Economic and market briefing: the week ahead
0Data this week are likely to keep concerns about Euroland growth front of mind, with Euroland Q3 GDP data due to be released on Thursday, preceded by reports from Germany, France Spain, Portugal and Greece over the course of the week. There is some scope for an upside surprise in these numbers relative to consensus expectations looking for an -0.1% contraction but even if that’s so, it looks likely that growth is again contracting in the fourth quarter. We are also due to receive the German ZEW survey on Tuesday which may provide some more guidance on the Q4 outlook. Taken as a piece, and with the dovish tone of the ECB press conference, there is an increased chances of another policy rate cut, although negative deposit rates are unlikely near term.
For the US, we should receive retail sales numbers on Wednesday, with economists looking for a 0.3%mom contraction in October at the headline level, and a 0.1%mom expansion in the core, down sharply from the 1.1%mom announced for both indicators in September. The FOMC will release the minutes from the latest meeting on the same day and we should look for any clarification on the FOMC’s 2013 asset purchase intentions and new innovations in the Fed’s communications policy. On Thursday, the US CPI data will be released and slow downs from 0.6%mom in September to 0.1%mom in October on both headline and core are expected. Also on Thursday, markets are looking for regional data for the month of November to slow down, with consensus set for weaker numbers on both Empire and Philadelphia Fed manufacturing surveys. Finally, on Friday there are the industrial production data, with 0.2%mom expected on consensus for October, as against 0.4%mom in September.
On the UK domestic front, the Bank of England Inflation Report is due out on Wednesday, and could leave the door open to more QE, if needed, with leading indicators still weak and risks from Euroland still high. Such an outcome could be potentially more dovish than expected. In its Report, the Bank may well cover the impact of the Funding for Lending scheme, revise near-term inflation forecasts higher but probably change little in the longer-term outlook. Meanwhile, the BoE announcement to transfer past and future coupon payments on its stock of gilt purchases undertaken in its QE programme back to the Treasury has several short- and medium-term implications for markets. In theory this action should have little or no impact on the eventual level of government debt but in practice by increasing the future costs to the sovereign of a QE exit strategy it raises the risks that such an exit strategy will be less effective or timely than it otherwise would be. Separately, we may get 2.4-2.5%yoy inflation reported on Tuesday, and jobless claims, due out Wednesday, are likely to be flat, following a 32,000 fall over the past three months.
Elsewhere on the inflation front, Polish CPI is expected to be reported this week at 3.6%yoy – still above the 3.5%yoy upper limit of the inflation toleration band but better than last month’s 3.8%. This could result in a slower easing cycle than currently priced in by the market. Meanwhile India’s WPI inflation data are also due out this week, and looks set to stay elevated at 7.8-7.9%, broadly unchanged from last month. The RBI has signalled that easing is likely early next year, with easing price pressures expected to allow the Bank to turn more accommodative.
As for China, with the improvement in macroeconomic data in October seemingly across the board, and following better-than-expected performance in September, there is support for the call that the economy has bottomed out and the risk of a ‘hard landing’ has abated. Private investment data are still missing and export visibility remains poor amidst the risk of the fiscal cliff in the US and the debt crisis in Europe, and this means that whilst the worst might be over, the trajectory from here is not clear.
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
