Euro area surveys to illustrate hit to confidence after Ukraine invasion

Emily Nicol

Japanese flash PMIs likely to remain downbeat amid higher inflationary concerns
When Japanese markets reopen after today’s national holiday, one data focus this week will be the flash PMIs for March on Thursday. Not least reflecting higher energy and commodity prices in the wake of Russia’s invasion of Ukraine, as well as continued disruption from Covid-19 in Japan and elsewhere in Asia, we expect manufacturing firms to indicate nothing better than subdued growth and services firms to point to ongoing contraction. Thursday will also bring department store sales for February. In terms of inflation, Tokyo CPI figures for March (due Friday) are expected to show that the annual headline rate rose above 1%Y/Y for the first time since June 2019 on the back of higher energy and food prices. Indeed, core inflation (excluding food and energy) is expected to remain weak at 0.5%Y/Y. BoJ estimates of underlying inflation (on the national measure) tomorrow will also be interesting to see to what extent price pressures have continued to broaden in February (albeit it will be to a much lesser extent than in the US or euro area).

Euro area surveys to illustrate the hit to business and consumer sentiment in light of the Ukraine invasion
Sentiment surveys will dominate the euro area’s data-flow this week, which should similarly provide a guide to the hit to economic growth, additional price pressures and renewed tightening of supply bottlenecks in the wake of Russia’s invasion of Ukraine. The European Commission’s preliminary consumer confidence index for March will be published tomorrow, with the likelihood of a sixth successive monthly drop to the lowest level in at least one year. Most notably perhaps, the preliminary manufacturing, services and composite PMIs for March are due on Thursday. In February, the PMIs signalled a pickup in growth momentum, with the euro area manufacturing output index rising to a five-month high (55.5), and the services activity index up to a three-month high (also 55.5) above its average of the second half of 2021. But while there were hints of an easing of supply bottlenecks, the price indices continued to signal marked pressures. This morning’s German PPI numbers illustrated that even before the Ukraine invasion, producer price pressures were the highest on record. Indeed, producer prices rose a further 1.4%Y/Y to leave the annual PPI rate up 0.9ppt to 25.9%Y/Y. Energy prices were again the main driver, up 68%Y/Y as the price of producer natural gas distribution rose 125.4%Y/Y and electricity prices rose 66.5%Y/Y, but there was also increased inflation further along the supply chain.

Other data to be published this week include the euro area’s construction output numbers for January (tomorrow) and February bank lending numbers (Friday). France’s INSEE will publish its business confidence survey results on Thursday, while the German ifo business conditions indices and Italian ISTAT economic sentiment figures will be published on Friday.

UK inflation set to jump, while business and consumer confidence to be more subdued
It will be a busy week to top-tier UK data, including Wednesday’s inflation report for February. UK CPI inflation edged up in January, rising 0.1ppt to 5.5%Y/Y, while core inflation rose a further 0.2ppt to 4.4%Y/Y, with both rates the highest since March 1992. We expect a much bigger increase in February – perhaps as much as 0.7ppt to both headline and core rates to 6.2%Y/Y and 5.1%Y/Y respectively – with additional pressures in energy, food and non-energy goods components. Like in the euro area, the flash PMIs for March are due Thursday – following marked improvements in February (the manufacturing output index rose to a seven-month high of 56.9, while the services activity index rose to an eight-month high of 60.6), the March indices seem likely to report a softening of growth momentum but increased price pressures following the Russian invasion of Ukraine. The end of the week brings February retail sales data as well as the GfK consumer confidence survey for March. While retail sales are likely to have grown further following a rebound of 1.9%M/M at the start of the year, consumer confidence is expected to have weakened to the lowest level in at least fourteen months.

Among other UK data due, the February public finances figures will come tomorrow ahead of the OBR’s updated fiscal forecasts on Wednesday. The associated spring fiscal statement from the Chancellor that day should bring certain new budgetary measures, most likely to ease somewhat the impact of higher energy prices on disposable incomes. In particular, a cut in fuel duty as well as an increase in welfare benefits might be in order. Following Russia’s invasion of Ukraine, Conservative backbenchers have also called for additional spending on defence. Scope for additional public spending will be provided by recent trends in government net borrowing, which is set to come in some £30bn lower than the OBR previously expected in the current fiscal year. While public spending on debt interest has leapt due to high inflation, tax revenue has significantly exceeded expectations as a large number of workers switched from self-employed status to income tax-generating permanent employee status, and a shift in spending towards non-food goods has also boosted VAT receipts.

US sentiment surveys, durable goods orders and plenty on Fed speak on the docket this week
The US data calendar gets underway today with the Chicago national activity index for February, as well as the Richmond Fed manufacturing indicator for March, to be followed by the Kansas Fed equivalent and flash PMIs on Thursday. That day will also bring the preliminary durable goods orders numbers for February, for which Daiwa America’s Mike Moran expects to see some payback from the strength in January largely reflecting the transport sector as bookings for commercial aircraft slow – indeed, ex transportation, orders are forecast to have risen for the 21st month out of the past 22. Thursday will also bring the weekly jobless claims figures, followed on Friday by the updated University of Michigan’s consumer survey. The preliminary release saw the headline sentiment index fall to its lowest level (59.7) since 2011, with elevated prices of food and gasoline likely to limit the possibility of an upwards revision to the flash release. Housing market indicators include new home sales (tomorrow) and pending home sales figures (Friday). There are numerous FOMC members in action over the coming week, including Chair Powell at a NABE conference later today. 

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