Week Ahead Economic Preview
- Worldwide services PMI data releases
- US non-farm payrolls report
- GDP updates for the eurozone, Japan and Australia
- Policy meetings at the ECB, RBA and BOJ
A busy week sees a flow of key data releases ranging from worldwide services PMI surveys on Monday through to the US employment report on Friday, as well as several major central bank policy meetings.
To get up to speed on the latest PMI surveys, a free overview is available to download here
US jobs report and business surveys
Some important US economic releases will help gauge the pace of policy tightening at the Fed. The central bank is now widely anticipated to raise interest rates another four times in 2018, with a first hike coming as soon as March being favoured by many. The latest jobs report will be scoured for signs of sustained healthy jobs growth but, more importantly, evidence that wages are continuing to rise. The prior release showed a surprising large jump in wages that looks unlikely to have been sustained.
US business survey data, including IHS Markit’s services PMI and the ISM’s non-manufacturing index will also give policy clues and provide a guide to first quarter GDP. The flash PMI rose in February but the surveys signal a modest 2.5% first quarter annualised growth rate.
ECB
The ECB is not expected to make any major changes to its policy stance at its March meeting, but signs of strong economic growth mean we could see some tweaking of the guidance. Flash PMI data pointed to some easing in the pace of expansion in February but the region is still enjoying its best growth spell for 12 years. Price pressures have also picked up in recent months, though with only limited pass-through to consumer prices so far. While the ECB will want to see more signs of inflation picking up before sounding more hawkish, there’s a chance of a removal of the easing bias, which currently notes that more asset purchases could be required if needed.
Bank of England rate hike in focus
The Bank of England has meanwhile made increasingly hawkish noises to the extent that a rate hike in May looks a distinct possibility. However, it’s likely that for a May hike to happen, policymakers will need to see some signs of better economic growth, after January’s business surveys disappointed, as well as some further improvement in pay growth. The former will be guided by the services PMI survey and updates to official industrial output, trade and construction numbers, while the latter will be guided by the monthly REC industry survey.
Japan
The Nikkei Services PMI and updated GDP numbers will be eyed for clues as to the future policy stance at the Bank of Japan. Prior PMI surveys and the February flash manufacturing PMI have pointed to sustained strong economic growth as well as encouragingly strong hiring and price trends. However, the BoJ has played down the need to shift to a tighter policy stance.
Policy meetings in Australia and Canada
The Reserve Bank of Australia also meets to set interest rates, but expectations of an imminent rate hike have fallen in recent weeks. Late last year markets had almost fully priced in a 2018 rate hike but weaker than expected inflation numbers and softer business survey data have since cooled these expectations to the extent that markets price in only a 50% chance of a 2018 hike. A flurry of data including PMI numbers and fourth quarter GDP will add to the policy debate.
The Reserve Bank of Canada is likewise widely expected to keep policy on hold at its monthly meeting, treading a more cautious path in 2018 after having already hiked three times since last July. However, the consensus is for two more rate hikes later this year. PMI data will give an update on business conditions in February and help determine the timing of the first of these hikes.
Chris Williamson, Chief Business Economist, IHS Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com