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Reflationary narrative & economic calendar

USD

Last week was marked by an increase in bond markets, which was based on the reflationary narrative. Benchmark 10-year Treasury yields, for example, rose by almost 15bps last week (+/-1.33% level), the biggest such rise since early January (when 10-year rose above 1%). It will be a rather busy week ahead. Federal Reserve Chairman Jerome Powell delivers the central bank’s semiannual report on the economy and monetary policy to Congress during two days of testimony beginning Tuesday. Powell’s testimony will provide more guidance on what to expect from central bank policy as infection rates subside. The U.S releases a fresh estimate of fourth-quarter GDP, which is expected to show a slight upward revision to 4.1% from 4.0%. In general, increasing inflation expectations and rising interest rates should continue to drive the U.S dollar movement. Key figures coming up:

  • On Monday (02/22): FOMC Member Bowman Speaks
  • On Tuesday (02/23): CB Consumer Confidence (Feb) | Fed Chair Powell Testifies | API Weekly Crude Oil Stock
  • On Wednesday (02/24): New Home Sales (Jan) | Crude Oil Inventories
  • On Thursday (02/25): Durable Goods Orders (Jan) | GDP (Q4) | Initial Jobless Claims | Pending Home Sales (MoM) (Jan) | FOMC Member Bostic Speaks 
  • On Friday (02/26): Personal Consumption Expenditure (PCE) (Jan) | Goods Trade Balance (Jan) | Michigan Consumer Expectations (Feb) | Personal Income (Jan) | Personal Spending (Jan) 

EUR

The week ahead sees fresh estimates of fourth-quarter GDP in some major economies including Germany, France, and Portugal. Prior data showed France contracting by 1.3% in the three months to December but Germany eked out a 0.1% gain. Consumer and business sentiment surveys are due out across Europe, starting with the IFO survey for Germany on Monday. Eurozone Consumer Price Index will be revised for January on Tuesday after the initial -0.3% year-on-year reading. Key figures coming up:

  • On Monday (02/22): German Ifo Business Climate Index (Feb) | ECB President Lagarde Speaks 
  • On Tuesday (02/23): Eurozone Consumer Price Index (Jan)
  • On Wednesday (02/24): German GDP (Q4)
  • On Thursday (02/25): GfK German Consumer Climate (Mar) | Eurozone Consumer Inflation Expectation (Feb) | Eurozone Industrial Sentiment (Feb)
  • On Friday (02/26): German Import Price Index (Jan) | France Jobseekers Total (Feb) | France GDP (Q4)

GBP

Last week, the Sterling spiked, touching near three-year highs against the greenback after the British government announced plans to easing Covid-19 measures. The upcoming week kicks off with labor market data on Tuesday. The unemployment rate is expected to stand at 5.1% in December. If so, this would be the highest rate since March 2016 and comes despite aggressive government measures to support the labor market. A "recorded mini-speech on the inflation outlook" from Mr. Haldane will be released on the BoE's website on Wednesday. Then, the focus will turn to Nationwide Housing Price Index on Friday. Key figures coming up:

  • On Tuesday (02/23): Unemployment Rate (Dec) | Claimant Count Change (Jan) | CBI Distributive Trades Survey (Feb) 
  • On Wednesday (02/24): BoE MPC Member Haldane Speaks 
  • On Friday (02/26): Nationwide Housing Price Index (HPI) (Feb) | MPC Member Ramsden Speaks 

JPY

Last week, Japan began administering vaccines against the Covid-19 and It was the last of the G7 nations to get started, beginning with health workers. Prospects for further shipments of vaccines remain uncertain. Although it is a short week due to a national holiday, Japan has a busy week, with most of the data coming in the middle of the week. The Bank of Japan will release the core inflation data for February on Wednesday. February Tokyo inflation will also be reported on Thursday. Both headline and core (ex-fresh food) inflation are expected at -0.4% year-over-year vs. -0.5% in January. Also, on Thursday, industrial production and retail sales will be reported. The latter is expected to fall -1.2% in January vs. -0.7% in December. Key figures coming up:

  • On Tuesday (02/23): Emperor's Birthday - Holiday
  • On Wednesday (02/24): Bank of Japan CPI (Feb)
  • On Thursday (02/25): Coincident Indicator (Jan) | Tokyo Core CPI (Feb) | Industrial Production (Prelim, Jan) | Retail Sales (Jan)
  • On Friday (02/26): Construction Orders (Jan)  

CAD

Bank of Canada (BoC) Governor Macklem’s public speech kicks off the week on Tuesday. His topic will be “Labour market impacts of COVID and sectoral implications.” The topic suggests he will repeat his prior emphasis upon how the recovery is expected to continue to be uneven and many are being left behind. Apart from BoC, it is a light week for economic data, with a Job report on Thursday and Producer prices index on Friday.  Key figures coming up:

  • On Tuesday (02/23): BoC Gov Council Member Macklem Speaks 
  • On Wednesday (02/24): Corporate Profits
  • On Thursday (02/25): Payroll Employment, Earnings & Hrs (Dec)
  • On Friday (02/26): Industrial Prod. Prices (Jan) | Raw Materials (Jan)

MXN

This week sees crucial economic data, starting with the mid-February inflation index on Wednesday. The mid-month inflation is expected at 3.88% year-on-year vs. 3.33% in mid-January. If so, it would be the highest since October and closer to the top of the 2-4% target range. On Thursday, real GDP likely rose 3.1% quarter-on-quarter in Q4, in line with the first estimate. At the same time, Mexico’s Central Bank will release the minutes from the last meeting, in which the bank resumed its easing cycle with a unanimous decision to cut 25 bp to 4%. Elsewhere, investors will pay attention to the soaring Covid-19 deaths. The 7-day moving average of deaths stands at 1,043 and the country has a mortality rate of 8.8%. Key figures coming up:

  • On Wednesday (02/24): Unemployment Rate (Jan) | Retail Sales (Dec) | 1st Half-Month CPI (Feb)
  • On Thursday (02/25): Economic Activity (Dec) | GDP (Q4) | Bank of Mexico minutes
  • On Friday (02/26): Trade Balance (Jan)

CNY

Financial markets in China were quiet last week due to the Lunar New Year celebrations. The week starts with some policy action from the People’s Bank of China (PBoC) on Monday. According to economists, the PBoC is not expected to alter its 1-year Loan Prime Rate of 3.85% or the 5-year rate of 4.65%. Like the U.S, given the managed yuan peg to the dollar, China’s bond market has also sold off recently. China’s February manufacturing and services PMI readings on Saturday may be affected by the Lunar New Year celebrations but should stay well above 50 and set the tone for next week. Key figures coming up:

  • On Monday (02/22): House Prices (Jan) | Interest rate decision
  • On Saturday (02/27): Services, Manufacturing and Composite PMIs (Feb)

BRL

Last week ended with the oil state-owned Petrobras announcing that diesel prices would increase by 15.2% and gasoline by 10.2%. Following the announcement, the Petrobras’s shares plunged 8% and President Bolsonaro announced Joaquim Silva e Luna – a retired general currently director of Itaipu, the giant hydroelectric power plant – as the new CEO of Petrobras. Mr. Bolsonaro said more changes would occur in the energy sector. The upcoming week should bring some development around the fresh emergency aid, with the Senate voting the emergency constitutional amendment on Thursday. The Covid-19 pandemic remains under the radar, with the 7-day moving average of deaths standing at 1,037 per day. Key figures coming up:

  • On Monday (02/22): BCB Focus Market Readout | CAGED Net Payroll Jobs
  • On Wednesday (02/24): FGV Consumer confidence (Feb) | Mid-Month Inflation (IPCA-15) (Feb)
  • On Thursday (02/25): IGP-M Inflation Index (Feb)
  • On Friday (02/26): IBGE Unemployment Rate (Feb) | Debt-to-GDP ratio (Jan)

Quick Insights

USD: Increasing inflation expectations and rising interest rates should continue to drive the U.S dollar movement

USD: Increasing inflation expectations and rising interest rates should continue to drive the U.S dollar movement

EUR: Fresh estimates of fourth-quarter GDP in some major economies

EUR: Fresh estimates of fourth-quarter GDP in some major economies

GBP: Mini-speech on the inflation outlook

GBP: Mini-speech on the inflation outlook

JPY: Prospects for further shipments of vaccines remain uncertain

JPY: Prospects for further shipments of vaccines remain uncertain

CAD: Bank of Canada Governor Macklem’s public speech kicks off the week

CAD: Bank of Canada Governor Macklem’s public speech kicks off the week

MXN: This week sees crucial economic data

MXN: This week sees crucial economic data

CNY: Policy action from the People’s Bank of China (PBoC) on Monday

CNY: Policy action from the People’s Bank of China (PBoC) on Monday

BRL: More changes would occur in the energy sector

BRL: More changes would occur in the energy sector

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