Economic data from Japan and the United States will comprise the bulk of next week’s releases. Australia, Canada, the Eurozone and the United Kingdom will also see important data releases. But the main focus will be on Fed Chair Jerome Powell’s first semi-annual testimony before Congress. Anxious market participants will be seeking clarity on Fed policy as stock markets are still reeling from the sharp sell-off in early February, while the dollar continues to defy rising US yields by showing no sign of breaking out of its downtrend.
Australian capex figures eyed for GDP clues
Data on capital expenditure due out of Australia for the fourth quarter will be watched on Thursday as it is usually a good indication of GDP growth. Private sector lending numbers for January on Wednesday will also be important.
Over in New Zealand, investors will too get the chance to bet on fourth quarter GDP performance as data on the country’s terms of trade are published on Thursday. Monthly trade numbers are also out, due on Monday.
Surprises in the data may cause some limited fluctuations in the local dollars but are unlikely to alter the outlook for interest rates in the respective countries, while in the short term, the greenback and global risk sentiment are bigger drivers for both the aussie and the kiwi.
Loonie looks to Canadian GDP for relief
The Canadian dollar has taken a battering over the past month, tumbling from a 4-month top to a 2-month trough during the period. An anticipated slowdown in economic growth in the final three months of 2017 has been one of the main reasons for the loonie’s decline. However, the interest rate outlook could be subject to a dramatic shift on Friday if the fourth quarter GDP figures were to come in above expectations. A weak reading on the other hand could extend the loonie’s decline.
Japanese job market to tighten further
Japan will come under the spotlight next week as a number of key economic indicators are due. The first batch of data is out on Wednesday, which will consist of industrial output and retail sales numbers. Industrial output is forecast to drop by 4.2% month-on-month in January – the first contraction in four months. Retail sales during the same period are expected to record annual growth of 2.1%. On Thursday, fourth quarter data on capital expenditure will attract attention as it’s a major component of Japanese GDP calculations.
The January jobless numbers and household spending figures will round up the week on Friday. The unemployment rate is forecast to inch down to 2.7% from 2.8%, while the jobs/application ratio is expected to point to further tightening in the labour market, rising to a fresh 44-year high of 1.6%. The Bank of Japan will be looking at the job numbers closely as it is counting on the country’s labour shortage to spur wage growth, but with yet no evidence of this, the data is unlikely to generate much reaction from the yen.
Eurozone flash CPI to head lower again
The economic sentiment survey (Tuesday) and flash inflation data (Wednesday) will be the main releases out of the Eurozone in the next seven days, but the highlight could come from ECB President Mario Draghi’s testimony before the European Parliament’s Economic and Monetary Affairs Committee on Monday. The ECB has so far resisted calls to signal an end to its stimulus program as inflation appears to be trending down again. The preliminary CPI print is expected to confirm this trend with the annual rate of inflation easing from 1.3% to 1.2% in February. Other data to watch out of the Eurozone are Thursday’s unemployment rate and Friday’s producer prices, both for January. The euro took a bit of a knock over the past week as business confidence gauges for February have so far disappointed. More data misses could extend the single currency’s consolidation.
May to outline "way forward" Brexit speech
The UK economic calendar will be a lighter one in the coming week with Markit/CIPS’s manufacturing and construction PMIs being the only major data. The manufacturing PMI is due on Thursday and is expected to moderate further in February from 55.3 to 55.0. Friday’s construction PMI is forecast for a slight improvement though.
Worse-than-expected figures could pressure the pound, however, investors will likely be more focused on the next instalment of Theresa May’s "Road to Brexit" speeches. The Prime Minister is expected to set out the "way forward" for the Brexit negotiations in a speech on Friday. It follows a cabinet meeting this week where senior ministers held talks to resolve their differences over key issues in a bid to form a united front over the government’s Brexit strategy.
US data likely to be eclipsed by Powell testimony
There will be a barrage of indicators out of the United States next week as the month comes to an end, but a bigger concern for the markets will be the new Fed Chair’s views on the economy. Housing data will comprise a bulk of the data, including new home sales on Monday and pending home sales on Wednesday. On Tuesday, durable goods orders and the advance trade balance for January, as well as the Conference Board’s consumer confidence index will be watched. The consumer confidence index is expected to rise to 126.2 in February, moving closer to November’s 18-year high.
The second estimate of GDP growth in the fourth quarter is due on Wednesday. The preliminary reading put annualized quarterly growth at 2.6%. This is expected to be revised marginally lower to 2.5%. On Thursday, all eyes will be on the personal consumption expenditures report. Personal income and spending are both forecast for further gains in January, while the Fed’s favourite inflation measure, the core PCE price index, is expected to remain unchanged at 1.5% year-on-year in January. Also important on Thursday will be the ISM manufacturing PMI.
The data could get overshadowed however by Jerome Powell’s first semi-annual monetary policy testimony before Congress on Tuesday. The hearing comes at a sensitive time for the markets following the recent volatility in equities. With just a few weeks into the job, Powell will need to be careful not to trigger another bond and stock sell-off by sounding too hawkish. The US dollar is also heading for a tricky week as it’s modest recovery over the past few days could easily falter if reassuring words from Powell drive down Treasury yields.