This week is expected to be relatively quiet in terms of economic events, although there are some important data releases to keep an eye on. On Monday, there are no notable economic releases, but traders should note that the U.S. and Canada switched to Daylight Saving Time.
Moving to Tuesday, the focus will shift to the U.K., where we’ll receive data on the claimant count change, average earnings index 3m/y and the unemployment rate. Following that, attention will turn to the U.S. for inflation data, likely the most significant event of the week.
Wednesday will bring the U.K.’s GDP monthly print and on Thursday, the focus returns to the U.S. with releases including core PPI m/m, retail sales m/m and the unemployment claims.
Finally, on Friday, the U.S. will publish the Empire State Manufacturing Index, industrial production m/m, the preliminary UoM Consumer Sentiment and the preliminary UoM Inflation Expectations.
The claimant count change for the U.K. is expected to rise from 14.1K to 20.3K and the average earnings index 3m/y to drop from 5.8% to 5.7%. The unemployment rate is likely to remain unchanged at 3.8%.
The BoE is closely monitoring private sector wage growth data along with services inflation in particular in order to determine the appropriate timing for potential rate cuts. Analysts at ING noted that wage growth expectations finally dropped below 5% in BoE’s survey of CFOs which is encouraging but not enough.
The market currently anticipates a first rate cut in June, but there are many data releases until then that would need to show wages cooling further and inflation heading towards the BoE’s 2% target. April and May are key months for price rises in the service sector, so the Bank is likely to wait for those prints, ING analysts said while estimating the more likely start of rate cuts being August.
On Friday the U.S. jobs market report surprised to the upside again but there are signs that some softening is underway which is reflected in labor demand. Analysts from Wells Fargo note that there have been fewer job openings listed by companies and fewer workers are quitting as alternative positions are harder to find compared to a year ago.
The unemployment rate rose from 3.7% to 3.9% and while February had 275K jobs added compared to the 200K expectation, the data from the two months prior was revised down by 167K, particularly January from 353K to 229K.
This week’s inflation data is very important as it can provide clues on the timing of the rate cuts. The market expects a first cut in June, but the Fed stressed that more evidence is needed on the inflation progress towards the 2% target in order to take action. The consensus for the core CPI m/m is a 0.3% rise compared to 0.4% prior while headline CPI m/m is anticipated to rise by 0.4% from 0.3% prior. The year-over-year inflation is expected to remain unchanged at 3.1%. The rise in the m/m figure is fueled by rising gasoline prices, but overall inflation is likely to resume its downward trend.
The U.K. GDP m/m is expected to rise from -0.1% to 0.2%. While this is not likely to be a market mover, it will reflect how the economy is performing and is a sign that the country is on a recovery path from the technical recession that started in the second half of last year.
As a reminder, the last PMI data showed improvements in both the services and the manufacturing sectors, though manufacturing remains in contraction territory. If the economy stabilizes the BoE is more likely to wait until June before cutting rates. However, if inflation slows and economic growth surprises to the downside, a rate cut could arrive earlier, Wells Fargo analysts said.
In the U.S., the consensus for core PPI m/m is to drop from 0.5% to 0.2% while PPI m/m is likely to remain unchanged at 0.3%. After a January 0.6% m/m rise in core PPI excluding food, energy and trade services — volatile components — analysts from Citi anticipate a moderate but still solid 0.3% increase in February. The market will also closely monitor the goods prices PPI component due to a rise in global shipping costs, they said.
Industrial production m/m for the U.S. is likely to rise from -0.1% to 0.0%. High interest rates continue to put pressure on the industrial sector along with slow domestic demand for products. Last month industrial production figures reflected the largest pullback in manufacturing in a while and a drop in mining output and this week’s data is not likely to show a significant recovery. The manufacturing sector is not expected to recover until after the Fed starts cutting rates.