RBC Capital Markets
Week ahead: Fed-speak, including from Fed Chair Powell (Thursday), will be closely followed after the bond market volatility last week. The OPEC+ meeting on Thursday will decide how much the group will ease the current oil supply restrictions. China’s fiscal deficit target is expected to be cut at the annual NPC meeting commencing on Friday, as economic policy shifts back to deleveraging. The data calendar has Euro area HICP (see EUR), UK Budget (see GBP), Canada Q4 GDP (see CAD), RBA meeting (see AUD), and US non-farm payrolls (see USD) among others.
USD: We look for a -100k decline in US non-farm payrolls (Friday), well below consensus, and a rise in the unemployment rate to 6.4%. Unemployment insurance claims suggests little improvement overall from recent survey week to survey week, while February's seasonal hurdle will make printing an adjusted positive NFP figure quite difficult in our view. EUR: Euro area 'flash' HICP inflation (Tuesday) is expected to edge up to 1.0% y/y due to higher energy prices and should pick-up further through Q2. We forecast the euro area unemployment rate (Thursday) to be unchanged at 8.3%, reflecting the ongoing public support for shortened working hours’ schemes, including Germany’s Kurzarbeit, which have been effective in limiting unemployment.
GBP: The UK Budget (Wednesday) will tread a fine line between extending further support to the economy and correcting the damage to public finances. We expect the government’s furlough scheme to be extended through June, and a hike in corporation tax. For the upcoming fiscal year, we expect public net borrowing to fall significantly from £397bn to £180bn.
AUD: The RBA meeting (Tuesday) is likely to see a reassertion of the commitment to supportive policy after the last week's bond market volatility. At a minimum, we would expect a step up in YCC for the next couple of weeks, possibly including more purchases on non-QE operation days. The end of the Victoria lockdown will have a positive impact on the Q4 GDP report (Wednesday), along with an ongoing recovery in the rest of the nation. The early partials have introduced upside risks to our preliminary forecast of +2% q/q. Late 2020 growth momentum has spilled over into early 2021, and the vaccine rollout in February is likely to boost the recovery further.
CAD: We expect a 7.5% annualised rise in Canada Q4 GDP (Tuesday). The likely Q4 growth driver is an inventory change improvement (smaller decline), with consumption tracking close to flat. Instead, the rise in final domestic demand should come from about 1pp contributions from each of residential and non-residential investments. A stable savings rate (~15%) should leave households with a substantial buffer going forward as the vaccine rollout continues and the economy reopens. Given the anticipated Q4 result and Q1 upside risks, our expectation for an initial QE taper announcement at the April MPR is well on track. Our economists forecast an approximately C$500mn improvement in the January trade balance (Friday) to a C$1.2bn deficit. They have pencilled in ~2% and ~1% sequential increases in exports and imports respectively, with a continued improvement in the terms of trade, including higher oil prices, behind the improvement in the balance.
A dip in US yields into Friday's NY close has seen risk trade well in Asia with classic risk-on the overarching theme. Consequently, AUD, NZD and GBP outperform in G10, with high beta EM FX also mirroring this. In equities space, tech leads in both US and Asia indices as yields recede.
Looking ahead, data picks up today, with Germany CPI, final PMIs in EUR and GBP, USD ISM manufacturing and more Fedspeak. In EM, PMIs are also due across the complex, with TRY GDP, CLP economic activity and PEN inflation also on the slate. ISM Manufacturing is the main print of the day at 15:00 GMT for February. Citi Economics forecasts a print of 60.3 versus 58.7 prior. The team argues this would be in line with consistent strength in the manufacturing sector and likely be in part due to increases in both new orders and production components. Regional manufacturing surveys have also continued to rise throughout February.
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