The Global Markets Weekly – 3/28/14

Policy-Critical Numbers

Both the Federal Reserve and the Bank of Japan are taking pains to portray their current policy stances—or, rather, the medium-term action plans currently being carried out—as appropriate, successful, and unlikely to be altered.  But, both central banks also emphasize their willingness to shift, should the outlook deteriorate seriously.[private]

This week brings data reports in both countries significant enough to seriously jolt the plans—though probably not to actually change them. In Japan, it is the quarterly TANKAN survey (Tuesday), while in the U.S.  it is the March Employment Report (Friday).

TANKAN results have always been key determinants of BOJ policy, and this round has the potential to be particularly influential, because it will include first estimates of FY 2014 sales and investment, as well as first-time-ever readings on inflation expectations, over one-year, three-year, and five-year spans.  Clearly, upside readings across the board would be welcome.  Notably downside readings could start planning for a policy shift, should the next TANKAN not improve sharply.

The Employment Report, meanwhile, is being watched by many as an acid test of the role of weather alone in restraining the economy in December, January, and February.  Weather was not absent as a factor in March, but, if employment and hours did not improve significantly in that month, the market judgment could be that something deeper was holding the economy back too.   The Fed will not leap to conclusions, but concerns about the outlook would be stirred.

• U.S.:  Employment Data: The highlight will be the March labor market report (Fri), the timeliest read on economy-wide developments.  DE looks for a solid payroll increase of 235,000.
• Eurozone:  The ECB was not prepared for the euro rally following the March decision, as markets saw the Council as being less dovish. The ECB has adopted a clearly more dovish tone in the last week but unless HICP data (Mon) show a marked downside surprise, policy is likely to remain on hold at the Council meeting (Thu).
• UK: The batch of business surveys this week including the PMI numbers (Tue and Thu) will remain interesting.  The BoE still seems to be putting more faith in repeatedly too-upbeat survey data.
• Japan: Data of the week all come at the outset, with February industrial production and housing starts arriving Mon. and the critical first-quarter TANKAN and March vehicle sales due Tue.
• Emerging Markets/Regions:  In China, official PMIs are due (Mon).   For DE, enough evidence of a softer path has accumulated to make a sub-50 reading unsurprising. In India, the RBI meets (Mon).  Another rate hike is almost certainly out of the question.  In Mexico, the March IMEF PMIs are due.  For DE, the likely result is a figure modestly over 50, completing the picture of an improved industrial situation and outlook.  In Turkey, Q4 real GDP growth (Mon) arrives.  It seems quite likely that growth was very steady compared to the previous quarter (Consensus: 4.1% Y/Y; DE: 4% Y/Y).

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