What To Look At Next Week

On the last day of March, the preliminary estimate of the eurozone's CPI will be reported. Lagarde has already taken the sting out of any upside surprise. She patiently went through the CPI basket at the ECB's press conference and provided evidence for the judgment that the rise of from -0.3% in the last four months of 2020 to 0.9% in the first two months of 2021 was due to statistical quirks, like the temporary German VAT holiday, or when Italy or France have the sales specials. She also noted that the weighting of the basket changed to reflect 2020 consumption patterns.

With the March read, the base effect may act as a depressant. In March 2020, the aggregate CPI rose by 0.5%. That will drop out of the index and most likely be replaced with something less. It suggests a decline in the 0.9% year-over-year rate. Other influences are mixed. Oil and the euro declined so far this month, but the other technical factors may be more influential on the 1.1% core rate.

The ECB's latest staff forecasts anticipate that the regional economy will contract by 0.4% in Q1 (quarter-over-quarter) before rebounding to 1.3% in Q2. Bloomberg's survey found a median projection of -0.9% and 2.0% for the first two quarters, respectively.

Judging from last week's preliminary March PMI, the quarter is ending with decent momentum. The composite PMI rose to 52.5 (48.8 in February), which is the highest since last July's peak at 54.9. It may overstate the case a little given the new contagion wave and lockdowns, but the economies appear to have begun showing resilience.  

Japan's economy appears somewhat less resilient. The preliminary March composite PMI ticked up to 48.3 (from 48.2 in February). It finished last year at 48.5, the highest since bottoming in April. The Tankan Survey is likely to confirm that the economy is likely contracting. Also, the survey will likely underscore that small businesses are facing more challenges than large, and their outlook is more pessimistic. After expanding by 2.8% in Q4 20, the Japanese economy may be contracting by a little more than 1% in the first three months of 2021. The economy is expected to snap back in Q2, but the weak momentum in March warns of potential disappointment.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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