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ECONOMIC DATA ANALYSIS - GLOBAL REBALANCING IN THE SPOTLIGHT
ECONOMIC DATA ANALYSIS FRIDAY 8 MARCH 2013
GLOBAL REBALANCING IN THE SPOTLIGHT
• Kuroda Parliamentary hearings keep focus on monetary policy developments
• UK trade and industry data to highlight challenge of economic rebalancing
• Eurozone focus will be on Italy, Cyprus and EU Summit
Monetary policy focus ... Five central banks announced decisions to leave monetary policy unchanged this week. Yet far from suggesting a stabilisation in the monetary outlook, policy looks set to enter a new phase in many areas of the globe. The coming week focus shifts to Japan where the next BoJ Governor nominee, Haruhiko Kuroda, appears before Parliament. Markets will watch for clues of how policy will meet the BoJ’s new 2% inflation target. Any easing could take place as early as Kuroda’s first meeting in April, when open-ended QE, already committed for 2014, may be brought forward.
Made in Asia ? ... There are interesting parallels between recent developments in Japan and the evolving policy debate in the UK: The UK government has hand-picked a new central bank governor; emphasised the need for greater monetary activism; and is reportedly reviewing the central bank inflation remit. But the coming week could be more impacted by another Asian influence - the pace of Chinese expansion. Chinese trade figures surprised this week, in part reflecting a steep drop in imports. February’s industrial and retail activity indicators (Saturday), provide further news. While New Year distortions are likely to impact the data, the markets will be watching for signs of a more fundamental shift given the potential impact on European industrial and economic activity.
Rebalancing reversing?... The UK calendar includes releases for trade and industrial activity - barometers of economic rebalancing. This month’s outlook is weak. We believe that manufacturing will see a modest retracement in January, following a sharp 1.6% rise last month. Wider industrial production is expected to post a much sharper drop due to problems with North Sea oil extraction (the amount of oil shipped reportedly fell 8% in January). Given this, there is a risk of another large trade deficit, with the net deficit on oil forecast to . rise to £2bn from near balance just three years ago. Looking ahead, conditions should improve. Although persistent, the drop in oil output should reverse, as extraction problems fade and new capacity comes onstream. Moreover, firmer global growth and a weaker exchange rate bode well for future exports. Nevertheless, the coming week’s data are likely to underscore the challenge the UK energy backdrop poses to its ambitions of rebalancing.
European industrial divergence... In a quiet week for economic releases, the euro area also focuses on international trade and industrial activity.
Reflecting firmer global expansion, the German export machine continues to boost the economy and we expect encouraging trade figures on Tuesday. By contrast, French trade figures disappointed and we see risks to wider European industrial output this week. The disparity in euro zone members’ current account imbalances underlines the importance of Thursday’s EU Summit, which will focus on the need for long-term reforms (and productivity improvements). But progress will be slow. From a market perspective, more immediate interest will be on developments on Cyprus’s bailout over the coming week, and Friday’s reconvening of the Italian Parliament - which will mark the start of a more formal process to form a new government.
Updates ahead of the Fed ... In the US, it’s a busy week for data. Both CPI and PPI will be impacted by higher oil prices, but core rates are likely to remain stable. February’s retail sales will be watched for any impact from January’s payroll tax hike. However, with the Beige book suggesting ongoing expansion, and weekly data holding up, we still expect a modest rise in sales (of 0.3%). Amid the heightened fiscal uncertainty, the latest Empire State, , NFIB small business and Michigan consumer sentiment surveys will also watched be watched closely.
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