Disinflation to question all this hawkish rhetoric floating around - ING
|Economists at ING share their thoughts for the week ahead:
"The flurry of hawkish central bank shifts in recent weeks has been somewhat striking given the backdrop of disinflationary pressures (stemming largely from sliding oil prices) and a less rosy global outlook (stemming from fading optimism over above-trend US growth). While we're mainly alluding to the BoE and BoC - where the odds of a 2017 rate hike have suddenly spiked on the back of some hawkish rhetoric (and less so supportive macro evidence) - doubts are also creeping in about the extent to which the Fed will persist with its intended normalisation plans. Markets will be looking to Chair Yellen for further clarity on the Fed's 2H17 policy sequencing - in effect asking the question of what comes first, balance sheet shrinking or another rate hike."
"Inflation data out of both the US and Eurozone will also be key for markets in the week ahead - especially given the role that measures of underlying price pressures are currently playing in the respective central bank reaction functions. Our EZ economists note that headline inflation is all but likely to post its second consecutive slowdown, with the drop in oil prices pushing CPI down to 1.2% YoY. While some price pressures are emerging, weak wage growth means that the upside to core inflation remains very limited and anything above 1.0% YoY would be a surprise (one that would obviously drive the EUR higher). With our US data surprise index at its lowest since Dec 2016, even small positive surprises are likely to provide some good news for the dollar at this stage; core PCE inflation later in the week is the one to watch, though it is expected to tick lower to 1.4% YoY."
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