An interesting week last week saw February non-farm payrolls beat expectations, potentially suggesting that the US recovery is on a firm footing in the medium term. Similar to the UK, however, we saw that the unemployment rate actually went up as the number of people seeking work increased at a faster pace than jobs being taken up.
Monday morning in the Asian markets also saw some slippage for Japan, with Q4 GDP growth being revised down from 0.3 percent to 0.2 percent and the trade deficit widening to a staggering 1.6 trillion Yen. All this points to some troubles as far as ‘Abenomics’ is concerned, all of which is exacerbated by the lingering problem of a thirst for energy imports post Fukushima.
The sales tax due to be implemented next month will go some way to reducing the growth in the trade deficit but it is likely to put a further damper on GDP growth in the short term. Giving another kick to inflation, though, may be deemed to be worth it if a movement in prices and wages can be triggered.
Monday 10th March: Brazil auto sales (13:30 GMT)
With Brazilian Q4 GDP growth figures having come in well ahead of forecasts, figures such as auto sales will be carefully scrutinised to see if it was just a blip or if growth is holding firm and resisting the wider downward pressure some Emerging Markets are suffering following the onset of the Federal Reserve’s tapering.
Given the last figure for automobile sales was down 11.7 percent and part of the first annual decline in a decade (down 0.9 percent), there’ll be an expectation of a positive number this time round.
With interest rates riding high at 10.75 percent in order to prevent inflation and Dollar outflows from the highly indebted economy ,however, it’s not impossible that the figure may well disappoint yet again.
Tuesday 11th March: UK manufacturing output, forecast to increase by 0.3 percent m/m (09:30 GMT)
Although it only accounts for one tenth of the UK’s economic output, the rebalancing of the UK economy is ultimately reliant on achieving growth in exports, of which manufacturing output is a crucial component.
There are some promising signs, not least the fact that employment in the sector grew at its fastest pace since May 2011 and the recent positive batch of data from the Eurozone may assist, given the region accounts for 54 percent of UK goods trade.
Ultimately, however, the government is likely to fail restore the sector’s output which remains 9 percent below its pre-crisis peak unless it is able to help reduce costs (of which energy is a major component).
Wednesday 12th March: UK January Trade balance, forecast deficit of £8.6 billion (08:00 GMT)
It’s a big number and crucially, it would suggest that the trade deficit has barely changed since 2010 despite the UK government’s rhetoric that the economy needs be rebalanced away from consumption.
If the forecasts are correct, this would suggest a worsening of the deficit from a previous £7.7 billion. Unless a reversal can be achieved, the UK economy will once again remain entirely reliant on debt fuelled consumption in order to propel GDP growth.
A story of sharp decline: The absolute position of the UK balance of trade over the last twenty years.
Thursday 13th March: France CPI inflation, forecast to rise 0.5 percent (07:45GMT)
Mario Draghi last week stated that “the longer inflation stays way below 2 percent (the annual target) the higher will be the risk that it will not go back to 2 percent in any reasonable time” which would appear to suggest they do have some degree of concern about deflationary prospects if inflation slows further.
That said, rates were placed on hold and there was little suggestion in Draghi’s remarks after the European Central Bank’s rate announcement that Quantitative Easing is likely any time soon.
This implies that they are confident in forecasts that the Eurozone economies are about to reflate to some extent. If this doesn’t happen in France following the previous decline of 0.6 percent, this may very well increase the pressure.
Friday 14th March: US Producer Price Inflation (PPI) inflation m/m forecast to rise 0.1 percent month on month. (12:30 GMT) and Germany inflation forecast to rise 0.5 percent m/m (07:00 GMT)
With the Federal Reserve having seemingly ditched its focus on unemployment figures as its primary focus as to when to cut rates, we can expect inflation figures to be the main determinant of a rate hike.
As we can see from the chart below, inflation (with PPI being the measure used here) is some way below its peak in 2008 which will likely lead the Fed to keep rates on hold until inflation starts to tick upwards.
Low inflation: US Producer Price Index measure of inflation highlighting a lack of pressure on the Federal Reserve to raise rates.
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