- The ECB analysis will be widely read after a jump in inflation and firmer growth
- Mario Draghi's speech will be scrutinised given the pickup in Eurozone GDP
- Rising inflation expectations may affect analysis in the BoE inflation report
- But the BoE is unlikely to make any monetary policy changes for now
- US corporate layoffs should ease ahead of Friday’s official update on payrolls
The outlook according to two central banks is in focus today, starting with the ECB’s monthly update of its Economic Bulletin. Later, the Bank of England outlines revised expectations in its quarterly Inflation Report. In the US, the monthly job cut report from Challenger, Gray & Christmas Inc. will provide more context ahead of tomorrow’s employment report for January.
Eurozone: European Central Bank Economic Bulletin (0900 GMT): Economic growth continued to improve in the fourth quarter of last year, rising 0.5% from Q3's 0.4% – the best performance since Q1 in 2016. Is that an early clue that the European Central Bank will begin tapering its bond-buying program?
It’s probably too early to expect the ECB to start pulling back on monetary stimulus. Although headline inflation increased 1.8% in the year through January – close to the central bank’s target of just below 2%– core inflation (a more reliable measure of pricing pressure) is still just 0.9% in year-over-year terms.
Nonetheless, economists say that a change in policy may be near. The question, of course, is when. The crowd will be looking for clues in all the usual places, including today’s monthly update of the Economic Bulletin. In last month’s edition, the bank recognized that “the economic recovery in the euro area is continuing” and is expected to “proceed at a moderate but firming pace.” Nonetheless, the outlook for ongoing monetary support remained intact, the ECB explained.
That’s a reasonable path for the moment. Economists are expecting a slightly softer growth rate of 0.4% in the first quarter of this year compared to the final quarter of last year, according to FocusEconomics’ compilation of estimates. “Rising inflation and higher oil prices will take some steam out of consumption as they reduce tailwinds to household incomes,” a senior economist at the consultancy said in a press release on Tuesday.
If the ECB agrees with the analysis, the bank will be in no rush to start squeezing policy. The market will still be keenly focused on today’s update for any hints of revised policy expectations in the wake of upbeat GDP numbers and stronger headline inflation. In addition, ECB President Mario Draghi is scheduled to speak at 1215 GMT, which will afford a new opportunity for reflection on the macro trend and the implications for policy. It’s unlikely that we’ll hear comments that point to an imminent shift, but every word will be closely scrutinized now that the Eurozone economy appears to be expanding at a faster rate.
UK: Bank of England Inflation Report (1200 GMT) The outlook for inflation reached a three-year high, according to a new poll of the British public via YouGov and Citigroup. The forecast for stronger pricing pressure follows several months of accelerating inflation in the government’s estimates of consumer prices.
The poll data published on Wednesday anticipates that near-term inflation for the annual rate is projected to reach 2.6% in January, a rate that tops the central bank’s 2% target.
Today’s question: How will the quarterly update of the Bank of England’s inflation report influence the outlook? In November, BoE forecast that inflation was on track to rise to 2.7% by the close of 2017, in part due to sterling’s sharp decline last year in the wake of the Brexit vote.
Nonetheless, a Reuters poll shows that most economists think that the BoE won’t change monetary policy in today’s announcement, which is also scheduled for 1200 GMT.
Keep in mind, however, that consumer price inflation at the headline level is moderately lower, running at 1.6% for the year through the end of 2016. The January update scheduled for later this month is expected to show a slightly softer rate: roughly 1.3%, which is based on TradingEconomics.com’s econometric forecast. It’ll be useful to learn if the BoE is inclined to agree in today’s inflation outlook.
US: Job Cut Report (1230 GMT): Jobs growth surged last month, beating expectations by a wide margin, according to the ADP Employment Report. Will today’s numbers on corporate layoffs echo the good news?
It’s reasonable to expect no less, in part because the government’s jobless claims data has been consistently bullish in recent months. New filings for unemployment benefits have remained close to a multi-decade low since November, suggesting encouraging numbers for today’s update on job cuts, as calculated by the consultancy Challenger Gray and Christmas (CGC).
In the December update, cuts rose modestly to 33,600, although CGC noted that at the close of 2016 “marked the third consecutive month in which job cuts remained significantly below the annual average.”
After reading yesterday’s ADP report, it would be surprising if today’s release doesn’t show a degree of support for firmer jobs growth. In fact, that’s what TradingEconomics.com’s econometric forecast sees: a mild decline in cuts to 30,400 from 33,600 in December.
A bit of good news is also on tap for today’s weekly numbers on jobless claims. Economists expect that claims will fall slightly, dipping to 253,000, close to a 43-year low, according to Econonday.com’s consensus forecast.
If all goes as expected today, the updates look set to pave the way for an upside surprise tomorrow in the government’s official release for payrolls in January.
Disclosure: Originally published at Saxo Bank TradingFloor.com