Two Stages Set for Monetary Policy: Global Week Ahead
In the Global Week Ahead, we get not one — but two — stages set on monetary policy.
The first stage will be final U.S. macro data that sets up U.S. monetary policy.
On Friday, the coming Labor Department non-farm payroll report would need a big face plant moment on job additions — or a steep decline in wage growth — to shift the new Fed consensus.
The Fed is indeed going to hike rates on March 15th. The CME FedWatch tool is now clocking an 80% chance of a March 15th hike. Strong jobs numbers take that probability towards 90%.
A weakish FEB jobs number — nearer to +100K to +150K monthly job additions and better than +2% annual wage growth — should keep that hike in mid-March on track anyways.
On Wednesday, the private ADP payroll report provides an early ‘tell’ on where the key monthly Federal job additions number lands. Don’t expect a surprise.
Surprisingly, futures markets still lag on the ‘dot plot’ further down the road. Consensus has left the full 2017 expected number of hikes unchanged at a little more than two rate hikes. That smells lackadaisical.
My bet? Look for at least three 2017 Fed rate hikes.
The second stage set this week is for Euro Area monetary policy.
On Thursday, the week’s highlight may be the governing council of the European Central Bank (ECB) monetary policy meeting and their latest rate decisions.
No policy change is expected on their -0.4% deposit rate and 0.0% refinance rate. Instead, traders should pay attention to updated GDP growth and consumer inflation forecasts, seeking any potential tell from that outlook.
Slight positive revisions to Eurozone GDP growth forecasts are likely. A turn to a more neutral tone is trending better of late. That much is certain.
The ECB should resist calls to start tightening policy against surging inflation, since the inflation gain is mainly energy price driven. Meanwhile, robust U.S. jobs data on Friday seals the case for a Fed hike the week after.
In sum, the world’s two most influential central banks are likely to find themselves with a bigger policy rate gap by the end of the week.
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Key Global/Macro data—
On Thursday, headline news unfolds at Mario Draghi’s press conference.
On Friday, the latest U.S. non-farm payroll report is the other newsworthy event.
On Monday, the Markit composite PMI for Brazil was 46, up from 44.7. That’s an improvement, but it is still a recession.
Greece’s final q/q GDP growth rate looks to be worse at -1.2% from -0.4%.
On Tuesday, the final q/q Eurozone growth rate comes out. The prior reading was +0.4%.
Brazil’s inflation rate should fall to +5.25% from +6.02% y/y. This will be good news.
On Wednesday, the private U.S. ADP employment survey comes out. Look for +200K from a prior +246K print. That’s OK information on the U.S. economy.
On Thursday, Mario Draghi holds a press conference following the latest European Central Bank (ECB) rate announcement. The ECB deposit rat is -0.4% and the refi rate is 0.00%.
U.S. initial claims should be 223K. That’s near a multi-decade low.
The Mexican CPI in y/y terms should be +4.84% from +4.72%.
On Friday, the U.S. unemployment rate should be near the prior 4.8% and the non-farm payroll number for February (the key data for the week) should be near to the prior print of +227K.
That’s another shot of “muddle through” data. It will not derail a March 15th rate hike by the Fed.
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