Data from Canada, US in Focus as European Sentiment Centers Around Cyprus
Cyprus is not a “tempest in a teapot,” as one might call it. Euro-zone leaders have been criticized for their handling of the Cypriot crisis, from the radical measure of a deposit levy set forth by core leadership, to the dismissal of pan-European discussions by the Cypriot government herself. The critiques are valid.
The decision to tax savers is important because of how the European sovereign debt crisis has flowed: each policy undertaken has set precedence for the next bailout; if Cypriot savers had to contribute to the bailout of its banks, then why wouldn’t the same measures be forced upon Italian and Spanish savers? The Troika will be forced to give the same terms at minimum in order to prevent alienating Cyprus – the Euro is about unity, anything short would paint Cyprus as a second-class citizen.
Away from the boiling Cypriot crisis, Europe is rather quite on the data front this week, so the focus is on Canada and the United States, where there are several significant pieces of data due out. The critical data will be released between Tuesday and Thursday, as the Easter holiday weekend has US markets closed on Friday, and European markets closed on Friday and Monday.
Rate Hike Probabilities / Basis-Points Expectations
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
03/26 Tuesday // 12:30 GMT: USD Durable Goods Orders (FEB)
Durable Goods Orders are the big ticket, long-lasting (lifespans of three years or more) items that consumers vie for – automobiles, home appliances, etc. Accordingly, the report is an important indicator about the health of the US consumer: the report indicates strength when disposable income has increased in the prior periods; and the report is weak when near-term economic uncertainty is prevalent. While the January reading was quite dour, this was due to the hike in the payroll tax resulting from the fiscal cliff/slope deal; a rebound in February is expected. Given other indexes of consumer consumption is improving, I am expected a strong print that should lead to US Dollar strength.
CONSENSUS: +3.9% m/m
PRIOR: -4.9% m/m (revised from -5.2% m/m)
03/26 Tuesday // 14:00 GMT: USD Consumer Confidence (MAR)
Consumer confidence in the United States is a key indicator, as there is a strong relationship between spending and sentiment: the more confident consumers are about their economic futures, the more likely that they are to step up spending. Considering that consumption accounts for approximately 72% of the headline GDP figure, any significant moves in the Conference Board’s Consumer Confidence index are likely to stoke speculation about the health of the US economy. Recent private sentiment readings have slipped, suggesting that the budget sequestration has had a negative impact. I believe the disappointment over the budget sequestration will be exhibited here, leading to potential short-term US Dollar weakness.
03/27 Wednesday // 12:30 GMT: CAD Consumer Price Index (FEB)
The Bank of Canada has recently called a rate hike “less imminent,” (February policy statement) citing the “muted outlook for inflation” (March policy statement). Accordingly, “the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2 per cent inflation target” (March policy statement). It’s evident that BoC policymakers are focused in on price pressures, raising the specter of the Canadian Consumer Price Index to the most important data impacting the Canadian Dollar. In line with consensus, I am expecting a small beat here that could uplift the Loonie.
CONSENSUS: +0.7% m/m; +0.8% y/y
PRIOR: +0.1% m/m; +0.5% y/y
The key pairs to watch are CADJPY and USDCAD.
03/28 Thursday // 12:30 GMT: CAD Gross Domestic Product (JAN)
The Canadian economy has hit a small rough patch, experiencing meager growth of under one percent on a yearly-basis, despite substantially accommodative monetary policy remaining in place. Alongside the recent bout of soft inflation figures (3Q’12 to present), the moderation in growth is a main culprit in the BoC’s shift keeping accommodative stimulus in place for “a period of time.” The good news is that growth purportedly returned, after a small contraction in January. The print should fall in line with improved Canadian data from the previous day.
CONSENSUS: +0.1% m/m; +0.9% y/y
PRIOR: -0.2% m/m; +0.8% m/m
The key pairs to watch are EURCAD and USDCAD.
03/28 Thursday // 12:30 GMT: USD Gross Domestic Product (4Q T)
US defense spending plummeted by -22% annualized in the 4Q’12, leading to an initial -0.1% reading for GDP of the world’s largest economy. But strong positive revisions to consumption figures have pushed the secondary reading up to +0.1% annualized, and now, there is scope for an even bigger improvement at the third and final adjustment. With the US budget sequestration hitting in March 2013, a strong final revision to the 4Q’12 GDP figure could go a long way towards easing discouraged sentiment over the fiscal drag.
CONSENSUS: +0.5% annualized
PRIOR: +0.1% annualized (from -0.1% annualized)
--- Written by Christopher Vecchio, Currency Analyst
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