Daily Agenda: The Week Ahead, March 2 – 6, 2015

Inflation expectations take center stage; U.S. February job data on deck; Bank of England and the European Central Bank announce rates.

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Lessened volatility in the market has brought up the question of whether or not the importance of macroeconomic factors for traded asset classes is waning. The euro did react to marginal surprises in the European and U.S. consumer price index baskets, though overall, in recent session the global fixed income and equity markets have met potential disturbances with a shrug at most. This may be an indication that as market participants recalibrate for policy actions, inflation has taken back from employment the role of primary risk factor. In a note to clients yesterday, Rajiv Setia, head of U.S. interest-rate research at Barclays in New York, put it succinctly: “With steady job gains and falling labor market slack, the inflation outlook is increasingly becoming the key driver of the trajectory of the funds rate.” Despite this shift in focus, Setia and his colleagues do not anticipate a near-term catalyst for any shift from the Federal Reserve. “The market pricing of the trajectory of the Fed funds rate is likely to remain benign until there is more substantial improvement in the inflation outlook,” Setia writes.

Monday, March 2: China’s National Bureau of Statistics posts final February nonmanufacturing purchasing manager’s index (PMI) data, with consensus forecasts for a minor step back from January service sector activity levels. Separately, final HSBC manufacturing for February is expected to improve modestly, as improving external demand helps propel factory floor activity. Markit will release final February PMI for the euro zone. Analysts expect a marginal improvement in aggregate but a step backwards for French manufacturers. In the U.S., January personal consumption expenditure data from the Bureau of Economic Analysis is projected to show an uptick in spending, as cheap gasoline keeps consumers in a positive mood.

Tuesday, March 3: In Germany, retail sales data for January will be released with forecasts for sustained momentum from December as consumers in the European Union’s largest economy put macro and geopolitical risk factors aside. In the U.S., Autodata Corp. announces February vehicle sales data.

Wednesday, March 4: Markit releases final February nonmanufacturing purchasing manager index levels for the primary EU economies. Economists forecast an improvement over initial estimates, despite uncertainty over Greece and the conflict in eastern Ukraine. In the U.S., final nonmanufacturing activity figures from the Institute of Supply Management are expected to show a marginal pullback. Weekly Energy Information Administration oil inventory data is expected to show plentiful supply despite sustained low crude prices. The Federal Reserve is releasing its monthly Beige Book compilation of regional economic data.

Thursday, March 5: Both the Bank of England and the European Central Bank make monthly interest rate announcements. While there is little expectation for any change in language from either central bank, the Bank of England’s announcement will be a particular focus for forex markets given the mounting political pressure in the U.K. on Bank of England governor Mark Carney in light of Monetary Policy Committee concerns over continuing accommodative policy. In the U.S., jobless claims will be watched for any signal that the ranks of the newly unemployed are stabilizing after a modest increase last week. Separately, U.S. factory orders are expected to post a rebound from a drop in December.

Friday, March 6: January industrial production levels for Germany will be announced. Consensus estimates call for a marginal increase over December, yet still falling short of January 2014 levels. In France, January trade data will be closely watched as that nation’s export sector struggles to regain momentum. Separately, euro zone aggregate fourth-quarter 2014 GDP data are forecast to improve slightly from initial estimates, largely on the back of improvements in German activity measures. The monthly U.S. Department of Labor report is expected to reveal further evidence of a strengthening job market, freeing Fed policymakers’ hands as they consider tightening.