A busy week ahead with US core CPI set to return to the 2% target, a raft of Fed speakers including Powell and Eurozone trade and industrial production data
After a prolonged period of weakness, US core CPI looks set to return to the 2% target (or even slightly above) next week as a distortion related to cell phone data pricing drops out of the annual comparison. While this may sound slightly bizarre, a quality adjustment to the CPI basket made in March last year resulted in a sharp one-off drop in communication costs and this has been knocking 0.2-0.3ppt off most core inflation measures ever since.
We'll also be keeping an eye on clothing costs, which have been extremely volatile over the past few months. Aside from the fact, the US economy is strong; the fact that apparel prices have increased so much over the past couple of months is hard to square at a time when competition in this sector is intensifying. A sizable correction could put a temporary drag on the overall price picture - although if this does happen, we suspect it is largely noise.
The fear of a global trade war weighs on Asian central bank policy tightening. We expect Singapore and Korea to keep policies on hold, while markets glean through China’s trade data for the impact of the conflict
The highlight of the week is the Monetary Authority of Singapore’s (MAS) semi-annual statement, which will be accompanied by an advance estimate of GDP growth for 1Q18. The last MAS statement in October 2017, in which they referred to the phrase “a neutral policy stance is appropriate for an extended period” as the October 2016 guidance, triggered expectations of a return to tightening.
The neutral MAS policy stance, or stable Singapore dollar nominal effective exchange rate (S$-NEER) over the policy horizon, has been in place since April 2016. The consensus for the upcoming statement is tilted toward a return to the “modest and gradual” S$-NEER appreciation path. However, we are sceptical because of the narrowly-driven growth, ultra-low inflation, and the threat of a global trade war.
The consensus for 1Q18 GDP growth is 3.9% year-on-year, up from 3.6% in 4Q17. So far the evidence of last year’s economic strength continuing this year has been mixed. The growth of non-oil domestic exports slowed sharply, whereas manufacturing bounced in 2018. Both NODX and manufacturing are narrowly driven by semiconductors, and similar contrast as the headline NODX and manufacturing growths is observed for semiconductor exports and manufacturing. The headline and core CPI inflation of 0.2% YoY and 1.5% respectively in the first two months was within the official forecast for 2018.
Election time in Hungary and a busy central bank week in EMEA, but who do we think will hike, cut or hold rates?
In Hungary, the key event is the general election on Sunday. We see Fidesz-KDNP winning the election by a simple majority, but the end result could be much closer than anyone’s guesses, especially if the opposition finds success in its coordination withdrawing candidates. On the data front, the CPI release could bring some excitement. We expect inflation to pick up somewhat, however the latest CPI readings across Europe showed downside surprises and this might happen to Hungary too.
Discover what ING analysts are looking for next week in our global economic calendars