XM INVESTMENT RESEARCH DESK: Week Ahead – Important week for US data after rate talk triggers dollar rally
The coming week looks set to get busy after the long Easter weekend, particularly for the US, which will see some key data releases such as the monthly non-farm payrolls report. Also to come into focus will be the Bank of Japan’s Tankan survey, Eurozone flash inflation and manufacturing PMI out of China.
The United States will be one of few Western markets open on Monday when many European markets will be closed for the Western Easter celebrations. Personal income and personal spending data will start the week in an otherwise quiet calendar day.
Personal income growth is forecast to ease in February, rising by 0.1% month-on-month, following strong growth in recent months. Personal consumption expenditure (PCE) is also forecast to slow, from 0.5% in January to 0.1% in February. Also due the same day is the PCE measure of price inflation.
The core PCE price index is expected to stay unchanged at 1.7% year-on-year in February. The index, which is one of the Fed’s preferred measures of inflation, accelerated sharply towards the end of last year but the Fed as of yet remains unconvinced whether this rise will be sustained.
On Tuesday, the latest consumer confidence data from the Conference Board is expected to show an improvement for March after a surprise weak reading in February.
The all-important jobs report will likely dominate Friday but also to watch for on the last day of the week is the ISM manufacturing PMI. The index dipped below 50 in November, indicating that manufacturing activity has been contracting since. But after a notable improvement last month, the index is forecast to show a slight expansion for March at 50.3. Meanwhile, jobs growth is forecast to ease from 245k to 200k in March, though this would still represent a healthy pace.
The unemployment rate is expected to stay unchanged at 4.9%, while average hourly earnings is seen to be accelerating to 0.2% month-on-month following a 0.1% drop in February. A stronger-than-expected payrolls or earnings figures are likely to fuel the dollar’s recent gains, which came about after some Fed officials sounded more upbeat about US growth and inflation prospects.
Major data out of Japan next week will include unemployment and retail sales on Tuesday, and industrial production on Wednesday. The preliminary reading for industrial production is expected to show output contracting by 5% month-on-month in February. The Bank of Japan had recently downgraded its outlook for exports and production. A large negative reading could be a sign that Japan is about to enter another technical recession.
Also to be watched next week is the and survey, which measures the business conditions and outlook across the country. The report is expected to reveal slightly weaker conditions for the first quarter of 2016 compared the fourth quarter. More lacklustre data out of Japan is likely to add pressure on the Bank of Japan and the government for further stimulus measures, especially given the yen’s recent appreciation.
In the Eurozone, euro area unemployment figures are out on Tuesday as well as the final Markit PMI readings for March on Friday. But the focus is likely to be on the flash inflation data due on Thursday. The preliminary CPI reading is expected to show Eurozone inflation rising to -0.1% in March from -0.2% in February. Earlier this month, the European Central Bank announced a fresh round of stimulus measures to help stave off deflation across the Eurozone.
Inflation across the euro area fell back into negative territory in February, prompting the ECB for more aggressive measures. However, the euro has failed to respond to the looser monetary policy and has been stuck in a year-long range against the dollar. The resilience of the single currency against further depreciation may be lessening the impact of the ECB’s policies on Eurozone exporters.
Finally, manufacturing PMI data out of China will be interesting to watch on Friday as there has been no evidence yet that recent reforms by the government and a weaker yuan have started to benefit China’s beleaguered manufacturing sector.
The official manufacturing PMI has been in contraction territory below 50 for the past seven months, while the Caixin measure has shown activity declining for the past year. Although China’s economy does not appear to be heading for a hard landing, the ongoing slowdown continues to weigh on the growth outlook for other emerging economies as well as on commodity prices.