Weekly Economic Data Preview

A Busy Week, but Little Top-Tier Data, as Markets Wind Down for US Thanksgiving

This week is relatively light of top-tier data, with the calendar instead dominated by US government supply and the upcoming Thanksgiving break. The US Treasury is scheduled to auction $118bn of Treasury notes as it continues to grapple with the financing requirement of a massive Federal deficit. The week sees the release of numerous confidence and activity indicators, including the second estimates of Q3 GDP in the UK and US. Given recent data, we expect US GDP to be revised down substantially. By contrast, a modest upward revision to Q3 GDP is expected in the UK. Amongst other developments, the Fed is due to release the minutes of its November FOMC policy meeting, while in the UK, various MPC members, including Mervyn King, will testify before the Treasury Select Committee (TSC) on the latest Inflation Report. In the Euro area, the calendar is dominated by confidence data, including the latest PMI, European Commission and German IFO surveys.

After the recently published upward revision to September retail sales (from flat to +0.4% on the month), we expect the second estimate of UK Q3 GDP to be revised up marginally, from a preliminary reported drop of 0.4%q/q to -0.3%q/q. There is a risk of a stronger upward revision either in this GDP release, or those that follow, as the fall in output reported by the ONS was slightly at odds with the improvements registered in third quarter PMI surveys. This week's report will contain the first estimates of the expenditure breakdown of Q3 growth. We expect a stronger contribution from inventories and a rise in government spending to have been overshadowed by a continued fall in both consumer spending and business investment. The market will have sight of the business investment data just prior to the gdp release. Given the desire of corporates to repair balance sheets and the ongoing weakness in demand, we expect business investment to have declined a further 6% on the quarter in Q3, taking the annual decline to 24%. The MPC's assessment of the outlook for UK growth and inflation will come under heavy scrutiny when MPC members King, Tucker, Fisher, Sentance and Posen appear before the TSC on Tuesday. They are likely to be closely questioned on the MPC's relatively optimistic GDP forecasts outlined in the latest Inflation Report, the differences of opinion that appear to be emerging on the Committee, and their views on the need for further policy stimulus. Also due this week are the CBI's latest distributive trades survey and the Nationwide house price release.

In the US, tradiing conditions are likely to be thin, as market participants wind down for Thanksgiving on Thursday. Thin trading conditions will do little to assist the Treasury as it seeks to sell $118bn of Treasury notes, split between 2-yr, 5-yr and 7-yr maturities. Its fairly busy on the data front, with GDP, consumer confidence, home sales, orders and house price data all due. We expect Q3 gdp to be revised down from an annualised 3.5% to 2.8%, predominantly due to weaker inventories ana a wider trade deficit. The other more timely reports, however, are likely to be mostly stronger, consistent with continued GDP growth in the fourth quarter.

Confidence surveys will take centre stage in the Euro area this week. Chief amongst these are the latest PMI and German IFO business climate reports. We expect both the manufacturing and services sector PMIs for the Euro area to have posted further small gains above the key 50 level. Similarly, the German IFO business climate survey is forecast to have risen modestly, building on the recovery that started in March. While the confidence data are likely to point to a further expansion in Euro area GDP in the fourth quarter, the strength of the euro continues to cloud the outlook for 2010. Much will also depend on how quickly credit creation is restored. In this regard, the coming week's Euro area money supply figures are unlikely to be encouraging.

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