Economic Analysis

The US economy continues to recover, as consumer spending showed strong gains in March. The Eurozone is still grappling with soaring Covid rates and many parts of Western Europe are under lockdown. In the United Kingdom, a successful rollout of the health sector has led to a further relaxation of health restrictions.

This week, the European Central Bank and the Bank of Canada will hold policy meetings. The UK is to release key inflation and employment data.

The Eurozone CPI rose 1.3% in March, up from 0.9% in the previous month. Inflation is still below the ECB's 2% target but is gaining strength.

In the UK, the PMIs for March indicated strong economic growth. Services PMI improved to 56.3, up from 49.5. This was in expansionary territory, above the 50 level. Construction PMI jumped to 61.7, up from 53.3. This showed the strongest growth rate in construction production since September 2014.

The Bank of Canada's Quarterly Business Outlook Survey indicated that business sentiment continues to improve. Companies are reporting less uncertainty regarding the COVID-19 pandemic and boosting demand from weak levels. However, recovery remains mixed. The ADP employment report rose, with 634.8K new jobs in March.

In the US, the CPI rose in March, but the dollar's reaction was muted. Core CPI increased from 0.4% to 0.6% and core CPI improved to 0.3%, up from 0.1%. Retail Sales rose in March - Headline retail sales were up 9.8% and the core reading rose 8.4%, well above expectations.

Canadian dollar

Housing: Monday. The number of starts housing fell to 246,000 in February, down sharply from 282,000. The consensus for the month of March is 254,000.

Budget statement: provisional. The Trudeau government released its first budget in two years. The government is expected to pledge to spend tens of billions of dollars to boost the economic recovery, as the government looks to possible elections later in the year.

Inflation Report: Wednesday. The recovery is gaining momentum, but the CPI is still well below the Bank of Canada target of 2 per cent. We await the headline and core inflation data for March.

Bank of Canada Interest Rate Decision: Wednesday. As the economic outlook improves faster than expected, the Bank of Canada may announce a reduction in quantitative easing at its next meeting. If so, the Bank of Canada will be the first G7 central bank to tighten policy since the COVID-19 pandemic.

Sterling pound

Employment report: Tuesday. Wage growth was at high levels. In January, wage growth came in at 4.8% and estimates for February stood at 4.7%. The change in claims jumped to 86.6K in February and is expected to drop to 24.5K in March.

Inflation: Wednesday. With the lockdown restrictions easing, inflation is expected to pick up. The core CPI is expected to rise from 0.8% in March, up from 0.4%, while the core CPI is expected to rise from 0.9% to 1.1%.

Industrial demand forecast from the CBI: Thursday. Sales order volumes are expected to increase for the first time in two years, with an estimate of 3 for the April release. In March, the index came in at -5 points.

GfK Consumer Confidence: Thursday. British consumer remains pessimistic, but the index is showing improvement. The March reading came in at -16 and the consensus for April is -12.

Retail sales: Friday. Retail sales rebounded again in February, with a gain of 2.1%. The estimate for March is 1.5%.

Manufacturing PMI: Friday. Manufacturing continues to show strong growth, above the 50 level that separates contraction from expansion. The forecast for April stands at 59.0.

PMI services: Friday. Services returned to expansionary territory in February, rising from 49.7 to 56.8. The rally is expected to continue in March, with an estimate of 58.6.

euro

European Central Bank interest rate decision: Thursday. The European Central Bank is expected to maintain the current policy. The market will focus on the price statement and look for any comments on inflation or emergency pandemic program.

PMIs: Friday in France, Germany and the entire Eurozone. Manufacturing continues to show strong expansion. Germany is leading the way, and the April Manufacturing PMI estimate stands at 65.8. The estimate for the Eurozone stands at 62.0. The service sector has been underdeveloped, due to the ongoing lockdown in Western Europe. The estimate is 51.1 for Germany and 49.1 for the Eurozone. Level 50 separates contraction from expansion.

U.S. dollar

US Manufacturing PMI: Friday. Manufacturing continued to show strong growth, as the PMI came in at 59.1 in February. The March forecast stands at 60.6. Level 50 separates contraction from expansion.

Australian dollar

AIG Services Index: Sunday. The index jumped to 51.4 in October, up sharply from 36.2 previously. It was the first reading in expansionary territory (over 50) since November 2018. Will we see another positive reading in November?

ANZ job announcements: Monday. The index continues to strengthen, improving to 9.4% in October. Will the rally continue in the November issue?

Business Trust NAB: Tuesday. The National Australia Bank index rebounded in October with a reading of 5, ending a series of three consecutive falls. We are now waiting for the November data.

Westpac Consumer Confidence: Wednesday. Consumer confidence slowed to 2.5% in November, down sharply from 11.9% previously. Investors are hoping for another reading in positive territory.

MI inflation forecast: Thursday. The Melbourne Institute version is a useful gauge of actual levels of inflation. The index rose to 3.5% in October, up from 3.4% previously. Will it continue to rise in the November reading?