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ECONOMIC DATA ANALYSIS - TENSIONS IN SYRIA CAST CLOUD OVER RECOVERY PROSPECTS
ANALYSIS FRIDAY 30 AUGUST 2013
IN SYRIA CAST CLOUD OVER RECOVERY PROSPECTS
• Escalating tensions in Syria push
oil prices above $115/barrel; EM currencies under pressure
• ECB and MPC to keep policy unchanged
- for now
• US August payrolls likely to pave
way for ‘tapering’ announcement at next Fed meeting
Although it has been a thin week for
economic data, the markets have had plenty to focus on. Escalating tensions in
Syria, the knock-on impact on oil prices and the gyrations in emerging markets
have vied for attention amid expectations of impending Fed ‘tapering’. With the
market braced for a possible military strike in Syria, geopolitical event risk
risk to oil?...
Although Syria accounts for a tiny share of world oil production, the potential
ramifications of military action across the Middle
East has pushed Brent Crude to
six-month highs above $115/barrel. Amid ongoing capital flight, Brazil and
Indonesia were forced to raise interest rates this week to support their
beleaguered currencies. Rising oil prices did little to help, with India and
Turkey - both highly dependent on oil imports to support growth - coming under
on policy makers this week...
Against this backdrop, the latest pronouncements from policy makers will be
closely scrutinised in the coming week. The G20 reconvene, while the MPC, ECB, BoJ,
BoC, RBA and Riksbank are all due to hold policy meetings. The latest US
employment report will also be pored over ahead of the FOMC meeting on 18th
to home, the disappointing reaction of the sterling bond markets to the forward
guidance announcement is likely to exercise the MPC’s thinking at its upcoming
policy meeting. At a speech in Nottingham this week, Governor Carney hinted strongly
that policy could be loosened further if there were signs that rising market
interest rates were jeopardising the recovery. This holds out the possibility
of more Quantitative Easing (QE) if the economic data soften in the coming
policy on hold for now...
For now, however, there is little sign the economy is slowing. The upcoming
manufacturing and services PMIs for August are both expected to post further improvements.
Given signs of recovery, the MPC is highly unlikely to change policy in the
coming week. If, as we suspect, the MPC decides to issue an accompanying
statement, it is likely to reinforce the MPC’s view that monetary policy should
remain exceptionally loose to help cement economic recovery.
and others also on hold...
Amid recent signs of economic recovery, there is no pressing need either for
any further policy changes in the coming week from the ECB, BoJ BoC, RBA or
Riksbank. Comments from their respective heads, however, will be watched
closely - particularly those of ECB President Draghi given some recent signs of
dissent on the ECB Council and the uncertainty generated by the September
events calendar (which includes the German election, constitutional court
ruling and possible third Greek bail-out).
solid rise in payrolls..
In the US, markets are closed on Monday for Labor Day. But it is a big week for
economic data, with the August employment report, ISMs, trade data and Fed Beige
Book all due. These will be watched closely ahead of a widely expected
‘tapering’ announcement from the Fed at its 18th September policy meeting We
look for another solid 188k gain in payrolls, with the unemployment rate forecast
to remain unchanged at 7.4%. The manufacturing and non-manufacturing ISMs are also
expected to be firmer.
Elsewhere, factory orders and industrial production releases in Germany are expected
to show further signs of revival. Following the improvement in the HSBC ‘flash’
PMI in China, the official manufacturing and service sector PMIs will also be
watched for signs that the Chinese economy is starting to stabilise.
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