Weekly Economic Data Preview
Monetary Policy 'Exit Strategies' to Dominate in 2010...
Monetary policy 'exit strategies' are almost certain to be one of the dominant themes in 2010. Among the major developed country central banks, the ECB and Federal Reserve have already embarked on such strategies, although the latter continues to mull whether additional purchases of agency debt and MBS will be required. Meanwhile, the Bank of England - which announces its latest monetary policy decision on 7 January - seems the least likely to implement an exit strategy at the present time. Meanwhile, the next three weeks features a variety of economic releases, outlined below.
In the UK, the minutes of December's MPC meeting are published on Wednesday, where the Bank of England left Bank Rate on hold at 0.5% and continued with its £200bn programme of asset purchases. As an alternative to these purchases, November's minutes introduced the possibility of a reduction in the rate payable on commercial bank reserves, in order to lower market interest rates. This topic was likely to have been discussed again at December's meeting, where we look for unanimous decisions on both Bank Rate and the Asset Purchase Facility. We also expect no change in this monetary stance at the Bank's next policy meeting on 7 January. In terms of economic data, final Q3 GDP figures are due on Tuesday where we anticipate a 0.1% quarter-on-quarter decline in GDP alongside a narrowing in the current account deficit, to £8.2bn. We expect the 0.2pp upward revision to gdp to stem from recently-released construction and business investment data. Early in 2010, November consumer credit and mortgage approvals data are published, where we see outturns of -£0.4bn and 50k, respectively. Finally, we expect December's PMI surveys to show a further expansion in activity, albeit at a modestly weaker pace (manufacturing: 51.0 and services: 56.5).
The next FOMC meeting is not due until 27 January, but attention remains focused on the pace of US economic recovery. Following the downward revision in the second estimate of Q3 GDP, next week's final estimate will be closely watched, as will latest new and existing homes sales data. We look for existing home sales to register 6.3 million units in November, as the expiry date for the first-time home buyer tax credit approached. We expect a similar story for new home sales (forecast: 440k units). Case-Shiller house price data, meanwhile, are published on 29 December. Crucially, December's non-farm payrolls report is scheduled for 8 January. November's -11k outturn prompted much excitement in financial markets, with the dollar rallying significantly. But it may yet be optimistic to assume that this pace of improvement will be sustained. Our December payrolls forecast therefore stands at -30k. Encouraging labour market signs notwithstanding, the US consumer is not out of the woods yet, although we look for Conference Board consumer confidence to register 51.0 in December, versus November's 49.5. Manufacturing and non-manufacturing ISM surveys for December are also due over the coming weeks, where we anticipate a broadly flat reading of 53.5 in manufacturing and an improvement to 49.5 in services.
With the ECB's next Governing Council not scheduled to meet until 14 January, attention turns to various eurozone indicators. Of these, the money supply data - released on 30 December - are particularly significant. M3 expanded by just 0.3% in the year to October, while bank lending to the euro-zone private sector fell by some 0.8%. Jean-Claude Trichet has noted a recent bottoming out in the falls in mortgage lending, but overall bank credit availability is still restricted (especially in countries like Germany), so that an improvement in the aggregate lending data for November seems unlikely. This is especially true for non-financial corporations, where subdued demand for loans is as much an issue as restricted supply. Other key eurozone data include December's (final) PMI surveys, where we look for outturns of 51.6 and 53.7 for manufacturing and services. Elsewhere, German consumer confidence, Italian business confidence and euro-zone industrial orders are all published.
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