Macroeconomics: The Day Ahead for 21 March

ollowing on from the Fed, a further rash of central bank policy meetings headlined by the BoE and SNB dominate the day’s proceedings, and will be accompanied by G7 ‘flash’ PMIs, UK PSNB, US Philly Fed Manufacturing, weekly jobless claims and Q4 Current Account, as the overnight Australian labour market report is digested, and the EU starts a two day leaders’ summit. A busier day for corporate earnings features reports from China Mobile, China Citic Bank, CNOOC, BMW, Enel, FedEx, Nike and Lululemon Athletica. Govt bond supply is quite plentiful with multi maturity sales in France (including I-L), Spain and Ireland, while the US auctions $12 Bln 20-yr. Outside of the BoE & SNB, Norges Bank is expected to hold rates at 4.50%, but lower its rate trajectory modestly, though still indicating no change in rates until late in Q3, with most expecting a 25 bps cut in September, and one further cut in Q4. Turkey’s TCMB is seen holding rates at 45.0% for a second month, but will likely continue to tighten reserve requirements and bank regulations, particularly with February CPI rising more than expected (headline 67.1% y/y, core 72.9% y/y), and the relatively sharp drop in the TRY over the past month, per se the risk of a further rate hike are all too clear. Last but not least, Banco de Mexico is expected to finally initiate a rate cutting cycle with a modest cut of 25 bps to 11.0% expected, in effect signalling that it does not intend to follow the more aggressive rate cut cycles that have been seen in Brazil, Chile and latterly Colombia, and reflecting the fact that while CPI has fallen sharply, at 4.4% y/y headline and 4.6% y/y core it still remains well above Banxico’s 3.0% target.

** G7 – March ‘flash’ PMIs **

– Asia’s PMIs were very encouraging, above all gathering strength in Services in both Japan and Australia, even if the improvement in Manufacturing still implies contraction, while India’s PMIs were very robust, above all the jump in Manufacturing. In the Eurozone the ‘flash’ PMIs are forecast to eke out further marginal gains (Manufacturing 47.0 vs. 46.5, Services 50.5 vs. 50.2), echoing the uptick seen in today’s French Business Confidence, and signalling greater optimism about the outlook, even if hard data are for the time being at best troughing, rather than signalling any real upward momentum. In the UK PMIs are expected to see Manufacturing improving marginally to 47.8, while Services are seen unchanged at a solid 53.8, the latter however does not include public services, such as healthcare and public transport, which remain an intermittent drag on the Index of Services due to long standing labour disputes. Meanwhile in the US, PMIs are expected to ease very fractionally to 51.8 for Manufacturing and 52.0 for Services.

** Switzerland – SNB rate decision **

– The consensus expects the SNB to leave its policy rate unchanged at 1.75%. But with inflation now well below target at 1.2% y/y, and core CPI at 1.1% y/y, and the economy looking increasingly sluggish, and remembering that the SNB only meets quarterly, there is a chance that it may steal a march on other major central banks with a 25 bps cut. Of particular note will be its evaluation and policy implications of the relatively sharp CHF losses since early February, in no small part due to its own intervention, following the unwelcome CHF strength in December.

** U.K. – BOE rate decision **

– Yesterday’s lower than expected headline and core CPI was more welcome news for the BoE, but the smaller then expected fall in Services CPI at a still very ‘sticky’ 6.1% y/y will remain a concern, even if last week’s drop in Average Hourly Earnings, and a clear deceleration in XpertHr’s wage settlements data and expectations confirm that the broad swathe of price and wage indicators are on a clear downtrend. Unsurprisingly MPC is expected to hold rates at 5.25%, and stick with its current narrative that the next move in rates will be lower, but continue to offer little or no guidance on when. The vote may also see a shift, with that drop in Average Earnings likely prompting Haskel to drop his rate hike vote resulting in a 1-7-1 split (Mann voting for a hike, Dhingra for a cut) after February’s 2-6-1. The minutes are also likely to suggest that CPI and wage are likely to come in below February’s forecasts, and generally prize the door to a rate cut a little wider.