Intesa San Paolo : The FOMC meeting confirmed the interest rate pause and signalled that the debate continues on monetary policy strategy and tools.
Weekly Economic Monitor – 31 January 2020
Intesa Sanpaolo – Research Department
In 2Q 2020, purchases of T-Bills will slow, aiming to achieve a “durably ample” level of reserves, that would allow regular liquidity management without “active use” of repos. Subsequently, the path of asset purchases will be guided by the trend of Fed balance sheet liabilities.
For what concerns risks, Powell sees room for “cautious optimism”, although uncertainty tied to the novel coronavirus outbreak and its macroeconomic consequences must be taken into account. In our view, the downside bias on rates and the Fed’s “pre-emptive” stance are likely to skew rates onto a lower trend.
The United Kingdom leaves the European Union today, but the practical effects are postponed to the end of the year. The Bank of England confirms the rates unchanged, while leaving the door open to possible adjustments.
The week’s market movers
In the euro area, industrial output data referred to the closing month of 2019 will be released in the two main euro area countries: we expect a correction in Germany, after the November surge, whereas France could experience another month of positive growth, albeit moderate.
The second estimate of PMI indices should confirm the advance reading, with an unchanged composite index compared to the previous month (as a result of a recovery of the manufacturing sector and a slowdown in services). Retail sales in the Eurozone are forecast to correct in December after surging in November. Lastly, Italian inflation could slow by one tenth in January, also due to lower electricity bills.
This week, a host of important data releases are lined up in the United States. Focus will be on the January Employment Report, which should point to job gains of around 140k, with the manufacturing sector held back by the production suspension at Boeing, a stable unemployment rate at 3.5%, and a moderately more lively wage trend.
January ISM indices should send mixed signals: manufacturing still in recessionary territory and non-manufacturing consistent with a moderate expansion. Among December data, construction spending is forecast higher and the trade deficit is estimated to have widened.
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