Weekly Outlook: 2016, March 13 - 20

3 Main Themes To Watch In Next Week FOMC - BofA Merrill

First, there is a likely to still be a sense of caution hanging over the meeting, helping to justify why the Fed did not hike. The sharp tightening of financial conditions has started to ease and market nervousness over the global growth backdrop has abated, but we expect the FOMC statement will continue to state that the Committee is still closely monitoring global developments and will not reintroduce a balance of risks assessment. Similarly, uncertainty about the near-term inflation outlook – notably a drop in oil prices and inflation expectations, but a strong set of inflation data prints for February – also is likely to keep the Fed cautiously on hold for now.

Second, we look for some signs of optimism in the discussion of the outlook going forward, supporting additional hikes later this year. We expect the updated dot plot will show a median three hikes for this year (with a number at two hikes) and four for 2017. In this sense, not hiking in March is similar to last September’s “tactical delay” of liftoff. The opening paragraph of the statement and Yellen’s subsequent comments should note that the US data recently have shown improvement on net. April should remain a “live” meeting – likely noted by Yellen in her press conference.

Third, we do not expect significant changes to the Summary of Economic Projections (SEP), in line with a “tactical delay.” There may be some tweaking of the near-term forecasts: we see some chance of slightly lower 2016 GDP growth; a smaller chance of a slight upward revision to 2016 inflation rates. However, we see a high likelihood that the median long-run dot will decline to 3.25% and a good chance that the central tendency for the longer-run GDP growth rate will come down modestly, reflecting disappointing productivity growth over the past few years. We also see some chance that the longer-run unemployment rate projection could move slightly lower.

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The ECB’s massive policy announcement did not receive the desired fall in the euro, and the US dollar lost ground in an exciting week. Rate decisions in Japan the US, the UK and Switzerland, Employment data from the UK, the US and Australia, US inflation, manufacturing and sentiment figures.

1. Japan rate decision: Tuesday. The Bank of Japan surprised financial markets by adopting negative interest rates for the first time ever in an attempt to boost growth. BOJ decided to implement a negative rate of 0.1% and charge banks for depositing their excess funds. Analysts did not anticipate this move. The bank also maintained its program to buy government bonds. The BOJ noted that the economy recovered modestly and that there is an increase in inflationary pressures. There is a lot of uncertainty about this decision. On one hand, Kuroda has more leeway to act after Draghi’s move. On the other hand, the effectiveness of such moves is limited.
2. US Retail sales: Tuesday, 12:30. U.S. consumer spending increased more than forecast at the beginning of the year, rising 0.2% after a revised 0.2% increase in December. Sales were up 3.4% compared to January 2015. Furthermore, core retail sales, excluding the auto sales rose 0.1%, compared to a flat reading expected by economists. Sales continue to benefit from falling gasoline prices. The positive sales figures dampened recession fears but are not strong enough for another Fed rate hike decision. Retail sales are expected to decline 0.1% while core sales are forecasted to drop 0.2%.
3. US PPI: Tuesday, 12:30. U.S. producer prices edged up unexpectedly in January despite lower energy prices. Producer price index increased by 0.1% after a 0.2% fall in the previous month. Analysts expected the index to decline 0.2%. The final demand services index increased 0.5%. Margins for machinery and equipment jumped 4%. However despite the rise in the cost of services, declining oil prices and a stronger dollar continued to weigh on wholesale prices. Economists expect producer prices to decline 0.1% this time.
4. UK Employment data: Wednesday, 9:30. The number of people claiming unemployment benefits plunged by 14,800 in January to the lowest level since 1975. The reading surprised analysts predicting a smaller decline of 2,900. However, despite this decline, the unemployment rate disappointed for the first time remaining at 5.1%, while analysts expected a decline to 5.0%. The number of UK jobless claims is estimated to decline by 9,000 in February.
5. US Building Permits: Wednesday, 12:30. The number of building permits dropped 0.2% to a 1.202 million-unit rate in January. Permits for the construction of single-family homes fell 1.6% and multi-family building permits increased 2.1%. Likewise, housing starts fell amid bad weather, disrupting building projects in some parts of the country. Single-family housing starts, the largest segment of the market, fell 3.9%. The number of building permits is expected to remain around 1.2 million.
6. US Inflation data: Wednesday, 12:30. Consumer Price Index, excluding the volatile food and energy components edged up by the most in nearly 4-1/2 years in January, amid rising rents and healthcare costs. The reading beat analysts forecast of a 0.2% rise and following a 0.1% increase in the prior month. Meanwhile the overall CPI remained unchanged after falling 0.1% in December. The rise in core CPI together with the constant improvement in the employment market suggest further rate hikes in the coming months. Consumer Price are forecasted to fall 0.2% while core process are expected to rise 0.1%.
7. US Rate decision: Wednesday, 18:00. The U.S. Federal Reserve maintained rates on January, noting it was “closely monitoring” global economic and financial developments, before deciding on further rate hikes this year. The decision was in line with market forecast. Fed officials said the economy was growing moderately with a stronger employment market. The concerns lay on global economic and financial developments and their effect on US labor market and inflation. Economists expect a one quarter-point rate increase in 2016, probably on July. No change is expected now, but the updated forecasts and press conference promise a lot of action. Will they lower their interest rate projections?
8. New Zealand GDP: Wednesday, 21:45. New Zealand’s economy expanded more than forecast in the third quarter, growing 0.9% from 0.4% in the second quarter. The third-quarter growth rate exceeded the 0.8% forecast. The Reserve Bank of New Zealand expects faster economic growth and higher inflation this year. The boost in growth is attributed to a surge in spending by tourists and retail trade. New Zealand’s growth is expected to reach 0.7% in the fourth quarter of 2015.
9. Australian Employment data: Thursday, 0:30. Australian employment market shed 7,900 jobs in January, while expected to gain 13,000. Full-time employment declined by 40,600, while part-time jobs increased by 32,700. Australia’s unemployment rate jumped to 6% from 5.8% accordingly, the highest level recorded since September 2015. The participation rate remained steady at 65.2%. However, the outlook for the job market remains positive. Economists believe Australia is unlikely to face a recession in 2016 but weak national income poses risks to the economy. Australian job market is expected to add 12,300 positions in February while the unemployment rate is estimated to remain at 6%.
10. Switzerland: Rate decision: Thursday 8:30. Switzerland’s central bank kept its record-low interest rates unchanged after the ECB did the same, giving the Swiss franc some breathing space in its battle with the euro. The central bank decided to maintain its target range for three-month Libor between -1.25 and -0.25% in line with market forecast. Switzerland’s economic activity weakened in the third quarter due to the franc’s fall. The SNB predicts growth would reach 1.5% in 2016 with inflation at -1.1% . Price growth is expected to recuperate in 2017.
11. UK rate decision and meeting minutes: Thursday, 12:00. The Bank pf England cut its forecast for growth, wages and inflation, but kept rates unchanged. Mark Carney raised market speculation that a global economic slowdown could prompt a rate cut. But the policymakers voted unanimously to hold borrowing costs unchanged. Carney said he wants to prepare households and businesses for the scenario that borrowing costs are expected to rise over the next two years. However, according to the Bank’s latest outlook it seems that policymakers are in no hurry to raise rates anytime soon. The meeting minutes showed a unanimous decision against raising rates. Another unanimous vote is likely.
12. US Philly Fed Manufacturing Index: Thursday, 12:30. The manufacturing activity index in the Philadelphia area remained weak in February but improved to minus 2.8 from minus 3.5 in January. The index remained in negative territory for six continuous months however the reading was better than the minus 2.9 forecasted by analysts. Exports remained positive but new orders and employment indexes remained negative dropping modestly. Philly Manufacturing Index is expected to improve further to -1.1 this time.
13. US Unemployment Claims: Thursday, 12:30. Initial claims for U.S. unemployment benefits plunged by 18,000 last week reaching 259,000. The reading was much better than expected posting the lowest level since mid-October. Economists forecasted 272,000 new claims last week. The four-week moving average fell by 2,500 to 267,500, the lowest figure since October 31 week. The number of new claims is expected to reach 267,000 this time.
14. US UoM Consumer Sentiment: Friday, 15:00. Consumer sentiment deteriorated in February reaching 90.7 compared to 93.3 posted in the prior month. Analysts expected a reading of 92.7. Oddly enough, the lukewarm sentiment reading followed positive retail sales figures in January spurred by a stronger labor market and higher income gains due to the ultra-low inflation. US Consumer sentiment In March is predicted to reach 92.3.

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Daily price is located above 100-day SMA/200-day SMA area for the bullish market condition with the ranging within the following key support/resistance levels:

• 16.01 resistance located above 200-day SMA area in the primary bullish of the chart, and
• 15.16 support level located near 200-day SMA on the border between the primary bullish and the primary bearish trend.

RSI indicator is estimating the ranging bullish trend to be continuing
If the price breaks 15.16 support level so the reversal of the price movement from the primary bullish to the primary bearish market condition will be started.
If the price breaks 16.01 resistance level to above on close daily bar so the bullish trend will be continuing.
If not so the price will be ranging within the levels.

• Recommendation for long: watch close the price to break 16.01 for possible buy trade
• Recommendation to go short: watch the price to break 15.16 support level for possible sell trade
• Trading Summary: bullish

Resistance	Support
16.01	15.16
N/A	13.64

SUMMARY : bullish

TREND : ranging