Macro brief : The week ahead

The dovish signal from the Fed last week is likely to drive EM FX and stocks higher in the short and medium term but the next catalyst for the market needs to come from China’s stimulus. Though Chinese data remains disappointing (for instance, retail sales growth is still weakening, even ex-autos), there are early signs that infrastructure and industrial production have bottomed. We still expect economic stabilisation to happen in China in Q3 2019. In the interim, the global slowdown should continue, as confirmed by the very ugly PMI flash indicator for March released for France and Germany last Friday. 

This week, there are three themes that are likely to dominate the thinking of investors and traders. 

(1) In Germany, we expect a couple of negative prints, notably the GfK consumer confidence indicator and the  Ifo business climate index. The adverse bias for soft data remains due to the risk of a global trade recession and China’s slowdown. The perspectives for the automotive sector, which represents roughly 14% of German GDP, are very gloomy as the two main car markets at the global level – the United States and China – are showing signs of deep weakness. We consider that this negative momentum in Germany could have a positive outcome in the second half of  2019 as it might push the German government to adopt an expansionist fiscal policy. 

(2) In France, Q4 GDP is due on Tuesday. It should confirm that quarterly growth reached 0.3% which is still a decent performance considering the negative consequences on business and consumer confidence of the Yellow Vest movement. Based on INSEE’s estimates, the Yellow Vest’s negative effect on growth was rather limited, around 0.1 point of GDP. The economic momentum for 2019 is positive due to measures to support purchasing power that represent a fiscal stimulus of 10 billion euros. France’s GDP growth forecast for 2019 is at 1.3% vs 0.6% for Germany. 

(3) Finally, the last theme this week is de-dollarisation. We had new gold data from the Central Bank of Russia a few days ago. Russia bought 31.1 tons in February, bringing the al to 2,149 tons. As we wrote in January, de-dollarisation is a long-term process that will be key to monitoring developments this year. Interestingly, we're starting to hear from Washington that the Trump administration is trying to set up a plan to counter this phenomenon. Stay tuned.

Today's Calendar (All times GMT)

9:00 Germany, Ifo business climate indicator
10: 00 USA, Harker (FOMC)
12:30 USA, Chicago Fed national activity index
14:30 USA, Texas manufacturing outlook survey
21:45 New Zealand, trade balance
Brexit is supposed not to be on the agenda today but there is noise that PM May could face a cabinet revolt by midday.