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ECONOMIC DATA ANALYSIS - US ECONOMY 'SPRINGING' TO LIFE?
ANALYSIS FRIDAY 25 APRIL 2014
'SPRINGING' TO LIFE?
US Q1 GDP expected, but payrolls and ISM to suggest faster Q2 growth
• Euro area
preliminary HICP inflation expected to rise and ease calls for ECB QE
• Robust UK
Q1 GDP expected to add to interest rate hike expectations
Ukraine situation adds uncertainty ... As
feared, tensions in Ukraine continue to mount and are starting to have a more
visible impact on financial markets. A mild safe-haven effect appears to be keeping
bond yields relatively suppressed with US 10-year yields staying at 2.70%
adding some uncertainty premia to oil markets, pushing the Brent oil price back
towards recent highs. However, economic news should dominate the coming week.
The US will see the first estimate of Q1 GDP; the latest FOMC meeting; and the April
employment report. Elsewhere, euro area preliminary HICP will be critical for
the debatenabout ECB QE. UK Q1 GDP will also impact thendomestic policy debate.
Uptick in euro inflation to dampen QE call ... The euro
area sees a number of data releases across
the week including PMIs, M3 money supply
and business confidence. However, market
focus will be on the preliminary estimate
of April ’s HICP inflation. Last month, ECB President Draghi dismissed the need for more stimulus, explaining that the drop in March’s inflation was temporarily affected by the timing of Easter and would rebound in April.
We concur and our global team
forecast inflation to rise to 0.9%.
We suspect this will dissuade the ECB from
providing further stimulus at its May meeting
and expect markets to interpret it this way.
However, ECB medium-term staff forecasts are
likely to be important and should in turn keep alive talks of QE. Spanish estimates of Q1 GDP will also be interesting in their own right, with our estimates in line with the Bank of
Spain’s forecast of a 0.4% rise.
Heavy US schedule, but no change in outlook?... The
coming week is a busy one for US releases. The first estimate of Q1 GDP look
set to confirm a weather-impacted start to the year. Our global team forecast a
subdued 1.6% (annualised) rise in GDP, impacted by soft consumer spending, a
drop in exports and a modest inventory correction. Yet insofar as a subdued
start to the year is now fully expected, this may be largely dismissed by
markets. More important will be April’s ISM estimate, where we forecast another
decent rise to 54.9 – consistent with robust expansion ahead.
Payrolls and FOMC ... We also
see the latest employment report. Again, we expect a modestly above consensus
rise in payrolls in April - up 220k and will watch for revisions to the March
reading (now oddly lower than February). Unemployment is also expected to dip
to 6.6% this month. But we will perhaps pay most heed to the latest earnings
figures, which softened last month. The monthly volatility of payrolls cautions
against too much extrapolation. However, a firm April and any increase in
earnings could reawaken concerns about the magnitude of spare capacity,
affecting the monetary policy outlook. That said, we see little chance of
Wednesday’s FOMC meeting doing anything other than a further $10bn tapering and
maybe a tweak to the statement citing recent evidence of improving economic
UK data to add to rate hike fears ? ... The UK also
sees key releases, with markets focusing on the first estimate of Q1 GDP on
Tuesday. This looks like a close call. However, on balance we forecast a
slightly faster pace of expansion than in Q4, pencilling in a 0.9% rise, driven
by aquickening in services growth. This is likely to further raise expectations
of an early tightening in monetary policy. The manufacturing PMI is also expected
to rise in the coming week. Finally we will watch the Bank’s mortgage approvals
release with interest. We expect a rise in approvals ahead of the introduction
of the Mortgage Market Review on 26 April. However, preliminary BBA figures for
March suggest a softening for now
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