Friday November 13, 2015 - 15:59:35 GMT
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WEEK AHEAD: ECONOMIC DATA ANALYSIS Friday 13 November 2015
US VERSUS THE REST OF THE WORLD
US data to support December ‘liftoff’, while UK policy to remain on hold for now
Weak commodity prices to maintain easing bias elsewhere
UK CPI inflation still negative and slow to return to target
With the Bank of England expected to sit on its hands until well into next year, most attention will focus on whether, when and to what extent other major central banks will change their policy. Despite further weakness in global commodity prices, the US Federal Reserve looks set to raise interest rates next month for the first time in nearly a decade, as domestic price pressures build. In contrast, policy is biased towards more stimulus in other jurisdictions, notably in the Eurozone, but also potentially in Japan, Australia and Sweden. As such, sterling may continue to be caught in the crossfire between the US dollar on the one hand and other major currencies on the other.
The gap between US headline and ‘core’ CPI (Tue) should narrow. The unusually large gap between the headline and core measures is a result of the sharp fall in energy prices. We expect this gap to narrow quickly in the coming months, helped by rising domestic price pressures, which should support the case for policy normalisation. For October, we look for headline annual CPI to edge up to 0.1%, while core CPI is forecast to stay at 1.9%. The coming week also sees the release of various manufacturing indicators, including industrial production (Tue), the Empire survey (Mon) and the Philly Fed survey (Thu), which are expected to show some improvement. The FOMC minutes of the 27-28 October meeting (Wed) predate the strong October labour market figures and, as such, may not generate as much attention as upcoming Fed speakers.
The minutes of the October ECB meeting (Thu) could generate some interest if they contain more detail on the discussion of different policy easing options. President Draghi repeated in his testimony to the European Parliament that the degree of monetary accommodation will be ‘re-examined’ in December. This seems most likely to involve an extension of the programme beyond the current expected end date of September 2016, as well as a possible reduction in the deposit rate, but other options include increasing the pace of asset purchases and widening the range of assets for purchase. Final Eurozone CPI for October (Mon) is expected to confirm headline annual inflation at 0.0%. With global energy prices remaining under pressure, we expect CPI inflation to rise more slowly than the ECB envisaged in its staff forecasts in September, hence providing a key justification for more policy easing.
RBA minutes (Tue) and the Bank of Japan policy decision (Thu) will be closely watched. The surprisingly strong Australian labour market figures over the past week have resulted in less pressure for a further rate cut this year, though weak global commodity prices are expected to maintain an easing bias. The Bank of Japan is expected to keep policy unchanged, but attention will focus on Governor Kuroda’s press conference for clues about the possibility of additional stimulus. Ahead of the meeting, Japan Q3 GDP growth (Sun) is expected to be close to zero, but a significantly negative print would increase the risk of further policy easing.
The domestic focus will be on CPI (Tue) and retail sales (Thu). The Bank of England’s latest forecasts suggest headline CPI will remain below 1% until the second half of 2016, returning to target only in late 2017. We expect October annual CPI to stay at -0.1%, while retail sales should fall back following the surge in September related to the Rugby World Cup. The last set of public finance figures (Fri) will be released ahead of the Autumn Statement on 25 November. We will be providing
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