RBC Capital Markets
Week ahead: Both Fed Chair Powell and Treasury Secretary Yellen will appear before Congress on Tuesday and Wednesday. There is a full roster of Fed speakers this week, including Vice Chair Clarida on Thursday. ECB President Lagarde and BoE Governor Bailey meanwhile will be speaking at the BIS Innovation Summit, which will also feature Powell in the opening session today.
The data calendar has Euro area PMIs (see EUR), UK labour market (see GBP), UK CPI, US durable goods orders (Wednesday), and US personal income & spending (Friday) among others.
EUR: Germany's easing of social restrictions this month and Italy's tighter measures from March 15 are expected to roughly balance out each other, and we therefore look for the euro area services PMI (Wednesday) to be little changed at 45.8. As for the manufacturing PMI, robust new domestic and foreign orders have us forecasting a strong reading of 57.6, and the focus again will be on whether input and output prices continue their sharp rise.
GBP: The UK labour market report (Tuesday) is expected to see another small uptick in the unemployment rate to 5.2%, but the headline rate continues to understate the impact of the pandemic on the labour market. Watch too for another surge in measured wage inflation to 5% 3m/yr, though that is being distorted by measurement issues. The labour market impact of the pandemic has disproportionally fallen on lower paid jobs and the compositional effects of fewer such jobs is driving a good deal of the apparent growth in pay at the moment. Moreover, we expect that the latest estimate from the ONS will show February CPI inflation (Wednesday) at 0.9% y/y, up from 0.7% in January. Prices for clothing and footwear, household goods and airfares typically rise between January and February, but the latest BRC shop-price index suggested persistent discounting among retailers. On the flipside is the reduced drag from fuel prices because last year’s large drop in oil prices is beginning to drop out of the y/y calculations. Finally, we look for an improvement in the services PMI (Wednesday) to 52.3, and a slight easing of the manufacturing PMI to 54.3. This month again, however, it will be worth looking below the headline readings for whether they are driven by actual activity or just a combination of rising prices and optimism.
CHF: The SNB policy meeting (Thursday) is widely expected to see no change to policy settings.
CAD: A light week for Canadian economic data, with a speech by BoC Deputy Governor Gravelle on Tuesday sandwiched by ‘flash’ estimates for February wholesale sales today and manufacturing sales on Wednesday. It would not be at all surprising to see the flash wholesale and manufacturing sale reports soften albeit after very solid January gains (wholesale sales rose 4.0%, manufacturing up 3.1% in January). Regardless, the economy still looks on pace to grow at a 4.5% (annualised) rate in Q1.
USD: The Fed’s Summary of Economic Projections (SEP) revealed that policymakers will be fairly tolerant of above-target inflation over the coming years. This should help keep nominal and real short-term rates relatively low, even as US and global growth accelerate over the coming months. We expect this combination to result in broad Dollar weakness, at least into mid-year. Stay short USD vs a basket of G10 commodity currencies (CAD, NOK, AUD, and NZD).
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