Weekly Economic Data Preview
UK Poised to Exit Recession in Q4, While US Recovery Gathers Further Momentum
Financial markets will have to wait until Friday for the data highlight of the week in the US. The advance estimate of Q4 2009 GDP is expected to show economic activity picked up sharply, after belatedly returning to positive territory in Q3. We look for annualised GDP growth of 5%, underpinned by consumer spending and a strong contribution from inventories.
Figures for December durable goods orders will be closely watched on Thursday, for clues about business investment trends and to help refine Q4 GDP forecasts. Meanwhile, we expect another contrasting performance from existing and new home sales in December, primarily highlighting the important influence of government initiatives at this time. We expect existing home sales to have declined sharply to 6.0mn (from 6.54mn), but new home sales to have rebounded to 380k (355k). Consumer confidence will be a key determinant of economic prospects - and the housing market - over the year ahead. We look for a third successive rise in the Conference Board's headline index to 53.5 (from 52.9) on Tuesday, while the University of Michigan sentiment index may be revised up to 73.5 (72.8) in January on Friday.
Although the FOMC is widely expected to announce another unanimous decision to keep the target range for the Fed funds rate at 0-0.25% on Wednesday, financial markets will be alert to any changes to other emergency programmes or in the language used in the accompanying press statement. It is also a heavy week for Treasury issuance ($118bn).
It is a light week for UK data, but still an important one. The first estimate of Q4 GDP (Tuesday) will be the one of the last key data points for the MPC to evaluate before going into its Inflation Report forecasting round (sectoral M4 data released on 1 February will also be of importance to gauge the recent efficacy of the quantitative easing programme). The decision on whether or not to extend the Asset Purchase Facility at the February meeting hangs in the balance and so the detail of the GDP report will be important for marginal voters on the MPC. Our central view, which is predicated, in part, on survey evidence (including our own business barometer) is for a relatively modest 0.4% quarterly expansion, marking the first positive reading in seven quarters. There is also some consumer-related data to digest, with the confidence index (Friday) expected to rise slightly reflecting in part, early signs of an improvement in the labour market. To the extent that retail sales growth was boosted in December by an advancement of consumption ahead of the VAT rise at the turn of the year, a fall in the CBI's reported retail sales balance for January (Wednesday) is forecast, as this effect washes through the data. The inclement weather conditions earlier this month are also likely to have depressed retail activity. Housing data on both prices and bank mortgage approvals are also released during the week.
From a financial markets perspective, the euro's price action will be closely watched as concerns about public finances in peripheral euro-zone countries continue to mount. In terms of data, this week sees a further round of euro-zone business surveys. The main highlight will be Tuesday's German Ifo report, where we anticipate an improvement in the business climate index to 95.0 in January, from 94.7. Broadly, the underlying picture in Germany is one of healthy current economic sentiment supported by tax cuts to boost economic activity, with expectations relatively less upbeat. The latter reflects concerns over the sustainability of global recovery (vital for Germany's exports) and also the eventual withdrawal of government labour market subsidies (which potentially presage a sharp rise in unemployment). Meanwhile, weakness in the broad euro-zone monetary aggregates underscore the ECB's cautious stance on unwinding past monetary stimulus. We look for M3 to contract by some 0.5% in the year to December, with loans to the private sector falling by 0.9% over the same period. Lending to the non-financial sector has been pared back particularly sharply. Finally, January's euro-zone CPI estimate is published on Friday, where our forecast stands at 1.1% year-on-year.
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