Economic and market briefing: the week ahead
0This week we’re due the minutes of the Bank of England’s Monetary Policy Committee (MPC) meeting, which are likely to provide further insight into the MPC’s willingness to extend Quantitative Easing (QE). Market participants and commentators will be watching for any changes to the voting pattern and the assessment of the economy.
On the data front, we are due UK headline inflation, and this is likely to be reported as down to 2.1% year on year (yoy), which would be the lowest headline inflation rate since late 2009, and this would largely reflect base effects from energy price hikes last year. In addition, air fares are also expected to exert some downward pressure after unusually high levels in previous months.
On the jobs front, the September claimant count is expected to be flat following the 28,000 decline in July-August, which seems to have been driven at least partly by the Olympics.
This week’s US data is largely second tier, and are unlikely to alter significantly views on the state of the US economy. On Tuesday, we expect 0.5% month on month (mom) headline and 0.2%mom core on September CPI, in line with consensus and a 0.2%mom reading on September industrial production, well above last month’s -1.2%mom.
On Wednesday, we look for a 760K headline on September housing starts, above last month’s 750K and below 770K consensus.
On Thursday, consensus on the US October Philadelphia Fed manufacturing is for an improvement from -1.9 to 0.4. Finally, we see potential for a slight pullback from 4.82M to 4.75M in US Sep existing home sales, with consensus at 4.72M.
For Europe, this week, the focus will be on the Euroland leaders’ summit on Thursday and Friday. We expect the summit to yield very little in terms of policy decisions. The main topic of discussion is the interim report prepared by the European authorities to strengthen further the functioning of Euroland. Market-sensitive issues, such as the possibility for the ESM to recapitalize banks directly, will not be clarified. On the data front, markets expect a generally benign German Zew survey reading on Tuesday, with a softer headline and an improvement in economic sentiment from -18.2 to -14.9.
Canada September CPI on Friday is expected to remain subdued, with consensus calling for a 1.4%yoy core rate, down from 1.6% in August and a new 14-month low. The Bank of Canada’s Business Outlook survey will also be a focus, with markets looking for an update on capacity constraints and any further evidence of cooling in the housing market.
As for Latin America, the minutes from last week’s Brazil Copom meeting will be a focus on Thursday. The meeting yielded a 3-2 vote in favour of easing 25bp to 7.25%, against a split market consensus. We will be looking in the minutes for confirmation of the assessment that the Copom has now switched to a neutral stance, marking the end of the easing cycle.
Turning to Asia, we expect China’s GDP (on Thursday) to surprise to the downside, with growth likely to be reported as slowing to a new cycle low of 7.2%yoy in Q3 from 7.6%yoy in Q2, compared to a 7.4%yoy consensus. Industrial production should echo the same weakness, slowing to 8.8%yoy in September from 8.9%yoy in August. Meanwhile, last month’s close vote (3-2 to keep rate unchanged) has led some to anticipate the Bank of Thailand will cut rates at this meeting. However, given the governor’s concerns about strong credit growth, and signs of a modest rebound in global growth and export cycle, the central bank may well opt to leave rates on hold for now.
Singapore exports are likely to have recovered in September, in line with what we have observed so far in the region. Non-oil domestic exports could be up 0.5%yoy, following a sharp 10.6%yoy fall in August. The consensus looks for 1.2%yoy. The Monetary Authority (MAS) maintains a hawkish bias against inflation.
James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccla
