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The Global Markets Weekly – 4/13/18
China GDP, Earnings, ECB Look-Ahead
It’s a busy week ahead, with global data including Chinese Q1 GDP and CPI figures in Japan due, along with some BoE relevant data in the form of prices and labor market data as well. The U.S. earnings season will be picking up, kicked off last week by banks that mostly expectedly beat estimates. The lack of an upside market reaction should remind investors that beats are the norm (and revenues remain under pressure for banks), and that expectations are already high around 15-20% y/y for the S&P 500.
As we noted last week, the dollar is no longer as great a headwind, providing an added boost along with higher energy prices, synchronized global growth, and coming firmer disposable income growth in the U.S.. Markets have priced in better global growth, the prospect of tax reform, then the enactment of tax reform—can they get yet another boost as the actual results roll in? We’ll find out over coming weeks as those fundamentals interact with the interest rate outlook and sentiment, as markets continue to react to news on trade and geopolitics.
Ahead of the ECB meeting later this month, Austrian council member and hawk Nowotny made some waves when he pointed out the ECB could lift the deposit rate by 20 bps from -0.40% to -0.20% before moving the main refinancing policy rate. Comments echo similar suggestions often made by Jens Weidmann, president of the Bundesbank and another well-known “hawk” on the Council. Hiking the deposit rate by as much as 40 bps to 0, while keeping other rates unchanged would undermine the ECB’s ultra-easy monetary policy, or diminish the plentiful supply of market liquidity provided by the central bank. But it would help to shore up commercial bank earnings and balance sheets.
The quick rebuttal of Nowotny’s comments by an ECB spokesman as his own opinion and not shared by the GovC was an indication that the ECB most likely did not want to run the risk of fueling speculation about the timing of any rate hikes thereby pushing the EUR higher. While putting downward pressure on inflation, the currency’s strength is starting to create headwinds to EU exports, mostly German exports. All of this importantly comes at a time when economic performance on hard and soft data dimensions is losing the earlier head of steam. Add to that trade spats, DE expects ECB policy will remain on hold through this year, with ECB language tweaks and member opinions to make things interesting as the year goes on.
Coming Week’s Key Indicators and Events
|Release||DE / Consensus||Comment|
|U.S.||Mar Retail (Mo)
|0% / 0.4%
|Last chance to rescue Q1 consumer spending from roughly 1% annualized path. Early Easter, better vehicles enough to offset weak gas prices and weather?
Nine scheduled, plus Beige Book (Tu)
|Euro||Apr Cons. Conf (Fr)||0.0 / -0.1||Run of weaker data in recent months of some concern, though all measures disappointing around a stronger trend.|
|U.K.||Feb Unemp. (Tu)
Mar CPI (We)
Mar Ret. Sales (Th)
|4.3% / 4.3%
2.7% / 2.7% y/y
|Wage figures more pressing concern.
CPI tilting down from 3%, real wages grinding back to 0% y/y, from negative.
|Japan||Mar CPI (Fr)
Ex fresh food
Ex food & energy
|1.1% / 1.1% y/y
0.9% / 0.9% y/y
0.5% / 0.5% y/y
|Some deceleration, energy and yen have been dominant in recent years, still searching for sustained pickup.|
|China||Q1 GDP (Tu)
Mar Retail (Tu)
Mar Ind Prod (Tu)
|6.8% / 6.8% y/y
9.9% / 9.7% y/y
6.6% / 6.4% y/y
|Debt focus restraining some measures of credit growth, global growth a tailwind. Rebalancing also a restraint.|
|Canada||BoC Rate (We)||Hold / Hold||Hikes coming, but not this week.|