Treasurers weekly briefing #4
0
In the UK, lead indicators (PMIs) will be in focus. They are currently at historically high levels, and are running well above the run rate implied by consensus estimates of GDP growth. However, strong new orders figures in the October numbers suggest that we can expect a modest rise on the month. The Bank of England policy meeting is on Thursday; we expect no change in policy. Meanwhile the Chancellor’s Autumn Statement will attract attention. We expect a marked decline in borrowing forecasts. In particular, we believe that PSNB-ex could decline by about £10bn in 2013-14 and £16bn in 2014-15 compared to previous OBR projections. It remains to be seen whether some of this improvement will be used to loosen fiscal policy. In addition, for inflation markets any reduction in green levies could be important, as this could feed into lower energy and gas price increases this year. As an outside bet, the Chancellor may also be minded to try to cool the London residential property market, perhaps introducing CGT on foreign owned housing and maybe raising again the stamp duty rate on high priced houses. We have written more on the Autumn Statement – if you want to read our musings on what might be involved, please feel free to e-mail me at james.bevan@ccla.co.uk
Elsewhere in Europe the ECB policy decision and follow-up press conference (which will include economic projections for 2014 and 2015) will be closely watched. Having cut the main refinancing operations rate to 0.25% in November, we do not expect a further change in policy this month. However, the projections for 2014 and 2015 will give a clearer focus on the ECB’s expectations for inflation, the economic variable which surprised to the downside in November, and is broadly credited with causing the surprise ECB cut. We expect the inflation forecasts to show inflation at 1.1-1.2% in 2014 (September ECB projection: 1.3%) and at 1.3-1.4% in 2015. If there is further weakness in the inflation numbers, the chances of more easing measures will rise.
In terms of data, in Euroland, the main focus will be on German industrial orders, which we expect grew only modestly in October, mainly driven by domestic orders, although strong PMIs and Ifo numbers in November suggest that we should see further strength into year-end. Also, the final European PMIs will be of interest, and there might be some weakness in the periphery.
Next week in the US, we’re due the monthly payrolls data and with employment indicators mixed, we expect a moderate slowdown, with November non-farm payrolls at 180,000, while the unemployment rate should fall slightly to 7.2%. Weaker regional PMI reports point to a decline in the national ISM manufacturing index and we expect November ISM manufacturing at 55.0, a modest downtick from October’s 56.4. Additionally, we expect an upward revision to 3Q GDP growth (to 3.3% qoq annualized from 2.8%) mainly due to higher inventories.
Turning to Asia Pacific, in Japan, the July-September Financial Statements Statistics of Corporations by Industry (the “MoF corporate survey”) will be released. We expect that capital spending (excluding software, all firms) will show an acceleration of year on year growth rate to about 2.0% from 1.4% in the previous quarter and for Australia, we expect Q3 GDP to be announced as 0.6% on the quarter and 2.4% on the year. In China, we expect the official NBS Manufacturing PMI to fall to 51.0 in November from 51.4. Outside of China, data from Indonesia will take centre stage in Non-Japan Asia. We expect November inflation to move higher, but not worryingly so, while the trade deficit should hit $2bn in October. The latter is unlikely to do much to help the ailing rupiah.
As for central bank activity, we expect no rate changes from those central banks meeting, including the Bank of England, the ECB, Norway, Mexico, Australia and Canada, and next week we will receive the Fed’s next Beige Book, which may describe “moderate” growth in the US. If so, this would be an upgrade from the “modest-to-moderate” language used in the crucial lead sentence of each of the previous four reports and would be consistent with the chance that the Fed begins asset tapering before next March, which is the current consensus view.
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
