Economic wrap: Yellen stole the show, further key risk events ahead - Westpac

Analysts at Westpac offered an Economic Wrap.

Key Quotes:

"Fed Chair Yellen’s testimony to the Senate banking committee was upbeat on the labour market, expected further progress on the Fed's dual mandate, with a base case of moderate growth and a gradual pace of normalisation. She said waiting too long would be unwise, and they will evaluate progress at upcoming meetings, and if employment and inflation evolve in line with their base case a further adjustment in the Fed funds rate will be appropriate. Chair Yellen effectively put March on the table without explicitly saying so.

Separately, there was Fedspeak from Lacker (“hike sooner and more briskly”) and Kaplan (gradual rate hikes make sense).

US small business optimism (NFIB) nudged higher from 105.8 to 105.9 (vs 105.0 expected). One might have thought the post-election surge in some confidence gauges like this one was vulnerable to a reversal, even just a slight retracement, especially given the rancorous developments in Washington on growth and confidence sapping themes like immigration controls and trade barriers. Encouragingly, the hiring sub index continued to forge ahead, and augurs well for continued payrolls gains. PPI rose 0.6% in Jan (vs o.3% expected), for an annual gain of 1.6%. Most the details are on the slightly stronger side of expectations, even with downward revisions to the prior month, ex food and energy at +0.4% (0.2% expected).

Economic Event Risks Today

Australia: Feb Westpac-MI Consumer Sentiment Index is out, the most recent outturns being 97.4 in Jan and 97.3 in Dec. After gradual firming into 'cautiously optimistic' territory through most of 2016, sentiment was knocked back to 'cautiously pessimistic' levels in Dec-Jan as renewed concerns about the economic outlook combined with signs of increased pressure on family finances. Little change to the RBA outlook may ease consumer concerns this month.

Other Australian events include Heath, Head of Economic Analysis at the RBA, speaking at the ABE Forecasting Conference, and Jan new vehicle sales,  which Westpac is expecting to fall 0.5% after it contracted -1.3% in Q4.

US Jan CPI and retail sales. Support from energy prices has seen annual headline inflation recover to 2.1%yr in Dec. It is now in line with the core measure, which has remained just above the 2.0%yr target. Apart from energy, the key to inflation strength are rents; health costs; and higher minimum wage rates. Headline prices are likely to rise 0.3% in Jan, with core at 0.2%. In coming months, headline and core inflation will settle near 2.0%yr.

Dec headline retail sales were up 0.6% through strong energy prices and auto sales; however sales growth excluding autos & gas were flat. Over the year, headline sales are up 4.1%yr and core sales 3.1%yr. Consumers should be in a position to spend due to strong confidence and jobs growth, as well as supportive income growth. In January, gas prices probably remained supportive, but auto sales probably slipped such that total sales rose 0.2% and core sales 0.4%.

Yellen delivers the second testimony, this time to the House of Representatives Committee on Financial Services. Rosengren also speaks in NY and Harker speaks on the economic outlook in Philadelphia."