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Economics Weekly - Markets eye Bernanke and developments in China & Greece
Economics Weekly - 12 April 2010
Markets eye Bernanke and developments in China & Greece
Following last weekâ€™s decision by the Bank of England to keep its monetary policy unchanged, the UK sees a fairly quiet week in terms of economic data releases. Trade data can be volatile, but we look for an improvement in the UKâ€™s visible balance to a shortfall of Â£7.4bn in February compared with Januaryâ€™s reading of Â£8.0bn. We look for this to be driven by trade with non-EU countries, rather than the EU where demand for UK exports may have weakened in response to a fragile economic recovery and concerns about possible spill-over effects from Greece. Meanwhile, Marchâ€™s RICS house price survey is due this week, where we look for a net balance on prices of +20 from +17 previously. The BRCâ€™s March Sales Monitor and Nationwide consumer confidence survey are also scheduled for release.
US Treasury Secretary Tim Geithner and Chinaâ€™s Vice-Premier Wang Qishan appear to have discussed a possible deal on the $/CNY exchange rate. Accordingly, the chances of a near-term renminbi revaluation have risen. But while this may be good news for the US, higher bank reserve requirements, and ultimately, interest rate increases are probably more effective tools for slowing Chinaâ€™s domestic economic expansion. China is expected to have grown at an annual rate of some 12.5% in the year to Q1. Meanwhile, Fed Chairman Ben Bernankeâ€™s testimony before Congress on Wednesday will be closely watched, as ever. With the Fed now well advanced on unwinding its emergency liquidity and asset purchase programmes, speculation on â€˜exit strategiesâ€™ is intensifying and we look for Mr. Bernanke to provide more clarity on this. In terms of data, we expect robust outturns for retail sales and industrial production, while the Empire and Philly Fed surveys should show that momentum continued in Q2. After recent softness, Fridayâ€™s housing starts data will also warrant close inspection. We look for a modest pick up, as weather conditions improved in March. Other highlights include the February trade balance (Tuesday), March CPI (Wednesday) and University of Michigan confidence on Friday.
In the euro-zone, Greeceâ€™s immediate priority is to raise â‚¬10-12bn of funding over the next few weeks and to diversify its investor base (e.g. to the US). Whether Greece uses its recently agreed emergency stability package or not, high debt financing costs are likely to remain an issue for some time. A prospective programme of bilateral loans is unlikely to involve any kind of subsidy for Greece. So in these circumstances, the best course of action for Greece is to stick to its fiscal consolidation plan, which should send its own signal to the government bond market. This weekâ€™s euro-zone economic data calendar is quiet, with only industrial production and final CPI inflation figures due. We look for euro area industrial output to have risen by just 0.1% m/m in February, following mixed performances from Germany and France. Finally, we envisage an unrevised euro-zone CPI outturn of 1.5% in the year to March.
Mark Miller, Global Macroeconomist, Jeavon Lolay, Senior Economist
Economic Research,10 Gresham Street,
Lloyds TSB Corporate
London EC2V 7AE,
0207 626 - 1500
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