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ECONOMIC DATA ANALYSIS - MARKETS TAKE UKRAINE CRISIS IN THEIR STRIDE - FOR NOW
ANALYSIS FRIDAY 7 MARCH 2014
MARKETS TAKE UKRAINE CRISIS IN THEIR
STRIDE - FOR NOW
Markets take Ukraine crisis in their stride, but tensions still pose key risk
Chinese data to provide first clear steer on how the economy is performing this
Strength of euro poses risk to euro area recovery
continue to pose key risk... With Russia's
military presence looming large, and the country at risk of civil war, the
economic and financial market implications of the tensions in the Ukraine remain
centre stage. Although there have been bouts of volatility, so far global
markets have taken recent events in their stride. The presumption, it seems, is
that some form of compromise will be reached or the West will ultimately turn a
blind eye. The situation, however, remains on a knife-edge. A referendum on the
status of Crimea (planned for 16 March) poses an obvious flash point, with the
Ukraine government, the EU and US all condemning it as illegal.
A quiet week for
data... With the notable
exception of China, it is a fairly quiet week for economic data, but there are
still some important events and releases to watch out for. In the US, the focus
will be on retail sales and business inventories (both Thurs), PPI (Fri) and
the Senate nomination hearings for Fed Board members (Weds). The House will
also debate President Obama’s FY14-15 Budget. As has been the case for some
weeks, the data are likely to be heavily distorted by the unusually cold winter.
The question is whether this disguises some underlying weakness.
boosted by rise in petrol prices... We expect
retail sales, both headline and ex-autos, to have risen by 0.3%m/m in February.
The rise in petrol prices over the past month, however, is expected to have contributed
to this, as the US retail sales data are measured in values not volumes. Petrol
price increases are also likely to have boosted the PPI (we look for +0.3%m/m).
Business inventories will be watched especially closely for signs of an ongoing
correction to the build-up in the second half of last year. The performance of
inventories poses a key swing factor for US GDP growth in the next couple of
quarters. Lastly, the Senate confirmation hearings for potential Fed Vice Chair
Stanley Fischer and two other Fed governors will be watched for any differences
of opinion with Fed Chair Yellen.
Fragility of China in the spotlight... Elsewhere, the coming week will provide the markets with the
first clear steer on how the Chinese economy is performing year to date, allowing for both the the
pre- and post-seasonal distortions caused by the Lunar New Year. Data include
external trade (Sat), CPI (Sun), and retail sales and industrial production
(Thurs). The data will be scrutinised amid scepticism that the government will
be able to achieve its 7.5% growth target for this year - a goal unveiled at
this week’s Annual Congress. This continues over the coming week, drawing to a close
Strength of euro poses downside risk... After the 0.8% gain in German industrial production on Friday,
French and Italian output data (Mon) will be watched for signs the recovery is
broadening. Although we expect the January data to bounce back after the prior month’s
sharp decline, the improvement could be short-lived. With the euro pushing ever
closer to 1.40 against the US dollar, currency strength poses a key risk to the
region’s growth and inflation prospects. Although ECB President Draghi is
expected to continue to skirt round these concerns at a speech in Austria on
Thursday, we suspect politicians could be more vocal if the euro continues to
TSC may tease out signs of dissent... In the UK, markets will be watching the BoE’s Carney, Fisher, Miles
and Weale who are all due to appear before the Treasury Select Committee
(Tues). Although they have had an opportunity to express their individual views
in recent speeches, the TSC hearing provides an opportunity for politicians to
tease out any emerging signs of dissent among MPC members. The main domestic
release of the week is industrial production (Tues). We look for a flat
out-turn, which, if confirmed, would add to signs of a slight moderation in UK
growth (see back page). Finally, markets will be watching for the usual ‘leaks’ on what the following week’s Budget may
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