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ECONOMIC DATA ANALYSIS - CARNEY TO PLAY DOWN LABOUR MARKET STRENGTH
ANALYSIS Friday 8 November 2013
CARNEY TO PLAY DOWN
LABOUR MARKET STRENGTH
• UK Inflation Report, CPI and labour
market data likely to send mixed messages
• Downside risk to euro area Q3 GDP;
ECB speakers watched for signs of dissent
• Yellen’s Senate nomination hearing
tops thin US calendar
After the surprise ECB rate cut and
the US employment report, the coming week’s economic calendar promises to be
slightly less eventful. In the UK, the focus will turn to domestic
developments, with the release of the Bank of England (BoE) November Inflation
Report and key inflation and labour market figures due. Elsewhere, first estimates of Q3 GDP
are published in Japan and the euro area, while in the US the data calendar is
light, but Fed speakers are out in force - including Janet Yellen’s Senate nomination
welcome fall in UK inflation...
The coming week’s UK economic data should give the market pause for thought.
Amid concerns about rising energy prices, the October CPI (Tues) will be watched
closely for signs that inflation pressures may be building again. But the
recently announced rise in energy prices will not start to impact the CPI until
December. Instead, the October release should provide good news. We expect a
combination of a fall in petrol prices, a comparatively small increase in
tuition fees and weaker food & clothing prices to pull the headline CPI
down to 2.4% from 2.7%.
unemployment rate to drop to 7.6%...
The inflation outturn should be supportive for sterling interest rate
sentiment, especially at the long end. But the key driver of short end
sentiment is likely to be labour market data and the Inflation Report (both
Weds). Given the trend improvement in claimant unemployment and the continued strength
of the employment components of the PMIs, we look for another robust labour
market outturn, with the ILO unemployment rate forecastto nudge lower from 7.7%
Inflation Report... A
firm labour market report is likely to form the backdrop for Governor Carney’s
press conference. Given the barrage of strong forward-looking surveys, Carney
will almost certainly acknowledge the upside risk to
GDP growth in Q4. The MPC may well
bring forward slightly its forecast of when the unemployment rate hits the key
7% level. Overall, however, we expect the tone of the Report to be dovish. The
MPC’s medium-term GDP projections are likely to be only modestly firmer, with
the committee’s optimism tempered by the sharp rise in sterling and the back-up
in market interest rates since their last set of forecasts in August. Moreover,
the Governor is likely to caution against nreading too much into the recent
economic strength and re-emphasize that the 7% unemployment rate is a threshold
not a trigger for a future policy tightening.
risks to euro Q3 GDP...
In the wake of the ECB’s surprise decision to cut the refi rate by 25bp (to
0.25%), the coming week’s Q3 GDP figures will be watched. Overall, we expect
euro area GDP to post its second successive quarterly gain, of 0.2%, with the
risks to the downside. Both Germany and France are expected to have slowed sharply,
with growth of 0.3% and 0.1%, respectively. Meanwhile, Italy is likely to have posted
its ninth consecutive quarterly decline (- n0.1%). In the wake of the rate cut,
speeches by ECB members Weidmann and Mersch will be watched for indications of
the strength of dissent. Attention will also on the EU Finance Ministers meeting,
amid strong pressure to progress discussions on the banking union before year end.
hearing in focus...
With little in the way of US economic data due, other than the Empire State
survey and industrial production figures, focus will be on Fed speakers and Fed
Chair nominee Janet Yellen’s confirmation hearing before the Senate Banking
Committee (Thurs). Her views, and those of other Fed members, will be pored
over as the market continues to weigh up the prospects for Fed tapering and the
timing of the first policy tightening
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