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Vindicating the Fed?

Today's news headlines:

  • Tuesday - UK wage growth data for February could prove to be a red flag for inflation risks going forward.
  • Thursday - German manufacturing data will be in focus. Failure to see the pace of recent declines reversed could raise concerns that the European Central Bank (ECB) needs to act faster.
  • Thursday - US Retail Sales for March are forecast to show a modest return to growth, vindicating the Fed’s stance over monetary policy.


The New York State Empire Manufacturing Index for April will be published today. This monthly survey of manufacturers in the area run by the New York Federal Reserve provides some insight into the health of the US economy. The figure has been in positive territory for the last two years, but declines have been seen in recent months. After printing 3.0 for March, 6.7 is expected this month, which would underline the open-minded approach that’s being seen towards US monetary policy right now. A dip lower might raise concerns that the Fed is being too patient.


The UK Unemployment Rate figure for February is due for release and further gains are expected, despite slowing growth. There have been suggestions that businesses are favouring the flexibility of labour over capital investment, which allows quicker adjustment in downturns. An increase of 44,000 is expected, down from last month’s rise of 222,000, but as long as the print remains positive, then there should be little cause for concern.

February’s UK Average Earnings numbers are also set for release and expected to exceed 3.0% for the sixth consecutive month. This is outstripping inflation and making life a bit easier for UK consumers, but potentially pushing the Bank of England (BoE) into a quick rate hike once Brexit is off the agenda. The print is set to come in unchanged from January’s 3.4%.

The forward-looking German ZEW survey is due for publication today, providing some insight into economic sentiment throughout the Eurozone’s largest economy. Talk of US trade tariffs against EU imports might take a toll, with forecasts for a dip down to -11.  The print has consistently been in negative territory for the last year.


The UK Consumer Price Index (CPI) inflation reading for March is due and expectations are that the figure will be close to the previous month’s number of 1.9%. The Bank of England’s target is 2.0%, so given the unsettling effects of Brexit, this is certainly worthy of note. Anything much higher than this will raise concerns that Mark Carney’s team may struggle to hold monetary policy unchanged in the months ahead.

Eurozone Consumer Price Index inflation is also due for release today, although despite the reported strength in wage rises across the currency bloc, the number is tipped to decline. Core CPI, the reading excluding food and fuel, is forecast to print at just 0.8%, down from February’s 1.0% increase.


There’s a flurry of April Purchasing Managers’ Index (PMI) readings from the Eurozone out this morning, but the German Manufacturing PMI print is likely to be of specific interest. This has been below the break-even 50.0 mark for the last three months, hitting a seven-year low of 44.1 in March. Expectations are for the sector to remain in contraction.

Meanwhile, UK Retail Sales for March are expected to tumble back into contraction for the first time since December. A -0.2% decline is forecast for the month-on-month figure, down from February’s +0.4% increase. This forecast highlights consumer uncertainty over Brexit, but arguably a decline of this magnitude will cause little concern in isolation. This combination of rising wages, low inflation and low spending should serve to reduce the UK debt pile, which if done in a measured fashion, ought to be seen as a positive for the Pound.

March’s US Retail Sales reading is also due, with forecasts suggesting that the figure will register a return to growth. A month-on-month increase of 0.3% is expected, reversing February’s 0.2% decline. With a growing list of economic weak spots for the US, if this print comes in as forecast, it will vindicate the Fed’s patient approach to monetary policy.