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020 7017 5436 FIXED INCOME WEEK AHEAD 24-Feb-2017

- US President speaks to Congress � the Fed President talks on the economic outlook.

- Fed's target inflation measure released alongside income/spending.

-Eurozone CPI forecast to reach 1.9% in February.

The so-called 'Trump-Trade' aka the 'Reflation-Trade' will be the major focus when the new US President delivers a speech to Congress (Tuesday). Investors want more substance on fiscal policy, from both the infrastructure spending and tax cut sides (will we hear about the 'phenomenal' tax plan?). Retorts from Republicans will also be key. This determines the extent of tension between the Oval Office and the Republican Party which may hamper the legislative process, which clearly matters to the markets. As will any mention of plans for the Fed (independence/policy rules?). In this context Treasury Secretary Mnuchin's comments which may well conform to a more realistic view on policy timing and impact. This might suggest President Trump's speech won't contain any phenomenal plans. It might also suggest the President focuses on those policies he does more control over such as trade and immigration.

If the US economy truly is at or close to full-employment, theory tells us that expansive fiscal policy will be inflationary. The timing of its impact is another issue. 'Shovel-ready' projects of the scale to make a significant impact aren't always, well, shovel-ready in volume. Still, the possibility of new information allows the FOMC chief to respond when she speaks (Friday). FED FUNDS currently prices a circa 35% chance of a March hike. And, given the FOMC's reluctance to surprise the market her guidance will probably need to be extremely explicit to materially alter the odds to the 70%-plus required for the market to price in a March rate tightening.

The same day, Vice Chair Fischer (who is partial to a bit of quantitative tightening) orates as do Mester, Evans and Lacker who along with Kaplan (Wednesday) also have a chance to respond to President Trump's speech. Williams/Bullard the same day as the Commander-in-Chief won't have an opportunity. The Beige Book (Wednesday) isn't likely to add knowledge so far gleaned, although it has in the past noted building skills shortages in some regions.

Meanwhile, RIKSBANK minutes (Wednesday) should remain as non-committal as the recent meeting i.e. the Bank keeping the door open to further rate easing if the SEK appreciated too quickly. The NORGES BANK Governor Olsen orates (Thursday). Recent NOK appreciation and the impact of oil price dynamics will be of interest. Latter also pertains to the Norwegian Wealth Fund which releases its annual report (Tuesday) the same as the CB's Deputy Governor Matsen talks. From the SNB, Zurbruegg speaks. for more on this and all the central banks we cover note the IGM MONTHLY INTEREST RATE OUTLOOK will be published later today. If you would like a copy please email with your email address, name and institution.

In the UK, the House of Lords begins its line-by-line scrutiny of the Article 50 Bill (Monday-Wednesday) which keeps Sterling in focus.

On the data front, the US doesn't for once produce the Employment Report on the first Friday of the month. This leaves the January PCE and personal income/spending combination as the main highlight (Wednesday). The headline is forecast to register 2% y/y for the first time since April 2012 with the core edging up to 1.8% y/y. Income and spending are forecast to run along as decent, without being stellar rates. Faster inflation means slower real spending though, unless nominal spending speeds up too. Pricing pressures will be in focus with the February ISMs. The headline reads aren't projected to change much (manufacturing-Wednesday, services-Friday). That for manufacturing is already at a multi-year high and for services is challenging 60. The details in general are suggestive of decent economic growth. Regional activity indices for February come from the Dallas and Richmond Feds (Monday/Tuesday). The Chicago PMI (also Tuesday) is forecast to rebound.

January provisional durables (Monday) will receive attention. Core-shipments continue to contract on y/y basis. On the same temporal level, core-orders did move positive in December. The few times this has happened since mid-2014, there has been a quick and sharp reversal. The second Q4 GDP reading (Tuesday) is expected to see an upward revision from 1.9% q/q annualised to 2.1%

Inflation is also the EUROZONE highlight with the pan-EMU aggregate (Tuesday) expected at 1.9% y/y in February. Recall, the ECB remit is close to, but under 2% y/y. Despite this, expect the dovish tones to continue with complaints that underlying inflation (i.e. the core) is still weak (consensus is 0.9% y/y) even though PPI (for January � Wednesday) is seen at 3.2% y/y. This evidence corporate margins are taking the brunt of the inflationary impact. Individual country CPIs once more serve to show the divergence of pricing pressures, although after January's reads all EMU members are showing inflation. GERMANY (Wednesday) is seen breaking 2% with import prices for January (Thursday) expected at a whopping 5.5% y/y. SPAIN (Monday) is already at 3% y/y and FRANCE (Tuesday) breached 1% last time. ITALY (also Tuesday) has been a 'Big Four' laggard, but even here. 1.3% y/y is projected.

The pan-EU money supply numbers (Monday) shed some light on lending dynamics, which show signs of life, but that is about all. Still, the unemployment rate (January-Thursday) remains far too high for policymakers at 9.6%. This is clearly a political issue too, likely to be highlighted by Italy's January jobless rate (Thursday) which stood at 12% last time. Germany is the opposite (February � Wednesday) which is creating some upwards wage pressure.

How much of this will be reflected in the final PMIs (manufacturing � Wednesday, services � Friday) is of interest. The preliminary figures showed cost pressures rapidly increasing for manufacturers but weighed in services. Those for output also rising, but not as quickly.

Given concerns over slowing UK economic growth (investment was awful in Q4), February PMIs take on more than just BREXIT related viewing (manufacturing-Wednesday, construction-Thursday, services-Friday). The consensus is for nothing dramatic to happen with services and manufacturing remaining 55-plus. January money supply data will be scrutinised though as it contains unsecured credit numbers (Wednesday). Consumer credit growth grew at 10.6% y/y in December. A slowdown will dovetail with disappointing retail sales numbers for January. With this in minds Gfk consumer confidence for February (Monday) will be eyed. Pricing pressure on the high street get an airing with the BRC Shop Price index for February (Tuesday). This has been in deflation since May 2013. The nationwide HPI will draw the usual attention (TBC).

SWEDISH and SWISS Q4 GDP (Tuesday/Thursday), although dated, will still be a focal point. The former's economy is forecast to expand at a quicker rate q/q, but slower y/y. For Switzerland q/q expansion from Q3's stagnation is seen and 1.3% y/y. The start to Q1 will be evident in Sweden with an expected rebound in industrial production (Friday) in January. Retail sales for the same month are also expected to growth after December's contraction (Tuesday). Household lending whilst off its peak expansion was still at 7.2% y/y in December i.e. a stability concern for some. January's number is due (Monday). January PPI (Tuesday) is of great interest though and after the 6.5% y/y outturn in December, should reflect the relationship with CPI elsewhere in that corporate are absorbing most of the cost pressures. The February manufacturing PMI (Wednesday) will stack up against January's very healthy 62. The Swiss version is expected just over 55, but that for NORWAY continues to struggle in the low 50s.

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