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Economics Weekly - Markets to focus on US housing and UK Q3 GDP data...
Economics Weekly - 25 October 2010
Markets to focus on US housing and UK Q3 GDP data...
The UK data calendar is not particularly busy this week, but what it lacks in quantity it more than makes up for in terms of the importance. The key number is the first release of Q3 GDP. While the headline figure is likely to be fairly decent, we expect it will raise more questions than it answers. Following a 1.2% q-o-q rise in Q2, we look for GDP growth to expand by 0.5% in Q3, with risks skewed to the upside. This will partly depend on what happens to growth in the construction sector (6% of GDP) where output rose by 9.5% in Q2 and, potentially, close to 7% in Q3. The latter would still add 0.4 percentage points to quarter-on-quarter GDP. But construction aside, the rest of the economy is slowing sharply, and in services for instance (75% of GDP), we look for growth to have fallen from 0.6% in Q2 to broadly flat in Q3. If so, it would give the MPC plenty to think about when assessing the need for additional policy stimulus at Novemberâ€™s meeting. Other data this week include credit growth (consumer and mortgage lending) and the Nationwide house price index. Recently, Mervyn King highlighted the weakness in the monetary aggregates as one of the key downside risks to the inflation target and we expect this weekâ€™s data to further corroborate the BoE Governorâ€™s view.
This weekâ€™s euro-zone data calendar features the latest European Commission confidence surveys, M3 money supply and preliminary October CPI. Broadly speaking, economic recovery is proceeding in the euro-zone albeit supported by a healthy pace of activity in export-oriented countries such as Germany. We look for the Commissionâ€™s economic sentiment index to improve to 103.4 in October against 103.2 previously. Meanwhile, the ECB has been at pains to stress that while bank lending to the euro-zone private sector has been picking up, it is doing so only gradually. Credit conditions remain tight and the banking sectors in some euro area countries are still vulnerable. We look for annual growth in euro area bank lending to register 1.4% in September, with the 3-month moving average of annual M3 money supply growth reaching 0.9%. Finally, we expect Octoberâ€™s â€˜flashâ€™ estimate of euro area CPI to post a reading of 1.8%.
This weekâ€™s US economic data calendar centres on housing market indicators, along with consumer confidence surveys and final Q2 GDP data. The housing market continues to be a source of concern regarding the outlook for next year. This was noted specifically in Septemberâ€™s FOMC minutes. Foreclosures amid weak labour market conditions suggest it could be some time before we see a return to the home sales levels seen back in the spring, when the homebuyersâ€™ tax credit was still in place. Our forecast for September new home sales is for only a modest improvement to a level of 295,000 from 288,000 previously. For existing homes, meanwhile, our projection stands at 440,000. Other US data published this week include October Conference Board consumer confidence, where we look for an outturn of 48.0, continuing the downward trend seen since May. Finally, we look for the final estimate of Q2 GDP to register an annualised pace of 2.2% compared with 1.7% in the previous estimate, reflecting a smaller drag from net exports and a firming in consumer activity.
Lloyds TSB Corporate Markets Economic Research, 10 Gresham Street, London, EC2V 7AE, Switchboard: 0207 626 1500. www.lloydstsbcorporatemarkets.com Bloomberg: LLOY<GO>
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