Good Morning All;
we’ll see a nwe weely analysis of markets.
Global equities edged higher last week, supported by a raft of upbeat global macro data, and continuing expectations of business-friendly tax adjustments in the US
US Federal Reserve (Fed) Chair Janet Yellen adopted a slightly more hawkish tone at her testimony to the Senate Banking Committee, warning that “waiting too long to remove accommodation would be unwise”
US headline retail sales rose 0.4% mom in January, beating expectations of 0.1%, and are more in step with the post-election rise in consumer sentiment amid further strengthening of the labour market
In the coming week, the February Federal Open Market Committee (FOMC) meeting minutes will be scrutinised for any fresh clues around future US monetary policy.
The highlight of US releases in the coming week will be the 1 February FOMC meeting minutes. While there has been a large amount of Fedspeak since the meeting, any colour around the Committee doves’ degree of reluctance to move will be keenly noted. Also of great interest will be any discussion surrounding the likely timing of the end of the Fed’s balance sheet reinvestment policy (which may include a discussion around the necessary level of the federal funds target rate before this happens).
January’s existing home sales are expected to rise by 1.1% mom (5,550,000 annualised against 5,490,000 previously). This release has been quite volatile over the last couple of years, but the general trend remains one of improvement. January’s new home sales are expected to rise by 7.3%, having fallen 10.4% in the prior month (575,000 annualised against 536,000 prior). This series has been trending higher, albeit with high volatility since early 2011, but presently sits around half of the pre-crisis peak. Both series continue to see positive underlying momentum as a robust labour market and still historically low mortgage rates remain supportive of housing market activity.
February’s final release of the University of Michigan Consumer Index of Sentiment is expected to tick slightly higher to 96.0 from 95.7 prior. This remains close to January’s 13-year high. While consumer spending started 2017 on a firmer foot, continued acceleration in retail sales data would provide greater reassurance. The preliminary February release saw long-term consumer inflation expectations (over the next five to 10 years) rebound from their all-time low of 2.3% yoy in December to 2.8% yoy, its highest level since April 2016. A further increase may be a cause of concern for the Fed.
February’s preliminary eurozone PMIs are forecast to remain broadly stable, with the composite indicator holding firm at 54.4 for the third straight month. Continued employment growth and low financing costs continues to support activity in the region, a weaker euro and strong global demand are proving tailwinds to manufacturing. Any downside surprises in this release are likely to reflect the adverse impact of rising headline inflation, recent disappointing hard data in Germany (December industrial production, exports and retail sales) and rising political risks in the shape of ongoing Brexit developments and upcoming general elections.
Similarly, Germany’s Ifo Business Climate Index is anticipated to stabilise, having risen sharply in Q4 2016, dipping by just 0.1 points to 109.7. The deterioration is expected to be led by both the current assessment and expectations components, although the latter could surprise to the downside following the larger than expected decline in the February ZEW expectations print. Meanwhile, the current assessment index could be hit by recent weakness in activity data.
Consensus expectations are for the UK Q4 GDP second release to confirm growth at +0.6% qoq. However, a positive surprise is possible given strong December industrial production and construction data prints since the initial estimate. This release also delivers a breakdown by expenditure, and is likely to reiterate that the UK economy remains reliant on private consumption to drive growth.
Preliminary data showed Mexican GDP growth decelerated to 0.6% qoq seasonally adjusted in Q4 2016, from 1.0% qoq in the prior quarter, in line with expectations. Activity in all three main sectors slowed, but most worryingly, the industrial sector registered barely any growth, weighed by falling oil production. Further weakness in the final release would be a cause for concern.
In Brazil, a prolonged recession, anchored inflation expectations and easing inflation (which fell to 5.35% yoy in January from 6.29% in the prior month on the IBGE IPCA measure) is anticipated to see the Monetary Policy Committee of the Central Bank of Brazil (COPOM) cut its benchmark Selic interest rate to 12.25% from 13.00%. This would be the fourth cut since October 2016, following over one year on hold at 14.25%.
Oil prices hit by rising US rig count
WTI oil prices edged lower last week, with the bulk of the decline occurring on Monday, reacting to data showing the US oil rig count continued to increase the previous week, reaching its highest level since October 2015, offsetting OPEC and associated countries’ efforts to curb oil production. Interestingly, a much larger-than-expected increase in US stockpiles the previous week (+9.5 million barrels, consensus at +3.5 million barrels) had little effect on prices by market close on Wednesday. Overall, WTI crude dipped (-0.9% to USD53.4 per barrel), with Brent underperforming (-1.7% to USD55.7 per barrel).
Gold prices gained slightly last week (+0.1% to USD1,235), finding continued support from political uncertainty in the US, as well as in Europe, where the implied probability of a Marine Le Pen victory in the French elections (based on bookmakers odds) edged up to reach 35% on Friday, having been as low as 25% last month