Daily Agenda: The Week Ahead, February 23 – 27, 2015

Fed chairwoman Janet Yellen testifies before Congressional committees; three key U.S. housing market data points on deck.

Central Bank Governors Attend The Banque De France International Symposium

Janet Yellen, chair of the U.S. Federal Reserve, speaks at the International Symposium of the Bank of France policy conference in Paris, France, on Friday, Nov. 7, 2014. Yellen has a message for European central bankers struggling to decide whether more bond purchases are needed to stave off deflation: Do whatever it takes. Photographer: Kosuke Okahara/Bloomberg *** Local Caption *** Janet Yellen

Kosuke Okahara/Bloomberg

Federal Reserve chairwoman Janet Yellen will speak before the U.S. Senate Committee on Banking, Housing, and Urban Affairs on Tuesday and the House Committee on Financial Services on Wednesday. What lawmakers will ask might as well be scripted. The committee members will interrogate Yellen on her assessment of the U.S. economy’s underlying strengths; what risks problems abroad present and when she and her colleagues expect to begin raising interest rates. A bigger question, however, might well be whether any further extension of accommodation stands to squeeze more gains in employment numbers and the pace of growth. If the Federal Reserve is nearing the limits of monetary policy — as some FOMC members believe — investors now face the challenge of determining exactly when the process of normalization will commence. Many strategists feel that even with diminishing returns, a combination of weak inflation and a strong dollar together are enough to lead the Fed to procrastinate. In a note to clients sent yesterday, Rajiv Setia, head of U.S. interest-rate research at Barclays in New York, wrote, “Overall, we believe the desire to see stabilization or rising measures of core inflation and a further widening in breakevens argues for the Fed to stay on hold past June — especially if the view of our commodity strategists of a fall in energy prices pan out. As far as the start of the policy normalization goes, while some continued upward momentum in wage inflation may suffice, a 2 percent handle argues for a shallow path of hikes relative to prior cycles.”

Monday, February 23: In Europe, IFO business sentiment indicators for Germany will gauge the mood of corporate managers in the European Union’s largest economy. In the U.S., existing home sales numbers for January from the National Association of Realtors are scheduled for release, with expectations for a marginal contraction in the annualized pace, potentially exacerbated by record-cold temperatures in the Northeast.

Tuesday, February 24: German fourth-quarter 2014 GDP figures, announced two weeks ago, were more robust than forecast. The full detailed breakout of the data is scheduled for release, giving regional investors a chance to focus on which segments have been the primary drivers of acceleration in Germany. With the European Central Bank having announced a firm commitment to combating deflationary pressures, January euro zone aggregate consumer price index (CPI) data will be closely watched by bond investors. More housing market data arrives in the U.S., with the release of Case-Shiller national price indexes. Consensus forecasts are for a marginal rebound in the 20-city index. The Confidence Board will release consumer sentiment index levels for January. Potentially the biggest macro story of the day, however, will be Federal Reserve chairwoman Janet Yellen’s semiannual monetary policy testimony to the Senate Committee on Banking, Housing, and Urban Affairs. With continuing improvement in labor markets, observers expect lawmakers to pick Yellen’s brain over the timing of the next rate increase. On the equities front, Bank of Montreal will be the first of the primary Canadian banks to post financial fiscal first-quarter results. The bank missed consensus estimates in its most recent reporting cycle on weak capital markets activity.

Wednesday, February 25: Preliminary February HSBC manufacturing purchasing managers index data will be released in China as the country’s Lunar New Year holiday winds down. With concerns about the relative strength of demand in the nation, any surprise could have a near-term impact on commodity market sentiment, particularly industrial metals. U.S. Census Bureau data on new home sales in January is expected to show a marginal increase, completing the trifecta of real estate market indicators scheduled for release during the week. Royal Bank of Canada, the nation’s largest financial institution by assets, will post fiscal first-quarter earnings. Analyst consensus estimates are C$1.58 ($1.26) per share net.

Thursday, February 26: A major focus for global markets will be the release of revised U.K. fourth-quarter 2014 GDP after a disappointing initial report. Minutes of the most recent Bank of England Monetary Policy Committee meeting, released Wednesday, revealed a growing divide among policymakers over the effectiveness of further loose policy in stimulating the real economy. German unemployment levels for February and critical ECB statistics on private lending in January will be published. In the U.S., consumer inflation and durable goods figures for January, as well as weekly initial jobless claims are scheduled for release. December consumer price data registered the largest month-over-month contraction in six years, driven by low fuel costs, complicating the decision process for Federal Reserve policymakers as prices and wages continue to lag improvement in job numbers.

Friday, February 27: CPI measures for February will be released in Germany. In the U.S., revised fourth-quarter 2014 GDP numbers will be announced. The initial release showed growth slightly below consensus forecasts, as imports surged on the strong dollar. Fourth-quarter personal consumption expenditures data and final University of Michigan consumer sentiment levels for February will round out the major U.S. data releases for the week.