The week ahead: What to watch for - RBC Capital Markets

Analyst(s) at RBC Capital Markets provide a brief preview of important economic releases lined-up during the course of upcoming week, namely – FOMC minutes, UK GDP and Euro-zone PMIs, which have the potential to drive the FX market. 

Key Quotes:

“FOMC Minutes (Wed): The economic release calendar in the US is very light in this holiday-shortened week, which means that the lone highlight may garner more attention than it deserves. The FOMC Minutes are likely to come and go with little new information beyond what we already learned from Yellen during her Congressional testimony. On that score, the market may expect some additional color on the balance sheet, but, as Yellen highlighted in her testimony, that process remains ongoing and a concrete view is unlikely to emerge until closer to midyear. The rhetoric on inflation has turned among Fed officials, with many now expecting the firming to continue. The last FOMC statement flagged this turn and we would expect the Minutes to exude a similar vibe.”

“UK Q4 GDP (Wed): The first estimate of Q4 GDP growth was 0.6% q/q in real terms. Since then we have learnt that favourable revisions to industrial production added 0.04ppts to headline GDP growth, with marginally positive news in the construction sector, too. This clearly means the prospect of an upward revision to GDP needs to be considered. However, as a central case our forecast is that Q4 GDP is confirmed at 0.6% q/q, as the preliminary estimate had an index level which translated into 0.56% to two decimal places. So, even with the known upward revisions, it still isn’t sufficient to turn into an upgrade to 0.7% q/q. On balance, though, we would be less surprised to see an upward revision to 0.7% q/q than a downward revision to 0.5% q/q. The expenditure breakdown becomes available at this stage and, whilst the domestic consumer is once again expected to be revealed as having been a driver of growth, the volatility in the net trade component is expected to be a positive contribution this time, too, even if there is limited evidence to suggest it represents a direct fundamental response to GBP depreciation.”

“Euro area ‘flash’ PMIs (Tue): The euro area PMIs held at their recent elevated levels in January; the composite PMI was unchanged from December’s 54.4, its highest reading in almost 51⁄2 years. That disguised country-level developments, in particular the strengthening of the readings for France, which compensated for a weakening in the German PMIs. For the February ‘flash’ we expect the composite euro area reading to edge higher on account of a strengthening services reading, with the manufacturing reading unchanged. That would leave our PMI-based GDP indicator pointing to growth of 0.5% q/q in Q1 2017. However, the PMIs overstated euro area GDP growth in Q4 primarily because they have been overoptimistic on the rate of expansion of the German economy of late.”