Week Ahead Preview: US retail sales, CPI, and China data

BOC BUSINESS OUTLOOK SURVEY (MON): Canadian bank RBC complains that the BoC's outlook survey has not been very useful in the pandemic; "given the considerable lag between the survey period and release date, the information is usually quite dated, and that should be the case again this time, given the recent tightening of restrictions in the largest Canadian provinces." Nevertheless, RBC argues that the dichotomy between most of the economy being quite resilient amid the second and third waves and the hard-hit services sectors should again be apparent. Looking at the January BOS report, it notes that most categories were solid, while capacity pressures were more consistent with a closed output gap than the slack in the economy. RBC says it will be looking for signs on whether increased input and output prices mentioned in the January report have continued, and whether these are starting to filter into inflation expectations. The BoC will also release its Survey of Consumer Expectations at the same time as the BOS.

UK GDP ESTIMATE (TUE): February GDP is forecast to rise to 0.8% M/M vs the 2.9% contraction seen in January after the UK entered its third national lockdown. Ahead of the release, RBC notes that even though there was little in the way of opening up of the economy on a M/M basis in the month, most high frequency indicators pointed to a picking-up of activity. More specifically, "CHAPS payment data showed card transactions at 74% of their pre-pandemic level, up from 66% in January", whilst the composite PMI also showed a jump from 41.2 to 49.6. That said, the upcoming report will likely pass with little in the way of market reaction given it is perceived to be 'in the rear-view mirror' as the economy began to reopen in March with the return of schools, and with the economy to reopen in a more meaningful way in April.

US CPI (TUE): In recent months, Fed officials have heavily warned that inflation will overshoot in the near-term, due to pandemic base effects. Within its March projections, the FOMC pencilled in PCE inflation (slightly different composition than CPI, but directionally still makes the same point) at 2.4% in 2021, but crucially however, officials believe that inflation pressures will cool in the second half of the year, and in 2022, the Committee forecasts inflation at 2.0%. The general message from the central bank is that it will look through these so-called transitory spikes in prices, and has insisted that inflation will remain low throughout the recovery. Accordingly, this sort of commentary may have taken the 'sting' out of the CPI release (for the next couple of months), although some are still making the case that the Fed may be underestimating price pressures. The Fed itself has said it will look for max employment and inflation overshooting its target so it is 'averaging' 2.0% (making up for previous shortfalls) before it considers normalising rates. Officials have been quite consistent in making their points on this front in an effort to convince markets that it is fully committed to the new AIT regime of policy making.

CHINESE TRADE BALANCE (TUE): The Dollar-denominated trade surplus is expected to narrow to USD 52.55bln in March from the prior month’s USD 103.25bln. Exports and imports are seen rising 32.7% Y/Y (prev. 60.6%) and 21.6% (prev. 22.2%) respectively. Desks note that the expected slowing in exports and narrowing of the trade balance is due to the exporters tending to front-load activity ahead of the Chinese New Year, but some analysts caveat this seasonal factor this year amid strong global demand. Imports meanwhile are seen remaining robust amid underlying domestic demand, more working days this year vs last year. Citing some of the dynamics above, Goldman Sachs (NYSE:GS) forecasts export growth at 40%, import growth at 29%, and an implied trade balance of USD 45.8bln.

RBNZ POLICY DECISION (WED): RBNZ is expected to keep its policy settings unchanged with the OCR likely to be maintained at 0.25% and the Large Scale Asset Purchase programme to be kept at NZD 100bln, while OIS price in a 0% chance of a change in rates in H1 and just a 14% chance of a 25bps hike by year-end. As a reminder, the central bank stated during the last meeting that the outlook ahead remains highly uncertain and that prolonged monetary stimulus is necessary whereby the committee agreed it must remain prepared to provide additional support if needed. The RBNZ also stated that it will maintain monetary stimulus until it is confident CPI will be sustained around 2% and employment is above the maximum sustainable level but expects a prolonged period before these conditions are achieved, while it added that operational work to enable negative rates was complete and that it was prepared to lower the OCR to provide additional stimulus if needed. However, the central bank’s actions since then have been more towards normalisation as it announced it is to withdraw some of the temporary liquidity facilities set up during the COVID pandemic such as the Term Auction Facility where banks have been able to borrow funds for 3, 6 and 12 months using eligible collateral including NZ Government securities, registered bank bills and Residential Mortgage Backed Securities, while it also announced the removal of the Corporate Open Market Operation where banks have been able to borrow funds for 3 months using eligible collateral including corporate securities and asset backed securities although it noted this will have no implications for its monetary policy stance. Furthermore, the central bank eased dividend restrictions for commercial banks to allow payouts of up to 50% of earnings from a prev. 100% restriction, while Deputy Governor Bascand noted that the economy had rebounded to a stronger position than anticipated and as such, the complete restriction on dividends was no longer required. The central bank also has a new remit which took effect from March that requires it to consider the impact of its actions on the Government’s policy of supporting more sustainable house prices whereby it will have to outline, amongst other things, the impact of its decisions on the Government’s housing objectives although the central bank noted that the MPC’s targets remain unchanged which are to maintain stability in consumer price inflation and contribute to maximum sustainable employment.

CBRT POLICY DECISION (THU): The CBRT is almost wholly expected to hold its Weekly Repo Rate steady at 19.00%, as per 11 out of 12 analysts polled by Reuters. The meeting comes amid the recent shakeup of the central bank MPC whereby Governor Kavcioglu took the helm after his predecessor Agbal was ousted by President Erdogan towards the end of March. Deputy Governor Duman also replaced Centinkaya at the end of March whilst a new MPC member was appointed on Thursday. These replacements are a function of the President’s influence on the central bank due to his unconventional view that higher rates result in higher inflation. Erdogan recently reaffirmed his determination to bring inflation to single digits and remarked: “God willing interest rates will fall to single digits”. Analysts expect this influence to trump geopolitical, inflationary, and currency-related concerns. Desks polled by newswires expected the CBRT to begin easing in Q2 or Q3, with the median view pointing to a year-end Weekly Repo Rate at 15%. Analysts at HSBC expect the easing cycle to commence at the upcoming meeting with a cut of 50bps, citing a recent interview with the new governor who kept the door open on the matter. The abrupt shakeup has unsurprisingly led to the bank revising its policy rate forecasts – “We had been previously looking for 400bps of easing in the second half of this year and 400bps of cuts next year, bringing the policy rate to 11% by end-2022. We now think that the easing cycle will start earlier, in Q2, and that the policy rate will fall to 13% by the end of this year and to 11% by Q2 2022”, the bank says. The CBRT survey released on Friday sees year-end CPI expectations upped to 13.12% from 11.54% in last month's survey, with the USD/TRY rate now seen at 8.5749 vs prev. 7.9455 among respondents.

BOK POLICY DECISION (THU): Expectations are skewed towards the BoK holding rates steady at 0.5%. Desks cite recent comments from Governor Lee in which he said he expects faster inflation and economic growth this year but dismissed the need to tighten policy early. The governor also highlighted improved exports, investments, and the extra budget as likely factors that will bolster economic growth past the central bank’s 3% forecast in February. Credit Suisse’s base case is for the BoK to hold policy rates until late 2022. “The upside risks of an earlier rate hike in Q421/Q122 will hinge on a labor market recovery and the vaccine rollout. The current execution of the vaccine rollout and our expectation of a gradual recovery in the labor market suggest the BoK will likely remain patient.”, the bank concludes.

AUSTRALIAN LABOUR MARKET REPORT (THU): Following the blockbuster February report, March is expected to have added 35k jobs (prev. 88.7k) whilst the unemployment rate is seen ticking lower to 5.7% from 5.8%, and the participation rate is expected to be steady at 66.1%. Desks acknowledge the strong February jobs report which was fuelled by full-time employment as New South Wales recovered from the January lockdown and Victoria’s momentum remained firm. Westpac suggests that all leading indications – such as weekly payrolls, job vacancies and business surveys- all point to the continued strengthening in labour demand through March and into April, and thus presents upside risks to the headline employment change.

US RETAIL SALES (THU): Analysts at Credit Suisse (SIX:CSGN) note that personal income data was strong in the month due to Americans receiving stimulus checks, and consumers saw significant income growth, while some also saw the arrival of delayed tax refunds. Additionally, the bank is encouraged that rapid vaccination and gradual reopenings across the country should drive sales that have been particularly depressed due to the pandemic, including restaurant spending and apparel. "High-frequency card spending data suggest consumption growth re-accelerated in the first three weeks of the month," the bank writes; it believes that auto and gas consumption should be firm, while vehicle sales rebound strongly from February. Credit Suisse says it recently upgraded its US consumption forecast, and expects real consumer spending to grow 9.8% this year, adding that "stimulus checks, accumulated savings, and reduced distancing should drive a bumper year for consumption."

CHINESE GDP/RETAIL SALES (FRI): Chinese GDP data for Q1 is due next week where there are expectations that the world’s second largest economy could register double-digit growth Y/Y with a survey of economists conducted earlier this year showing forecasts for the Chinese economy to expand by 18.1%. The expectations for a potential record expansion are due to base effects as China had suffered from the peak of its COVID-19 outbreak and tough lockdown restrictions early last year that resulted in a 6.8% contraction for Q1 2020, which was the worst reading and first decline since China began publishing the data series in 1992. Nonetheless, China’s economy rebounded after that quarter and became the only major economy to post positive growth last year with an annual expansion of 2.3% as it benefitted from being the first in and first out of the pandemic, as well as its status as the world’s factory amid heightened demand for pandemic-related goods and electronics. Officials have set a growth target for this year of above 6% after having refrained from one last year due to the uncertainty from the pandemic, while the reinstatement of an official target suggests policymakers are more confident in the prospects of the economy although some analysts have argued that the goal is not very meaningful as it is likely to be easily achieved. The key data releases during Q1 provides encouragement including Chinese Manufacturing and Non-Manufacturing PMI figures which have consistently remained in expansion territory, while the effect of a weaker base was evident in activity data including Industrial Production and Retail Sales for February YTD which surged by 35.1% and 33.8%,respectively. Furthermore, the latest readings for both data points will coincide with the GDP announcement and both are still expected to surge on base effects with Industrial Production forecast at 15.6% and Retail Sales at 27.2%.

NOTE: Previews are listed in day-order; this briefing was originally published on 9th April for Newsquawk clients.