The United States and Japan will have the busiest calendars next week for economic data, while Australian growth figures and the Bank of Canada’s policy meeting will also come into focus. In other data, Eurozone flash inflation numbers should attract some attention too. But President Trump’s joint address in Congress could prove the biggest market mover if he outlines details on the much talked about tax reforms.
Australian economy expected to rebound in Q4
After a surprise contraction in the third quarter, Australia’s economy is expected to post a solid rebound in the final three months of 2016. GDP data due on Wednesday is forecast to show quarterly expansion of 0.7%. This would be a big improvement on the prior quarter’s -0.5% rate but would still not be able to prevent a sharp downward revision in the overall growth rate for 2016. However, the RBA has repeatedly stressed in recent weeks that it expects growth to pick up to around 3% on an annual basis later in 2017. More recently, the RBA Governor has expressed concern about the possible risk from high household debt should rates be cut further. The RBA’s neutral stance, together with rising commodity prices, have helped the Australian dollar make year-to-date gains of about 7% versus its US counterpart this year.
Also to watch out of Australia next week are the latest trade data on Thursday.
Japanese deflation to ease further
A number of key indicators will be released for Japan next week, including the all-important inflation readings. Starting the week off though are the latest retail sales figures on Tuesday. Retail sales in January are expected to rise by 0.9% year-on-year, up from 0.7% the prior month. Industrial output figures are also due the same day and they are forecast to show an increase of 0.3% month-on-month in January’s preliminary estimate.
More data will follow on Friday with the release of inflation, household spending and unemployment numbers. Japan’s unemployment rate is expected to edge downwards from 3.1% to 3.0% in January, while household spending should bounce back by 0.3% m/m after a 0.6% drop in the previous month. The highlight will likely be the latest CPI figures as there appears to be increasing signs that Japan is moving closer to coming out of deflation. Core CPI, which excludes fresh food prices, is forecast to inch up from -0.3% to -0.2% in January. The upward trend in Japanese consumer prices recently prompted the Bank of Japan Governor, Haruhiko Kuroda, to signal that the chances of a cut in interest rates deeper into negative territory are low. However, while the odds of further BoJ easing are becoming more and more remote, it is also unlikely the Bank will wind down its asset purchase program anytime soon as its yield curve control policy is proving effective in maintaining downwards pressure on the yen.
Eurozone headline and underlying inflation to diverge further
The Eurozone will also have a relatively busy seven days in the coming week, starting with the economic sentiment index on Monday. The euro area’s gauge of economic sentiment is expected to improve slightly in February, rising from 107.9 to 108.0. The bloc’s unemployment rate will be published on Thursday, as well as the January producer prices and the flash estimate of CPI for February. The preliminary reading of Eurozone inflation is expected to show the headline rate rising to another 4-year high in February, from 1.8% to 2.0% y/y. However, the core rate, which is more closely looked at by the European Central Bank, is forecast to remain unchanged at 0.9% y/y. ECB head, Mario Draghi, has already signalled the central bank is willing to look past the spike in the headline rate as it assesses whether or not there will be second-round effects from the current uptick in inflation. Rounding up the week on Friday will be retail sales data for January and the final reading of the Markit composite PMI for February.
Bank of Canada to hold rates
The Bank of Canada meets on Wednesday for its second policy meeting of the year where it is expected to keep its overnight rate unchanged at 0.5%. Hopes of further easing were diminished after the January meeting when the Bank struck a cautiously optimistic tone. Receding fears of trade restrictions by the US and a potential boost to Canadian exports from a Trump fiscal stimulus, as well as higher oil prices, have further eroded rate cut expectations, pushing up the Canadian dollar. In fact, the next rate move is now expected to be an increase, with many analysts moving forward their forecasts of when the Bank will hike rates during 2018. Fourth quarter GDP figures out on Thursday should provide further clues as to the Bank of Canada’s next move.
Trump Congress speech eyed by dollar bulls in busy data week
The US calendar week will start with durable goods data on Monday. Durable goods orders are forecast to rise by 1.9% m/m in January after a 0.4% drop in December. The core measure is expected to slow from 0.8% to 0.4% but overall, the data should be indicative of continued momentum in the US manufacturing sector. Wednesday’s ISM manufacturing PMI should provide further evidence of this as the index is forecast to hold near two-year highs in February at 55.7.
On Tuesday, the Conference Board’s consumer confidence index, the advance trade balance and the Chicago PMI are released but the main highlight will be the latest GDP revisions and Trump’s speech in Congress. US GDP is expected to be revised up slightly to an annualized rate of 2.1% in the second reading from 1.9% in the preliminary estimate. Coming up later on Tuesday will be President Trump’s first address in a joint session of Congress where he is expected to use the opportunity to give more clarity about his economic policies, particularly on the promised tax reforms and on infrastructure spending. If Trump disappoints, either by not revealing much detail or by the scale of his policies, the dollar may extend this week’s slide.
The focus will shift back to data on Thursday as the latest personal consumption expenditure (PCE) data are published. Both personal income and personal consumption are expected to continue growing at solid rates by 0.3% m/m in January. But the core PCE price index, which is what the Fed uses to target inflation, is forecast to accelerate from 0.1% to 0.2% m/m in January.
On Friday, the last major data release of the week will be the ISM non-manufacturing PMI, though investors’ attention will likely be on Fed Chair Janet Yellen’s speech in Chicago. Yellen will be giving a speech on ‘Economic Outlook’ and may use the event to talk up the likelihood of a March rate hike. Fed Governors Jerome Powell and Lael Barainard will also be giving speeches at the event.