U.S. Week Ahead
* The week ahead features housing data, the newly revamped Producer Price Index report and the minutes of the last meeting of the Federal Open Market Committee. The minutes of the January meeting of the FOMC, to be released Wednesday at 2:00 p.m. ET, are not expected to hold anything revelatory. Now that the committee has decided to reduce its monthly purchases by another $10 billion, and Fed members have widely dismissed the weak December and January jobs reports, it's become clear that the Fed is firmly set on finishing up its third round of quantitative easing this year.
* The new services-dominated PPI report will replace the old goods-dominated methodology for the January release, scheduled Wednesday at 8:30 a.m. ET. The new report will contain a vast trove of new information, roughly three times the data contained in the old report, as it now includes the services sector, a large portion of the U.S. economy. But according to economists interviewed by MNI, the new report leaves most analysts still confused on what useful insights it offers about the economy or how to gauge expectations. The January Consumer Price Index will be released Thursday at 8:30 a.m. ET. Housing data to be released in the week include January housing starts Wednesday at 8:30 a.m. ET, January existing home sales Friday at 10:00 a.m. ET, and the National Association of Home Builders' February home price index Tuesday at 10:00 a.m. ET. Manufacturing data to be released next week include the Philadelphia Federal Reserve's February business outlook survey Thursday at 10:00 a.m. ET, the New York Federal Reserve's Empire State manufacturing survey Tuesday at 8:30 a.m. ET, and the final February Markit purchasing managers index Thursday at 8:58 a.m. ET.
* In the coming holiday-shortened week, the data calendar centers on inflation measures, but market sources said the focus will be on risk measures which if elevated may result in lower yields. The key January FOMC minutes are due mid-week. Economists at RBC wrote, "We do not anticipate that they will look very different from what we saw in the December confab. The bottom line is that they are likely to echo the ongoing message from the plurality of Fed members (Yellen included) and that the tapering process remains on track and is unlikely to be interrupted barring a significant shock to the economic outlook." However, the markets are likely to stay focused weather-related impacts on the data stream, especially after January Retail Sales data and the negative revisions to back data, which should have a negative impact on Q4 GDP. The week ahead will also likely to continue to be focused on risk levels, specifically EM currency and equity markets.
* The upcoming G20 meeting in Australia should welcome the U.S. progress in restoring growth and the those emerging market economies being buffeted by "considerable" market turbulence were forewarned that Federal Reserve tapering was the inevitable consequence, a senior U.S. Treasury official told reporters late Friday. Previewing the G20 meeting set for Sydney, Australia late next week, the official indicated Treasury Secretary Jack Lew will not be inclined to apologize for helping lift global growth. The "handful" of emerging economies forced to react to market pressures from higher interest rates, he suggested, have known they need to strengthen their defenses as a "rotation" in global demand and slower growth in China recalibrates investment flows. The U.S. will urge its G20 partners to concentrate on global imbalances, he said, with some countries with large current account surpluses still relying too much on exports and paying too little attention to bringing a market orientation to their foreign exchange regimes. The meeting of the finance ministers and central bank governors from 19 countries and the European Union is expected to be followed by another this year prior to the ninth summit of G20 heads of state scheduled for Brisbane, Australia in mid November.
* The scaling back of unconventional monetary policy by global central banks will likely lead to more volatility in emerging markets this year, the International Monetary Fund said Friday, adding that such action could also see bank funding conditions and credit standards tighten
United States
* Industrial production decreased 0.3% in January after having risen 0.3% in December. "In January, manufacturing output fell 0.8%, partly because of the severe weather that curtailed production in some regions of the country," the Federal Reserve said. The output of utilities rose 4.1% in January, as demand for heating was boosted by unseasonably cold temperatures. The capacity utilization rate for total industry decreased in January to 78.5%.
* U.S. consumer sentiment was unchanged in February, as consumers' view of current conditions fell but expectations for the future rose to their highest level in five months, according to the University of Michigan Consumer Sentiment survey released Friday. The preliminary reading of the February consumer sentiment index was above expectations, reported at 81.2 compared to 81.2 in January, and 82.5 in December. The index's measure of how consumers view current conditions fell to 94.0 from the 96.8 in January.
* Dallas Federal Reserve Bank President Richard Fisher Friday declared that, barring a significant deterioration in the economic outlook - or should deflation rear its ugly head, he will continue to support the steady wind-down of the central bank's monthly asset purchase program. In an interview on Bloomberg Radio, Fisher also indicated that the hawks on the policymaking Federal Open Market Committee might be gaining another ally come June 1, when current Philadelphia Fed Director of Research Loretta Mester is expected to begin her new role as president of the Cleveland Fed, replacing Sandra Pianalto.
* U.S. import prices ticked up 0.1% in January following a 0.2% rise the previous month. The January advance was led by higher nonfuel prices, while the increase in December was driven by rising fuel prices. Despite the recent advances, prices for overall imports declined 1.5% for the year ended in January. Fuel prices fell for the third time in the past 4 months in January, declining 0.6%, after a 1.3% increase in December.
Canada
* Canadian home resales posted their fifth consecutive monthly decline in January, starting 2014 with a 3.3% drop from December, and a 9.1% fall from the peak reached last August, the Canadian Real Estate Association reported Friday, stressing, nonetheless, that the housing market remains balanced.
* After three months of gains, Canadian manufacturing sales ended the fourth quarter on a weaker-than-expected performance, recording a 0.9% decline, the largest since a 2.1% drop in April 2013, Statistics Canada reported Friday. The December performance was especially weak as it came on the back of a downward revision to November's figure, now at +0.5% from an initial estimate of +1.0%.
U.S. Markets
* Global investors threw in the towel on their dollar long positions Friday, with the greenback off not only against the euro, yen and other majors, but also versus emerging market currencies. To a degree there may be an element of improved risk sentiment which is making global investors look more kindly at other currencies, but the lion's share of the selling appears to be driven by people weary of waiting for "U.S. outperformance" and higher U.S. Treasury yields to drive the dollar higher. These accounts have not changed their bullish dollar mindset, but recognize that there may be cheaper levels for an entry position in the near-term.
* Ten-year U.S. Treasury yields were closing around 2.7475% Friday, after trading in a 2.712% to 2.754% range. The 10-year yield bottomed at 2.638 Friday in the wake of the jobs data, a far cry from the 3.03% seen on December 31 (and 3.0% January 3 before the U.S. non-farm payroll release). Ten-year Treasury yields bottomed at 2.575% Feb 3, which was the lowest yield seen since October 31.
* Dollar-yen was trading late Friday at Y101.82, in the middle of a Y101.57 to Y102.41 range. The pair topped out at Y105.44 January 2 and has moved lower in fits and starts, bottoming in the Y100.70-80 are on three occasions earlier in February. The euro held at $1.3694, in the middle of a $1.3674 to $1.3715 range.
* Gold, unloved for so many months, appeared Friday finally to have gotten its mojo back. Spot gold was closing around $1318.50/oz, on the high side of the day's range of $1300.00 to $1321.52. The metal has decisively closed above its 200-day moving average for the first time since early November and shows no sign of backing down.
* NYMEX March light sweet crude oil futures settled down $0.05 at $100.30 per barrel, after trading in a $99.43 to $100.47 range. The front contract earlier dipped below its 200-day moving average, currently at $99.56, but as in earlier sessions this week, managed to close above that level.
Europe
* European Central Bank Executive Board member Jens Weidmann Friday said the German Constitutional Court's decision last week on the central bank's OMT bond-buying programme had reflected the concerns of the Bundesbank that the ECB had overstepped its mandate. In prepared remarks in Bremen, Weidmann offered his first direct comments on the Karlsruhe-based Court's ruling, which expressed serious reservations about the OMT programme's legality but referred the decision to the European Court of Justice.
--MNI Washington Bureau; tel: +1 202-371-2121; email: dgulino@mni-news.com