FOMC statement is unlikely to contain any surprises - BBH

Analysts at Brown Brother Harriman noted that the FOMC statement is unlikely to contain any surprises. Its economic assessment may be adjusted slightly to reflect the recent data. Market-based measures of inflation expectations such as the breakevens have moved higher, but remain modest (~2% for the five and 10-year breakevens). The economy is proceeding as officials expected. Specifics about fiscal policy are still not known, but this is unlikely to be featured in the FOMC statement. At the same time, the statement will offer no clues into the next meeting in the middle of March, which coincides with around when the debt ceiling is expected to be reached.

Key Quotes

"Sterling is the strongest major currency against the dollar today, gaining about 0.3% to a little above $1.26. It bottomed yesterday near $1.24. Last week's high was near $1.2675.  The market is expecting a more upbeat though neutral BOE tomorrow. The intraday technicals warn that a move much beyond last week's high may be difficult if such an advance materializes, there is scope for as much as another cent."

"The US has a full calendar today that could encourage investors to focus again on the underlying economy rather than political rhetoric. The US reports the January manufacturing ISM and auto sales, but the main features are the ADP jobs estimate and the FOMC meeting. While there is not always a good fit month-to-month between the ADP and the non-farm payrolls, the general trend tracks fairly well, which is no coincidence. It is designed to do so, and is adjusted periodically to ensure it."

"The Bloomberg median is for a 168k increase in private sector employment after 153k in December. The news wire survey found a median expectation for a 179k increase in private sector employment in December after 144k increase in December. The PMI is expected to be solid, while auto sales are expected to slow sequentially but remain at historically high levels."

"Earlier today, China, EMU and the UK reported January PMI figures. China's official manufacturing PMI slipped to 51.3 from 51.4 in December. Some expected a larger pullback. The non-manufacturing PMI edged higher to 54.6 from 54.5. Caixin reports its manufacturing PMI Friday, which is expected to tick lower to 51.8 vs. 51.9 in December. Press reports that the PBOC asked banks to limit loan activity in Q1 is negative for the economic outlook. If the reports are true, we would expect the economic numbers to soften a bit going forward."

All Eyes on the Fed

"The eurozone manufacturing PMI increased to 55.2 from 55.1 in the flash estimate and 54.9 in December. In Q4 it averaged 54.0. The 2016 average was 52.5 compared with 52.2 in 2015. The improvement is due to France and Spain. France's PMI ticked up to 53.6 from 53.4 in the flash. Spain's came in at 55.6, up from 55.3.  Many expected it to slip to 55.0. Germany's 56.5 flash was trimmed to 56.4. It was 55.6 in December. Italy was an outright disappointment. Its manufacturing PMI slipped to 53.0 from 53.2. It had been expected to firm. The UK's manufacturing PMI eased to 55.9 from 56.1, as expected."

"Korea December IP and January trade came in stronger than expected. IP rose 4.3% y/y vs. an upwardly revised 5.3% in November, while exports and imports rose 11.2% y/y and 18.6% y/y, respectively. January CPI will be reported Thursday, which is expected to rise 1.5% y/y vs. 1.3% in December. If so, this would be the highest since and closer to the 2% target. Given this backdrop, the BOK is likely to retain a hawkish bias and start hiking in 2017. Next policy meeting is February 23, no change is expected then."  

"Thailand January CPI rose 1.55% y/y vs. 1.5% consensus and 1.1% in December. This was the highest rate since September 2014 and moves further within the 1-4% target range. Rising price pressures should keep the BOT in hawkish mode this year, though no move is expected at the next policy meeting February 8."

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