In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.

RBC Capital Markets

Week ahead: A relatively quiet week in the US is dominated by the minutes of the January 29 FOMC meeting (Wednesday) with data being mostly second‐tier. The ninth Democratic primary debate (Wednesday) and Nevada caucuses (Friday) will be the focus in US politics, with Sanders remaining favourite as Democratic nominee with the bookies this morning and the Republicans still comfortably ahead as the most likely election victors.

Outside the US, the Eurozone and UK flash PMIs (Friday) are the key releases (see EUR and GBP). Canada has Dec retail sales and Jan CPI (CAD). CBRT is the only central bank due to announce this week (Wednesday).

JPY: Japan’s economy shrank 1.6% (non‐annualised) in Q4 (consensus ‐1.0%). Consumer spending fell almost 3% q/q, more than reversing the Q3 rise (0.5%) as households reacted to the October consumption tax increase. Private capital spending also slumped and the data will prompt talk of recession if the monthly data look like they are adding up to another fall in Q1. The BoJ will likely want to see a full run of Q1 data before making a judgement on the underlying trend and hence the need for further easing.

AUD: The RBA’s Feb minutes will likely provide a reminder of its patient approach, the long and variable lags, and the increasing costs vs benefits of further policy easing. They are likely to be consistent with a bank on hold as it monitors, in particular, Covid‐19 both its likely impact and duration. We note the escalation in this virus since the board last met and updated guidance from the RBA’s Head of Economic Analysis, Dr. Alex Heath, last week which hinted at increased downside risk to the RBA’s GDP forecasts as greater second order impact emerges. Any suggestions along these lines or elaboration of the virus will give the minutes a more dovish tone than the post board meeting statement and accompanying raft of communication that week. Later this week we have Q4 wage price data (Wed), expected to remain around its recent trend of 0.5% q/q, and labour data (Thur) where some correction from recent strong gains is expected.

GBP: After the strong bounces in the January PMI data, the extent to which this is sustained in February will be key for UK rate sentiment. Markets current have 12bp of cuts priced in for the May meeting and 25bp priced in by year‐end. Strong new orders and business optimism components were notable features of the January PMI data and should lead to a further improvement this month (out Friday). For the moment the “higher levels of consumer spending and business investment” cited in the January report should outweigh concerns on the coronavirus and the government’s hardening Brexit stance.

EUR: The euro area ‘flash’ PMIs for February (Friday) will provide us with a first read on how the coronavirus has been impacting the euro area economy. Due to the large trade relationship between the euro area and China, we would expect to see quite a significant negative impact to be reflected in the PMIs, particularly in the manufacturing index.

CAD: With the Canadian consumer in sharp focus after recent underwhelming spending data, December retail sales (Friday) is an important release. Our economists expect overall volumes to be up 0.3% m/m, which would still leave them down 2.5% annualised in Q4. They are tracking a paltry 0.5pp add from the consumer in the quarter. Core inflation (Wednesday) is expected to remain close to the BoC’s target (2.1% in December and expected little changed).

BNZ

Global Watch

  • Virus concerns remain as Chinese production restarts
  • Many Fed speakers on the circuit this week, FOMC minutes due
  • US housing data expected to show acceleration
  • EU, UK PMIs due
  • AU unemployment seen edging higher

Australia

In recent weeks, Governor Lowe has detailed the RBA’s policy outlook in a keynote speech, a parliamentary testimony and the Statement on Monetary Policy, which means the February Board minutes are unlikely to contain new information for the market.

After edging lower two months in a row, NAB forecasts a tick up in the unemployment rate to 5.2% in January, alongside weaker employment growth of 10k (market: 5.2% and 7.5k). Underlying weakness in activity and a deterioration in leading indicators of employment – such as the NAB survey and SEEK job ads – suggests that the recent improvement should be unwound. The Reserve Bank does not forecast the monthly data, but anticipates unemployment to average 5.2% into Q2 2020.

Note that the escalation in bushfires at the start of the year may see hours worked in January fall. The disruption may also have caused some delay in surveying, but that is unlikely to significantly affect the headline unemployment and employment figures.

Little movement in unemployment over the past year suggests wages growth remains subdued. For Q4, our think wages grew by another 0.5%, keeping annual wages growth at 2.2%.

The RBA forecasts a slow fall in unemployment

 China

The focus remains on the coronavirus with the PBoC expected to trim prime rates by 5bp on Thursday. It is unclear how fast production will be ramped up after the gradual lifting of internal travel bans; most are scheduled to be lifted by 17 February, although extensions are possible with Hong Kong keeping schools closed until 16 March. Daily pollution levels suggest activity is now coming back online.

 US

There are a series of housing releases this week that should show an acceleration in activity. The FOMC minutes are out and 12 Fed speeches are scheduled. The Nevada caucuses are on 22 February, with the focus on whether Biden can get his campaign back on track.

 Eurozone

The German analyst ZEW survey is due Tuesday and likely to be weak reflecting weak incoming data, with EZ consumer confidence for February due Wednesday (confidence has drifted to an almost three-year low). Flash German, French and EZ manufacturing and service-sector PMIs are due Friday. These early readings only have around half the full month’s data.

 UK

Labour market data, including key wage increases, are due Tuesday, while the January CPI is due Wednesday. Annual CPI inflation is seen picking back up to 1.6% from 1.3%. Flash manufacturing and service-sector PMIs – which have rebounded strongly recently – are due Friday.

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