Friday October 25, 2013 - 14:54:09 GMT
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ECONOMIC DATA ANALYSIS - DIFFICULT TO DETERMINE US TREND
ANALYSIS Friday 25 October 2013
TO DETERMINE US TREND
• FOMC policy
on hold amidst data uncertainty
• Evidence of
UK recovery gaining traction, but softer outlook for Q4?
surveys question sustainability of euro area recovery, headwinds loom
US data catch up continues ... The coming week sees US releases
start to catch-up after postponement during the government shutdown. However,
with these referring in the main to the pre-shut down period, they are likely
to have only limited influence on markets. Elsewhere, recovery appears to have
found traction in the UK, but that assessment is more in doubt in the euro
Fed policy stranded as data
uncertainty rises ...
The main news this week will be the FOMC announcement on Wednesday. However,
recent events make the prospect of a policy change - any initiation of tapering
- extremely unlikely in October. As the meeting does not have a press conference,
any update of the Fed’s outlook will be communicated through its accompanying statement.
Several FOMC participants have stated that a decision on tapering is likely to depend
on indications of a strengthening in the labour market. But the shutdown has
left such evidence thin on the ground. For example, Wednesday’s scheduled preliminary
Q3 GDP release will be postponed for a week. Other official publications will
continue to catch up over the coming week, although risk being seeing as of
only historic interest. Two of the few series to be unaffected by recent events
are the ADP employment survey and ISM index, also due. Yet even these will
struggle to discern trend from noise given the uncertain scale of the indirect impact
of the shutdown on the economy. Solid evidence is unlikely to present itself
before the Fed’s last meeting of the year in December. This should stall any
tapering decision into 2014, with any fresh budget uncertainty around the start
of next year risking further delay.
UK recovery finds traction ... Following evidence of robust 0.8%
expansion in Q3 GDP, UK releases are likely to add to evidence of recovery
gaining traction. M4 money supply looks set to accelerate to
its fastest pace in four years. Mortgage approvals look
likely to have risen sharply in
September (although only just above the
lows of the 1990s downturn). This will maintain the focus on
consumer-debt-financed expansion. However,
we forecast another modest easing in
October’s manufacturing PMI, which may herald a softer pace of growth in Q4.
European headwinds ... In Europe there is still much less evidence of
the recovery. This week’s fall in the services PMI and German IfO survey underlines
our caution at seeing Q2’s 0.3% rise in GDP as the start of a recovery. We see
this more as a stabilisation, with the PMIs indicating GDP should remain close
to stagnant for the rest of the year. Higher yields, limited monetary policy stimulus
and ongoing fiscal restraint in key economies maintain headwinds to expansion beyond.
The coming week sees the euro area unemployment rate, which our global team
expect to remain at 12% - just off its record high. But ongoing stagnant growth
(and rising in unemployment in the largest four states) risks a further upward
blip over the coming months. October’s preliminary inflation should remain at 1.1%,
depressed activity, a firm euro and softer oil prices add to downside risks to
inflation over the coming months.
BoJ in holding
pattern for now ... The coming week
also sees the latest Bank of Japan announcement. We expect no policy change
here either. Following the large stimulus at BoJ Governor Kuroda’s first
meeting, the economy has picked-up. Japanese focus has now shifted to the
fiscal and structural measures of Abe’s plans, with most focus on Q2’s planned
sales tax increase. That said, ongoing evidence of stabilisation of Chinese
activity will be welcomed and our global team forecasts a rise in the official Chinese
manufacturing PMI on Friday.
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