The Week Ahead: April 17-23, 2017

Congress on recess | Travels abroad | North Korea

The House and Senate remain on their Easter/Passover break for another week as the attention turns to outside Washington with several Trump administration trips abroad. Geopolitical hotspot North Korea also is a focus with a failed holiday weekend missile attempt by the country. Meanwhile, the IMF and World Bank hold their spring meetings in Washington.

While the House and Senate are on recess, budget work continues. Details are being worked out for a way to keep the government operating beyond April 28 when the current funding mechanism expires. Staff work continues before lawmakers return.

The White House could also figure into the news flow, particularly if there are any additional position shifts by President Trump or if there are any additional US military moves that heighten already somewhat nervous markets. The process of filling administration posts will also continue, with attention on any new nominees that are made.

North Korea fired an unidentified ballistic missile on Sunday morning that exploded almost immediately after launch, defying warnings from the Trump administration to avoid any further provocations. Hours after the test, Vice President Mike Pence arrived in Osan, south of Seoul, for a previously planned trip to Asia. US and South Korean military officials are conducting further analysis of the launch, which took place at Sinpo on North Korea’s eastern coastline. “The president and his military team are aware of North Korea’s most recent unsuccessful missile launch,” US Defense Secretary James Mattis said in a statement. “The president has no further comment.”

Security and trade issues key themes for VP Pence trip to Asia. The top issue of Vice President Mike Pence’s trip— beginning Sunday in South Korea, then continuing through Japan, Indonesia, and Australia — will be that “we are fully committed to our security alliances, especially in the face of our evolving security challenges,” a senior administration official said. While the vice president will also carry Trump’s message of “how to level the playing field” in trade and hold “listening sessions” with business leaders, Pence is also focused on trying to contain the fallout from the president’s withdrawal from the Trans-Pacific Partnership (TPP), a 12-nation trade pact negotiated by former President Barack Obama that was seen in Asia as a symbol of America’s commitment to the region.

Another “purpose of the visit,” said the Trump administration official, is to show that “withdrawing from TPP should not be seen as retreat from the region… On the contrary, that our economic presence…continues to grow.” On Tuesday in Tokyo, Pence will begin a new “economic dialogue” that was first discussed when Japanese Prime Minister Shinzo Abe visited President Donald Trump in February. During his two-day summit with Abe, Trump agreed to let economic issues be hashed out between Pence and the number-two person in Japan’s government, Deputy Prime Minister and Finance Minister Taro Aso.

Japan’s current account surplus, the broadest measure of trade, rose 18 percent to about $25 billion in February, and the US accounts for the biggest portion of Japan’s trade surplus. American cars have less than 1 percent of the Japanese market, and Tokyo maintains high tariffs on pork, beef and some other farm goods. Former Japanese officials say, if asked, Tokyo would be ready to recreate the concessions they had offered in TPP — particularly a cut of agricultural tariffs — in a bilateral agreement with the US. But they say it would resist going farther, in a nod to domestic agricultural interests.

The International Monetary Fund (IMF) and the World Bank will hold their spring meetings in Washington, when both organizations are expected to stress the importance of combating protectionism and ensuring the benefits of growth are more evenly distributed. Jean-Claude Juncker, president of the European Commission, is due to attend the meetings, which start a day after G20 finance ministers and central bank governors also meet in the US capital. Fears that US President Donald Trump is threatening a new era of protectionism have prompted a joint defense of trade from the IMF, the World Bank and the World Trade Organization.

Another relatively light week ahead for economic updates with data due on housing and manufacturing. The week starts with the Empire State Manufacturing Survey and Housing Market Index on Monday with Housing Starts and Industrial Production on Tuesday. Due on Thursday are the Weekly Jobless Claims, Philadelphia Fed Business Outlook Survey and Leading Indicators followed by the PMI Composite Flash and Existing Home Sales updates on Friday. The continued focus now is not only how the updates compare to expectations but how they fit with the prospects for rate increases and now the potential for the Fed to start trimming their balance sheet or at least stop their reinvestment policy. But the geopolitical situation remains a key factor for financial markets ahead.

One highlight on the Fed side will be the Beige Book report that will arrive Wednesday – two weeks before the next Federal Open Market Committee (FOMC) meeting. The anecdotal recap of the US economy by Federal Reserve district will be watched for signals on inflation, wage pressures, the jobs market and consumer activity ahead of the May 2-3 meeting. There are also a few Fed speakers on the docket, including KC Fed’s George (2019 voter) on Tuesday with Boston Fed’s Rosengren (2019 voter) on the schedule Wednesday. Thursday’s appearance by Fed Gov. Powell could be notable since he has not been heard from since the FOMC meeting and Minneapolis Fed’s Kashkari (current voter) wraps up the week on Friday. The attention will continue on views by Fed officials on the massive $4.5 trillion balance sheet as the rate-rise prospects and stances by various Fed officials are relatively well known.

Weather is in focus for agriculture markets as rainy conditions are forecast over areas of the Corn Belt, potentially slowing planting activity. But those rains are also expected for Plains HRW wheat areas and that could also ease shrinking drought concerns in the region. That also means traders will see how much progress on corn planting was made in today’s Crop Progress update from USDA and whether winter wheat ratings improve once again. USDA also releases its Livestock, Dairy & Poultry Outlook report on Monday. Demand remains a factor, keeping Monday’s Grain Inspections and Thursday’s Weekly Export Sales updates attention points. The week closes out with the monthly Cattle on Feed report Friday afternoon. Foreign weather also will be a potential factor, as open skies were expected in areas of Argentina, potentially allowing saturated areas to dry some.