As soporific as last week’s markets proved to be, we are expecting the opposite this week as a boat load of market moving data is due from across the world. We got a hint of things on Friday morning with the publication of the Spanish CPI number that showed deflation on a year on year basis. This is exactly the kind of news that those looking for a move from the ECB will have been waiting for.
Spain is the 4th largest economy in the Eurozone – after Germany, France and Italy – and so a 0.2% fall in year on year prices will have a definitive impact on the Eurozone-wide measure. Should that measure come in around 0.5%, only a slice lower than the 0.7% that is currently being seen, then we can expect action – how much worse should it need to get? We will find out at 10am BST alongside the latest measure from Italy.
The ECB is due to meet this Thursday and, depending on the latest inflation print, we will see one of two things. The more likely option is further dovish chatter from the Executive Council at Draghi’s press conference on Thursday afternoon. A big surprise on the inflation front would increase the chances of some form of policy action from the European Central Bank but as we have said in the past, the ECB is the finest flatterers to deceive.
Friday also saw a strong growth number from the UK, but while growth has remained strong through the past 12 months or so, the numbers confirm that it has come at a cost. Disposable real income fell by 0.1% and the amount of money saved by UK households fell to 5% from 5.6% – a clear sign that the reserves that the UK consumer is relying on to fund services spending are being depleted. We also saw last week that retail sales had flown higher in the UK in February – at a stronger annualised rate than China – but we all know that this is coming from unsustainable spending practices via an expansion of consumer credit and a reduction in savings patterns.
Sterling will be in the shadows this week with a lot more important data taking place elsewhere, although the run of manufacturing, construction and services PMIs always brings some volatility to the party.
This week is definitely make or break for the US economy as we get the first look at performance in the rather weather-unaffected past 4 weeks. March offered some relief – apart from the 7 inches of snow I woke up to on my first morning in Washington DC – and so with it comes a clearer picture of the US economy. We will receive a lot of this data next week, none more important than the monthly payrolls number on Friday afternoon.
Previous payrolls releases have disappointed against the recent trend of around 175,000 jobs being added to the US economy on a monthly basis – roughly the same size as the population of Wigan. The market is looking for 200,000 jobs to be added.
Alongside this data we will get details of wage increases, which have been recently expanding, and surveys from the manufacturing and services sector for the month of March. Was it the weather or was it weakness?
The Japanese Tankan survey tonight will also have a heavy marker on things with the market looking for a significant slippage in capital expenditure for Japanese companies. Combined with the imminent VAT increase, confidence in Japanese assets could be coming to a rather sudden stop.
