The US dollar gained some ground as the Fed’s meeting minutes pointed to optimism. The big event of the week is the testimony by Fed Chair Jerome Powell, but also GDP, durable goods orders, and other events are set to move the markets Here are the highlights for the upcoming week.
The FOMC Meeting Minutes showed optimism about the US economy and that inflation will eventually reach the 2% target. US bond yields reached new 4-year highs and the dollar followed. Despite eroding some of its gains, the greenback finished the week higher. In the UK, a rise in the unemployment rate weighed on the pound and in the euro-zone, updated PMIs and business surveys fell short of expectations. The Canadian dollar suffered from a drop in retail sales but suffered from higher inflation.
Mario Draghi testifies Monday, 14:00. The President of the European Central Bank appears before the European Parliament and is expected to speak about the latest economic developments. This event comes well before the next ECB meeting, allowing Draghi to hold his cards less close to the chest. The ECB is expected to announce the next steps in its QE program later in the year.
Jerome Powell testifies: Tuesday, statement released at 13:30, testimony begins at 15:00. The new Fed Chair makes his first testimony in a highly anticipated event. As a Governor, Powell never dissented and his views on monetary policy are somewhat unknown. Markets will want to understand if he is a dove or a hawk and try to assess whether the Fed will raise rates more than three times in 2018. A hike in March is priced in, but further steps depend on the economy and on the stance of Powell.
US Durable Good Orders: Tuesday, 13:30. Sales of durable goods serve as a gauge for investment. Headline orders are expected to fall by 2.4% in January after a jump of 2.8% in December. Core orders carry expectations for a rise of 0.4% after 0.7% beforehand.
CB Consumer Confidence: Tuesday, 15:00. The Conference Board’s consumer confidence measure has shown high confidence among American consumers, implying elevated spending. The score is expected to increase from 125.4 to 126.2 points in February. The parallel figure from the University of Michigan beat expectations in the preliminary report for this month.
Euro-zone inflation: Wednesday, 10:00. The final figures for January showed that headline inflation slipped to 1.3% y/y in January. Another drop is on the cards now, to 1.2%. Core inflation is projected to remain steady at 1% also here, in the first release for February. Any deviation from these numbers could shake the euro. The ECB’s single needle in the compass is inflation.
US GDP: Wednesday, 13:30. The first release of US GDP for Q4 2017 fell short of expectations, with 2.6%, coming after 3%+ annualized growth rates in Q2 and Q3. The second release is expected to show a downgrade to 2.5%.
US Core PCE Price Index: Thursday, 13:30. This figure is the Fed’s favorite measure of inflation, thus making it important despite being released after the CPI report. It stood at 1.5% in December, still too far from the 2% target. A repeat of the same annual figure is on the cards now. Month over month, a rise of 0.3% is expected for January, higher than 0.2% seen beforehand.
ISM Manufacturing PMI: Thursday, 15:00. This forward-looking indicator is the first hint towards next week’s Non-Farm Payrolls. A high score of 59.1 was recorded in January, significantly above the 50-point threshold that separates growth from contraction. A small slide to 59 points is on the cards for February. The Prices Paid component serves as yet another gauge of inflation while the Employment component provides a further hint towards the NFP, even though the manufacturing sector is small in comparison to the services one.
UK PM May talks: Friday. The Prime Minister of the UK is set to deliver a keynote speech about the future trade relations that her government wishes to have with the European Union. Markets would prefer a continued membership in the Single Market and the Customs Union, but the hard-Brexiteers would prefer a looser relationship. The speech should help clarify the direction of the government. The pound will not only move on the speech but also on the reaction by the European Union. A warm welcome would be positive while a rejection of May’s proposals would weigh on the pound.
Canadian GDP: Friday, 13:30. Canada releases its GDP figures once a month, and this time, the figures are for December, concluding the last quarter and the full year. After a monthly growth rate of 0.4% in November, a more modest rise of 0.1% is on the cards.
*All times are GMT
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