Weekly Economic Data Preview
A Further Split on the MPC?
Key CPI, retail sales and public sector finance data are due in the UK, along with the most important release of the week - the minutes of the August MPC policy meeting (Wednesday). The minutes take on greater importance given the cautious note struck by the Bank of England in last week's Inflation Report. The BoE revised down its projection for GDP growth in 2011. Moreover, despite revising up its short-term inflation outlook, it stuck with its view that annual CPI would fall well below the government's 2% target over the medium term. The minutes will show the importance the Committee now attaches to the arguments surrounding the UK policy debate. While one member - Andrew Sentance - is likely to have argued again for a modest tightening, the tone of the Inflation Report suggests other members still need a lot of convincing. Overall, we expect the most likely outcome of the policy vote was 8-1 in favour of no change. Given the Bank's latest forecasts, however, we would not be surprised if there was a three-way split, with one or two members voting in favour of a resumption of QE. The minutes are released after the CPI figures (Tuesday), but before the public finance data and retail sales figures. We expect the annual CPI to have edged slightly lower, from 3.2% to 3.1% in July. The public finances should also show an improvement, aided by stronger growth and the rise in corporate profits (July is a big month for corporate tax receipts). By contrast, we believe there is a risk of a markedly weaker retail sales outturn - our forecast is for a broadly flat reading last month. Overall, we expect this week's data to paint a picture of an economy slowing in Q3.
After the recent rebound in euro-zone Q2 GDP, forthcoming data will be watched closely to see if there is a continuation of the recent run of firmer Q3 sentiment surveys. This week's key economic data release will be August's German ZEW report, where we look for sentiment to register only a modest improvement to 22.0, from 21.2 previously. A better tone to equity markets at the start of the month has given way to weakness based on underlying fears of a 'double dip' in activity. Also published this week is the final estimate of euro-zone CPI, where we anticipate an unchanged annual rate of 1.7% in July.
Following last week's Fed decision to pursue an easier monetary policy stance by re-investing the proceeds from agency debt and MBS into Treasuries, this week's regular US economic data calendar is a busy one. With July non-payrolls figures now behind us, attention turns to underlying conditions in the housing market after the recent expiry of the homebuyers' tax credit. Housing starts and building permits data are due, where our forecasts stand at 570K and 580K, respectively. Meanwhile, July industrial production figures are published on Tuesday, which will provide some idea of an entry point for Q3 GDP. In terms of forward-looking business surveys, this week is also notable for the release of August's Philadelphia and Empire manufacturing surveys.
This week Australian wage data will provide another piece of information for the RBA about the market conditions. We expect the recovery in private sector wages that commenced in Q1 to have continued in Q2 and with solid public sector pay growth, the wage price index is forecast to be 3.2% higher than a year ago.
Elsewhere, the Mexican economy is forecast to have expanded by 7.4% year-on-year in Q2, up from 4.3% in the first quarter. Despite this solid result, we expect Mexico's central bank to keep its benchmark interest rate unchanged at 4.5% reflecting concerns over the outlook for the US economy (Mexico's largest trading partner).
Full Report in PDF |
