wednesday march 15, - bloomberg.com · wednesday march 15, 2017 march 15, 2017 fed rates; february...
TRANSCRIPT
Wednesday
March 15, 2017
March 15, 2017
Fed Rates; February CPI, Retail Sales; Dutch ElectionBy Ben Baris and Geoff King
What to Watch: The is projected to raise itsFederal Open Market Committee benchmark interest rate by 25 basis points to a range of 0.75 percent to 1 percent. The decision will be announced at 2 p.m., followed by Fed Chair ’s news Janet Yellenconference at 2:30 p.m. The Fed will update its Summary of Economic Projections, including policy makers' anonymous forecasts of the fed funds rate, known as the dot plot. Follow the TOPLive blog for real-time coverage on the Bloomberg .terminal
Economics: U.S. are forecast to rise 0.1 percent in February from a retail sales month earlier, following a 0.8 percent advance in January. Ex-gas and autos sales are expected to rise 0.2 percent, 8:30 a.m. The is expected to be consumer price indexflat in February from the previous month after rising 0.6 percent in January. Core CPI may have risen 0.2 percent, down from a 0.3 percent gain in January, 8:30 a.m.
Government: U.S. Secretary of State travels to Japan, South Korea Rex Tillersonand China in his first visit to the region since taking office. He arrives in Tokyo today, continues to Seoul on March 17 and Beijing on March 18.
Europe: The Netherlands votes in a general election that’s seen as a bellwether for the rise of populism in western Europe. ’s anti-Islam, anti-European Geert WildersUnion Freedom Party has slipped in the polls in the home stretch, strengthening Liberal Prime Minister ’s chances of coming first again. Polls close at 4 p.m. Mark Rutte
Markets: and the rebounded from steep declines on March Crude oil British pound14, while were mixed before an expected interest-rate hike by Federal Reserve stockspolicy makers.
(All times local for New York.)
Live chart on the Bloomberg .terminal
Commentary in This Issue
A critical focus of the interpretation of the Fed's policy statement, updated economic and financial forecasts and post-meeting press conference will beto better understand what drove policy makers’ increased conviction to act at the March :meeting Carl Riccadonnaand Yelena Shulyatyeva.
A look back at past snow storms provides some clues about the potential on impactensuing jobs reports. Michael McDonough.
Quote of the Day
"If you look at our problems, China is right up there." — U.S. Trade Representative nominee Robert
Lighthizer in a Senate confirmation hearing
93.3
The level of Business Roundtable’s CEO Economic Outlook Index — a measure of for revenue, expectationscapital spending and employment — in the first quarter, a 19.1-point jump from the previous quarter.
Dozens of U.S. cities are to willingbuy $10 billion of electric cars and trucks to show skeptical automakers there’s demand for low-emission vehicles, just as President Donald Trump seeks to review pollution standards the industry opposes.
Big Picture
The Gap Between Headline and Core CPI Has Closed
Both headline and core CPI handily topped expectations in January, fortifying confidence policy makers should soon achieve their inflation objectives. While firming gas prices were a significantdriver overall, the strength in the core likely reflected increased optimism from businesses regarding pricing power in an improving economy — a direct consequence of the post-election rally in consumer and business sentiment. Headline CPI accelerated to 2.5 percent year on yearin January from 2.1 percent prior, the fastest since early 2012. While this provides fodder to the inflation hawks, the dovishly inclined core of the FOMC will tend to dismiss the energy distortion and focus on core CPI, which rose to 2.3 percent from 2.2 percent, but failed to reach a new high.
— Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Intelligence economists
Economics 2 March 15, 2017
Big Picture
Fed Eyes Market Exuberance Amid Goldilocks GrowthBy Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Intelligence economists A critical focus of the interpretation of the Fed's official policy statement, updated economic and financial forecasts and post-meeting press conference will be to better understand what drove policy makers’ increased conviction to act.
More specifically, analysts will attempt to discern the relative importance of three major drivers: reported economic data, projected economic performance and post-election financial market exuberance (particularly in the equity markets). Understanding policy makers’ predominant motivations will provide important clues as to how they may reconfigure the future pace of tightening.
As a result, the now broadly anticipated rate increase will be less newsworthy to the financial markets than signals regarding the drivers and pace of future interest-rate normalization.
Interest Rate Action: BI Economics expects a 25-basis-point increase in the fed funds rate to a new band of 0.75 percent-1 percent. This is broadly anticipated in the markets, as fed funds futures reflect a 100 percent probability of a rate hike at the current meeting. The next meeting with a greater-than-50 percent chance of a hike is June 14, 2017.
Rate Hike Schedule: As of the December forecast update, the “dot plot” of interest rate projections signaled three rate increases each in 2017, 2018 and 2019; thereby achieving an effectively “neutral” fed funds rate near 3 percent by the end of 2019. With wage pressures beginning to firm, job creation potentially reaccelerating and core inflation edging closer to the Fed’s objective, it isn’t obvious that policy makers will remain comfortable with the previous trajectory. If they do assume a more aggressive posture, it’s important to consider that this is presumably due to their assessment of actual improvement in underlying economic conditions rather than the incorporation of as yet undetermined details regarding fiscal policy (i.e. tax reform or infrastructure investment). As such, heightened uncertainty will loom over policy makers’ updated projections
What to Expect:
Federal Reserve Scorecard
MARKETS* ECONOMY
Feb. Meeting
Mar. Meeting
Feb. Meeting**
Mar. Meeting
S&P 500 2,279 2,361 Unemployment Rate (%) 4.7 (Dec) 4.7 (Feb)
10-Year Yield (%) 2.45 2.61 Payrolls (3M-MA, Thous.) 148 (Dec)209 (Feb)
Fed Funds Futures (Prob. Of Hike) 14.50% 100% CPI (% Y/Y) 2.1 (Dec) 2.5 (Jan)
Financial Conditions (FCON) -0.036 0.443 Core CPI (% Y/Y) 2.2 (Dec) 2.3 (Jan)
Credit Spread (IG/HY, Bps.) 120/383 116/381 Core PCE (% Y/Y) 1.7 (Dec) 1.7 (Jan)
2-Year / 10-Year Spread (Bps.) 125 122 Retail Sales (%, 3M-MA, AR) 7.3 (Dec) 6.0 (Jan)
Inflation Expectations (5Y/5Y, %) 2 2 Industrial Production (% Y/Y) 0.7 (Dec) 0.0 (Jan)
Broad Trade-Weighted Dollar 127 126 GDP Estimate (4Q/4Q‘17)*** 2.4 (Jan) 2.4 (Feb)Source: Bloomberg Intelligence*Latest data available as of Tuesday, March 14; **Revised Data; ***Bloomberg Monthly Survey of Economists
Full analysis on the Bloomberg .terminal
until there’s greater clarity on the fiscal front. BI Economics estimates that the timeline to reach the neutral fed funds rate could compress slightly if the economy outperforms over the medium term, but it will prove surprisingly resistant to change as policy makers incorporate expectations for balance-sheet runoff into their projections.
Economic Assessment: The characterization of overall economic activity should remain largely intact — most specifically in reference to overall economic activity ("continued to expand at a moderate pace") and labor-market performance ("continued to strengthen"). Previous descriptions of household spending ("continued to rise moderately") and business investment ("has remained soft") are unlikely to change materially.
Inflation Assessment: The statement will likely acknowledge that inflation is approaching the Fed’s 2 percent inflation target, although it remains below the threshold. While the pace of headline PCE inflation picked up above 2 percent — mainly due to a temporary boost from higher energy prices — the Fed’s preferred core PCE measure remained unchanged, running at 1.7 percent year-over-year. The five-year/five-year forward inflation expectation rate has picked up in recent months, though it remains low by historical standards. Consumers’ five- to
10-year-ahead inflation expectations were little changed. The prevailing tone is likely to impart a greater sense of confidence that the Fed’s inflation objective can be achieved in the relatively near term.
Forecast Update: BI Economics anticipates minor tweaks to the growth, inflation and unemployment forecasts in the Summary of Economic Projections — although they are all likely to reflect somewhat firmer economic growth. In particular, given the likely prospect of tax reform/fiscal stimulus, growth in 2018 and possibly 2019 could be nudged slightly higher. As a result, the undershoot of unemployment could be a touch more pronounced as well (also most likely in 2018/2019). While inflation projections in outlying years will likely remain intact, the quicker arrival of firmer inflation could boost 2017 projections for both the headline and core.
Press Conference: Chair Janet Yellen will hold a post-meeting press conference starting at 2:30 p.m. Washington time. A critical focal point of her remarks will be to determine whether she is evolving toward a more optimistic economic view and how she’s weighing that against concerns of financial markets becoming overheated. It is unlikely that she will reveal significant new insights regarding balance sheet policy, as discussions appear to be in the early stages.
Labor Market
Economics 3 March 15, 2017
Labor Market
Snow Impact on Jobs Report Is All About TimingBy Michael McDonough, Bloomberg Intelligence economistWith much of the northeast U.S. facing blizzard conditions during the Bureau of Labor Statistics household and establishment survey week, questions are mounting about the potential impact on March’s jobs report. A look back at the recent past doesn’t offer clear guidance, but does provide some clues about the potential impact.
Since at least 2000, snowstorms with accumulations of 12 or more inches have largely missed New York during theBLS’s survey week. The survey is conducted in the calendar week that contains the 12th day of the month. There have been two exceptions. One during the storm of Feb. 11-12, 2006 and the other on Feb. 13-14, 2014.
The storm in 2006 took place on a Saturday and Sunday, which probably minimized its potential impact on the survey. In fact, the non-farm payroll jumped 243,000 in February 2006, its biggest increase in the three months before and after the storm. The 2014 storm, which accumulated 12.5 inches in
Central Park, occurred late in the week (Thursday and Friday), which may have also helped reduce its impact on the jobs report. Jobs rose by 175,000 that month, up slightly from the previous two months, but slower than the next three months.
One notable example is the storm of Dec. 5-7, 2003, immediately before the BLS survey week began. A foot of snow
fell on the Big Apple at the time and coincided with payroll growth of 1,000, its slowest in the previous or following three months. The figure was later revised to 123,000. With this week’s storm occurring in the middle of the survey period, its impact on the jobs report for March may be more severe.
Data & Events
How Snow Storms Have Affected Ensuing Jobs Reports
Economics 4 March 15, 2017
Data & Events
TIME COUNTRY EVENT SURVEY PRIOR
7:00 U.S. MBA Mortgage Applications — 3.30%
8:30 U.S. Empire Manufacturing 15 18.7
8:30 U.S. CPI MoM 0.00% 0.60%
8:30 U.S. CPI Ex Food and Energy MoM 0.20% 0.30%
8:30 U.S. CPI YoY 2.70% 2.50%
8:30 U.S. CPI Ex Food and Energy YoY 2.20% 2.30%
8:30 U.S. Real Avg Weekly Earnings YoY — -0.50%
8:30 U.S. Real Avg Hourly Earning YoY — 0.10%
8:30 U.S. Retail Sales Advance MoM 0.10% 0.40%
8:30 U.S. Retail Sales Ex Auto MoM 0.10% 0.80%
8:30 U.S. Retail Sales Ex Auto and Gas 0.20% 0.70%
8:30 U.S. Retail Sales Control Group 0.20% 0.40%
10:00 U.S. NAHB Housing Market Index 65 65
10:00 U.S. Business Inventories 0.30% 0.40%
14:00 U.S. FOMC Rate Decision (Upper Bound) 1.00% 0.75%
14:00 U.S. FOMC Rate Decision (Lower Bound) 0.75% 0.50%
16:00 U.S. Total Net TIC Flows — -$42.8b
16:00 U.S. Net Long-term TIC Flows — -$12.9bSource: Bloomberg. Surveys updated at 5:05 a.m.in New York.
Calendar
Click on the to see the full range of economists' forecasts on the terminal. highlighted releases
Overnight
The U.K. jobless rate matched its lowest since 1975 in the three months through January but Britons are seeing their wages go nowhere.
unexpectedly Unemployment declined to 4.7 percent, matching the rate it last reached in 2005, the
said Office for National Statistics today. The number of people in work rose by 92,000 to 31.9 million, the biggest increase since last summer.
The German presidency of the will ask countries to re-Group of 20
commit to principles including free trade, flexible labor markets and sound public finances, according to
President Bundesbank Jens . Weidmann “In order to strengthen
national resilience, the German presidency is seeking an agreement on a set of principles in Baden-Baden,” Weidmann said in a speech today in Frankfurt, two days before the group’s finance ministers and central bankers meet in the German spa town. “G-20 members should remain committed to the principle of open markets and cross-border trade.”
Italy's advanced 1.4 retail sales percent on a monthly basis in January, reversing a 0.5 percent decline in December, Istat reported today. Retail sales fell 0.1 percent year on year.
Denmark’s central bank says the has been “stable” against the krone
euro, though “on the strong side of the central bank rate,” in a statement published today. Demand for the Danish currency, which is pegged to the euro, followed “heightened political uncertainty in Europe,” the central bank says, prompting it to intervene in the currency markets in February. The bank says short-term Danish money market interest rates have stabilized after it introduced daily purchases and sales of certificates of deposit.
Europe
Crowded Eurodollar Shorts Extend as Traders Set for FOMC
The March 13 trading session saw record volumes across front-end eurodollar spreads as short positions were adjusted ahead of the Federal Reserve policy meeting. As traders jumped into buying spreads, or curve steepeners, hawkish bets were moved further out and into more liquid contracts such as for Dec. 17 and June 18. While positioning in eurodollars, sensitive to Fed rate policy path, remains at record short levels for asset managers and speculators alike, the March 14 trading volumes were indicative of stubborn shorts showing they are not ready to cave just yet.
— Edward Bolingbroke
Economics 5 March 15, 2017
Bloomberg Brief: Economics
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