U.S. Economy in Spotlight Amid Optimism on More Aid: Eco Week

(Bloomberg) -- All eyes are on U.S. data this week after Friday’s jobs report showed a drop in payrolls for the first time since April, highlighting how surging coronavirus infections are taking a greater toll on parts of the world’s biggest economy.

Rising fuel costs led to a slightly firmer, yet still subdued, pace of inflation last month, while a resurgent coronavirus stifled retail sales, economists project a pair of U.S. reports to show.

The government’s consumer price index is garnering more scrutiny as investors and economists debate the possibility of accelerating inflation in coming months. Extremely easy monetary policy, trillions of dollars in fiscal relief that may keep expanding under the incoming Biden administration, and higher materials costs are providing the basis for increased price pressures.

Federal Reserve Chair Jerome Powell, who speaks Thursday, is in the spotlight as optimism over additional pandemic aid lifts hopes for the economy later this year. Officials have signaled interest rates will stay near zero through at least 2023 and vowed to keep buying bonds at a pace of $120 billion a month until “substantial further progress” is seen toward their employment and inflation goals.

Exactly how long that takes is not spelled out, though a few policy makers, including Chicago Fed President Charles Evans and Atlanta’s Raphael Bostic, said last week they might support reducing the pace of buying by year-end if the economy bounces back strongly enough. Still, Fed Vice Chair Richard Clarida said Friday he doesn’t expect the central bank to begin tapering its asset purchases in 2021.

A government report at the end of the week is expected to show increased Covid-19 infection rates continued to take a bite out of retail sales. Economist project a third straight decline in purchases at retailers excluding motor vehicle dealers.

What Bloomberg Economics Says...

“Economic slack in general and labor slack in particular will stifle any sustained pickup in price pressures. This will yield the Fed an extremely long runway before officials will need to legitimately contemplate reducing accommodation.”

--Carl Riccadonna, Andrew Husby and Eliza Winger

For more, read Bloomberg Economics’ full Week Ahead for the U.S.

Elsewhere in the world economy, China data are likely to show the recovery extended into the year-end, and central banks in South Korea, Poland and Peru set rates.

Click here for what happened last week and below is our wrap of what is coming up in the global economy.

Europe, Middle East, Africa

Germany will publish its first reading for 2020 GDP on Thursday, with analysts predicting Europe’s biggest economy contracted 5.2%, the most since the 2009 financial crisis. That report may also provide the first official indication from any Group of Seven country on its growth performance during the fourth quarter. Further hard data from around the euro area include a November reading for industrial production in the region.

Christine Lagarde’s first public appearances of the year may provide clues for investors on the implications for monetary policy, as the European Central Bank president participates in events on Monday and Wednesday. Highlights of officials’ deliberations at their last decision on Dec. 10 will be released on Thursday, when the institution also begins a quiet period before its forthcoming meeting the following week.

In the U.K., GDP data for November will give an initial glimpse of the economic damage inflicted by a renewed lockdown that imposed that month to contain the coronavirus. Economists predict a sharp drop of 4.8%, the first contraction in seven months.

The only two central banks in the region due to take monetary decisions this week are Poland and Serbia. Economists predict both institutions will keep rates on hold.

Israel is expected to report December data that will show a ninth straight month of declining consumer prices, highlighting the Bank of Israel’s struggle to curb the appreciation of the shekel. Saudi Arabia and Turkey report unemployment figures.

• For more, read Bloomberg Economics’ full Week Ahead for EMEA

Asia

China’s consumer prices are expected to have flat lined in December while factory deflation moderated and exports continued to power the nation’s recovery, data Monday and Thursday are set to show.

India’s consumer price index figures due Tuesday are expected to show inflation moderating back to within the Reserve Bank of India’s target range of 2% to 6%.

South Korean jobs data out Wednesday will offer the latest snapshot of a labor market showing a split between a slow recovery of employment in the service sector and worsening falls in factories. Later in the week the Bank of Korea is expected to keep policy on hold. Governor Lee Ju-Yeol, who has flagged concern over the uneven nature of the recovery, will give comments after the decision.

Bank of Japan Governor Haruhiko Kuroda speaks on Thursday in his first scheduled appearance since the start of a renewed state of emergency in Tokyo.

• For more, read Bloomberg Economics’ full Week Ahead for Asia

Latin America

Since the pandemic struck last year, only two countries in the region have posted year-on-year growth in industrial output -- Brazil and Chile. Data out Monday is set to reveal that Mexico’s not quite there yet.

After the shock of 2020, one sign of a world returning to something akin to normal is the fact that inflation once again matters in Brazil. December figures posted Tuesday will show that the annual rate rose for a seventh month and is now well above the 3.75% target.

Consumer price data out Thursday for Argentina will be near lows for the year, but most observers see it accelerating in 2021.

Later in the day, Peru’s central bank will all but certainly keep its key rate unchanged at a record-low 0.25% for a ninth month.

A report Friday in Brazil will show retail sales extending an extraordinary run, fueled by government cash handouts and cheap credit, likely posting a sixth consecutive year-on-year rise.

• For more, read Bloomberg Economics’ full Week Ahead for Latin America

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