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ECONOMIC DATA ANALYSIS - GREECE: A CHASM TOO FAR TO BRIDGE?
ANALYSIS FRIDAY 13 FEBRUARY 2015
Friday 13 February 2015
GREECE: A CHASM TOO FAR TO BRIDGE?
- Eurogroup meeting to
search for a temporary fix for Greece
- January’s FOMC
minutes scoured for sense of the Fed’s international anxieties
- UK labour market on
watch for signs of tightening, as headline inflation eases further
negotiations to set market tone... Having proved unable to bridge the chasm
between the Greek and European positions at this week’s Eurogroup meeting,
Monday’s session will be key to perceptions of the likelihood of Greece being
forced to leave the Eurozone. Should expectations for an interim solution
be disappointed, a risk-off market reaction could see the reversal of the bond
sell-off seen since the end of January. Further event risk centres on the ECB’s
decision on whether to extend Emergency Liquidity Assistance to Greek banks on
Wednesday, which should take its cue from the prospects for agreement at the
Eurogroup meeting. A politically-validated decision to cut ELA access would
likely prompt Greek capital controls and signal Grexit.
Are international developments weighing on the Fed’s
calculus? With January’s strong employment report a
reminder that our call for a June first hike by the Fed remains in play, the
minutes of the FOMC’s January meeting due Wednesday will be watched for context
on the extent to which international developments are weighing on the Fed’s
lifoff decision. Despite firm domestic demand assisted by an oil
tailwind, a surging dollar is likely to weigh on US exports. The strength of
manufacturing output in January (Wed) within overall production, and the Empire
manufacturing survey for February (Tue) should also provide some steer here.
Eurozone activity indicators for Q1 in focus... While
Eurozone fragmentation risk remains front of mind, this week’s
stronger-than-expected Eurozone GDP data for 2014 Q4 may herald further quiet
improvements to come. Flash estimates of PMI surveys for January
(Fri) are expected to show further modest firming, with the ZEW investor survey
for February (Tue) giving further colour on German activity growth after Q4’s
outsized 0.7% GDP gain.
Domestic labour market tightening, though data
likely to pause for breath... With the BoE’s Inflation
Report highlighting medium-term inflation risks against a narrower margin of
slack in the economy, labour market data on Wednesday will give an update
on the trends through to December. Unfriendly rounding and base effects
are likely to see both the unemployment rate and wage growth little changed
from current levels, but should not detract from the ongoing absorption of the
economy’s spare capacity, and of rising underlying cost pressures. In the
aftermath of the Inflation Report, the minutes of the February MPC meeting also
due on Wednesday are expected to offer relatively limited incremental insight,
beyond confirming a unanimous vote for no change in Bank Rate.
to fall further below the BoE’s target... Low headline inflation is
set to continue to contrast with firmer underlying cost pressures for some
months to come, with subdued energy prices keeping outturns close to deflation
over the first half of the year. In data for January due Tuesday, we look
for a more modest easing in annual CPI, to 0.3%. Meanwhile, a tick down
in the core rate to 1.2% could reinforce an impression of vigorous retail
discounting. However, we do not see this as sufficient to prevent a
pullback in retail sales volumes in January (Fri) after the very strong
outturns over the course of 2014 Q4.
Final public finance numbers before the Budget... With
the pre-election Budget due on 18 March, public finance data for January (Fri)
will provide the final publicly available insight to the government’s
forthcoming plans. While receipts in January benefit from seasonally strong
self-assessment returns, the deficit overshoot against current OBR projections
requires unusually strong January receipts to return to the planned
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