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WEEK AHEAD PREVIEW: Highlights include FOMC, ECB, RBA minutes; US, UK, Aussie retail sales; Flash PMIs, Germany ZEW; EZ GDP, labour data; UK inflation

  • SUN: Japanese GDP
  • MON: Eurogroup meeting; US Holiday Washington's Birthday
  • TUE: RBA Minutes (Feb); German ZEW Sentiment (Feb); EZ GDP Flash Estimate (Q4) and Employment Flash (Q4); Japanese Trade Balance (Jan)
  • WED: FOMC Minutes (Jan); UK Inflation (Jan); US Retail Sales (Jan) and Industrial Production (Jan); Canadian CPI (Jan)
  • THU: ECB Minutes (Jan); CBRT Policy Announcement; Australian Labour Market Report (Jan); EZ CPI Final (Jan); US Philadelphia Fed (Feb); Japanese CPI (Jan); Norges Bank Governor's Annual Address
  • FRI: Australian Retail Sales (Jan); UK Retail Sales (Jan); EZ, UK, US Flash PMIs (Jan); Canadian Retail Sales (Dec)

NOTE: Previews are listed in day-order

JAPANESE GDP (SUN): Analysts expect preliminary Q4 GDP will rise by 2.3% Q/Q (prev. 5.3%) and expect annualized GDP at 9.5% (prev. 22.9%). Forecasts for a moderation in growth in Q4 follows the sharp rebound in Q3, where the economy recovered from Q2's historic slump, and exited a recession, with activity boosted by the lifting of a previous nationwide state of emergency. Since then, the data has been mixed with retail sales softening in December to a contraction of 0.3% Y/Y from growth of 0.6% Y/Y in November and Household Spending fell 0.6 Y/Y although still expanded by 0.9% M/M. Furthermore, preliminary industrial production data for December showed a steeper than expected decline at -3.2% Y/Y (exp. -3.1%) but exports were more encouraging with growth of 2.0% (exp. 2.4%) which despite missing expectations, was still the first increase in more than two years. These mixed readings are unlikely to cause any alarm bells for the upcoming Q4 GDP data, although analysts are less optimistic looking ahead with many research institutes anticipating the likelihood of a contraction in Q1 after Japan imposed a state of emergency for Tokyo and ten other prefectures in early January due to a third wave of the virus outbreak.

RBA MINUTES (TUE): The minutes of the January meeting will likely be overlooked given the slew of central bank commentary since the confab at the start of February – including the SOMP and the RBA Governor’s keynote speech. To recap, the February 2nd meeting saw the central bank maintain the Cash Rate Target and 3yr yield target at 0.10% as expected, although it announced that it is to purchase AUD 100bln of bonds when the current program expires in April, with the additional purchases to be at AUD 5bln per week – this would be a repeat of the current programme. RBC notes “the message from the RBA in the first week of February was strong, consistent, and unambiguously clear, as it announced QE2 and signalled a prolonged period of low rates”, with the minutes likely to echo this sentiment.

UK INLFATION (WED): Headline CPI is forecast at 0.5% Y/Y (prev. 0.6%) with the core Y/Y reading seen falling to 1.2% from 1.4%. Economists continue to expect a rising path for inflation in the UK, however, this forecast is not expected to be borne-out in the January print. This viewpoint was reflected in the BoE’s latest Monetary Policy Report, with the Committee expecting Q1 Y/Y inflation to average just 0.8% compared to the 1.6% seen in Q2. For now, VAT reductions and prior declines in energy prices will continue to suppress price growth. RBC highlights the moves taken by retailers during the January lockdown which saw companies impose heavy discounting to attract sales; a factor which will likely place an additional drag on inflation. However, as the energy and VAT effects are removed from the annual comparisons, CPI should rise over the course of the coming months. That said, any hawkish impulses at the BoE from a rise in prices are likely to be tempered by uncertainty surrounding the UK’s recovery.

FOMC MINUTES (WED): The Fed left rates unchanged, as expected. It also tweaked its characterisation of economic activity, now stating that “activity and employment moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic”, acknowledging some of the weakening in momentum observed late Q4/early Q1 (previously it said “economic activity and employment have continued to recover but remain well below their levels at the beginning of the year”). It also introduced language indicating that it is focusing on the progress of vaccinations, perhaps in an acknowledgement of this week’s positive developments on the number of doses to be made available in the US by the Spring, a timeline sooner than many were anticipating. With regards to inflation, the statement removed the reference to the pandemic weighing on inflation in the “near-term”, perhaps signalling its expectation that after the spike higher in March/April/May (on pandemic base effects), it expects inflation to remain constrained into the end of the year. Elsewhere, the Fed said it would no longer offer its regular one-month term repo operations as of 9th February, likely as market functioning has normalised after the initial tensions observed last year. Much of what Chair Powell said at his press conference was a copy/paste job from the December meeting, recent commentary, as well as sentiments expressed by Fed Governors of late. The initial questions aimed at Powell related to the upside seen in a few specific stocks (read: GME); Powell batted-off these questions, reiterating that the Fed monitors market stability more broadly, and that financial stability vulnerabilities were moderate at present. Powell also suggested a preference for using macroprudential tools (rather than monetary tools) to deal with financial stability. Powell repeated his recent arguments that spikes higher in inflation over the coming months were likely a result of base effects from the pandemic, and any spurt in consumer spending as lockdowns were lifted, were likely to be transitory. He also repeated his recent view that if there was an unwelcome rise in inflation, the Fed has the tools to deal with it, but he did not expect that. The Fed chair stated that the central bank was not going to adopt a formulaic approach to inflation, in a sign that the Fed wanted to maintain flexibility in its reaction function. More broadly, Powell repeated that the pandemic represents considerable downside risks in the near-term, citing difficulties in modelling new strains of the virus as an example; the base case is for a strong economy in the second half of the year, but even this was subject to downside risks. He said the Fed wanted to see improvements in the actual data, not just the outlook, before it begins to tighten policy. That appears to be a long way off, given that the economy was still a long way from its policy goals, and it would take substantial further progress for these to be achieved. Powell argued the policy stance was ‘just right’, providing significant support for the economy. He reiterated that there was more that the Fed could do with bond purchases if appropriate, alluding to potential extension of weighted average maturities of asset purchases; he also felt it was far too soon to be talking about a policy exit or asset purchase tapering, something that would be signalled well in advance to prevent surprises.

US RETAIL SALES (WED): After a run of three consecutive declines, retail sales are seen rising by 0.7% m/m in January, the ex-autos measure is seen up 0.8% m/m, while the control group is seen rising 0.4% in the month. Credit Suisse says the upside will likely be driven by the fiscal support at the end of last year, where Americans were handed USD 600 direct payments. The bank notes that high-frequency metrics have been pointing to decent consumer spending in the first two weeks of the year, while mobility indicators are pointing to some stabilisation. CS says "more fiscal stimulus is likely in the near term, which should continue to drive strong consumer spending growth despite continued lockdown measures," though accepts that "new variants of the virus pose downside risks of more stringent lockdowns, but for now, solid income growth should support retail sales." Other analysts have been paying close attention to consumer-metrics, to assess the extent to which consumers will be able to rebound and begin consuming again; any caution from the consumer may raise hurdles for drawing down savings rates, and thus the mood of the consumer poses risks for the recovery, of course.

CANADIAN CPI (WED): RBC forecasts Canadian CPI will rise by 0.1% in January, which would be enough to nudge the annual rate 0.1ppt higher to 0.7% y/y. "A seasonal pullback in the air transportation category is expected in the month, though last month saw a smaller seasonal increase than is typical for the category in December, leading us to pencil in less of a decline in January than seasonals would normally imply," the bank writes. RBC says the BoC's core inflation metrics have held up well in the pandemic, although they have seen downside in the last two months, sitting at an average of 1.7% in December; "Given that January last year saw an above-trend increase in the core measures, we would expect them to either hold steady or move slightly lower this month," RBC writes.

ECB MINUTES (THU): As was widely expected, the ECB kept monetary policy settings unchanged whilst reconfirming its “very accommodative monetary policy stance”. The ECB made a new addition to its statement, noting that “if favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full”. At the follow-up press conference, President Lagarde’s opening remarks echoed comments made in the week prior to the meeting, with the ECB chief noting that incoming data confirmed the central bank's baseline outlined in December. Despite the tightening of lockdown restrictions since the previous meeting, Lagarde said that policymakers took some comfort in the Brexit deal which was announced late December, the vaccine rollout, and the upcoming disbursements from the recovery fund. That said, the ECB continued to see growth risks still tilted to the downside, though less pronounced. On the EUR currency, the ECB noted it will continue to monitor developments in the exchange rate given the potential implications for inflation. Elsewhere, the press conference was a relatively tame affair with policymakers clearly of the view that for now, they have provided all the stimulus that they can do, and wish to see how the vaccine rollouts progress before taking a more quantitative assessment in March via its next round of economic projections. As such, the upcoming account should offer little in the way of insight into potential further action to be taken at the Bank.

CBRT PREVIEW (THU): There are currently no consensus expectations as to what the CBRT could do at the policy meeting next week, whilst early forecasts range from a hold to a modest hike in the key rate following comments from the central bank’s head last week, where he noted that rate cuts were not on the table, but a rate hike could be on the cards subject to inflation being above the forecast path. The Governor added that policy would feature a strong disinflationary bias and that January has shown upward risks to the inflation forecasts – whereby headline CPI Y/Y came it at 14.97% vs exp. 14.68%. The central bank expects end-2021 inflation at 9.4%, followed by 7% at the end of 2022 and 5% at the end of 2023, which marks the target accomplishment. Desks note that despite commentary surrounding upside risks to inflation, the MPC refrained from adopting an overt hawkish bias in its previous statement, which could suggest that it does not plan to tighten policy soon; however, some argue that the CBRT left the door open amid the shifting economic dynamics. Some also highlight that the government’s decision to increase the minimum wage by 22% in December is poised to add between 1.5-2ppts to headline inflation in 2021. Nonetheless, analysts at Credit Suisse are sceptical that the MPC will deliver the required tightening; “In our view, the most likely scenario is for the MPC to keep the policy rate unchanged at 17.00% through mid-2021 and ease gradually in 2H 2021,” the bank says.

AUSTRALIAN LABOUR MARKET REPORT (THU): The headline employment figure is expected to show the addition of 40k jobs in January vs +50k in December, with the unemployment rate forecast tick lower to 6.5% from 6.6%, while the participation rate is seen steady at 66.2%. Desks note that the gains in the prior month were expected as the Victorian state’s reopening in November suggested a positive employment run into the year-end, albeit on Friday, the Victoria State Premier announced stage 4 restrictions from midnight for five days, and highlighted 19 active COVID-19 cases in the state, with this blip likely to be seen in next month’s data. Westpac notes that the weekly payrolls data has been pointing to a notable early-January seasonal drop, thus the bank expects a more modest addition of 10k in the headline metric, whilst expected the unemployment rate to remain steady as “the current pace of growth in the working age population means a 10k gain in employment is enough to hold the unemployment rate at 6.6%.”

JAPANESE CPI (THU): Japanese National CPI data is expected to remain subdued following the 1.2% decline in December, and a 1.0% drop for Core CPI, which was the sharpest decline in over a decade. The downward pressure on prices in December was partly due to weaker demand amid the ongoing pandemic, lower energy prices and the government’s Go to Travel campaign which provides subsidies for domestic travel including transport, hotels, restaurants, and tourist attractions. Nonetheless, Japan has since suspended the Go To Travel program nationwide from December 28th, which was initially to be halted for just 2 weeks but was eventually extended to March 7th amid a state of emergency declaration for 11 of Japan's 47 prefectures including its capital Tokyo. The suspension of the subsidy program would therefore alleviate some of the pressure on prices although at the same time, the emergency declaration would likely impact demand and prices. In terms of Tokyo CPI data which is seen as a leading indicator for the incoming national inflation data, this remained negative for January with headline Tokyo CPI at -0.5% vs. Exp. -0.3% (Prev. -1.3%) and Tokyo Core CPI at -0.4% vs. Exp. -0.6% (Prev. -0.9%), although the declines were not as steep as December.

NORGES BANK GOVERNOR ADDRESS PREVIEW (THU): As is customary, the title of the remarks will be ‘Economic perspectives’. Governor Olsen’s speeches typically frame the current economic situation, covering oil, inflation, the NOK, and a multitude of other areas within a broader historical context. As such, while the address usually does not provide ‘new’ insight into domestic monetary policy it can prove useful in terms of framing how much emphasis and relative weighting the Governor is placing on the current environment; both from a domestic and global perspective. Focus points will be the recovery in oil prices and particularly its impact on the NOK for any read across into the Bank’s repo path; factors which, alongside recent domestic data, could be argued as a justification for a further lifting of the repo path – which currently implies a 10bp move in June’22 and a 25bp move in September’22. Finally, the Norges Bank is next month scheduled to publish a list of companies which are under observation as part of a broadening of the criteria around ethics scrutiny for the fund’s holdings, specifically targeting companies/sectors with accusations of corruption surrounding them. Therefore, the Governor’s address will be watched for any hat-tips on this front; note, companies within the shipping and mining industries have been touted for potential watchlist inclusion.

AUSTRALIAN RETAIL SALES (FRI): The prelim January retail sales is expected at 2.0% M/M (prev. -4.1%). Analysts note the December's contraction was influenced by virus-related measures imposed late in the month alongside softness post-Black Friday in November. “The monthly profile of sales remains very choppy with more noise likely near term as further virus-related disruptions impact (a 3-day lockdown in Brisbane in Jan, a 5-day lockdown in Perth and more restrictive measures in Melbourne in Feb)”, Westpac says. However, this is bound to have a less disruptive impact when compared to the peak of the first COVID-19 wave – hence the bank’s forecast is in-line with the market.

UK RETAIL SALES (FRI): Retail sales in January are seen declining -1.0% M/M vs. a previously tepid expansion of 0.3% with the core metric forecast at -0.5% (prev. 0.4%). Expectations for a more pessimistic outturn for the upcoming release are likely a by-product of the nationwide lockdown imposed at the beginning of the month. This trend was seen in the BRC release last week which noted that “January saw retail sales growth decline to its lowest level since May of last year. The current lockdown has hit non-essential retailers harder than in November...". The Barclaycard UK consumer spending report also highlighted the softest print since May as the lockdown took effect, whilst noting that "in-store retail spend fell by 24.2%, while online retail spending rose by 73.2%".

EZ FLASH PMI (FRI): Given that lockdown restrictions across Europe in February have been largely unchanged from those seen in January, the upcoming report is set to paint a similar picture to the prior release. The theme in the Eurozone continues to be one of differing fortunes of the manufacturing vs the services sector, with the former subject to less stringent lockdown measures. Accordingly, the manufacturing metric is forecast at 54.5 (prev. 54.8) and services at 45.9 (prev. 45.4), leaving the composite at 48.1 (prev. 47.8). From a policy perspective, the upcoming report is unlikely to have much sway on the ECB with the message from the most recent meeting very much being one of policymakers feeling that they have done all they can for now to support the recovery and now need to see what shape the recovery takes in the coming months.

UK FLASH PMI (FRI): As is the case for the Eurozone release, little in the way of material change is seen in February compared to the January release as lockdown measures remain firmly in place. Also, in comparison to the Eurozone report, the manufacturing sector is expected to continue to outperform services with the former forecast at 53.5 (prev. 54.1) and the latter seen at 40.8 (prev. 39.5), leaving the composite at 42.0 (prev. 41.2). The UK’s vaccination campaign continues to draw praise from plaudits; however, it is yet to bear any fruit for the UK economy with the all-important services industry still mostly shuttered. February 22nd will see UK PM Johnson present his roadmap out of lockdown; however, this is likely to be case/vaccine contingent as opposed to prior announcements that have focused more explicitly on specific dates. As such, uncertainty will likely continue to cloud the UK economy for the coming months until greater clarity on the UK’s reopening plans can be provided.

CANADIAN RETAIL SALES (FRI): According to the StatsCan flash estimate, Canadian retail sales are expected to decline by 2.6% m/m in December, as Canada imposed increased pandemic restrictions in the month. RBC says its Consumer Spending Tracker data suggests that declines should be pronounced in clothing and entertainment goods. "Note that despite sizable declines in retail and wholesale trade in the flash’ estimates, the December GDP nowcast was still earlier set by StatsCan at +0.3% m/m; ahead the bank says that "for January, more complete lockdowns should give a downward bias to a new retail ‘flash’ estimate, though we think down 1–2% m/m is reasonable."