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ECONOMIC DATA ANALYSIS - YELLEN SET TO STRIVE FOR CLARITY
ANALYSIS FRIDAY 20 FEBRUARY 2015
Friday 20 February 2015
YELLEN SET TO STRIVE FOR CLARITY
- FOMC Chair to clarify
Committee position on the outlook for US policy rate
- Eurogroup deadlock
over Greek bailout extension threatens to unnerve markets
- UK Q4 GDP set to remain
Market to seek clarity from Yellen...With uncertainty about the
timing of the first FOMC policy hike rising in the wake of the January FOMC
minutes, Janet Yellen’s semi-annual testimonies to the US Senate and House of
Representatives (Tues/Weds) will be closely scrutinised. Markets will be
particularly attuned to any suggestion that the FOMC may be deviating from its
pledge to be “patient” in terms of a hike, particularly in light of a
surprisingly strong payrolls report which was released after the last meeting
inflation to soften further...The FOMC chair can be expected to
stress that despite the seemingly firm US economic trajectory, geopolitical
events in Europe and the Middle East, slowing Chinese activity, and dollar strength
continue to pose notable adverse risks. Nonetheless, having previously
signalled a willingness to look-through the negative impact of the 2014H2 fall
in oil prices on inflation, the current bout of Fed fluttering appears to be
largely driven by renewed concerns about this outcome. We expect Wednesday’s
January CPI release to show a decline to -0.1%y/y from 0.8% in December.
The key focus will be on the core rate, which we expect to remain unchanged at
1.6%. This should provide some reassurance about the absence of second round
effects. The second estimate of Q4 GDP (Fri) will also attract some interest.
This is expected to subside from its initial 2.6% (saar) to 2.1%, largely on
the back of weaker-than-expected net trade.
drama continues to run... As we go to print, the latest Eurogroup
meeting is taking place against the backdrop of Greece’s request for a
six-month loan extension after the current programme ends on February 28.
Market nervousness is set to build in the absence of a solution over the
weekend. There could also be increased pressure on the Greek banking sector
from deposit withdrawals. Such an outcome would undoubtedly spark questions
about the ECB’s Emergency Liquidity Assistance for Greek banks ahead of Mario
Draghi’s appearance before the European Parliament on Wednesday.
spurring euro area rebound...Recent stronger-than-expected German
data, including the ZEW and services PMI, have increased hopes of a
commensurate pickup in euro area activity. This week should see a further boost
from Monday’s IFO business climate index, which we expect to post a fourth
consecutive monthly rise to 107.8. But amidst lingering concerns about a
further softening in euro area inflation, whose final January print is expected
to stay at -0.6%y/y (Tue), market attention will be focussed on the preliminary
German HICP release for February (Fri). We look for January’s -0.5%y/y print to
Q4 GDP to show households in charge...The second estimate of UK Q4
GDP, due on Thursday, is forecast to remain unchanged at 0.5%q/q. The
expenditure breakdown will be examined to see if household spending is
continuing to provide the lion’s share of propulsion as suggested by the recent
strength of retail sales. Such an outcome could raise questions about the
sustainability of the pace of activity. On the policy front, BoE Governor
Carney and fellow MPC members Broadbent, Miles and Weale are set to appear
before the Treasury Select Committee on Tuesday. This will provide an opportunity
for each of them to detail their individual positions on the economic outlook.
With the possibility of a run of sub-zero inflation prints over the next few
months, markets will be particularly attuned to any clues on what might prompt
the MPC to lower rates from the current 0.5% level.
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