Economic Outlook – 7 February 2016


It was another tough week in financial markets. While the US economy created 151k jobs in January and the unemployment rate fell to 4.9% (from 5.0%), the economic data did little to alleviate fears over the US.economy’s susceptibility to weak global growth and the strong dollar.

Financial conditions have certainly tightened over the start of this year, as recognised by New York Federal Reserve President William Dudley in an interview this week.

The higher dollar and increased risk aversion in financial markets will make it more difficult for the Fed to achieve its inflation and growth projections and lower the probability of a March rate hike. Fed speeches are set to attract a lot of attention. In particular, Fed Chair Janet Yellen’s testimonies on the Fed’s semi-annual Monetary Policy Report to congress, including Q&A sessions, are most important, as this is the first time Yellen speaks since the initial lift-off in December. The FOMC statement from the January meeting was relatively dovish without being very concrete.

The most important release is data for retail sales in January. The December figures were weak even taking into account that they are in current prices and analysts are looking for clues about whether consumption growth has slowed and keep an eye on the preliminary University of Michigan consumer confidence survey for February.


In the euro area, the first release is the Sentix investor confidence for February on Monday. The expectation is for the figure to follow the direction from January and decrease once again due to the continued global market uncertainty. If this uncertainty persists, it could end up being a drag on economic growth in 2016.

Data on German industrial production for December is also out this week and expected to increase slightly on the back of the pickup in new orders. Several key economic variables indicate a solid domestic demand, which would be supportive for industrial production. Data on euro area industrial production for December is also due to be released.

The European Council President unveiled his proposals for a deal between the UK and the EU. This is the basis for additional negotiations, and was relatively well received. The four areas in which the UK was demanding improvements are covered.


The main focus in the British press is immigration, and more precisely the question of benefits received by the newly arrived in the UK. Were the mid-February EU Summit to end up with a deal, a date for the referendum could be announced early in March.

On the economic front, the most important releases are industrial and manufacturing production, on Wednesday, and construction output, on Friday, in December. All three releases will provide more information how the UK economy performed in Q4.


China is due to release FX reserves, and a decline of more than USD 100 billion is expected, reflecting substantial intervention.

Pressure on the CNY picked up significantly in January and it is likely this required a lot of selling of reserves to buy CNY and CNH. Intervention has probably calmed down in the second half of January as a drain of liquidity in the offshore market (CNH) pushed up money-market rates and led to a halt in the depreciation.


Sources: Danske Bank, TD Economics, BNP Paribas.