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What does it all mean?

• THE WEEK AHEAD ??“ WHAT DOES IT ALL MEAN
  
• INFORMA GLOBAL MARKETS CALENDAR FOR THE WEEK AHEAD

THE WEEK AHEAD

What does it all mean?

The focus is back on yield with high yielders plus the Loonie and Sterling this week. Data has been broadly friendly, while the Dollar has had to cope with the initial dovish interpretation of the FOMC statement. Indeed, the FINEX Dollar basket lurched to year lows below 83 at one stage before stabilising just above this level as the FOMC statement was re-investigated. While yield is likely to continue to dominate, whether the Dollar comes under further pressure depends on the US data slate in the light of the FOMC statement. This may be helped by a further slate of Fed speakers that includes Bernanke??™s JEC testimony Wednesday.

The February PCE slate Friday day stands out as this includes the core deflator, the Fed??™s favoured inflation measure. M/m this rose at the highest rate since August in January, and in y/y terms still remains well above the Fed??™s comfort zone and off its cooling trend. Indeed, overall this Fed sensitive combo is moving the wrong way. February durable goods orders (Wednesday) should partially recover January??™s massive lurch lower that implies that capital goods orders in particular face a sticky wicket in Q1. Moreover, the Chicago PMI Friday should stabilise, but still below the 50 boom-bust benchmark that it dropped below at the start of the year. In addition, the potentially soft underbelly of the US economy could emerge Monday with February existing home sales where weather related factors could emphasise the negative risk. Final March US Michigan sentiment is out Friday along with final Q4 GDP Thursday. With the latter backward looking, it is unlikely to have any significant impact unless there are major revisions. Butoverall, the data combo is unlikely to give any clear indications about Fed policy. The US has 2 year and 5 year note auctions Wednesday and Thursday with details announced Monday. This will be the first test of the post-FOMC environment.

The higher than expected Canadian inflation numbers have provided a strong undercurrent for the Loonie which has hit its best levels since late February. So far this has held. This focuses attention on BoC Governor Dodge??™s speech next Thursday, and whether the jump in the BoC??™s preferred core measure leads to any hints about a potential change in policy bias ??“ currently the BoC sees the current overnight target rate as being consistent with achieving the Bank??™s inflation target. Data wise, the first monthly GDP print for this year emerges Friday . There are several opposing factors at work that could push the m/m read down, but still around prior reads on a y/y basis. Note also the Quebec election Monday. Industrial and raw material prices for February are out Friday.

New Zealand??™s calendar turns heavy with trade, consumer confidence, dwelling consents and credit growth culminating in Q4 current account Thursday and Q4 GDP with NBNZ's latest business survey Friday. February trades Monday should see the deficit fall. Consumer confidence Wednesday is set to have risen over Q1 amidst the still buoyant labour and housing conditions even though February dwelling consents due later are likely to continue easing. Thursday??™s Q4 current account gap will be a key focus and looks set to post a slight improvement but remain at an elephant wide 9.1% of GDP. February credit growth due later on risks to gain another robust gain. Finally, on Friday, a solid rebound in GDP is expected after Q3??™s tepid performance, dominated by the resurgence in domestic demand. Coupled with firm readings in NBNZ??™s business outlook, all the above should confirm that NZ's economy has been brisk into 2007 and could see markets bull up rate hike expectations. In Australia, merely February quarterly job vacancies feature Thursday and February credit Friday. Another solid month of credit growth will be a concern to the RBA and could be a key trigger that forces it to hike rates again.

Japan faces the usual heavy month-end set of releases, including the February national and March Tokyo CPI releases. However, recent reads have been extremely benign, and this is likely to continue, and validate the BoJ??™s relaxed policy stance. Indeed, the risk of a potentially deflationary read could put further pressure on the Jpy which has dropped to the base of the best performing currencies against the Dollar. Tuesday??™s BoJ February CSPI should also ease back from January??™s unexpectedly strong showing. The week starts with the minutes of BoJ February meeting will show why Iwata dissented against the decision to raise the call rate target to 0.5%. Thursday, February retail sales should improve and mark the first y/y gain in 4 months, although anecdotal evidence is mixed. Wage earners??™ total cash earnings are eyed for rebound after a sharp y/y decline in January.

After a quiet week, a plethora of sentiment data arrives. Eurozone has the March sentiment indices Friday preceded by the German March Ifo and Italian business confidence Tuesday, and that from France Monday. Overall, real economy data suggests some check to the upbeat tone, particularly Italy, but nonetheless still positive and indicating that the recovery remains firmly on track. The February Ifo fell after a decline in January, while for March VAT follow through plus stock market turmoil could provide a negative reality check to pull the index back from unsustainably high levels. Outside the Eurozone, the March Swiss KoF (Wednesday) could also suffer a slight relapse after having unexpectedly risen in February, but still remains comfortably ensconced above the long term average.

Real economy data also figures for the Eurozone. February M3 emerges Wednesday. Money growth has been accelerating, and is more than twice the ECB??™s 4.5% ref rate. Such a pace continues to unsettle the Bank and is one justification for its strong inflation vigilance. That said, there have been some temporary factors boosting M3 and February could see these start to abate. The other pillar of ECB policy - inflation - has the flash EMU outturn Friday. HICP has stayed below the ECB??™s 2% critical level for six successive months, and this is unlikely to change in the March read. The German preliminary March CPI read is released Wednesday. While this may show more of a VAT impact, it should remain calm. February EMU unemployment Friday and March German jobless (Thursday) should offer further evidence of continued labour market strength. Overall, against recent hawkish ECB speak, the Eurozone data should do nothing to change market views of one more hike in the bag.

Outside the Eurozone, attention turns to the Riksbank (meeting Thursday, announcement Friday). The Riksbank hiked rates in February for the seventh time in the current cycle, taking the repo to 3.25%. The accompanying statement turned more neutral with one more hike seen in the next six months before a pause, leaving markets looking for no change next week. The jump in February Swedish retail sales Wednesday should only partially reverse January??™s sharp fall, while February PPI (Wednesday) and March business/consumer confidence Thursday are unlikely to disturb the status quo. All this could further weigh on the Sek, particularly as Norway??™s March unemployment rate Thursday and February credit indicators Friday should underline the continuing bubbling mainland economy.

As for the UK, after the volatility this week, data goes onto a backburner. The March CBI distributive trade survey Friday could fall again after February??™s drop as concerns about recent and potential rate hikes dampen enthusiasm. Nevertheless, the read still remains healthy. March Gfk consumer confidence (Monday) could edge higher. Monday??™s March Nationwide house price index should continue the robust housing print, and this should be amplified by final February Sterling lending (part of Thursday??™s M4 release) and the same day??™s mortgage approvals.