All eyes will be on the US Federal Reserve this week as it prepares for its expected rate rise decision to be revealed early Thursday morning, Sydney time, but we should not forget the impact of the Dutch elections also on Wednesday (which could destabilise the eurozone if the worst possible result emerges), and the announcement, possibly on Tuesday, of the formal exit decision for Britain from the EU.
The Fed is expected to announce its third rate hike since the end of 2008, lifting the Fed Funds rate by 0.25% to a range of 0.75-1%.
Thanks to a run of solid economic data, such a move has been well signalled by Fed chair Janet Yellen and others at the central bank in the past month.
Watch for both the post meeting statement for any clues as to future rate rises and the so-called ‘dot plot’ of Fed officials’ interest rate expectations.
Along with new forecasts for employment, inflation and growth, the ‘ dot plot’ could signal expectations for 4 rate rises this year instead of 3.
In fact there could only be two at most as the Fed will want to see the reaction to this rise and see if the US 10 year bond rate climbs to 3% which is considered to be an important level where shares start looking expensive when compared to bonds.
On the data front in the US tomorrow sees the release of the consumer price inflation data for February – it is expected to rise to a headline rate of 2.6% year on year but 2.2% on a core reading.
Retail sales and the NAHB home builders’ conditions index ( are also out tomorrow night), a rise in housing starts (Thursday night, our time) and a rise in industrial production (Friday night, our time).
And the first budget of the Trump administration is due for release this week. It will be a very ‘rubbery’ document seeing the continuing brawl over healthcare policies, tax and several other major issues.
The budget is expected to include a $US54 billion rise to military spending and Mr Trump has previously said a ‘revved up economy’ would pay for the boost.
Trump has previously indicated that he would shield programmes like social security and Medicare from cuts (but can he keep that promise?), but many other discretionary spending programmes face cuts. These programs face pressure from the supposed changes to Obamacare.
Watch for an estimate of the Mexico Wall idea – that will be a major point of argument and scepticism.
He will try and claim the economy is doing better than forecast to bodgy up tax revenues. The rising level of interest rates will ignored.
There is a scattering of global earnings results out this week – VW, Audi, Dollar General, Lufthansa, Adobe, Oracle.
The main event in Europe will be the Dutch election on Wednesday. Recent polls are suggesting that there has been a fall in support for the Gert Wilders’ Eurosceptic Freedom Party from around 20% of the vote to around 17%.
The AMP’s chief economist, Dr Shane Oliver says, “It won’t be able to form government which will ultimately come from a coalition of centrist parties (which have indicated that they will not work with Gilders). An outcome around these levels would be a positive sign for the Eurozone continuing to stay together and hence a positive for Eurozone shares.”
A day earlier, UK PM Theresa May is thought likely to announce the country’s formal exit from the EU (it could end up a day or so later, but Tuesday night, our time is the timing at the moment). While the exit is a formality, the UK budget last week was predicated on a a bit of hope and charity as to the impact of the departure.
The Bank of England also meets to discuss monetary policy this week but economists expect it will leave rates unchanged.
The Bank of Japan (Friday) is not expected to make any changes to monetary policy having committed in September to open ended quantitative easing until it exceeds its 2% inflation target, which at this stage remains a long way off.
Chinese economic data for January/February tomorrow is expected to confirm that activity remained solid into 2017 with industrial production likely to pick up to 6.3% year on year (from 6% in December), retail sales likely to accelerate to 10.6% (from 10.4%) and fixed asset investment likely to accelerate to growth of 8.5% (from 8.1%), according to Dr Oliver.
Housing sector data will be issued next Saturday – watch for a slowing in the rate of price growth. Also watch for the housing investment data in tomorrow’s urban investment figures.
In Australia, the monthly jobs report from the Bureau of Statistics is the big release on Thursday with a small number of new jobs created and interest in how many of those will again be part time gigs.
The February business surveys from the NAB are expected tomorrow and should show business conditions and confidence remaining at high levels.
Myer, the department store chain, releases its first half result on Thursday.
