Written Commentary
Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
Digesting UK inflation data, awaiting flash PMIs and US Durable Goods; further rash of central bank speakers; Thai, Czech and Iceland rate decisions; Germany, UK and US debt auctions; Petrochina earnings
G7 PMIs: continued strength seen in US; Manufacturing strength seen in UK and Eurozone, but Services expected to continue to contract
US Durable Goods Orders: modest gains seen on headline and core measures, some upside risks; shipments likely hit by weather effects
Czech rates: CNB likely to dial back hard on rate hike signals
EVENTS PREVIEW
Once the run of UK inflation indicators have been digested (CPI dragged down heavily by clothing and footwear, and the data doubtless distorted by seasonal adjustments which would normally anticipate some upward pressure as January sales discounting is unwound), the focus will be on the G7 flash PMIs and US Durable Goods Orders. These are again accompanied by a plethora of central bank speakers, along with rate decisions in the Czech Republic, Iceland and Thailand. A relatively busy day for govt bond auctions has Germany selling 10-yr, the UK 35-yr Index-Linked and the US 5-yr and FRN 2-yr, while Petrochina heads the run of corporate earnings. Markets continue to display considerable degree of unease about forward prospects (above all evident in oil markets), with increasing shorter dated USD rate volatility adding to long-dated Treasury pressures, and perhaps offering some explanation for some long overdue ebbing of US call option trading volumes – see chart.
G7 – March ‘flash’ PMIs
Flash PMIs are likely to be the focal point for the day, with forecasts assuming little change vs. February, very robust readings in the US, while Eurozone and UK see a solid Manufacturing expansion, but continued contraction in Services due to lockdown measures. The focus will doubtless remain on sub-indices for prices and supplier deliveries, above all given abundant evidence of supply disruptions and bottlenecks, along with Orders and Employment.
U.S.A. – Feb Durable Goods Orders
Durable Goods are forecast to pick up modestly across all measures, after transport led strength in January. Headline Orders are seen up 0.7% m/m, while the CapEx proxy Non-defence Capital Goods ex Aircraft are forecast to post a 0.5% m/m rise. Given the persistent strength in national and regional manufacturing surveys, the risks look to be skewed to the upside, above all for core Orders metrics; by contrast the weather effects evident in so many other reports suggests that Shipments may well prove considerably weaker than the projected -0.8% m/m.
Czech Rep. – CNB policy meeting
The CNB policy meeting is of interest, in so far as it had been hinting at a relatively aggressive policy tightening over the course of the year 3 to 4 hikes), echoing less hawkish signals from Norges Bank last week. However recent weak economic data in the face of a sharp tightening of lockdown measures due to a very adverse infection rate, suggests that any recovery is likely to be pushed well into H2 2021, as with the rest of the EU. Recent comments by CNB board members such as Holub suggest there will be a push back on its rate hike trajectory, underlining a ‘high degree’ of uncertainty’ and that “the risk of a premature start of monetary-policy tightening is bigger”, while Nidetzky echoed Holub saying “I see no urgency to act now”.
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