Israeli elections, traders brace for lira volatility, flash PMIs

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Israel goes to the polls on Tuesday for its fourth general election in two years, while currency traders will begin the week braced for volatility in the Turkish lira following the sacking of the country’s central bank governor over the weekend. Flash purchasing managers’ indices for March from across Europe, the US and Japan will show how activity is bearing up under Covid. The UK and US have important inflation data points out and there will be plenty of chances to hear the views of leading central bank policymakers during the course of the week too.

Israel elections

Israel goes to the polls on Tuesday in its fourth general election in two years, when prime minister Benjamin Netanyahu hopes an ambitious coronavirus vaccination drive will help him secure a record sixth term.

The election campaign has been dominated by Covid-19 and Netanyahu has struggled to expand his campaign beyond the pandemic — a planned trip to the UAE to burnish his foreign policy credentials was scrapped because of a spat with Jordan over flight routes.

The polls are divided on whether Netanyahu’s strategy has worked. In January, when the vaccination campaign started, polls suggested his Likud party would win 40 seats in the 120-seat Knesset.

That has drifted to about 30 seats as the country is caught up in a post-pandemic celebration, and a possible sign of more political gridlock to come.

Pollsters attribute the decline to Netanyahu’s embrace of two ultraorthodox parties as prospective coalition partners and to the appeal of his rightwing challengers.

If Netanyahu and his coalition allies do not secure enough seats to coax smaller parties to help them reach the 61-seat mark, opposition leaders — including the centre-left former TV anchor Yair Lapid and erstwhile Likud leader Gideon Sa’ar — will try to entice them to form a governing coalition instead.

Turkish lira fears

Traders are preparing to start the week with a jolt of volatility in the Turkish lira after president Recep Tayyip Erdogan sacked the country’s central bank chief, who was regarded as a key force in pulling the lira from historic lows last year.

The removal of Naci Agbal, announced in the early hours of Saturday, shocked many local and foreign investors who had applauded the official’s decisions to move Turkey towards a more orthodox monetary policy.

Traders and analysts are now concerned that Erdogan’s decision to install Sahap Kavcioglu to the role could rapidly erode the gains made during Agbal’s short tenure. Kavcioglu is a little-known professor of banking and a former lawmaker from the ruling Justice and Development party.

Goldman Sachs warned on Sunday that it forecast “significant risks of a near-term discontinuous move weaker in the lira”

The sudden change in Turkey’s monetary policy leadership comes during a fraught moment for emerging markets, which have been under pressure as borrowing costs in the US and other developing markets have climbed higher. Last week, Russia and Brazil both joined Turkey in increasing interest rates as they sought to keep a lid on inflation.

UK/US trade call

US trade representative Katherine Tai is likely to hold a call on Monday with her UK counterpart Liz Truss to discuss a trade deal. An agreement with the US would allow the UK considerable headway in re-establishing trading relationships disrupted by its exit from the EU.

Tai’s appointment, confirmed by the US Senate last week, gives fresh impetus to the talks, which were effectively paused during the transition from the Trump administration.

A trade deal with the US would be seen as a big prize for UK prime minister
Boris Johnson.

Truss has said that much of the work needed to secure a trade deal has already been done, but senior UK government officials have said that an agreement may not be possible in 2021.

Earnings reports

UK DIY chain Kingfisher is set to report strong full-year results as consumers continue to spend on home improvements. In a third-quarter update last November the retailer pointed to a £175m profit boost this year from “temporary cost savings”.

Cineworld, the world’s second-largest cinema operator, reports full-year results after a tough 2020 when it was hit hard by pandemic closures, film delays, an abandoned deal, a lawsuit and growing debt.

UK Catering group Compass is likely to suffer a hit to first-half profit, as investments into improving the supply chain and quality of children’s food packages ate into its margins, while it seeks to rebuild its image after being criticised for poor standards.

Revenue growth is also expected for Chinese social and gaming giant Tencent this week. The Shenzhen-based company reported total revenue growth of 29 per cent year on year to Rmb125bn ($18.9bn) last quarter, ahead of analysts’ expectations, as its online gaming business continued to benefit from pandemic lockdowns.

Video game retailer Gamestop, which was in the spotlight after the recent retail trading frenzy, is expected to report a slight rise in fourth-quarter revenue.

Main reports

MONDAY

Kingfisher

TUESDAY

Adobe; IHS Markit; Gamestop

WEDNESDAY

General Mills; Xiaomi; E. ON;

THURSDAY

Compass Group; China Life; Evotec; Cnooc; Tencent; United Utilities Group

FRIDAY

Smiths Group

Appearances

US Treasury secretary Janet Yellen and Federal Reserve chair Jay Powell testify before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday for quarterly Cares Act hearings, when they are expected to discuss the US economy and the role of fiscal and monetary aid in the pandemic recovery.

Some big names in the central banking world will speak at a Bank for International Settlements conference on digital currencies running from Monday to Thursday.

Fed chair Jay Powell, European Central Bank president Christine Lagarde, Bank of England governor Andrew Bailey, Bank of Canada chief Tiff Macklem, former BoE governor Mark Carney and Microsoft president Brad Smith will be among those taking part in a virtual discussion entitled How Can Central Banks Innovate in the Digital Age?

Facebook chief executive Mark Zuckerberg, Google’s Sundar Pichai and Twitter’s Jack Dorsey are on Thursday scheduled to testify at a remote US House of Representatives subcommittee joint hearing on the “misinformation and disinformation plaguing online platforms”.

Economic data and central banks

Plenty of UK releases for analysts to chew over this week, including inflation, labour data, retail sales and flash PMIs.

Inflation is widely expected to break the Bank of England’s 2 per cent target later in the year as lockdown measures ease, but for now the consumer price index is forecast to come in at 0.8 per cent for February, up from 0.7 per cent as a result of higher energy prices.

Line chart of Annual % change of consumer price index showing UK inflation is expected to accelerate

The BoE, which is anticipating a rapid vaccine-fuelled upswing for the UK economy in the second half of this year, kept rates on hold last week, saying it did “not intend to tighten monetary policy” until clear evidence emerged of a recovery in the labour market and the 2 per cent inflation target could be achieved “sustainably”.

The country’s unemployment rate is forecast to stay at 5.1 per cent, while wage growth is likely to stall given that almost 1m people rejoined the government’s job retention scheme in January, many taking a 20 per cent pay cut.

Retail sales are expected to perform slightly better after a tough January because of lockdown restrictions.

March’s flash PMIs for the UK, US and eurozone will also be closely watched this week. The UK services index is set to show zero growth at 50 as lockdown restrictions remained largely unchanged on February.

In the eurozone the survey is expected to indicate a further slowdown in business activity for March, even though it has remained more resilient in recent months.

Reuters forecasts the PMI for eurozone services to inch up to 46, which would mean it remains below the key threshold of 50, indicating a majority of businesses are reporting a drop in activity.

The reading for eurozone manufacturing is expected to hold steady at 57.9, as the industrial sector shakes off supply chain disruptions.

Overall, the composite eurozone PMI, combining the two sectors, is expected to rise slightly to 49.1. This is down from the peak of 54.9 hit when an economic rebound started last July, but still above the record low of 13.6 at the peak of the initial coronavirus outbreak last April.

In the US headline manufacturing and services PMIs are forecast to edge up from already high levels as lockdown restrictions ease across some states.

The US personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, will reveal how much prices picked up in February, which, according to Bloomberg, is forecast to be a 1.5 per cent year-on-year rise for the core index that strips out volatile food and energy prices.

In January, the index rose by the same amount, still below the Fed’s long-term inflation target of 2 per cent.

Germany’s Ifo survey, out at the end of the week, will be watched to see if business expectations continue to rise or if some signs of weakness are starting to creep in over further lockdown fears.

The People’s Bank of China leads another busy week of central bank meetings, which also includes Mexico, South Africa and Switzerland.

Beijing is expected to stay on hold, not just at Monday’s meeting but throughout 2021, having earlier made clear that there won’t be any sharp changes to policy.

No rate changes are forecast for any of the other meetings, but investors will as usual be on the lookout for any signals on forward guidance.

Key data and events

MONDAY

China; Ghana, rate decisions

TUESDAY

UK, labour market (Nov-Jan, Feb)

Hungary, rate decision

WEDNESDAY

UK, CPI (Feb)

Eurozone; France; Germany; Japan; UK; US, PMI surveys (Mar, flash)

Thailand; Czech Republic, rate decisions

THURSDAY

US, initial jobless claims

US, real GDP (Q4)

Philippines; Switzerland; South Africa; Mexico, rate decisions

FRIDAY

Germany, Ifo expectations (Mar)

UK retail sales (Feb)

Colombia; Uruguay, rate decisions

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