Weekly Economic Data Preview
Busy Data Calendar to Confirm or Refute Continuing Financial Market Optimism
A sense of cautious optimism prevails in financial markets. And the week ahead is rich in economic data that will provide further clues on the pace of improvement in global economic conditions. Following September's disappointing US non-farm payrolls and ISM manufacturing data, financial markets are likely to use this week's releases to judge whether confidence has risen too far, too quickly. The latest monetary policy decision from the Bank of Japan is also due, where we look for the key overnight call rate to remain at 0.1%.
Sterling's recent weakness has prompted concerns that despite the deeper downturn in the UK economy compared with various other countries, UK CPI may turn out to be relatively 'sticky'. However, from a rate of 1.6% in the year to August, we look for an outturn of 0.9% in September, as last year's energy-driven CPI increase falls from the annual comparison. Latest labour market data are also released this week, where we anticipate a 25k rise in claimant count unemployment, together with a further deceleration in pay growth. Average earnings growth has been erratic since the end of last year, when the three-month annual growth rate stood at 3.0%. This mainly reflected negative 'wage drift' (e.g. from lower bonuses). But the consistent theme has been an excess supply of labour, and is likely to persist for some time, even as the economy enters a recovery phase. We look for average earnings to register growth of just 1.5% in August, versus 1.7% in July. Arguably most worrying for the UK economy is that bank credit provision to both households and firms remains constrained. The Bank of England's recent credit conditions survey, for example, revealed a worsening in the availability of secured credit to households during Q3. This appears to contrast with an expected further improvement in the RICS house price balance, scheduled for release on Tuesday. A lack of housing supply continues to be the most widely-cited explanation for the recent pick-up in house price indices.
As in the UK, this week sees a wave of important US economic data and events. Among others, these include the minutes of the 23 September FOMC meeting, retail sales and CPI. The statement accompanying September's policy decision noted that "economic activity has picked up following its severe downturn". This compared with the phrase "activity is levelling out" in August's assessment. But the policy 'punch-line' of "exceptionally low levels of the federal funds rate for an extended period" was included in both statements. So the FOMC minutes will shed further light on the degree of Fed confidence in the US recovery. Meanwhile, following a robust outturn in August, retail sales could potentially deteriorate in September, reflecting the expiry of the so-called 'cash-for-clunkers' scheme. However, such an outturn is not clear-cut. Consumer confidence in September on the University of Michigan measure improved to its highest level since January 2008. Preliminary October figures for the Michigan survey are published on Friday, with our forecast at 73.5. CPI data are published on Thursday where we look for a reading of -1.4% in the year to September, versus -1.5% previously. On the "core" measure, we see an outturn of 1.4%, reflecting continuing spare capacity in the US.
Compared with the US and UK, the euro-zone economic data calendar is limited this week, with October's German ZEW survey the main highlight. This survey - which gauges sentiment among financial market participants - has seen almost uninterrupted improvement, not just since the upswing in stocks beginning in March, but since the government re-capitalisation of banks announced in the wake of the Lehman Brothers' collapse. Going forward, the short-term outlook for ZEW economic sentiment hinges crucially on the ebb and flow of stock markets as the global recovery story unfolds. Our ZEW forecast stands at 58.5. Finally, Wednesday sees the release of euro area industrial production data for August, where a significant month-on-month rebound seems possible following recently-released data from Germany (+1.7% m/m), France (+1.8%) and in particular, Italy (+7.0%).
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