31 Mar 2017

The week ahead: Monday 3 April 2017

Philip Shaw

Chief Economist

This week’s story in the UK has centred on Brexit, both in terms of the PM triggering Article 50 and Brexit Secretary David Davis launching the White Paper ahead of Great Repeal Bill.

The latter is set to lead into the Act of Parliament that moves the relevant parts of EU law onto the UK Statute Book, when the UK leaves the EU on 30 March 2019. To help readers to identify the relevant events over the coming weeks and months, we include a timeline, below.

A run of British indicators next week should yield some clues as to whether the pace of activity is slowing on the back of rising inflation, following the 13% depreciation in sterling after last June’s referendum. These include all three sector PMIs, plus official data on industrial production and construction. Trade numbers will also shed some light on the extent to which exports are benefitting from the more competitive pound. Although we do expect a run of softer GDP figures through 2017, the adjustment is unlikely to be a severe one.

In the US we note increased use of the word ‘four’. The context here is the number of Fed rate hikes this year. In speeches until recently, and in the FOMC’s ‘dot plot’ on 15 March, most senior Fed officials were referring to the likelihood of three increases. Latterly we have heard a little more on the possibility of four moves. Data over the course of the week will help to guide the direction of this debate, in particular Friday’s jobs report for March. February’s data showed a buoyant pace of jobs growth, as well as the jobless rate nudging down to the bottom of the Fed’s sustainable unemployment range of 4.7%-5.0%. Moreover average weekly wage growth was recorded at 2.8%. Further signs of labour market tightening could prompt a further hawkish turn by Fed members, especially if pay growth is strong. There are a number of other economic indicators earlier in the week, but it is the employment numbers which matter most.

Market views on a decent start to the year in the Euro area will be influenced by both February’s industrial production data in three of the ‘big 4’ economies (Germany, France and Spain), plus final PMIs for March. Flash estimates were robust, the composite hitting 56.7, a level unseen for nigh on six years. The account (i.e. minutes) from the 9 March ECB meeting will help to clarify some of the tightening of the language in the ECB’s introductory statement (e.g. removing the word ‘lower’ in terms of its expectation of rates remaining at ‘present or lower levels’). Newswire reports suggest that Governing Council members were not signalling a move towards exiting QE, but a reduction in ‘tail’ risks. This stance may be explained more fully in the account.

Eurogroup finance ministers meet on Friday in Malta. Greek bond markets have reacted positively to stories that the various parties are close to an agreement on the second review of the (third) bailout. We should find out whether this is a true reflection of the situation next week.

Chinese markets are closed for the Tomb Sweeping Day holiday on Monday and Tuesday, but we should see the Caixin (unofficial) manufacturing PMI Monday and the services equivalent two days later. Reserves data are scheduled for Friday.

Last the Reserve Bank of Australia is expected to keep its Official Cash Rate unchanged at 1.5% on Tuesday. PS

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