their pre–Great-Recession levels. The JOLT report includes three indicators in found in Janet Yellen’s dashboard: quits, hires and job openings rates.

Wednesday 11

• Euro Area: ECB speech: Draghi.
• UK: Industrial production (Jan).
• USA: Commercial banks stress test: Comprehensive Capital Analysis and Review Results. Last week, all 31 top banks passed the first phase. In other words, they were found to hold enough capital to keep on lending during a severe global recession. This week we’ll find out whether the banks can maintain those capital levels and still return money to shareholders.

Thursday 12

• Korea: Monetary policy meeting. Consensus: rate unchanged at 2.0%.
• India: Industrial production (Jan), consumer prices (Feb).
• Euro Area: Industrial production (Jan).
• UK: Trade balance (Jan).
• USA: Retail sales (Feb). We’ll focus as usual on core retail sales, which have been weak since last year. We expect this trend to start reversing next quarter. Consensus: 0.5% m/m (from 0.1% in Jan).

Friday 13

• USA: U. Michigan consumer sentiment (Mar, flash). Consumer sentiment has improved quite a bit lately, probably at least in part on falling gasoline prices. Consensus: 96.0 (from 95.4 in March).
• Mexico: Industrial production (Jan).