The Global Markets Weekly – 4/3/17

Posted April 3, 2017 by rvillareal

Growth to Follow Surveys Higher into Mid-Year?

Firmer business and consumer sentiment are far from a post-election U.S. phenomenon, as we explore from a Eurozone perspective in our Focus article this week. The March rise in the Eurozone Composite PMI to 56.7 was the strongest reading since 2011, and follow on a sequence of gains since September 2016. And, a key update comes in Japan this week with the Q1 Tankan Survey, which may recover to the high-end of recent ranges, just as national consumer confidence readings have in the past three months held at 3-4 year highs.

Eurozone results point to higher GDP growth ahead and underscore the DE view that a pickup underway has room to run at least through 2017 and most likely through 2018. The latest survey implies EZ GDP growth of about 0.5% in 1Q2017, the best quarterly turnout in nearly six years. DE’s forecast calls for 1.6% GDP growth for the full year, accelerating slightly to 1.7% in 2018, supported by increased fiscal stimulus and a further rise in exports in step with the projected pickup in global growth.

While investors will worry about a continued gap between hard activity indicators and the more ebullient survey data—most clearly evident in the yawning gap between surveys and U.S. GDP expectations for Q1 that barely clear 1% annualized—DE continues to put more stock in labor market strength, and the prospect for a meaningful rebound in Q1 and Q2 corporate profits, as better reads on underlying economic momentum.

U.S. consumer confidence recorded a massive rise in March, highest since 2000, accompanied by fresh strength in forward-looking income expectations. Income expectations have in the past led step-ups in the pace of average hourly earnings growth, which will be a key point of focus in this week’s U.S. jobs report. Core CPI inflation remains contained, leaving scope for real income gains to reemerge once the global energy-driven rise in headline inflation rates abates; clear support for growth momentum into mid-year.

• S.: A busy week includes the March ISM Surveys (Mon/Wed), March light vehicle sales (Mon), the Minutes to the March 14-15 FOMC Meeting (Wed), and the March employment report (Fri), all key in assessing the leading edge of growth momentum after what still looks to be a soft Q1. President Trump hosts Chinese President Xi Jinping in Florida on Thursday.
• Eurozone: A lighter week with the region’s jobless rate likely to hold around 9.6%, while the account of the ECB’s latest meeting may provide more color on the underlying policy debate. Draghi also speaks Thursday, and there is another televised French debate (Tue).
• Japan: The Q1 Tankan survey of large manufacturers may rise to its firmest level in several years, a key source of uncertainty being trade agreements with the U.S. ahead.
• Other central banks: Poland (Wed), India (Thu), Israel (Thu): All three will hold key policy rates, India after several cuts over the past year and signs of further slowing ahead for growth and inflation. The repo rate at 6.25% may be cut to 6% soon, with currency strength (up 5% against the dollar YTD) likely to keep a lid on underlying inflation.

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