Introduction

Global inflation data were already showing pressure even before the easy comparisons with last year's lockdowns begin to give readings a substantial lift. And even if Covid news is proving uneven, employment data are proving solid as are confidence and especially manufacturing reports. Much of the positive outlook follows Washington's latest round of stimulus, one that has sandwiched February between two big payout months and which has apparently dislocated forecasters from their forecasts. First up, however, is the latest on inflation going into the big comparison spike.

The Global Economy

Inflation

Though Japanese inflation remained weak in February and well below the Bank of Japan's 2.0 percent target, there was improvement. Headline CPI was in 0.4 percent annual contraction in February after falling 0.6 percent in January. Core readings were also less weak: 2 tenths better at minus 0.4 percent when excluding fresh food and up 1 tenth at plus 0.2 percent when excluding both fresh food and energy which is the BoJ's preferred measure. Housing costs were up slightly in February, food prices were flat, and transportation and communication costs were down.

In contrast to Japan which is fighting the zero line, consumer prices in Canada are in positive ground. In fact, the 2 percent policy line (and perhaps even the 3 percent line) are increasingly in play. But unlike Japan, February's directional signal was more flat than up. Headline CPI did edge 1 tenth higher to an annual 1.1 percent but two core readings were less favorable: excluding food and energy, the CPI slowed 6 tenths to 0.8 percent while the Bank of Canada's core, which excludes a range of volatile categories, was unchanged at 1.7 percent. Gasoline price posted their third straight gain for a 12-month increase of 5.0 percent, the first increase in a year. But the primary contributor was homeowners' replacement cost, up 7.0 percent and reflecting price gains underway in housing. Pulling the CPI down were telephone services followed by mortgage interest costs. The split between goods and services was nearly even, up 1.0 percent and 1.2 percent respectively. Yet when the March report rolls out this time next month, readings are certain to shift higher and perhaps substantially so as the data will lap the easy comparisons of the first lockdown. Big jumps would not surprise the BoC which, as detailed at its recent meeting, expects the CPI to move temporarily toward the top of its 1 to 3 percent band in the next few months.

Foreshadowing what to expect are the sharp gains already underway at the base of the price chain. Producer prices everywhere are shooting higher including India's wholesale price index which was up 4.17 percent on the year in February, more than doubling January's 2.03 percent increase. The jump was broad-based across major categories including fuel, food and manufacturing, the latter up 5.81 percent versus January's 5.13 percent. India's CPI was posted in the prior week, at 5.03 percent in February versus 4.06 percent in January and well above the mid-point of the Reserve Bank of India's 2 to 6 percent target range.

Employment

Policy makers not only have inflation to contend with but also employment, the latter perhaps rising on a permanent not temporary basis. Australian employment gained momentum in February, up 88,700 as tracked by the blue column on the right of the graph. Full-time employment has fully recovered, up 5,500 from a year ago though part-time employment is still lower, down 7,300. The participation rate, the red line in the graph, has been strong, holding in February at a very favorable 66.1 percent. The outlook for March, as it is for so many economic reports, is also favorable, in this case reflecting Australia's ongoing easing in public health restrictions and internal border controls.

Sentiment

Sentiment readings, at least those assessing the outlook have been on the climb since early in the year when vaccines first rolled out. ZEW's March survey found financial analysts more optimistic than expected about both the current state of the German economy and the medium-term outlook. The current conditions index climbed a solid 6.2 points to minus 61.0 which is 32.5 points above May's record low. At the same time, economic sentiment (expectations) rose a further 5.4 points to 76.6; this was the fourth increase in a row and puts the index more than 50 points above its historic norm.

Consumer spending

The shifts underway in economic data are no more apparent than in the US where much of the latest data, at least those for February, are diving while initial data for March are surging. However much March sales will get a lift from $1,400 stimulus checks now in the mail, retail sales in February fell back a much steeper-than-expected 3 percent to an adjusted $561.7 billion as tracked in the graph. Sales at gasoline stations, inflated by higher prices, were the only category showing a gain in February with steep declines posted for general merchandise, department stores, nonstore retailers, motor vehicles, and also restaurants, the latter perhaps a surprise given easing restrictions that were already underway through much of the country. Yet further note that February's weakness is in comparison to January, a month inflated by its own round of stimulus checks.

Manufacturing

The week's most shocking result also comes from the US, and this on what to expect for March. The Philadelphia Fed's manufacturing index surged to 51.8, a level that more than doubled February's already strong reading and that indicates the bulk of March's sample (59 percent) reported month-over-month growth in general activity. This index was last this high in the early 1970s during the up-and-down monthly swings tied to on-and-off oil embargoes. New orders confirmed March's great strength for this sample, more than doubling to 50.9 with unfilled orders, employment, shipments, and the average workweek all swept higher. And price readings, which offer March indications for producer prices, likewise soared whether for costs or selling prices.

Yet this report was sampled before anybody received any of their March stimulus checks, implying that expectations of the stimulus -- together with the successful vaccine rollout and falling Covid cases -- were already having their own dramatic impact. Yet another possibility, at least to a degree, is that Philadelphia's report will prove an outlier. Certainly, Empire State from the New York Fed, also released during the week, showed no excesses in its report for March, only another strong month for manufacturing. Pending reports for March will be posted by the Richmond Fed, the Kansas City Fed, and also the Dallas Fed. If these results are more on Philadelphia's side than Empire State's side, then March could very well prove the strongest for the sector in 50 years.

Housing

One US sector that was clearly cooling going into March was residential construction, the first casualty of rising interest rates. Starts and permits both fell very steeply in February, down 10.3 percent and 10.8 percent on the month to lower-than-expected respective annual rates of 1.421 million and 1.682 million. Both single-family data, the heart of residential construction, and multi-family data posted similar declines. Compared to February last year and offering a definitive measure of pandemic effects, starts were down 9.3 percent in total while in contrast permits, not held back by physical restrictions or lack of available labor or materials, were up 17.0 percent despite February's setback. The latter is very telling, offering a sentiment barometer of sorts (at least among home builders) on the kind of acceleration to expect for the post-pandemic economy.

Markets: Down week on Covid and China; US 10Y yield climbs

Declines for growth stocks paced declines early in the week, especially in Asia amid continued concerns that China looks to rein in speculation in real estate and the financial markets. Risk-off trade then gave way on Wednesday after Jerome Powell repeated that the Federal Reserve expects pending pressure in annual inflation rates to reflect base effects, not a material rise in inflation or inflation expectations. Rising yields tripped a sell-off on Thursday for technology and growth shares while energy stocks sold off on falling oil prices. Worries about vaccine rollouts in Europe were a headwind for the markets through the week, with the UK becoming the latest to report related supply disruptions and delays. Rising US bond yields depressed Asian markets on Friday as did a bad start to US-China talks as diplomats appeared to openly argue with each other. News that France would reimpose lockdowns in several regions also hurt risk on Friday. Rising bond yields in the US are a constant and worrisome drumbeat as the 10-year yield climbed a further 11 basis to 1.73 percent; this yield over the last five weeks is up 59 basis points.

The bottom line

With one prominent exception, economic data have generally been on the rise and consistently beating forecaster expectations. Tied at 32 on Econoday's consensus divergence index are Italy and Canada; the former posting limited data in the week and holding onto prior gains and the latter benefitting from greater-than-expected growth in January manufacturing sales and less-than-expected contraction in January retail sales. UK is rock steady in the plus column at 14 with France swinging 18 points higher to plus 9 and getting a boost from an upward revision to February consumer prices that, however, still left annual growth at only 0.6 percent. Switzerland, at plus 8, has been tracking back and forth along the zero line to indicate that forecasters continue to correctly call the country's numbers. Germany follows at plus 4, getting a lift from the ZEW survey for an 11-point gain on the week. Now we end with the sudden tail-ender: the US is at minus 27 for a colossal 52 point loss reflecting the week's very poor run of February data that included not only retail sales and housing starts but also a sharp drop for industrial production. For the US, February was sandwiched between two stimulus months, and for forecasters, is proving a very hard month to call.

**Contributing to this article were Jeremy Hawkins in London, Brian Jackson in Sydney, and Mace News in New York

Week of March 22 to March 26 (all days local)

PMI flashes, offering anecdotal assessments of March activity, will be one of the week's focuses, all posted on Wednesday in this order for the majors: France, Germany, the UK, and the US. Definitive data from the US will include new home sales on Tuesday and durable goods orders on Wednesday, where moderation for both is the call, as well as goods trade and personal income & outlays both on Friday, the latter headlined by PCE prices where moderate results are also the call.

Another of the week's highlights will be a run of sentiment data from Europe beginning on Wednesday with the Eurozone's confidence flash will which offer clues on how Covid developments, or lack thereof, are affecting the zone's consumer. Germany data will be posted on Thursday with the GfK reading on the consumer and on Friday with Ifo's reading on what analysts see ahead. France's business climate indicator is out on Thursday with Italy's business and consumer confidence report on Friday.

Wednesday's first look at February consumer prices will be a highlight of the UK calendar that will also include the monthly labour market report on Tuesday and retail sales on Friday. Central bank meetings will be headlined by the Swiss National Bank announcement on Thursday; no action is the call for a country where Covid difficulties have not kept the economy from performing well. Note that US GDP on Thursday will be a revision.

UK Labour Market Report (Tue 06:00 GMT; Tue 02:00 EDT)

Consensus Forecast, ILO Unemployment Rate for January: 5.1%

Following mixed to positive results in the prior report, the ILO unemployment rate, in data for the three months to January, is expected to hold unchanged at 5.1 percent.

US New Home Sales for February (Tue 14:00 GMT; Tue 10:00 EDT)

Consensus Forecast, Annual Rate: 875,000

New home sales accelerated going into year-end but remained off prior highs. February's consensus is slowing to an 875,000 annual rate versus January's higher-than-expected 923,000.

UK CPI for February (Wed 07:00 GMT; Wed 03:00 EDT)

Consensus Forecast, Month over Month: 0.0%

Consensus Forecast, Year over Year: 0.7%

Consumer prices are seen unchanged on the month in February, with annual inflation also seen unchanged at January's plus 0.7 percent.

French PMI Composite Flash for March (Wed 08:15 GMT; Wed 09:15 CET; Wed 04:15 EDT)

Consensus Forecast, Manufacturing: 55.8

Consensus Forecast, Services: 45.5

The March flash consensus for manufacturing is 55.8 and for services 45.5 in what would extend February's solid expansion for manufacturing and deep contraction for services.

German PMI Composite Flash for March (Wed 08:30 GMT; Wed 09:30 CET; Wed 04:30 EDT)

Consensus Forecast, Manufacturing: 61.0

Consensus Forecast, Services: 46.5

Manufacturing has been expanding strongly in contrast to services which have been in significant contraction. Such are also the expectations for March's flash PMIs with manufacturing seen at 61.0 and at 46.5 for services.

UK PMI Composite Flash for March (Wed 09:30 GMT; Wed 05:30 EDT)

Consensus Forecast, Manufacturing: 55.2

Consensus Forecast, Services: 51.0

Services recovered in February to skirt the 50 line which is roughly March's expectation for slight improvement to 51.0. Manufacturing has been in solid mid-50s expansion where it is expected to stay at a consensus 55.2.

US Durable Goods Orders for February (Wed 12:30 GMT; Wed 08:30 EDT)

Consensus Forecast: Month over Month: 0.9%

Consensus Forecast: Ex-Transportation - M/M: 0.7%

Consensus Forecast: Core Capital Goods Orders - M/M: 0.6%

At a consensus increase of 0.9 percent, durable goods orders are expected to remain solid but slow in February from January's 3.4 percent aircraft-driven surge. Core capital goods have also been solid with February orders seen at plus 0.6 percent.

US PMI Composite Flash for March (Wed 13:45 GMT; Wed 09:45 EDT)

Consensus Forecast, Manufacturing:  58.9

Consensus Forecast, Services: 59.1

The manufacturing and services PMIs, both in the high 50s, held steady and unusually strong in February. Econoday's manufacturing consensus for the US March flash is 58.9 with the services consensus at 59.1.

Eurozone: EC Consumer Confidence Flash for March (Wed 15:00 GMT; Wed 16:00 CET; Wed 11:00 EDT)

Consensus Forecast: -14.7

Consumer confidence is not expected to improve in March with the consensus at minus 14.7 versus February's weaker-than-expected minus 14.8.

Germany: GfK Consumer Climate for April (Thu 06:00 GMT; Thu 08:00 CET; Thu 02:00 EDT)

Consensus Forecast: -11.4

After improving to a better-than-expected minus 12.9 in March, GfK's survey for April is expected to improve further to minus 11.4.

French Business Climate Indicator for March (Thu 07:45 GMT; Thu 08:45 CET; Thu 03:45 EDT)

Consensus Forecast, Manufacturing: 98

Manufacturing sentiment in March, at a consensus 98, is seen improving only slightly from February's lower-than-expected 97.

Swiss National Bank Monetary Policy Assessment (Thu 09:30 GMT; Thu 08:30 CET; Thu 04:30 EDT)

Consensus Forecast, Change: 0.0 basis points

Consensus Forecast, Level: -0.75%

The Swiss National Bank is expected to keep its key deposit rate at minus 0.75 percent. At its last meeting in December, the bank made no change in its policy rate but re-affirmed its commitment to "intervene more strongly" in the FX markets to hold down the Swiss franc.

US Initial Jobless Claims for the March 20 week (Thu 12:30 GMT; Thu 08:30 EDT)

Consensus Forecast: 725,000

Jobless claims for the March 20 week are expected to come in at 725,000 versus 770,000 in the March 13 week. Initial filings are roughly three times higher than before the pandemic.

UK Retail Sales for February (Fri 07:00 GMT; Fri 03:00 EDT)

Consensus Forecast - Month over Month: 2.3%

UK retail sales are expected to rise a monthly 2.3 percent in February following a much deeper-than-expected 8.2 percent collapse during the lockdown of January.

German Ifo Business Climate Indicator for March (Fri 09:00 GMT; Fri 10:00 CET; Fri 05:00 EDT)

Consensus Forecast: 93.0

The business climate indicator, at 92.4, beat expectations in February despite the government's decision to extend the national lockdown. March's consensus is 93.0.

Italian Business and Consumer Confidence for March (Fri 09:00 GMT; Fri 10:00 CET; Fri 05:00 EDT)

Consensus Forecast, Business Confidence: 98.5

Consensus Forecast, Manufacturing Confidence: 101.0

Consensus Forecast, Consumer Confidence: 101.5

Versus March's 93.2, business confidence is expected to rise sharply to 98.5 in a reading for April; manufacturing confidence is seen at 101.0 versus 99.0 with consumer confidence seen steady at 101.5 versus 101.4.

US International Trade in Goods (Advance) for February (Fri 12:30 GMT; Fri 08:30 EDT)

Consensus Forecast, Balance: -$86.6 billion

The US goods deficit (Census basis) is expected to widen to $86.6 billion in February versus $84.6 billion in January (revised from $83.7 billion).

US Personal Income for February  (Fri 12:30 GMT; Fri 08:30 EDT)

Consensus Forecast, Month over Month: -7.2%

US Consumer Spending

Consensus Forecast, Month over Month: -0.6%

US Core PCE Price Index

Consensus Forecast, Month over Month: 0.2%

Consensus Forecast, Year over Year: 1.5%

Personal income is expected to plunge a comparison-distorted 7.2 percent in February versus January's giant 10.0 percent surge tied to federal stimulus. Personal consumption expenditures also jumped in January, up 2.4 percent with minus 0.6 percent the consensus for February. The core PCE price index rose a stronger-than-expected 0.3 percent on the month in January with a more modest gain of 0.2 percent the expectation for February; this annual rate is seen unchanged at 1.5 percent.