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ECONOMIC DATA ANALYSIS FRIDAY 5 SEPTEMBER 2014 - TSC TESTIMONY TO SHED LIGHT ON MPC DIVERGENCE
ANALYSIS FRIDAY 5 SEPTEMBER 2014
TSC TESTIMONY TO SHED LIGHT ON MPC DIVERGENCE
- Surprise easing
from ECB highlights divergence of euro area and US/UK economies
- Carney and Weale to
appear before Treasury Select Committee
- Industrial production
and trade figures the main focus in a quiet week for data
The diverging fortunes of the euro area and US and UK economies have been thrown into
sharp relief by the surprise policy easing by the ECB. Amid growing concerns
over the growth and inflation outlook, the ECB cut all three of its key
interest rates by 10bp - taking the deposit rate on excess bank reserves to an
unprecedented -20bp. At the same time it unveiled plans to purchase
(unsterilised) asset-backed securities, a move tantamount to QE.
The UK and US
economies by contrast continue to strengthen. Although the
UK manufacturing PMI fell back in August (in line with a weakening across
Europe), the more domestic-orientated construction and services PMIs posted
further strong improvements. Similarly, in the US, most data over the past
week, including the ISMs, highlighted the upside risks to growth, although the
weaker-than-expected August payrolls report tempers some of the
the coming week various senior central bank officials are due to speak.
BoE Governor Carney is scheduled to talk in Liverpool on Tuesday and to testify
before the Treasury Select Committee the next day, along with other MPC
members, Miles, Shafik and Weale. It should make for a lively and potentially market-moving
discussion, with Weale at odds with the others on the need for an immediate
Philadelphia Fed President Plosser speaks on the economy tomorrow,
while Fed Governor Tarullo testifies on ‘Wall Street Reform’ before the Senate
Banking Committee on Tuesday. These are the last scheduled Fed speakers before
the FOMC enters purdah ahead of the following week’s policy meeting. Meanwhile,
in the euro area, ECB President Draghi will deliver the keynote address at the
Eurofi conference in Milan (Friday) ahead of the ECOFIN meeting over the
weekend. Finally, BoJ Governor Kuroda is also due to give his thoughts in a
speech on Saturday.
the data front, industrial production and/or net external trade data for July
are due across Europe, Japan and China. These will help inform
early estimates of Q3 GDP growth as well as providing an update on the state of
global imbalances. China’s trade surplus for August (Mon) is projected to
narrow slightly, to $40bn, as imports recover after July’s sharp decline.
the euro area, industrial production data are due in France (Weds), Spain
(Weds) and Italy (Fri). Although the much stronger-than-expected
1.9% jump in July German industrial production poses an upside risk, we doubt
this will be mirrored elsewhere. If anything, the prospect of weak outturns,
especially in France and Italy, is likely to highlight the diverging
manufacturing trends within the region.
In the UK, growth in
industrial output is forecast to be little changed at 0.2%m/m in July.
After the strong improvement in the first half of the year, there are growing
signs that the UK manufacturing sector is fading, partly in response to the
lagged impact of sterling strength, but more especially from weak demand in the
euro area. This is expected to be reflected in a further widening in the UK's
visible trade gap with the EU, although the overall deficit is forecast to have
recovered a little after June’s sharp jump. In other domestic releases,
construction output for July and the Lloyds Employment Confidence survey for
August are also due. (See back page for more details of our UK data forecasts).
the US sees the usual post-payroll data hiatus. While not usually a
market mover, July business inventories (Fri) will be watched for its
implications for Q3 GDP. August retail sales (also Fri) will be afforded more
importance. Recent US consumer data have been a little disappointing and the
upcoming retail sales report is unlikely to be an exception: we look for a
modest rise of 0.4% on July.
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