US FOMC minutes & chinese trade top quiet week for data

• FOMC minutes watched for a clearer steer on Fed outlook
• MPC on hold, but policy debate becoming more nuanced
• China trade balance to bounce back into surplus, but factory gate inflation to fall further

The economic calendar is relatively light over the coming week, with market sentiment likely to remain coloured by March’s mixed US employment report. Although the headline payroll gain was slightly softer than expected, upward revisions to January and February suggest the US economy was not as weak in early Q1 as previously thought. Having posted their sharpest quarterly decline in three years in Q1, US 10-yr Treasury yields have moved off their lows over the past week, pulling other bond yields up in their wake. 

FOMC minutes... With the coming week’s US data calendar centred around jobless claims, Michigan consumer confidence and the PPI, we doubt the US recovery debate will be advanced much one way or the other. Instead, the focus is likely to be on the monetary policy outlook.  Following the confusion sparked by Fed Chair Yellen’s post-FOMC press conference, and her subsequent more dovish remarks last Tuesday, investors will be looking for clarification from the March FOMC minutes that the Fed is committed to keeping policy extremely accommodative. Fed members, including Tarullo, Kocherlakota and Plosser, are also due to speak.

Emerging signs of dissent?... In the UK, the MPC meets on Wednesday. Due to international commitments, the meeting has been shortened to one day, although the policy announcement will still be made at noon on Thursday. With the unemployment rate still above the 7% forward guidance threshold, and inflation below the government’s 2% target, policy looks almost certain to be left on hold. With no statement expected, markets will have to await the publication of the minutes in two weeks’ time for an update on how the policy debate is evolving.

UK IP and trade watched for Q1 GDP impact... Data wise, the UK calendar is also fairly light, with main attention on the February industrial production and external trade figures. Both will help inform judgements about the strength of Q1 GDP.  We look for industrial production to have risen by 0.4%, boosted by a bounce-back in extraction output after the prior month’s fall. The visible trade deficit, however, is forecast to have remained at £9.8bn, reflecting a deterioration in EU trade.

Industry data trumped by inflation concerns...  Industrial production data are also due in Germany, France, Italy and Spain. Here too, we expect to see further signs of improvement, led by Germany.  While these figures will be watched for what they reveal about Q1 growth prospects the main focus in the euro area at the moment is on inflation. With ECB President Draghi strongly hinting at this week’s press conference that the ECB stands ready to act if euro wide inflation remains weak, the upcoming French and final German CPI figures for March may attract more interest than usual.

China data watched for signs of weakness...The focus will also be on China, where key external trade and inflation data are due. In February, China’s trade balance plummeted to a deficit of $23bn, with exports posting their biggest annual drop since 2009. While the decline was exacerbated by the disruption caused by the Chinese New Year, and by the inflated export bill last year due to false invoicing, it has added to concerns over China’s growth prospects. While we expect China’s exports to have rebounded last month, the underlying trend is slowing.  Similarly, we expect China’s annual CPI to jump to 2.4% in March from 2.0% in February.  The pickup, however, is expected to reflect base effects rather than underlying inflation pressure. More revealing, perhaps, the March PPI is forecast to post its 29th consecutive annual decline.