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Treasurers weekly briefing #7

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  • by James Bevan
  • in James Bevan
  • — 13 Jan, 2014

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Today in the US, Atlanta Fed President Lockhart (non-voter, neutral) will speak on the economy at 12:40 p.m. and the Fed will be in the market buying about $1.2bn TIPS, about a $1.6bn reduction in 10y equivalent supply.

Over in Euroland, Italian November Industrial Production data are published today and we expect an increase of 0.5%mom, after a solid rebound of 0.5% mom in October. Also Greek and Portuguese inflation figures will be in focus. It will be interesting to see whether the deflation in these two countries will print new record highs (last month -2.9% in Greece and -0.2% in Portugal). Meanwhile, Italy will auction 2y, 7y and 15y bonds today for around €7bn in total. This is the first 7y auction, following the bond’s launch by syndication last year.

For the rest of the week, for the UK we’re due inflation data on Tuesday, with CPI expected to be reported as up 2.3% but it’s not entirely clear what the impact of energy bills will mean for the December number. Thus, energy companies have been altering price hike schedules after the government’s decision in the Autumn Statement to reduce green levies. We still anticipate that there will be a positive contribution from electricity and gas of around 20bp. More broadly, we will monitor core inflation pressures, and after reaching a trough in the middle of 2013, it appears that core inflation pressures could be increasing again. We expect the retail sales figure to increase by 0.6% mom in December, after +0.4% mom in November.

Also on the home front, the DMO will auction £2bn of 2044s on Thursday and the rapid decline in unemployment and strong surveys have made some commentators increasingly bullish on the prospects for the pound.

Over in Euroland we’re due IP data on Tuesday and the HICP numbers on Thursday. We expect November Industrial Production to increase strongly, up c1.0% on the month, supporting the view of GDP growth around 1.0%qoq annualized in Q4. However, on the back of the strong numbers in France, Spain, Germany, Portugal, the Netherlands, Finland, Slovenia and Ireland we see significant upside risks to 1.0%mom call. A weighted average of the IP data released so far, coupled with modest monthly growth in Italy, points to Euroland IP up 1.5% mom. If Italy were to perform as well as the other economies, Euroland IP could be as strong as 1.6/1.7% mom. Meanwhile Euroland inflation is likely to be unrevised from the flash estimate at 0.8%yoy in December, after 0.9% in November. The final report will be interesting in do far as it will shed light on the weakness in services inflation. Services inflation fell to 1% in December from 1.4% and Euroland core inflation fell to an all-time low, down to 0.7%. At the national level, inflation data will be released in France and Italy on Tuesday, in Spain on Wednesday and in Austria on Thursday.

On bond market supply, the Netherlands will sell 3y bonds on Tuesday. On Wednesday, Germany sells €1bn of the 23s linker and €5bn of a new Bobl. Spain will auction 3y bonds (17s) as well as two bonds from the 15y sector (26s and 27s) on Thursday, following their well-received auction of 5y and one of the 15-years (28s) last week..

For the US, we’re due Retail Sales data on Tuesday, the Beige Book on Wednesday, Inflation numbers on Thursday and IP on Friday. We expect headline retail sales rose 0.3% in December as vehicle sales declined following November’s high. The Fed’s Beige Book 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 five reports. Unadjusted gasoline prices rose slightly in December (4 cents nationwide) but with seasonal adjustment, gasoline could be up almost 4% on the month. That would add 0.2pp to headline on its own, which would raise the headline CPI forecast to 0.3%. We expect core at 0.1%. We estimate housing starts in December retraced about half their November gains, falling 10.6% to an annualized rate of 975K. Our preliminary IP estimate is 0.3%. We look for a preliminary Consumer Sentiment index reading of 83.0 in January, up from a final December level of 82.5.

Elsewhere, we’re due inflation number for Sweden on Tuesday and we expect CPI to fall 0.2% in December, down from 0.1% in November. Our view is slightly below consensus because of downside risks on electricity prices, which fell sharply in December and also contributed to surprisingly low inflation in Norway last week. If inflation surprises on the downside, further actions from the Riksbank could be expected.

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

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