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17 Dec 2018
Key themes for the coming week:
1.On Saturday, in Mexico, the Finance Minister presented the 2019 budget. The plan is due to be approved by Congress before the end of the year and targets a primary budget surplus of 1% of GDP (vs. a 0.7% of GDP primary surplus estimated for 2018), on the back of a 2% real GDP growth (vs. an estimated 2.3% in 2018). Moreover, the government plans to raise crude output to 2.624mn barrels per day by the end of 2024. Crude production is expected to stabilise and start to increase towards the end of next year.
2.The Bank of England’s MPC will announce its December decision on Thursday. We will likely see the Bank deciding to leave policy unchanged with a unanimous decision, giving BREXIT uncertainty. The Bank will also have to weigh a slowdown in global activity and increasing signs of domestic wage growth, as well as the latest depreciation in the GBP exchange rate.
3.In China, President Xi will give a speech on the 40th anniversary of China’s 1978 economic opening on Tuesday (02:00 GMT). The Central Economic Work Conference will likely be held on 19-21 December and could provide insights into how China is willing to move ahead in expanding market reforms and manage growing economic pressures. In this conference, policymakers usually set the growth targets and major guidelines for economic policy. Details should then be discussed in the March National People’s Congress.
4.There will be a FOMC meeting on 18-19th December (decision on Wednesday at 19:00 GMT). Consensus expects a 25bps hike. Markets expect a dovish hike (with a more cautious Fed communication), reflecting the significant tightening in financial conditions, a more cautious growth outlook and softer inflation. Jerome Powell will likely highlight data dependence at his press conference (19:30 GMT). Market pricing shows that investors have already significantly pared back rate hike expectations for 2019.
5.In Mexico, the central bank’s MPC will meet on Thursday. The MPC will likely hike the policy rate by 25bps to 8.25%, as there was a dissenting vote for a 50bps at the November meeting. The minutes of that meeting and the 3Q18 Inflation Report also showed concerns about the inflation outlook. Focus should be on whether the forward guidance remains hawkish, given the risk of deterioration in inflation expectations. In Latin America, we will also have MPC meetings in Chile (Wednesday) and Colombia (Friday).
6.In Brazil, the central bank will release on Thursday the 4Q18 Quarterly Inflation Report, with updated forecasts for inflation and real GDP growth, as well as a discussion on the balance of risks.
7.On Tuesday, the Bank of Portugal releases the December Economic Bulletin, which includes projections for the current year and the three following years. In its October’s Economic Bulletin, the Bank of Portugal forecasted a 2.3% real GDP growth in 2018 (unchanged vs. the June Economic Bulletin), after 2.8% last year.
8.Russian President Vladimir Putin holds on Thursday his annual end-of-year press conference.
9.The data release calendar over the week ahead is busy with several business and consumer confidence surveys in the Eurozone, while in the US we will get November’s capital goods orders and personal income & spending reports.
10.Update to the Key Risk Events Calendar for the following months.
There will be no EGB supply this week, and there are no coupons or redemptions that could be reinvested. In the US, the Treasury will issue around $14bn of 5-year TIPS on Thursday, while there will be no UST cashflows eligible to reinvest during the week.
On the earnings front, quarterly results from Oracle and Fedex are the highlights of this week’s calendar.
DBRS has confirmed the UK at AAA/Stable. According to DBRS, a clear majority within the UK parliament has expressed opposition to a no-deal BREXIT. Therefore, DBRS remains of the view that the likelihood of a disorderly BREXIT is low. Fitch has also reaffirmed Ireland at A+/Stable, reflecting strong underlying economic growth prospects against sizeable external risks such as the uncertainty surrounding the impact of BREXIT.
We will have MPC meetings this week in Hungary (Tuesday), Thailand, the US, Chile (decisions due on Wednesday), Indonesia, the UK, Japan, Sweden, Czech Republic, Taiwan, Mexico, Czech Republic (decisions due on Thursday) and Colombia (Friday).
In Brazil, the central bank will publish on Tuesday the minutes from the December meeting. At that meeting, the COPOM decided to leave the SELIC policy rate unchanged at 6.50%, in a unanimous decision. The post-meeting statement suggested that the COPOM seems to be now more comfortable with the inflation outlook, giving an improvement in the balance of risks. The 4Q18 Quarterly Inflation Report will be published on Thursday and could be used to update the forward guidance.
In Chile, the central bank will publish on Wednesday the minutes from the December MPC meeting. At that meeting, the central bank decided to leave the policy rate unchanged at 2.75%, in a unanimous decision and in line with consensus expectations. The minutes should provide more information on the Bank’s next policy steps. The central bank expects to reach the 4.0%-4.5% neutral rate range in 1H20.
In Colombia, the MPC will meet on Friday and is likely to keep the policy rate unchanged.
Monetary policy has been gradually tightening in Latam countries over last year.
The data release calendar over the week ahead is busy with several business and consumer confidence surveys in the Eurozone, while in the US we will get November’s capital goods orders and personal income & spending reports.
Eurozone: This coming week we will get several business and consumer confidence surveys, namely the German Ifo Business Climate indicator (Tuesday), the French and Italian manufacturing confidence indicators (Friday), as well as the European Commission’s euro area consumer confidence survey (to be published on Friday).
A weaker outlook for earnings in the euro area banking sector has been consistent with the lower level of the Ifo manufacturing business expectations index.
The composite PMI in the Eurozone fell to 51.3 in December, according to the flash reading disclosed by Markit last Friday, pointing to a weak pace of expansion for the economy at the end of the year. Manufacturing was particularly weak, with the new orders sub-index reaching the lowest level in four years, suggesting further weakness in output over the coming months.
UK: The ONS will release on Friday the second estimate of 3Q18 GDP, along with the expenditure breakdown. The November CPI inflation data will be disclosed on Wednesday. CPI inflation is likely to ease in November, reflecting the decline in energy prices. The CBI Industrial Trends Survey is due on Wednesday, while the Lloyds business barometer is due on Tuesday. Finally, the November retail sales report will be disclosed on Thursday.
US: November’s capital goods orders and personal income & spending reports are the highlights of this week’s data calendar.
Core retail sales increased by 0.9%m/m in November, more than twice the 0.4%m/m consensus expectations, on the back of the strong and rapid drop in retail gas prices.
November’s US industrial production rose by 0.6%m/m, well above consensus expectations (0.3%m/m). However, excluding volatile utility and mining components, output was unchanged, below consensus expectations of a 0.3%m/m gain. The weaker global backdrop, the strong US dollar and the fading tailwind from fiscal stimulus remain risks for the US manufacturing sector. The rollover in China’s industrial indicators also point towards further weakness for US manufacturing.
Portugal: INE will release this week the November monthly economic survey (Wednesday) and 3Q18 quarterly national sector accounts. The Bank of Portugal releases on Wednesday 3Q18 current and capital account data. On Tuesday, the Bank of Portugal releases the December Economic Bulletin, which includes projections for the current year and the three following years.
Last Friday, the Bank of Portugal released the November reading for its monthly coincident indicators with mixed signals for the economy. The monthly coincident indicator for economic activity stood at 1.9 for the fourth month in a row, suggesting that economic momentum has stabilised over the last few months. However, the monthly coincident indicator for private consumption continued to ease in November (from 1.4 to 1.2) and reached the lowest level since November 2013, which points to a slowdown of domestic demand.
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