Today’s data calendar may appear heavy, but I doubt it will provide the guidance markets are hoping for. The markets are still trying to adjust to the emerging market sell-off and the geopolitical risks caused by the crisis in Ukraine. Economic surprise indices for both the US and Eurozone have turned negative and are at levels where the probability of positive surprises is increasing.
Possible sovereign credit rating actions, after the markets close, include Austria (Moody’s, AAA, outlook negative), Belgium (S&P, AA, outlook negative) and Germany (Moody’s, AAA, outlook negative). There will be several speakers from the US Federal Reserve: Richard Fisher (10:00 GMT) and later Charles Evans, Jeremy Stein, Narayana Kocherlakota and Charles Plosser (15:15 GMT), while the Bank of England’s Mark Carney speaks at 15:30 GMT.
EZ February Consumer Price Index, flash estimate (10:00 GMT).
The February flash inflation gauge is expected to show an increase of 0.7 percent from year ago, way below the 2 percent target of the European Central Bank (ECB), but unchanged from last month. A month ago, there was a lot of talk that the ECB would ease monetary policy at its meeting next, at least by cutting rates. While a minor rate cut would not be effective, at least it would have some signaling value before the ECB is ready to bring out the big guns, like asset purchases or LTRO loans to banks. Yesterday’s monetary statistics provided no surprises, but the sentiment indices (Markit, EC, Ifo) have remained positive. This more or less would allow the ECB to sit on its hands for another month.
Several banks have come out with their own suggestions on what type of quantitative easing programmes the ECB could or would do, given its mandate and political constraints from the creditor nations who loath expanding the ECB’s balance sheet. I don't think it is reasonable that such measures would be introduced at the next meeting as proper design and planning will take more time. Some have suggested that inflation hitting 0.5 percent would be enough to push the ECB into action, even with more controversial measures.
Note that the January unemployment rate will be released at the same time. Unemployment is expected to have remained unchanged at 12 percent. The rate has remained practically unchanged at high levels for a year now. The first confirmed and notable fall in the unemployment rate would be good headline material and could even have an effect on the approaching European Parliamentary elections.
US Q4 Gross Domestic Production, second estimate (13:30 GMT)
A notable downgrade to GDP is expected: to 2.4 percent from the advance estimate of 3.2 percent. The GDP numbers are notoriously prone to revisions even much later and the cold weather and government shutdown caused one-off effects, making any interpretation difficult. The current view seems to be that no matter what the numbers are, the Federal Reserve will continue with its schedule of tapering its monthly asset purchases.
The Fed’s new chair, Janet Yellen, confirmed that the central bank would now "try to get a firmer handle" on the data, continue with tapering and move away from its numerical employment threshold as the unemployment rate threshold had been hit, but labour markets were far from full employment.
The 10-year bond yield is currently trading at about 2.65 percent, after reaching highs of 3.05 percent at the beginning of January. The recent low was 2.57 percent on February 3. The past three sessions have pushed the yield down because of Ukraine-related safe-haven flows and as the yield has now approached the lower end of the recent range, the bond yield is vulnerable to surprises that could propel the rate higher. Possible triggers include if GDP provides a positive surprise, the cool down in the US housing markets proves temporary and the Ukrainian crisis is solved without serious calamities. On the FX side, a better-than-expected GDP would be USD positive at least initially.
US February Thomson Reuters / U. Michigan Survey of Consumers, final (16:55 GMT).
While consumer sentiment is not a good indicator of real economic activity as the markets lack data points after the unusual fourth quarter and January, the final sentiment reading will be watched for any hints on whether personal consumption will hold up. For more, see my thoughts on the preliminary survey.
