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Week Ahead: ECONOMIC DATA ANALYSIS 10 JULY 2015
GREEK DEAL HANGS IN THE BALANCE
Decision on Greek bailout to be made over the weekend
• Fed Chair Yellen delivers semi-annual testimony to Congress
• Headline UK inflation to mask underlying upside price pressures
Greek crisis enters final stage? The Greek government has finally submitted detailed proposals to its creditors as the basis for a 3-year programme of support. These are being examined by the creditors and euro area finance ministers ahead of a Eurogroup meeting tomorrow. The Greek parliament is also set to vote on the package today or tomorrow. Although approval is expected, any government MPs that vote against the proposals may be viewed as a possible signal of implementation risk.
Tomorrow’s Eurogroup meeting will be critical to any agreement. If the Greek plan is approved on Saturday (with the possibility of a bridge loan until the ESM process is complete), then a scheduled EU leaders’ Summit on Sunday could be cancelled and from Monday the ECB should gradually attend to the liquidity crisis in the Greek banking sector. If there are still outstanding issues to be resolved then the Eurogroup can meet again on Sunday. However, a complete breakdown of negotiations would probably see the EU Summit discuss a Grexit and its ramifications. In the first instance, Monday could see the ECB withdraw ELA support. Against what could be a fairly febrile backdrop, several data releases, including Tuesday’s German ZEW and euro area industrial production will probably attract minimal attention. Thursday’s ECB policy announcement should, assuming a full agreement, leave policy unchanged. However, in the event of a Grexit, it is possible that QE could be extended. In any case, President Draghi can expect some pointed questioning on the Greek situation.
Worries about the Chinese outlook have re-emerged with the recent slump in equity prices which has seen losses in excess of $3.5trn or 30% of market capitalisation since mid-June. While this can be viewed as a correction to the sharp run-up in prices over the previous year, the knock-on effects could press on medium-term activity and feed through to lower commodity prices, especially of industrial metals and crude oil. Such concerns will intensify the scrutiny of several Chinese data releases this week, including June figures for trade (Mon) retail sales (Weds), industrial production (Weds), and especially Q2 GDP (Weds).
Janet Yellen’s semi-annual testimony to Congress this week will offer further clues about the Committee’s thinking on the possibility of a hike in the policy rate before the end of the year. The key focus will be the Fed’s assessment of recent domestic developments which largely point to a solid rebound in US activity from the contraction in Q1. However, the Committee will be concerned about recent events in Greece and China, and Yellen may hint at a possible delay in the start of policy lift-off. Her pronouncements will be complemented by speeches from several other FOMC members through the week, in particular Vice-Chair Fischer on Friday. There are also several notable data releases which will help to round out the Q2 outlook including retail sales (Tues), industrial production (Weds) and CPI (Fri).
Underlying UK inflationary pressure set to rise. After returning to positive territory in May, we foresee headline inflation remaining at 0.1% in June (Tues), largely on the back of sterling strength. However, Wednesday’s labour market release should confirm that wage pressures are continuing to build with an expected 3.3% rise in headline pay for May, which would be the largest increase since July 2008.
The Bank of Canada’s monetary policy announcement (Thu) is expected to leave the policy rate unchanged at 0.75%. However, with the economy having now shrunk for four consecutive months, there is the risk of a cut.
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