Market Movers AheadGlobal
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We expect next week’s US calendar to be dominated by the release of non-farm payrolls on Friday. With jobless claims figures showing consistent improvements and some decent job growth over the past few months, we believe the positive momentum persisted in February. We estimate non-farm payrolls added 220,000 and private payrolls gained 230,000. Some of this might still be driven by favourable weather conditions early in the year but, with the pace of firing going down and consumer confidence regaining much lost ground, we expect healthy gains in the months ahead. Unemployment figures have been a source of positive surprises over the past few months and for the first time we saw the decline in unemployment being driven by increased employment rather than people leaving the workforce. We estimate this trend continued, providing a modest fall in the unemployment rate to 8.2%, down from 8.3% in January.
• Another noteworthy figure released next week will be the non-manufacturing ISM index. After last month’s 2.8 point surge, we expect the figure to fall back somewhat to 56.3, down from 56.8. However, we believe that we remain on the right track over the months to come, as we remain well in expansionary territory
• Lastly, we might see an outline of who will receive the Republican presidential
nomination late on Tuesday/early Wednesday, following the so-called Super Tuesday, when the largest share of votes of the primary season will be distributed.
• At the ECB Governing Council meeting on Thursday, we expect investors to be looking for a first reaction from Mario Draghi to this week’s 3Y LTRO allotment. He is likely to signal not only that he sees the move as successful but also that it is too early to assess the full impact. He may signal that no more long LTROs should be expected. In terms of rate changes, we are entering a pretty dull period. Rates are likely to remain unchanged until 2014. The small bias towards rate cuts has probably disappeared as growth is returning. Thus, we may be able to detect more positive wording in the press statement but, interestingly, we also get staff projections. Growth expectations may be revised upwards slightly, while inflation expectations are broadly unchanged, though Draghi will probably emphasise the upside risks from energy.
• By the end of next week we should know whether the “voluntary” participation in the PSI is high enough for Greece to go ahead with the debt swap (deadline for accepting the swap is 8 March). The most likely outcome is that the debt will be swapped and that all investors will be forced to participate (CACs are now implemented in Greek law).
• German factory orders and German industrial production for January should attract attention as we look for signs that the real economy is beginning to recover. We also get euro area GDP breakdown for Q4
• In our view, next week’s Bank of England (BoE) rate decision is likely to be a nonevent as the Monetary Policy Committee announced more quantitative easing at the last meeting and that round has not yet finished. It seems more and more likely that the UK will not have a technical double-dip recession, in line with our prediction all along. Rates are set to stay low though due to a relatively bleak economic outlook and the BoE’s continued asset purchases. As far as we are concerned the most interesting data releases for the week are service PMI on Monday and industrial production data on Friday. The pound struck back against the euro in the past week but we doubt it marks the beginning of a new appreciation trend.
• In China the calendar is busy next week. Most economic data for February is due to be released and for industrial production, retail sales, fixed asset investment and other investment data, the February data is due be released together with the January data. Data will continue to be distorted by the timing of the Chinese New Year holiday. This year there will be an upward bias on activity data in February (and January and February should be analysed as a whole) and downward bias on inflation. We estimate CPI inflation in February fell sharply to 3.4% y/y, from 4.5% y/y, on the back of lower food prices. Lower core inflation (we estimate core inflation fell below 2% y/y in February) should also add to the decline in inflation. Hence, the downward trend in inflation appears to be intact, although we believe it will probably edge higher temporarily in March. For January and February as a whole, we estimate industrial production eased to 12.3% y/y, from 12.8% y/y in December. We estimate an average month-on-month increase in industrial production of 1.0% m/m in January and February. If our estimates turn out to be right, growth in industrial production will have improved slightly on a month-on-month basis (albeit still below trend) as suggested by the manufacturing PMIs.
• In China the annual session of the National People’s Congress (NPC) is scheduled to start on 5 March. The NPC meeting is important because the government presents its economic policy and usually announces the major economic goals for the coming year. We expect the largely symbolic GDP growth target for 2012 to be reduced from 8.0% to 7.5%, indicating further acknowledgement that potential growth in China is on a downward trend. More interesting to us will be the inflation target for 2012. If it is maintained at 4% as in 2011, it would suggest ample room to ease monetary policy; however, we cannot completely rule out the inflation target being cut to 3.5%. In terms of policy, we expect only modest fiscal and monetary easing.
• In Japan the most important release next week is revised GDP for Q4. Because of much stronger than expected corporate capital expenditures for Q4, we are likely to see a substantial upward revision of GDP growth from -2.3% q/q AR to around -0.5% q/q AR. With the recent data suggesting GDP growth above 3% q/q AR in the current quarter, further QE from Bank of Japan appears unlikely in H1 12, unless the appreciation pressure on JPY resumes.
Scandi
• In Denmark, the coming week brings figures for industrial production in January, which will give us an early indication of whether the positive trend seen at the end of last year has continued into 2012. In our view, the explosive growth in manufacturing activity in December, when production jumped 5.6% m/m, will be hard to top in January. Based on the latest business tendency surveys, manufacturers are positive about the future and new orders have been strong in recent months but we still estimate a slight fall in industrial production of 2% m/m in January in light of the surge in December.
• The most interesting statistic due for release in Sweden next week is undoubtedly, in our view,industrial orders and production (due Friday at 09:30 CET). Last month, we saw an extremely strong increase in orders, which added to the positive sentiment in Swedish financial markets but, as we pointed out at the time, it seemed to relate to a single particularly large order in the power generating and transmitting industry. We, therefore, expect the order number to fall back by at least 5-6% to keep our belief in further cuts beyond the April meeting fully intact. We also due to receive government net lending figures (Wednesday at 09:30 CET) and house prices (Thursday at 09:30 CET), both pertaining to the month of February.
• In Norway, the week’s big release is February inflation. While inflation is far from
the most important factor in the Norwegian economy at present, we expect continued high cost growth and surprisingly robust demand for consumer goods to limit the scope for inflation to slow notably. That said, the rise in January was probably down to a base effect from last year's extraordinary price slide during the January sales, rather than a sign of inflation accelerating. We, therefore, estimate unchanged core inflation of 1.3% y/y, which is unlikely to affect interest rate expectations. We estimate industrial production climbed strongly in January, after declining since September. Higher global industrial activity should mean that the export industry bottoms out, while high activity in oil-related industries should make a solid contribution. This is supported by the strong rebound in the PMI in January and February. We, therefore, estimate an increase in industrial production of 0.5% m/m in January.