Friday August 7, 2015 - 16:52:28 GMT
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Week Ahead: ECONOMIC DATA ANALYSIS FRIDAY 7 AUGUST 2015
CHINA SETS THE TONE
Weak Chinese data would add to mounting concerns about the global outlook
Rebound in US retail sales to keep September FOMC policy hike firmly on the cards
UK labour market data to signal rise in productivity growth
Chinese data pose further downside risks to market sentiment. Against the backdrop of the sharp decline in Chinese equities since mid-June, July’s weaker-than-expected manufacturing PMIs have reinforced concerns about the underlying momentum of the economy and the implications for global activity. Such worries have underpinned ongoing price declines in key industrial metals such as copper and aluminium, while Brent crude has slipped below $50 for the first time since January. Risk sentiment will be further tested by upcoming Chinese releases including July figures for industrial production, fixed investment and retail sales which are all released on Wednesday. The latter are likely to attract particular attention as an indicator for any pass-through from the nearly 30% decline in domestic equity markets to household spending.
US data remain on track for September lift off. Despite signs that global activity has softened in recent months, the recent pattern of US data releases, including the employment report and non-manufacturing PMI, suggest that the Fed is still on course to raise the policy rate in September. In addition to the FOMC’s avowed intention for any decision to be driven by the data, our position has been reinforced by recent upbeat comments from St Louis and Atlanta Fed Presidents Bullard and Lockhart respectively. Most of next week’s US releases are second tier. However, markets will be paying special attention to July retail sales (Thu) for a steer on the underlying strength of consumer spending. June saw an unexpected 0.3% fall in outlays, partly on the back of an early Memorial Day holiday which appeared to shift some purchases forward into May. With reports of strong July car sales we anticipate a 0.7% m/m advance. The preliminary Michigan consumer sentiment index for August (Fri) is also expected to register an improvement on the month.
Bank of England set to maintain policy stance for longer. Along with a more dovish than expected 8-1 vote in favour of keeping policy unchanged, the August Inflation Report also presented a more benign assessment of near-term inflationary pressures than its May counterpart. Consequently, we have relaxed our call for November hike in the Bank Rate. Part of the MPC’s adjustment reflected a 3% rise in trade-weighted sterling along with a 12% fall in oil prices. However, the outlook for inflation further out is little changed. The Committee also anticipate a near-term improvement in productivity growth. The labour market report (Wed) is expected to support such a pickup with a repeat of last month’s retreat in the level of employment. Meanwhile, the unemployment rate is expected to edge up to 5.7% and headline pay growth soften a touch to 2.7%.
Euro area growth prospects return to the fore. The Greek crisis has, in the near-term, faded from euro area headlines. However, with the August 20 deadline for Greece’s €3.2bn payment to the ECB approaching, interest in the ongoing negotiations between the Tsipiras government and Greece’s creditors is likely to resurface. Nonetheless, the outlook for euro area growth is likely to be the dominant theme of the week. Preliminary Q2 GDP figures for France, Germany, Italy and the Euro area (Fri) are set to show a continuation of the recovery with the latter holding firm at 0.4% q/q. After falling for four consecutive months to its lowest level since last October on the back of Grexit worries, the August print of the forward-looking German ZEW index (Tue) is anticipated to rebound. Despite the recent decline in the oil price, the final headline and core CPI inflation figures for July (Fri) are poised to confirm their initial annual prints of 0.2% and 1.0% respectively.(Fri) are poised to confirm their initial annual prints of 0.2% and 1.0% respectively.
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