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Daily Agenda: The Week Ahead, March 30 – April 3, 2015

Mixed U.S. economic data are leaving investors wondering not so much when Federal Reserve tightening will begin, but at what pace.

A ho-hum revised U.S. GDP release on Friday put the spotlight on the evolving state of financial market sentiment. With near-consensus predictions that the Federal Reserve will begin increasing rates in the summer, the issue weighing on investors’ minds has shifted from when the rise begins to the ultimate trajectory of the program. In her speech on Friday in San Francisco, Federal Reserve Chair Janet Yellen continued to stress that the bank’s intention is to conduct a measured tightening. For equity and bond markets long accustomed to zero rates, a long, gentle upward slope will provide a softer option, as inflation remains subdued and the labor situation is less positive than it appears at first blush. Any signal of rising inflation and or wages, regardless of oil’s fluctuations, would spoil the party by increasing the possibility of a steepened incline during the potentially painful process of rate normalization. For now, however, the prospects of that appear to be few, as activity measures slacken despite improvements in the labor market. In a note released yesterday, Barclays fixed-income strategists Jeffrey Meli and Brad Rogoff urged bond investors to stay the course, arguing, “The macro tone has shifted in recent weeks, with growth prospects weaker in the U.S. and stronger in Europe. The magnitude of the changes is not large enough yet, however, to change our credit view. Our base case is for modestly tighter U.S. spreads and range-bound EU ones.”

Monday, March 30: On deck is Japanese February industrial production data. After the disappointing inflation and consumer spending data released this past week, analysts will be poring through the data for any signal that external demand remains robust. Bank of England February data on lending to individuals and consumer credit is on the schedule in the U.K. Euro zone economic releases include March German consumer price data. In the wake of improving retail sales and consumer confidence expectations are for a marginal uptick in prices at the cash register. In the U.S. personal consumption expenditures and February personal spending data are the primary economic releases of the day.

Tuesday, March 31: Japan vehicle sales for February will be released, following a disappointing dip in January numbers. In Europe, German unemployment levels for March and revised GDP for the U.K. will be announced. Euro zone-specific consumer price inflation is likely to be the main headline, however, as European equity and debt markets continue to focus around the ECB asset purchase facility. January Case-Shiller housing index levels for January will be released in the U.S. Forecasts are for a moderate rebound from year-over-year lows in November.

Wednesday, April 1: After disappointing initial estimates, Chinese final March manufacturing purchasing managers’ index (PMI) data will be released by both the National Bureau of Statistics and HSBC/Markit. Final Markit PMI will also be released for primary euro zone economies. A recent improvement in activity measures in the unified currency zone, apart from the industrial segment in France, has contributed to renewed confidence in risk assets for the 19-nation bloc. On deck in the U.S. are Institute for Supply Management manufacturing index levels and Energy Information Administration oil inventory data.

Thursday, April 2: On a light day for economic data, German retail sales for February will be released. After consumer confidence for the nation reached a 14-year high this past week, investors will look for follow-through at the cash register. In the U.S. initial claims will provide insight into the pace of improvement in employment in the lead up to Friday’s Department of Labor report. Separately, February factory orders will be announced by the U.S. Census Bureau, with hopes for a rebound after a weak showing in January.

Friday, April 3: Many major markets will be closed for Good Friday. Some economic releases will be announced, however; among them is the U.S. Department of Labor March monthly employment report.

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