17 Mar 2017

The week ahead: Monday 20 March 2017

Philip Shaw

Chief Economist

Next week opens in the aftermath of the G20 Finance Ministers’ Summit in Baden-Baden, Germany. Whilst these events have had little impact on markets in recent years, a little more attention may be paid this time given it will be the first meeting attended by new US Treasury Secretary Steven Mnuchin.

Much of the discussion will likely be on trade and currencies, particularly in light of reports that the communiqué will drop pledges to avoid competitive FX devaluations and resisting all forms of protectionism.

Politics is again likely to feature heavily during the week. The Dutch election provided a bellwether of populist party support; the preliminary results have shown Geert Wilders’ (anti-EU) PVV party coming up short of expectations, but the final result will be confirmed on Tuesday. With one election down, interest will now focus on France and Marine Le Pen’s chances of winning the Presidency.

Domestically there is also likely to be a political angle. With the Queen having given Royal Assent to the EU (Notification of Withdrawal) Bill today (16 March), the government is now free to trigger Article 50. Although the opportunity is there to do this next week, the government is reportedly going to wait until the week of the 27th March, partly to avoid the EU celebration of the 60th Anniversary of the Treaty of Rome (25 March). One new unwanted headache for the government is Nicola Sturgeon’s demand for a second Scottish independence referendum. Indeed Nicola Sturgeon will go before the Scottish Parliament next week to request the authority for a second vote, although the UK government is not obliged to grant one.

UK economic data will also feature heavily. Key releases will include the public finances, inflation and retail sales figures. With regards to inflation we expect the recent rise to continue, with our own forecast for headline CPI inflation to rise to 2.1%, the first reading above target since November 2013. The February retail sales figures will also be carefully watched for any further signs that consumers are starting to feel the pinch from higher inflation.

Within the Euro area data is pretty thin on the ground, but the one number we highlight is the Euro area composite PMI due on Friday. Over the last few months we have witnessed a resurgence in the widely watched survey, with February’s print the highest since April 2011. We suspect that the index will remain unchanged this month given its already elevated level, which if taken at face value suggests Euro area GDP growth firming to +0.6% q/q in Q1. Away from the data Greece is set to be a major focus at Monday’s Eurogorup meeting. An agreement over the second review (of the third bailout) is unlikely next week given reported issues that still require bridging, although we suspect a deal will be agreed in the coming weeks.

After this week’s excitement around the FOMC decision, the US calendar is quiet next week. Fed Chair Yellen is set to speak again on Thursday, but she is unlikely to deviate far from her press conference comments. Meanwhile economic data releases are limited to new and existing home sales, as well as durable goods.

On the monetary policy front, the Reserve Bank of New Zealand is the sole major central bank to announce its latest decision on policy (Wednesday).

Finally note that Japanese markets will be closed on Monday for the Vernal Equinox Day. RD

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