In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.

Citi

·       CAD is rallying not only on supported risk sentiment during Asia, but also on the move in oil, with USDCAD down 0.45% at 1.3350. Both Brent and WTI are ~3% higher, with comments from Russian President Putin that Russia would be willing to cooperate at this week’s OPEC+ meeting (March 5-6) to support oil markets.

·       NZD is underperforming the G10 complex trading down 0.4% to 0.6220 as the market brings forward rate cut expectations to a 25bp rate cut in March. Finance Minister Robertson’s comments that he expects no growth in Q1 may also be weighing.

·       GBP is stronger overnight despite negative headlines, with GBPUSD trading at 1.2840 at the time of writing. EURGBP is marginally lower at 0.8600. UK-EU Brexit negotiations begin today.

–    Politico has a handy guide here but we flag to watch out for headline riskas tensions pick up.

–    We already had one dose of thisovernight, with Bloomberg headlines flagging that three people familiar withthe talks warned that “Brexit trade talk could break down in weeks.”

–    Citi Economics are also out with anew note previewing the UK budget due March 11. In short, the team thinks thegovernment may “not go all in immediately” with a potential spending review inthe summer and an autumn statement or even budget following that too

ISM the data highlight today.

·       USD: ISM Manufacturing prints at 15:00 GMT for February. The market anticipates a reading of 50.5 vs 50.9 prior. We will watch data here closely for continued signs of a coronavirus induced spill-over in the data. Slightly before, we get the less important final Markit US Manufacturing PMIs at 14:45 GMT for February.

·       PMI data also due in:

–    SEK: Swedbank/Silf PMI Manufacturing at 07:30 GMT for February. We expect the market to pay some attention but note that robust EUR prints may support data for now before deterioration in the months ahead.

–    EUR: Final Markit manufacturing PMIs are due in France, Germany and the Eurozone aggregate between 08:50 and 09:00 GMT. The market expects no change to the flash prints.

·       CHF: SNB publishes 2019 annual result at 06:25 GMT and we then get Total Sight Deposits at 09:00 GMT. Watch here for any signs of SNB intervention amid continued CHF/safe haven strength with coronavirus concerns dominating markets.

RBC Capital Markets

Week ahead: OPEC+ meets and our commodity strategists expect them to announce a 1mbpd cut in production. The BoC meets on Wednesday, with BoC’s Poloz to give the Economic Progress Report on Thursday. Canada also releases employment and trade balance data (see CAD). In the US, Super Tuesday will be key for sentiment (our equity team estimate up to a third of last week’s sell-off was Sanders rather than COVID-19) and NFP is the data highlight.

AUD: Our AU rate strategists now expect the RBA to cut by 25bp tonight and a further 25bp in April given imminent Fed action, likely monetary easing elsewhere, and a market that is fully priced for a cut in March. Such action is entirely consistent with a global shock and global co-ordination. Our strategists are mindful of a number of risks to their revised view – a still reluctant RBA with likely reduced transmission as key lenders fail to fully pass on RBA cuts, diluted policy impact, a larger and faster fiscal response – especially in rapidly changing circumstances. Q4 GDP is out on Wed, RBC’s preliminary forecast is 0.4% q/q, with a number of key partials yet to be released. Jan retail sales follow on Fri.

USD: Private payrolls probably expanded by 150k in Feb (170k for headline), on the heels of a robust 206k in Jan. Despite recent strong prints, a deceleration in job growth in the quarters to come is looming as the supply of labour succumbs to demographic trends. With cyclical labour participation rates back to prior-cycle highs, “excess” supply is evaporating. Of interest in the Feb report will be whether we see any hesitation in hiring on the back of the coronavirus. We have no doubt that a soft number will be latched onto as an indication that the economic pain from COVID-19 is worse than thought. But the reality is that even for something closer to 100k, it would be difficult to disentangle the sequential mean reversion (from a very strong January) and a virus-related slowing. NB the impact on payrolls from Census ­­hiring should be modest thus far.

CAD: RBC Economics has modified their BoC rate call and are looking for the Bank to cut by 25 bps to 1.50% at this Wednesday’s meeting. The plunge in global equity markets and the sharp drop in commodity prices, in particular crude oil, increase the risk that the confidence hit in markets will filter through to household and business sentiment. Crude oil prices have fallen by 28% since the end of last year, which our economists calculate will take down our terms of trade by 1.9%. We look for the BoC to keep the door open for another rate cut at the April MPR. 

Data-wise, our economists are penciling in a trend-like 10K increase in February employment on Friday. Employment gains remain above-trend (currently at 22.3K/mth over the last year) but have been roughly flat since October. The unemployment rate has been more volatile in recent months and our economists see an edging up from 5.5% to 5.6% on a higher participation rate in the month. Average hourly earnings in this report have been elevated for some time now (>4% y/y in four of the last five months). We see a decline over the coming months toward the BoC’s preferred wage-common measure, which RBC currently tracks at 3.0% y/y for Q4.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

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