The US dollar was generally on the back foot, with the euro emerging as the big winner. The all important ECB rate decision is one of four rate decisions and the Non-Farm Payrolls with their build up also stand out in a very busy week. These are the highlights of this week. Here is an outlook on the major events at hand.
US data was not as horrible as in previous weeks, but are still mostly mediocre: GDP growth was revised down to 2.4%, while durable goods orders surprised to the upside and jobless claims disappointed. The unfolding situation in the Ukraine and the appreciation of the Chinese yuan triggered some safe haven flows, and these mostly helped the yen. The euro enjoyed better than expected inflation numbers to break to a 2 month high against the dollar. Interesting divergence was seen in the South Pacific, with the Aussie falling on weak data, and the kiwi jumping on huge optimism. And now, we have top tier news. Let’s start:
- Mar 3, 8:40: Who are the Smart Money and what do they do?: All too often in my newsletter Market Tea Leaves I use and mention the term “Smart Money” and many times...
- Mario Draghi speaks: Monday, 14:00. ECB President Mario Draghi is scheduled to speak at the European Parliament in Brussels. Draghi may talk about the ongoing growth trend in the Eurozone but may also give clues on the possibility of further rate cuts in the ECB’s next monetary policy meeting in light of better, but still slow inflation. Market volatility is expected. It will be interesting to hear how he sees the surprising rise in inflation. Here is one possible explanation.
- US ISM Manufacturing PMI: Monday, 15:00. U.S. manufacturing activity weakened in January to 51.3 compared to 56.5 in December, amid low inventories. Economists expected a higher reading of 56.2 points. Many blamed weather conditions for the fall in January while some are even optimistic regarding future outlook in 2014. A rise to 52.3 is expected this time.
- Australian rate decision: Tuesday, 0:30. The official rate was maintained at 2.5% after the meeting of the Reserve Bank of Australia board on February, as the RBA shifted to a neutral bias and boosted the Aussie. RBA Governor Glenn Stevens remarked that growth remained below RBA’s projections but is expected to rise this year. The RBA’s decision was widely anticipated by markets in accordance to the current economic conditions. No change in rates od forecast, but the Bank might talk about rising unemployment.
- Australian GDP: Wednesday, 0:30. Australia’s economy expanded less than expected in the third quarter, growing 0.6% compared to 0.7% in the second quarter. The reading was below market forecast of a 0.7% rise. On a yearly base GDP increased 2.6%. Economic growth in Australia remains at low levels and is highly reliant on mining investment. Furthermore, Reserve Bank of Australia Gov. Glenn Stevens reiterated that the Australian dollar was still “uncomfortably high,” making the nation’s exports less competitive in global markets. An expansion rate of 0.7% is predicted now.
- US ADP Non-Farm Payrolls: Wednesday, 13:15. US Private sector job market rose by 175,000 jobs in January according to the ADP National Employment Report. The main contribution to job growth came from the construction industry which added 25,000 jobs. Manufacturing sector narrowed in January with a 12,000 decline following a revised gain of 16,000 in the previous month. A smaller job gain of 159,000 is anticipated now.
- Canadian rate decision: Wednesday, 15:00. The bank of Canada maintained rates at 1.0% and the BOC statement hurt the loonie. Bank of Canada governor Stephen Poloz reiterated that the bank’s key rate will not be changed. A change may be possible only if new information influences this balance of risks. However despite worries about slow inflation, Mr. Poloz remarked that the depreciation of the Canadian dollar may help exporters. The bank expects inflation to return to the 2% target within two years, but the current lo leveled inflation is a downside rise as well as the ongoing elevated household imbalances. Rates are expected to remain unchanged.
- US ISM Non-Manufacturing PMI: Wednesday, 15:00. US service sector picked up in January, advancing to 54.0 from 53.0 in December, amid better business conditions and jobs gain. However the PMI remained below the12-month average of 54.6. New orders edged up 0.5 point to 50.9 and most responders reported improvement in business conditions. A small decline to 53.8 is expected this time.
- UK rate decision: Thursday, 12:00. No change is expected from the BOE at this meeting. Afterpresenting the second iteration of forward guidance in February and practically bringing forward rate hike expectations to Q2 2015, the upcoming rate decision could unfortunately turn into a non-event. The meeting minutes will probably have a bigger effect, as they will reflect the members’ thoughts about the recent reports about higher unemployment and lower inflation.
- Eurozone rate decision: Thursday, 12:45, press conference at 13:30. There is a now a low chance that the ECB will lower the lending rate to 0.10-0.15% and set a negative deposit rate of 0.10%. While there is a danger that low inflation might move from the short term to the medium term, and that the ECB could act according to its mandate, as it did in November, the small rise in core inflation gives breathing space to Mario Draghi and company. The high exchange rate of the euro in recent months weighs on exports and lowers prices. With the high exchange rate of the euro, the growing pressure from the IMF and others and the exhaustion of the talk about of negative rates without action, the ECB could have better chances to act.. A negative rate would send the euro tumbling down, while no action would send the euro a bit higher. However, Draghi is more lightly to try to talk the currency down or allow the non-sterilization of bonds in the SMP program before going into the uncharted territory of negative rates.
- US Unemployment Claims: Thursday, 13:30. The number of Americans filing unemployment applications increased unexpectedly by 14,000 last week to 348,000, Cold weather and winter storms slowed economic activity in the two first months of 2014 increasing the amount of unemployment applications. However labor market is expected to climb now that the weather conditions have improved. The number of clain is expected to decline to 336,000.
- Canadian employment data: Friday, 13:30. The Canadian economy recovered 29,400 jobs in January after contracting 44,000 in December, pushing the unemployment rate down to 7.0% from 7.2%. Full-time positions edged up by an estimated 50,500, the largest rise since May. However, 28,300 of the new jobs were in self-employment. The rise shows that the Canadian job market is not entering a downturn trend. The job addition was well above market estimate of 19,700. A job gain of 16,900 is expected and unemployment rate is predicted to remain at 7%.
- US Non-Farm Payrolls and Unemployment rate: Friday, 13:30. US non-farm payrolls gained 113,000 jobs in January far from the 180,000 increase projected by analysts but enough to lower the unemployment rate to 6.6% from 6.7% in December. Labor force participation rate, rose, to 63% from 62.8% in December indicating a positive change. Economists anticipate moderate job growth will continue, enabling the Fed to carry on with their tapering plan. Non-farm payrolls is expected to reach 151,000 while, unemployment rate is expected to remain 6.6%.
- US Trade balance: Friday, 13:30. The U.S. trade deficit widened more than anticipated in December increasing 12 % to $38.7 billion compared to a revised $34.6 billion in November. Exports fell .8 % to $191.3 billion despite a sharp rise in petroleum exports. For all of 2013, the trade deficit reached $471.5 billion, the smallest since 2009. The improvement in US trade deficit also contributed to the fourth quarter GDP of 3.2% annual growth pace. However the slowdown in China raises doubts regarding a sustainable growth in exports in the foreseeable future. U.S. trade deficit is expected to widen further to 39.1 billion.
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