As you’re aware, this is a big week.
The Fed takes center stage, but the Dutch elections loom large on the geopolitical front and we’ll also get Kuroda on Thursday. And then there’s retail sales, CPI, and the BOE (a likely snoozer).
Below, find a quick preview from Goldman that should help get you all set to trade what promises to be an interesting market.
- Wednesday, March 15: The Netherlands will hold an election. We do not expect the populist, anti-immigration and anti-EU PVV to become part of any government. We expect a protracted period of negotiations among five or six parties to form a coalition government. While this would be a market-friendly outcome insofar as it dampens stability risks to the Euro area, the new coalition government is likely to be fractured and less cohesive than recent Dutch administrations.
- Wednesday, March 15: United States, CPI (Feb). Core: GS +0.15% mom, consensus +0.2% mom, last +0.3% mom. We expect a below-trend increase in core CPI in February, reflecting a decline in the communications category driven by the release of Verizon unlimited data plans, as well as weakness in used cars pricing and scope for increased discounting at mall-based retailers. Our estimate of 0.15% (mom) for core CPI would result in the year-over-year rate decelerating 10bp to 2.2%. We expect a decline in seasonally adjusted consumer energy prices to weigh on headline CPI, where we estimate a flat month-to-month reading and a year-over year acceleration of 20bp to 2.7% (due to base effects).
- Wednesday, March 15: United States, Retail sales (Feb). Control: GS -0.2% mom, consensus +0.2% mom, last +0.4% mom. We expect a 0.2% drop in February retail sales reflecting significant consumer cash flow disruptions caused by delayed tax refunds, which we estimate affected as many as 25-30 million households. We estimate the key retail control gauge declined 0.2% (mom) following +0.4% in January. We also forecast a 0.2% decline in headline retail sales, as well as in the ex-auto and the ex-auto ex-gas components.
- Wednesday, March 15: United States, FOMC meeting. Midpoint: GS +0.875%, consensus +0.875%, last +0.625%. As discussed in our FOMC Preview, we expect the FOMC to raise the funds rate by 25 basis points at the March meeting. In the post-meeting statement, the committee is likely to indicate that risks to the outlook are “balanced” (compared to “roughly balanced” previously). In the Summary of Economic Projections (SEP), we look for: (1) slightly higher median estimates for 2018-19 GDP growth (2) unchanged unemployment and inflation projections; and (3) unchanged median dots for the funds rate, though risks are tilted to the upside.
- Thursday, March 16: Japan, BOJ meeting. Short-term: GS -0.1%, consensus NA, last -0.1%. We expect the BOJ to leave its monetary policy unchanged, maintaining both its short-term (-0.1%) and long-term (0%) interest rate targets. There is no urgency for the BOJ to “ease” further, given (1) the yen remaining on the weak side, (2) the BOJ has shifted to a long-term strategy since last September, (3) core CPI is beginning to creep up, and (4) fiscal spending and the recovering global cycle will likely provide support for the economy in coming quarters. On the other hand, we also do not expect the BOJ to raise its 0% target on the 10-year yield until there is clear evidence of a significant rise in inflation expectations.
- Thursday, March 16: United Kingdom, BOE meeting. GS 0.25%, consensus 0.25%, last 0.25%. There will be no Inflation Report or press conference to accompany this policy meeting. We expect unanimous votes for no change in Bank Rate and no change in the quantity of purchased Gilts (at £435bn). We also expect a unanimous vote for the BoE to continue its corporate bond purchases until the stock of purchased corporate bonds reaches £10bn (formally, the target is “up to £10bn”).