Macroeconomics: The Week Ahead: 14 March to 18 March

The Week Ahead – Preview: 

The new week brings a flurry of first division data,
above all from China and the U.S., which will be little more than statistical
roadkill, as the focus turns to the Fed, BoE and BoJ policy meetings, and
otherwise remains squarely on the conflict in the Ukraine. Suffice it to say
that being in Poland this weekend, the missile attacks on the Yavoriv military
base bear the Polish border on Sunday have set nerves jangling even higher, as
the people continue to do everything possible to accommodate the rapid flow of
refugees. Otherwise both the Fed and BoE are expected to hike rates 25 bps,
while the BoJ will likely signal there is no near-term prospect of removing
monetary policy accommodation, while China’s 1-yr Medium-term Lending Facility
is seen held at 2.85%, with a reduced total volume of CNY 100 Bln. Energy and
Commodity market prices will remain very volatile and dictated by news flow
from Ukraine and Russia, with the EIA and OPEC monthly Oil Market reports
offering some perspectives on scenarios for supply and demand. Earnings and
govt bond supply will be light.

  In terms of the
run of statistics, please see the attached tables for forecasts for US, China
and UK data. As can be seen China’s data is set to slow sharply mostly due to
base effects, though Property Investment will obviously be hit by the well
documented array of sector headwinds. US data are anticipated to show continued
underlying strength in spending, output and the housing sector. UK labour data
are expected to see continued strength in labour demand, and a slight uptick in
average earnings, but this will still leave real wages contracting sharply.
Germany’s ZEW Expectations is forecast to collapse to 5.0 from 54.3, and the
Current Situation slide to -22.5 from -8.1 due to the war in Ukraine. Australia
has Unemployment, Japan Machinery Orders and Trade, while Canada has CPI and
Retail Sales.

  The Fed is likely
to echo the ECB, in trying to offer an element of predictability in what are
very uncertain circumstances, while retaining optionality and flexibility.
Powell is a devotee of Greenspan gradualism, and it will require a very sudden
tightening of financial conditions as per the example of Feb/March 2020 to
change tack. The open question is what happens to the Fed’s balance sheet. Ahead
of the war in Ukraine, they had pushed back on the timeline for starting QT
(earliest in Q3), though there were/are a very wide range of opinions on the
FOMC, both on when they should start, and the pace, other than quicker than the
last round of QT – the consensus seemed to be $100 Bln/mth rather than $50 Bln,
but there has been talk of $150 Bln. Given all the uncertainty, they may opt
for a tapering into QT to give themselves extra flexibility, though with larger
increments, $25 Bln then $50 Bln, $75 Bln and then $100 bln. Their biggest
challenge is that they want to have a strong element of predictability on
balance sheet reduction, but current circumstances are very much antithetical
to this. The consensus continues to see a 25 bps BoE rate hike this week,
though markets have now dialled back the next rate hike to May, with a further
25 bps in June (see graphic attached), but with GDP and CPI above forecasts, a
rate hike this month, but considerable caution on how rates evolve in Q2 and
beyond appears to be the most likely outcome.

 It will be a very
light week for corporate earnings, with Bloomberg News  identifying the following as likely to be
among the highlights: Accenture, Assicurazioni Generali, BMW, China Telecom, CK
Hutchison, Dollar General, E.On, Enel, FedEx, Ferguson, Hon Hai Precision
Industry, RWE and Volkswagen. Outside of auctions in France and Germany, it
will also be a light week for govt bond sales, with no coupon issuance in the
US or Japan, and the UK only seeing an Index-Linked Gilt sale.

** Please note that there will be no updates on Monday
morning, with the calendar of data and events having little or nothing that is
likely to distract from the conflict in the Ukraine.