WRAP: Last week's news flows delivered mostly hopeful signals from the world's advanced economies -- strong jobs growth continuing in the U.S., more signs that the eurozone is tentatively coming back to life in business survey data, and some similarly tentative signs in Japan. The risk factor now for the global economy is China, where a downgraded full-year government growth forecast took some by surprise last week. China's National Congress continues this week, where investors will look to clues as to how the government is managing the economy's transition from an investment-led growth model to one of consumption. Meanwhile, as the National Association of Business Economics conference gets underway in Washington, attention will continue to go on the outlook for a U.S. interest hike from the Fed, with retail sales and producer price data later in the week helping to shape those expectations.
By Michael J. Casey
MONDAY
EUROZONE: Time N/A. Eurogroup Meeting of eurozone finance ministers.
Greece remains a hot topic, even with the recent debt rollover agreement. The nuts and bolts of that deal still need to be worked out in a highly contentious political environment.
U.S.: 2:30 p.m. EST. Federal Reserve Bank of Cleveland President Loretta Mester speaks at NABE conference.
Since she joined the Fed last year, Ms. Mester has positioned herself as something of a centrist on the Federal Open Market Committee. She voted with the majority on the FOMC but sent occasional signals of hawkish leanings. She is no longer a voter, but with the FOMC consensus going through an important transition as it heads toward a rate hike, the views of such people matter.
CHINA: Time N/A, all week long. National People's Congress continues.
This annual parliament gathering will continue through the week. Last week it generated news for markets: a downgrade in the government's annual GDP forecast, which hit the price of key industrial commodities that depend on Chinese demand, such as iron ore. Other issues that are paramount: the outlook for financial liberalization and the prospect for stimulus measures, both of which may have to go hand in hand to prevent changes such as free-floating interest rates from causing too much damage in the banking sector.
CHINA:
--9:30 p.m. (9:30 a.m. Tuesday, Beijing). February consumer price index. [In January CPI was +0.8% on-year, +0.3% on-month.]
--9:30 p.m. (9:30 a.m. Tuesday, Beijing). February producer price index. [In January PPI was -4.3% on-year, -1.1% on-month.]
China is not immune from the deflationary forces holding back producer price indicators worldwide due to the past year's plunge in oil prices. The question, as with those other places, is whether it is feeding into consumer prices and whether it poses the risk of becoming an entrenched phenomenon with negative implications for spending incentives. For now, that doesn't appear to be the case. CPI data are holding positive and had a nice jump last month, and consumer spending -- though far from the rapid expansion that China needs -- is growing. China's leaders, who will treat this year's National People's Congress as a forum to pursue policies that foster a transition from investment-led to consumer-led growth, have an abiding interest in ensuring that China's consumers not only keep spending but increase their outlays.
TUESDAY
JAPAN: 2 a.m. EST. (3 p.m, Tokyo) February preliminary machine tool orders. [In January, orders were down 16% on-month but up 20.4% on-year.]
Last month's slowdown was an understandable correction from the aggressive increase in orders over the past year, but it will be important to see whether there was a stabilization in February to confirm that this important leading indicator of future investment has continued on its upward path.
CHINA: Time N/A. National People's Congress continues.
FRANCE: 3:45 a.m. EST (8:45 a.m, Paris) January industrial production index. [Expected -0.4% on-month vs +1.5% in December.]
France's status as the sick man of Europe continues, or so the forecasts for this indicator suggest.
DENMARK: 4 a.m. EST. (9 a.m., Copenhagen). February consumer price index. [In January, CPI on harmonized EU basis was -0.3%, -0.6% on-month.]
Denmark's central bank has re-affirmed its reputation for being willing to pursue unorthodox policies, having pushed rates back into negative territory to hold back upward pressure to break the krone's peg to the euro and arrest a deflationary trend in its economy. As of last month at least, the CPI data suggested that it wasn't yet paying dividends. Whether the rate cut, combined with a slowing in the pace of oil price declines, helped in February will be revealed in this report.
ITALY: 5 p.m. EST. (10 a.m. EST, Rome). January industrial production. [Industrial output expected +0.2% on-month vs. +0.4% in December; expected +0.2% on-year vs. +0.1% in December.]
The worst of Italy's economic decline may be over but it needs to see a stronger recovery than what economists are forecasting.
U.S.: 9 a.m. EST. National Federation of Independent Business February Index of Small Business Optimism. [Index in January: down 2.5 points to 97.9.]
Despite last month's drop, the NFIB optimism index continues to register significantly healthier levels of small-business confidence than just six months ago. It's a mark of how the climate has changed, since small businesses had until now seriously lagged the recovery enjoyed by big businesses after the financial crisis.
U.K.: 9:30 a.m. (2:30 p.m., London). Bank of England Governor Mark Carney appears before Lords Committee
This will have less to do with monetary policy and more to do with the Serious Fraud Office's investigations into whether some of the Bank of England's cash auctions to banks during the 2007-2008 financial crisis were rigged. It's not the first crisis-era scandal to embroil the BOE and although they all precede Mr. Carney's appointment to its helm, the string of probes has put the governor under pressure to defend his organization.
U.S.: 10 a.m. EST. Bureau of Labor Statistics' January Job Openings & Labor Turnover Survey.
The most recent JOLTS survey offered one of the most compelling indications that the U.S. labor market is returning to strength. It showed that businesses hired 5.1 million people in December, the most since the pre-crisis month of November 2007 and that job openings were at a 14-year high. The ratio may have dropped off in the post-holiday seasons, but economists are looking for further confirmation that the labor market has tightened in a way that could spur wage inflation and entice the Federal Reserve into raising rates.
JAPAN: 7:50 p.m. (8:50 a.m. Tokyo, Wednesday) January orders received for machinery. [In December, orders were +8.3% on-month, +11.4% on --year.]
On the surface, last month's giant jump in orders suggests that businesses have suddenly gotten interest in making capital investments. Given that this is a leading indicator for industrial activity, that would obviously be good news. The question is whether the data were distorted by either seasonal or one-off big-ticket orders. If there were to be another strong number for January, that would help to confirm that Japan's economy is emerging from its slump.
EUROZONE: Time N/A. Council of the European Union's ECOFIN meeting of EU finance ministers continues.
WEDNESDAY
CHINA: Time N/A. National People's Congress continues in China.
CHINA: 1:30 a.m. EST. (1:30 p.m, Beijing)
--February fixed assets investment. [In January, investment was up 17.9% on-year.]
--February retail sales. [In January, +0.71% on-month, +11.35%]
--February industrial output. [In January, +0.61% on-month, +6.15% on-year.]
January represented an acceleration in the pace of on-year growth for fixed-asset investment, which had cooled in December to show a 15.7% annualized gain, slower than the 19.6% posted in 2013. Economists had pointed to the earlier slowing as a sign that China is transitioning from its dependence on investment-led growth to a greater role for consumption, but the more recent data suggest that it is still the country's main economic driver. Retails sales represent the other side of that equation, since the country needs them to stay strong to offset the necessary slowdown in investment. But they slowed to an 11.35% rate of on-year growth in January from 11.9% in December. If this shift can't be managed properly, measures of growth in employment-relevant indicators such as industrial production will eventually suffer. Already it is showing signs of slowing, having dropped in January on an on-year basis from a 7.9% growth rate in December.
SWEDEN: 4:30 a.m. (9:30 a.m., Stockholm.) February consumer price index. [In January, CPI was -1.1% on-month, -0.2% on-year.]
Some believe that the Sveriges Riksbank made a Japan-like policy mistake by waiting too long to ease monetary policy in the face of deflationary threats. The Swedish CPI data are helping those people make their case.
NEW ZEALAND: 4 p.m. EST. (9 a.m. Auckland, Thursday). Reserve Bank of New Zealand Monetary Policy Statement.
New Zealand's central bank has done an about-face this year and started signaling a bias toward easing policy if its terms of trade continue to deteriorate. Now that its Australian counterpart has cut rates and is talking down the Aussie dollar with hints of doing more, there's a decent chance that the RBNZ will follow up on that. It could join other central banks around the world that are easing monetary policy to soften the upward pressure on their currencies and stave off the threat of deflation.
SOUTH KOREA: 9 p.m. EST (10 a.m Seoul, Thursday). Bank of Korea Monetary Policy Committee meeting & decision.
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March 09, 2015 06:00 ET (10:00 GMT)
South Korea's central bank resisted pressure to cut rates as its economy softened through the latter half of last year. There have been inklings of a recovery this year, so that's likely to keep things on hold. But with China slowing and the rest of the Asia-Pacific region in monetary easing mode, exporters will continue to pressure the BOK to do more to weaken the won.
THURSDAY
CHINA: Time N/A. National People's Congress continues in China.
JAPAN: 1 a.m. EST (2 p.m, Tokyo) February consumer confidence survey. [Previous index: 39.1]
There are various missing puzzle pieces in the effective implementation of Prime Minister Shinzo Abe's "Abenomics" reforms, but one of the most important is the refusal of the Japanese consumer to get with the program. Japan's consumers need to boost their willingness to spend if the economy is to break out of its long-running exposure to deflation.
GERMANY: 3 a.m. EST (8 a.m, Berlin). Final February CPI. [Expected +0.9% on-month, unchanged from preliminary reading vs. -1.1% in January; expected +0.1% on-year, unchanged from preliminary vs. -0.4% in January.]
Germany's economy is recovering, and that -- along with stabilizing oil prices -- is hopefully helping to arrest the deflationary pressures that had been building in the economy.
SPAIN: 4 a.m. EST (9 a.m, Madrid) February CPI. [Expected -1.2% on-year on an EU-harmonized basis, unchanged from preliminary, vs. -1.5% in January.]
Spain's economy has shown signs of improvement but the legacy of the crisis, coupled with falling energy prices, has produced a deflationary result in its consumer price data. That cycle needs to be broken. At least the most recent data suggest that the slide in prices could be bottoming out.
EUROZONE: 6 a.m. EST (11 a.m, Brussels). January industrial production. [Expected +0.2% on-month vs. no change in December; expected +0.1% on-year vs. -0.2% in December.]
Economists will be expecting more signs that the eurozone is recovering, though their forecasts don't predict that this is happening with any great strength.
U.S.: 8:30 a.m. EST.
--Advance February retail sales. [Expected +0.3% on-month vs. -0.8% in January; ex-autos expected +0.6% on-month vs. -0.9% in January.]
After January's disappointment, economists expect lower gasoline prices, a better jobs market and low interests rates to have powered a rebound in consumer spending last month.
--Weekly unemployment insurance claims. [Expected initial claims 305,000 vs. 320,000 last week.]
Weekly claims have risen a bit in recent months but not enough to suggest that the labor market is losing steam. If anything, claims numbers are returning to a more normal path, closer to the 300,000 average that's often seen as the benchmark for fluid marketplace.
FRIDAY
U.S.: 8:30 a.m. EST. February producer price index. [PPI expected +0.3% on-month vs -0.8% in January, core PPI expected +0.1% vs. -0.1% in January.]
Producer prices have borne the brunt of the energy price impact on measured inflation. So with crude prices stabilizing in February, they are now expected to have also shown signs of stabilizing. But that's not to say that American producers have suddenly discovered pricing power.
POLAND: 9 a.m. EST. (2 p.m, Warsaw) February consumer price index. [In January, the CPI was -0.2% on-month, -1.3% on-year.]
Persistent deflation was given as the reason why the central bank slashed its benchmark rate to 1.5% from 2% last week. These data will likely confirm the concerns that led to that action.
U.S.: 10 a.m. EST. University of Michigan mid-March consumer sentiment survey. [Index expected 95.5 vs. 95.4 end-February.]
The ingredients remain in place for an upbeat U.S. consumer: lower gasoline prices, low interest rates, improving jobs outlook, a rallying stock market.
(END) Dow Jones Newswires
March 09, 2015 06:00 ET (10:00 GMT)
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