Macroeconomics: The Day Ahead for 15 March

A relatively busy day for statistics awaits, but with so many major central bank meetings and key statistics next week, markets may choose to hunker down ahead of all that event risk. From the overnight session there are Japan trade union Rengo’s data on wage settlements, the as expected no change PBOC 1-yr MTLF and Home Prices, Indonesia Trade and French final CPI to digest ahead of UK BoE Inflation Expectations, Brazil’s Services Output, and a busy run of US data: Import Prices, NY Fed Manufacturing, Industrial Production and provisional Michigan Sentiment, and there is a smattering of ECB speakers. Next week brings a central bank policy meeting bonanza, with the Fed and BoJ at its centre, but with the RBA, BOE, SNB, Norges Bank, Turkey’s TCMB, Brazil’s BCB and Banco de Mexico also on tap. The statistical schedule has China’s Retail Sales, Industrial Production, FAI and Property Investment; UK CPI, PPI, Retail Sales and PSNB; US NAHB Housing Market Index, Housing Starts and Existing Home Sales; G7 and India flash PMIs; Japan National CPI and Trade; Canadian CPI and Australian labour data, while energy markets look to the CERAWeek conferences.

Japan’s Rengo Trade Union has reported an average wage increase of 5.28% y/y, the highest in 33 years, and well above analyst expectations of 4.0-4.5%, and as such this unsurprisingly puts markets on high alert for the BoJ ending negative rates and Yield Curve Control (YCC) at next week’s policy meeting. But the devil will be in the details of how it plans to reduce its QE programme. Ending ETF purchases is guaranteed, but these have slowed to a trickle, and as much as they may drop YCC, they will maintain the option to intervene in the JGB market.

** China **

The PBOC 1-yr MTLF operation at an unchanged 2.50% was no surprise, but the net CNY 94 Bln withdrawal was, though the PBOC was also quick to assure markets: “The central bank has no intention of actively draining cash”, suggesting it may have largely reflected some ‘tidying up’ after the usual pre LNY holiday injection. Of greater concern for the PBOC and govt authorities was the fall in new and used home prices at a similar pace to January’s falls, despite the ‘whitelist’ mechanism to boost bank lending for residential property developers, the relatively sharp cut in the 5-yr LPR and other measures to reduce initial deposits. The long LNY holiday will have dampened sales volumes, and there should be some improvement in the March data, but the underlying lack of confidence is all too plain to see, and next week’s Property Sales and Investment data will likely make for grim reading.

** U.S.A. – Import Prices, Industrial Production; NY Fed Manufacturing, Michigan Sentiment **

With CPI and PPI again topping forecasts on headline and core readings, the risks for today’s Import Prices are clearly to the upside of expected 0.3% m/m headline, above all given the evident pressure from energy prices, though the uptrend in goods prices PPI also implies that the ex-Petroleum measure will be higher than the anticipated -0.2% m/m, despite some dampening from the USD’s firmer profile on the month. Industrial Production is seen flatlining m/m, but Manufacturing Output should largely reverse January’s fall with a rise of 0.4%, with auto output likely to give a boost, though the fall in the ISM Production and Orders indices imparts downside risks, while Utilities should be seasonally subdued given above average temperatures. The wild m/m swings in the NY Fed Manufacturing survey render it a poor proxy for sector activity, with a modest fall to -7.2 from February’s -2.0 expected. Michigan Sentiment is forecast to be little changed at 77.1, but the focus will likely to be on the inflation expectations measures, with the 1-yr seen edging up to 3.1% from 3.0%, paced by the rise in gasoline prices and the rise in CPI, but long-term expectations are expected to be unchanged at 2.9%.