The week ahead's key scheduled calendar events - Nomura

Analysts at Nomura Bank offered a preview of this week's key events from the economic calendar.
Key Quotes:

United States | Data preview

Empire State survey (Tuesday): Business confidence remained elevated in 2017. With healthy global and domestic demand, we expect the January Empire State report to suggest continued optimism at 20, up 2pp from 18 in December. Although the unfilled orders index in the December survey turned negative, the new orders index remained firmly within an expansionary territory, suggesting continued optimism near term. Further, the December ISM manufacturing survey points to strong near-term momentum in the industrial sector. 

Industrial production (Wednesday): We forecast a 0.6% m-o-m increase in industrial production in December. Although aggregate hours worked in the manufacturing sector excluding autos remained essentially unchanged in December, considering momentum from the previous month, we expect a healthy increase in ex-auto manufacturing output. This appears consistent with the elevated business confidence and our view that the ex-auto manufacturing sector will continue to support healthy economic growth. Further, industry data suggest a solid rebound in auto assemblies following a 0.3% decline in November. On mining sector output, we expect a steady increase, in line with tenacious growth in oil and gas production in the US. In addition, considering industry data, electric utility output likely surged in December and boosted total industrial output strongly. 

NAHB housing market index (Wednesday): We expect homebuilders to remain optimistic in January and forecast a reading of 75, a slight increase from 74 in December. Housing demand has been healthy, accelerating home price increases in recent months. In December, the index of prospective buyer traffic jumped 8 index points to 58, pointing to strong buyer interest despite rising prices. This will likely be favorable for homebuilders’ business confidence in the near term. However, cold weather in January may have adversely affected buyers’ interest during the month, posing some transitory downside risk. 

Initial jobless claims (Thursday): Initial jobless claims rose 11k to 261k for the week ending 6 January, the highest reading since the hurricane-affected prints in September. Keeping in mind increased volatility in claims data around the holidays, the recent uptick is likely not a cause for concern. Continuing claims fell 35k to 1867k for the week ending 30 December. Initial and continuing claims remain very low by historical standards. We expect these measures to remain low, consistent with the strong labor market. 

Housing starts (Thursday): We expect December housing starts to increase 0.6% m-o-m to an annualized rate of 1305k, from 1297k in November. Given a stronger-than-expected boost from hurricane recovery, single-family housing starts likely increased again at a solid pace in December. Permits authorized for single-family housing construction rose solidly in previous months, pointing to a decent increase in December. Further, the weather in December was relatively mild, which may have been favorable for construction starts. However, multifamily housing starts may have fallen again, considering a recent decline in permits for multifamily housing projects. Further, apartment and rental housing markets have been slowing with high supply relative to demand. Thus, we continue to see some downside risk from multifamily housing construction. For housing permits, we forecast a decent 2.1% increase in December to an annualized pace of 1330k, from 1303k in November. We expect a steady increase in single-family housing permits. Also, multifamily housing permits, which tend to be volatile, may have reverted in December after falling 6.0% in November.

Philly Fed survey (Thursday): We forecast 28.0 for the Philly Fed index in January, implying a slight improvement from 27.9 in December. Incoming data suggest elevated near-term momentum in the manufacturing sector. This appears consistent with healthy international demand, partly driven by a pick-up in global economic growth, and improved domestic demand. 

University of Michigan consumer sentiment (Friday): The University of Michigan consumer confidence index fell slightly in December but remained high at 95.9. We expect continued optimism near term as consumers’ financial gains have been solid and the labor market remains strong. In January, it is possible that consumer expectations for future conditions were marginally affected by a stream of news on tax cuts. According to the December report, tax reform was spontaneously mentioned by 29% of all respondents, with party affiliation being the dominant correlation of consumers’ assessments of the Republican tax legislation. However, consumers’ assessment of the legislation did not affect personal financial outlook and home buying/selling prospects. On inflation, the median of one-year ahead inflation expectations jumped to 2.7%, from November’s 2.5%. The median of 5- to 10-year ahead inflation was steady at 2.4%. Consumer inflation expectations remained little changed on balance in 2017, although they have been inching down compared with a few years ago. The FOMC tends to look through monthly blips in survey-based inflation expectation measures. Looking at the minutes from the December FOMC meeting, the Committee did not seem apprehensive about a potential decline in longer-term inflation expectations although the minutes indicated that “several” participants expressed concerns.

Euro area | Data preview

UK Consumer prices, Dec (Tues 16 Jan): We expect CPI inflation to have fallen by two tenths in December, from 3.1% in November to 2.9% in December. This may not be the start of a continued fall, however, with our current forecasts having inflation rising slightly in January before embarking on a trend decline thereafter back towards its target. We see RPI inflation falling by 0.1pp in December (3.9% to 3.8%) – this fall is less than that of CPI inflation due to the RPI-CPI wedge rising 0.1pp thanks to the BoE’s November rate rise, which raises the mortgage interest component of the RPI. Our forecast of a fall in inflation in December before temporarily rising in January is consistent with anecdotal evidence showing significant discounting ahead of Christmas (note the fall in the BRC shop price index).

UK Producer prices, Dec (Tues 16 Jan): The CBI and PMI output price indices moved in different directions in December – CBI up, PMI down. What they have in common is that they are both historically high and well above their averages over the past 20 years. As a result, we expect another 0.3% m-o-m rise in headline and also core output prices in December. The combination of higher sterling during the month and a rise in crude oil prices should keep input prices broadly static. 

UK Retail sales, Dec (Fri 19 Jan): December is of course the most important month of the year for retail sales. So far the evidence has been patchy – the CBI distributive trades survey (volumes growth) has remained upbeat, and while the BRC measure of growth remains in positive territory it is modest at 0.6% (nominal)/1.2% real (like-for-like). Visa’s expenditure index fell by around 2.5% in December versus a year earlier while John Lewis sales were up to a similar degree. Measures of footfall were down noticeably. Individual retailers have reported varied success, with some retailers performing better than expected (Next, for example) and some worse (Debenhams). Coming on the back of a strong rise in official sales in November, we suspect that December may be weaker and forecast flat sales volumes month-on-month.

Japan | Data preview

November 2017 core machinery orders (private sector, excluding orders for ships and from electric power companies) (Wednesday): We forecast a 0.3% m-o-m rise in November core machinery orders. Related indicators for November revealed a mixed picture. Industrial production data showed a 4.6% m-o-m increase in the production of items with short lead times from order to production. However, Japan Machine Tool Builders' Association data showed machine tool orders for customers in Japan down 7.9% m-o-m, marking the first such decline in orders in three months (seasonal adjustment by Nomura). While the hard data contained both strong and weak results, looking at soft data, we see that the new order DI in the manufacturing PMI came in at 54.7 in November (up 1.9pt m-o-m), pointing to a rise in orders from October, although this may reflect growth in overseas demand to some extent. Overall, based on the related indicators, we expect November orders to show another rise, albeit moderate, as seen in the previous month.

Asia | Data preview

China: We expect real GDP growth to slow to 6.6% y-o-y in Q4 2017 from 6.8% in Q3, as the cyclical slowdown unfolds. That said, Premier Li Keqiang’s comment of “around 6.9%” growth for full-year 2017 poses some upside risk to our forecast. Weak industrial production growth is likely to remain low at 6.1% y-o-y in December, as anti-air pollution measures in the winter should weigh on production, while fixed asset investment and retail sales growth are likely to tick down, as the sharp fall in import growth in December points to weak local demand."