Friday October 16, 2015 - 18:05:58 GMT
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WEEK AHEAD ECONOMIC DATA ANALYSIS Friday 16 October 2015
CHINESE ACTIVITY UNDER THE SPOTLIGHT
Official Chinese data set to reassure markets about economic outlook
ECB to maintain current policy stance but signal that further QE remains possible
US focus remains on FOMC policy differences
Chinese growth outlook to stablise? The recent disappointing run of Chinese data, including the PMIs, trade and inflation, has raised fears of a hard-landing. However, August saw the government attempt to counter with a 25% y/y increase in spending and the promise of a further boost before the end of September. Much of this outlay has been directed at infrastructure projects and may already have fed through to help support September industrial production and fixed assets investment (Monday). In any case, market interest is likely to focus on Monday’s Q3 GDP release. Although the expected 6.8% y/y print falls short of the government’s 7.0% target for 2015, the spending injection, alongside the strong possibility of further near-term monetary policy loosening, will provide some reassurance that the economy remains on track to meet the official target. Looking further ahead, the October 26-29 meeting of the top policy-making body, the Plenum, could see a cut in the 2016-20 growth objective as part of the rebalancing process..
Draghi to stand firm against more QE for now. President Draghi and other ECB Board members have acknowledged that the downside risks to euro area growth and inflation have increased since the summer. Although recent survey and official indicators have held up fairly well, the easing in global activity along with the pass-through from lower commodity prices and the pickup in the euro is likely to slow the pace at which inflation will return to target. Nonetheless, Thursday’s policy announcement seems likely to maintain the central view of the Council that an extension of its QE programme remains unwarranted at this point. Such an outcome would see market attention shift to the December meeting when the staff projections, which currently envisage headline inflation prints of 1.1% and 1.7% in 2016 and 2017 respectively, are set to be updated. In the meantime, this week’s preliminary PMIs for October (Fri) are likely to signal a moderate easing in activity. Friday is also set to see the publication of the Q4 Survey of Professional Forecasters whose current growth and inflation forecasts of 1.8% and 1.3%, respectively, for 2016 could be downgraded..
Policy differences emerge on the FOMC. Despite the FOMC’s decision to keep policy unchanged at its September meeting, the accompanying “dot-plot” of Committee participant’s interest rate expectations left the door for a hike before the end of the year ajar. However, since then some weak domestic indicators have pushed out market expectations of the first hike to March next year. Further doubts on a 2015 move have been spurred by recent comments from Fed Governors Brainard and Tarullo. Both highlighted the prolonged weakness of US inflation and openly questioned the idea that the tightening labour market was, at the moment, a useful sign of mounting price pressures. Given the backdrop of a light US data calendar and with the October 28 policy decision coming into view, this week’s scheduled remarks by Governor Powell and New York Fed President Dudley (Tue), are likely to attract considerable attention.
Quiet week for UK data. Retail sales (Thu), which have eased of late, are of most interest. With both underlying fundamentals and survey evidence pointing to firming purchases, we anticipate a September print of 4.6% y/y, up from 3.7% in August. Governor Carney’s TSC testimony (Tue) is likely to focus on macro-prudential issues, but his Wednesday lecture could provide some insights into the policy outlook.
Bank of Canada to stay pat.. Following its July policy rate cut, the BoC is expected to hold at 0.5% (Wed)..
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