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ECONOMIC DATA ANALYSIS - MARKETS FOCUS ON SURVEYS AMID ONGOING TAPERING DEBATE
ECONOMIC DATA ANALYSIS FRIDAY 24 JUNE 2013
MARKETS FOCUS ON SURVEYS AMID ONGOING TAPERING DEBATE
• Markets take fright, as US Fed signals possible end to QE in mid 2014
• UK Spending Review and Financial Stability Report should have little market impact
• EU Summit sees better chance of progress on banking union
Fed tightening fears spook markets... Global financial markets have been dominated over the past week by the fall-out from Wednesday’s US FOMC announcement. Although the Fed statement was little changed from May,Bernanke’s remark that QE could be brought to an end by around the middle of next year - if the economy and labour market evolve broadly as expected - has been viewed by the markets as a small step to starting the tightening cycle shortly thereafter. Bernanke’s remarks provided the catalyst for another spike higher in US bond yields. Over the week, 10-yr US Treasury yields rose 26bps, with the curve steepening sharply, and the US dollar posting a strong bounce. The selloff was echoed in other bond markets, with 10-yr gilts up 25bps over the week at 2.31%. GBP/USD ended the week back below 1.55.
A quieter week in prospect... After last week’s hectic schedule, the coming week’s economic calendar winds down, with mostly second tier releases. In the US, both the Conference Board and Michigan consumer sentiment surveys are due, as well as personal income and spending, weekly claims and the Chicago PMI. Following the FOMC meeting and stronger June business surveys this week, these last two are likely to attract the most attention, especially ahead of the following week’s employment report and ISM surveys. Jobless claims are expected to drop back to 345k, corroborating the Fed’s assessment of an improving labour market. The Chicago PMI is also expected to post another strong reading, albeit below last month’s stellar 58.7 outturn.
Spending Review and Financial Stability...Domestically, Chancellor Osborne will present his Spending Review for 2015/16 on Wednesday. The report will set out how the broad spending cuts planned for that year will be apportioned, providing detail for individual government departmental spending and where the extra £11.5bn of proposed savings will come from. However, this should have a limited market impact. The coming week’s press conference surrounding the release of the Financial Stability Review - the last presented by Governor King – is also unlikely to have a significant market impact.
Focus on Q2... Otherwise, UK economic releases will keep the focus on the growth outlook. The nfinal estimate of Q1 GDP is unlikely to be revised from 0.3%. Within this, the focus will fall on the income accounts, which are expected to show that households drew on savings to support spending in Q1. With little prospect of an improvement in real incomes over the coming quarters, the ability of households to continue to do this is likely to shape the outlook for consumer spending this year. But focus is already shifting to the current quarter. Recent increases in business surveys suggest activity in Q2 could be better than Q1. The release of our Business Barometer for June should refine expectations for Q2 ahead of next month’s official estimate. Additionally, April’s services output provides the first estimate of the sector’s activity in Q2.
EU Summit timetable slips? ... In the euro area market attention will fall on the coming EU Summit. This Summit is aiming to make progress towards the EU banking union, seen as a key plank of the currency area’s anti-crisis measures. Progress at this week’s finance ministers meetings adds to hopes of this. National surveys for June out over the coming week are also expected to post modest improvements following broadly positive PMIs. This should include the German IfO survey, which we expect to point to German GDP expansion in Q2. We also expect preliminary inflation estimates to rise in Germany raising the likelihood of a broader euro area increase the following week
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