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Lloyds TSB Financial Markets - www.lloydstsb.com/corporatemarkets
ECONOMIC DATA ANALYSIS - WILL SYRIA WEIGH ON RATE MARKET SENTIMENT
ANALYSIS FRIDAY 6 September 2013
SYRIA WEIGH ON RATE MARKET SENTIMENT?
• Developments in Syrian crisis have
potential to dent markets’ growing optimism
• UK labour market to fuel
expectations of policy tightening before 2016
• Chinese economic releases point to
modest improvement, but understate domestic stabilization
rate markets price ‘normalisation’
... Financial markets continue to react to improving economic activity
indicators in advanced economies. While equity markets remain off recent highs,
interest rate markets suggest signs of recovery in advanced economies justify beginning
to price for monetary policy ‘normalisation’. Over the coming week, concerns over
Syria may check some of this move as a Congressional vote on US military action
looms. However, other releases, including UK labour market statistics and
Chinese updates, look set to continue to add to febrile rate sentiment.
crisis to unsettle optimism? ...
The unfolding crisis in Syria has the potential to curtail some growth optimism
in the short term. Nothing from the G20 leaders’ summit suggests that a more
co-ordinated international approach is likely. Indeed, concerns expressed by
China and the EU indicate the contrary. Nevertheless, Congress will vote on
military action, perhaps as soon as the coming week, with Republicans
suggesting support. Financial markets are already wary - equities have retraced
over the past few weeksand oil prices risen. Admittedly, significant market reaction
is only likely to follow should the crisis spill beyond Syrian borders.
However, a US military strike may be
seen as increasing that possibility and could dampen sentiment further.
jobs to boost early rate hike outlook ... Domestically higher medium-term rates have been
accompanied by a shortening in the expected time until policy tightening. This
is despite the Bank of England’s forward guidance, committing not to tighten
policy before the unemployment rate drops below 7%. This largely reflects signs
of a more robust recovery suggesting this could happen more quickly than the
BoE projects. The coming week’s releases are likely to add to this sentiment.
Claimant count unemployment looks likely to fall sharply again in August and we
forecast the ILO unemployment rate slipping to 7.7%. Less high profile, the
RICS housing survey and official construction output look likely to point to
further housing market revival - also bolstering tightening expectations.
post for Fed announcement
... After today’s payrolls release, the countdown continues to the following
week’s Fed announcement when we expect it to begin to taper QE. The coming week
sees relatively little to add to that broader debate. However, we will watch
August retail sales, where we think
evidence of firmer auto sales could result in an above consensus pick up. We
will also watch the NFIB small business survey. Weaker small businesses in 2011
held back a revival in broader GDP despite a rebound in large business
activity. Constraints on small businesses appear to have eased and we will look
for a rise in the NFIB survey to herald the 3% growth rate we expect for 2014.
to add to growth optimism? ... Our
globalteam looks for modest acceleration in the coming week’s industrial output
and retail sales releases for August. The trade balance should be broadly unchanged,
but this looks likely to mask a rise inboth exports and imports. The latter was
suggested in the latest official PMI and points to improvement in the domestic
economy. Our global team forecasts growth of 7.5% for 2013 as a whole and
considers the recent slowdown has passed.
area concerns are for the future
... There are few economic releases across the euro area. Interest will
surround the Finance Ministers meeting on Friday, particularly for discussions
over Ireland ’s prospective exit from the bailout programme. Risks remain for
the euro area, but these are more likely to emerge in Q4 and should not concern
markets in the near term.
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