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World Week Ahead: US inflation, retail sales in focus

Monday 12th March 2018

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Investors will eye the latest data on US inflation and retail sales to gauge the outlook for the pace of Federal Reserve interest rate increases, while investors will also scrutinise any further developments on global trade and tariffs.

Solid US jobs data, with stronger-than-expected payrolls and muted wage growth, buoyed Wall Street on Friday as it eased concern the Fed might have to hike interest rates more than planned. 

“There was a growing fear the Fed was behind the curve when it came to its inflation outlook,” Mark Heppenstall, chief investment officer of Penn Mutual Asset Management, told Bloomberg. “[Friday’s] number seems to suggest that maybe the past two month’s wage gains have moderated some and will allow the Fed to tighten on their pace, not the market’s pace.”

On Friday, the Dow Jones Industrial Average gained 1.8 percent, the Standard & Poor’s 500 Index rose 1.7 percent and the Nasdaq Composite Index added 1.8 percent.

That bolstered gains for the week, dominated by US President Donald Trump’s move to impose hefty tariffs on steel and aluminium imports as well as unexpectedly agreeing to meet North Korea’s leader Kim Jong Un for talks. 

South Korea, which helped facilitate the talks, asked for an exemption to Trump’s planned steel tariffs, the finance ministry said in a statement Sunday, Bloomberg reported.

Last week, the Dow rallied 3.3 percent, the S&P 500 climbed 3.5 percent and the Nasdaq rose 4.2 percent.

US economic data scheduled for release this week include the NFIB small business optimism index and consumer price index, due Tuesday; producer price index, retail

sales, Atlanta Fed business inflation expectations, and business inventories, due Wednesday; weekly jobless claims, Philadelphia Fed business outlook survey, Empire State manufacturing survey, and import and export prices, due Thursday; housing starts, industrial production, consumer sentiment, and JOLTS, due Friday. 

Any trade war with the US will only bring disaster to the world economy, Chinese Commerce Minister Zhong Shan said on Sunday, as Beijing stepped up its criticism on proposed metals tariffs by Washington, Reuters reported. 

Zhong, speaking on the sidelines of China’s annual session of parliament, said China does not want a trade war and will not initiate one, according to Reuters.

“There are no winners in a trade war,” Zhong said. “It will only bring disaster to China and the United States and the world.”

China can handle any challenges and will resolutely protect its interests, but the two countries will continue to talk, he said, according to Reuters.

"The nakedly protectionist Administration has so far treated China with relative kid gloves on trade, likely owing to the geopolitical realities of concerns over North Korea," Bank of Montreal Chief Economist Douglas Porter said in a note. "But with tensions receding on that front, at least for now, and the trade deficit steadily widening, the US may feel emboldened to take a more serious and strident approach on trade.”

In Europe, the Stoxx 600 Index ended Friday with 0.4 percent increase from the previous day’s close.

In the UK, Chancellor Philip Hammond is set to deliver his Spring Statement to law makers on Tuesday. 

On Sunday, Hammond said there “is light at the end of the tunnel” for UK debt.

“There is light at the end of the tunnel because what we’re about to see is debt starting to fall after it’s been growing for 17 continuous years. That’s a very important moment for us. But we are still in the tunnel at the moment,” Hammond told the BBC.

On Wednesday, European Central Bank officials including President Mario Draghi as well as Peter Praet and Francois Villeroy are set to speak at the ECB and Its

Watchers conference.

"Draghi and Praet are both firmly in the dove camps, while of the bunch only Villeroy is even remotely hawkish, so we look for a dovish tone overall with more focus on patience and persistence, and the lack of uptrend in underlying inflation so far," TD Securities said in a note. 


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