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ECONOMIC DATA ANALYSIS - US POLICY DEBATES BACK TO THE FORE
ECONOMIC DATA ANALYSIS FRIDAY 5 APRIL 2013
US POLICY DEBATES BACK TO THE FORE
• US fiscal debate back in focus as US administration submits its 2014 Budget to Congress
• FOMC minutes watched for more detailed discussion on tapering APF puchases
• UK output releases to shape outlook for Q1 GDP
Significant monetary policy developments ...
Monetary policy has been this week’s focus. The Bank of Japan entered a new era with Governor Kuroda scaling up QE operations to target a doubling of the monetary base. However, in Europe both the Bank of England and ECB left policy unchanged, although President Draghi acknowledged a weaker outlook and suggested the ECB was considering options to provide more stimulus. With a light data calendar in Europe, focus will switch to broader global growth indicators for the coming week, with the latest round of Chinese monthly data including March’s trade release. And to the US, where both fiscal and monetary debates will be in the spotlight.
US fiscal debate back in the spotlight ? ... While today’s payrolls report showed employment growth held up in March, other activity indicators slowed. These may reflect some of the fiscal tightening that has already taken place this year, including the recent Sequester. The fiscal debate in the US is likely to come back into focus over the coming week with President Obama sending Budget 2014 proposals to Congress. This Budget is expected to detail a $1.8trn deficit reduction over the next 10-years and will attempt to bridge the politically entrenched divide with technical measures aimed at reducing the inflation uplift to pension and benefit payments, if Republicans agree to increasing tax revenues from those earning in excess of $250k. Compromise, however, is likely to prove difficult. Tuesday’s NFIB small business survey should remind markets of the impact fiscal uncertainty is having on the economy. Retail sales and consumer confidence updates are also due. These have been resilient in the face of fiscal developments to date and we expect them to stay so for now.
FOMC minutes - taper debaters ... The Federal Reserve also publishes its latest FOMC minutes on Wednesday. While March’s meeting delivered no policy change, the previous meeting’s minutes had alluded to further research and discussion on APF purchases at this meeting. This discussion is likely to have prompted the recent array of Fed speakers commenting on the possible timing of tapering the Fed’s $85bn/month open-ended asset purchases.
Details sharpen focus on Q1 GDP ... The UK faces a number of interesting ‘second order’ releases over the coming week. Industrial and construction output figures will shape expectations of Q1 GDP due on 25 April. Industry should be boosted by some rebound in manufacturing following its surprisingly large 1.5% drop in January. Oil shipment data also point to a large rise in North Sea oil production in February, which leads us to expect an impressive, above consensus, 1.2% rise in total output. Yet construction risks pulling GDP growth lower this quarter, although the key uncertainty surrounds the impact that snow had on March’s output. Accordingly we see Q1 GDP close to flat. However, the RICS and BRC surveys should be modestly more upbeat, the latter likely boosted by the timing of Easter.
Euro area searches for growth stimulus... The euro area sees a light data calendar this week, with February’s industrial output across the zone the key focus. We see some upside to euro area output following a bleak Q4 and a soft start to Q1. The Eurogroup holds an informal meeting in Dublin on Friday, followed by the full Ecofin on Saturday. This should rubber stamp the bailout terms for Cyprus. Officials they may also discuss extensions to Irish and Portuguese repayment profiles. Otherwise, markets may pay more attention than usual to the ECB’s Monthly Bulletin for clues to the direction the ECB’s search for other non-standard measures is taking.
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