Friday January 15, 2016 - 18:24:09 GMT
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WEEK AHEAD: EONOMIC DATA ANALYSIS
Friday 15 January 2016
CHINA TO SHED LIGHT ON GLOBAL OUTLOOK
Chinese data and crude oil to drive market sentiment
Positive base effects to underpin small rises in US and UK CPI inflation
ECB and BoC to maintain policy stances
China growth concerns overdone? Despite relatively upbeat Chinese December external trade data, global equity markets, benchmark bond yields and oil prices have continued to falter. One reason for the limited impact of the positive export news was the concern that it may have simply reflected the pass-through from the depreciation of the yuan since August, rather than strengthened global demand. Nonetheless, the accompanying less-than-expected drop in imports chimes with the view that China’s internal growth dynamics may have firmed towards the end of last year, possibly in response to stimulus measures already undertaken. In any case, Chinese December data on industrial production, fixed asset investment and retail sales, as well as Q4 GDP (all Tue), will provide a further steer on the outlook for activity. However, it may take a prolonged run of positive surprises to dent the current bout of strong risk-off sentiment.
Oil under scrutiny. Global growth anxieties have underpinned further declines in crude oil prices with Brent dipping below $30/bbl for the first time since 2004. This, along with the prospect of increased Iranian supply over the next few months adding further downward price pressure, has prompted speculation that OPEC could formally meet before its scheduled early June gathering to discuss supply reductions. However, for now this seems to have been rejected by several Gulf members, including Saudi Arabia. In the meantime, the monthly oil market assessments from OPEC (Mon) and IEA (Tue) will be pored over for updates on demand/supply imbalances.
US and UK inflation set to edge up in December. The recent relapse in energy prices is set to impart further disinflationary pressure on headline inflation rates across developed markets. However, for now any downside impact is likely to be outweighed by opposing base effects from the steep declines of a year ago, pushing December annual headline price growth in the UK (Tue) and US (Weds) up to 0.2% and 0.7% respectively, from their corresponding 0.1% and 0.5% November prints. The movements in core inflation, (excluding energy and food), will provide a better perspective on underlying price trends. We anticipate 0.1pp rises in both, to 1.3% and 2.1% respectively. Meanwhile, the final release of December’s euro area CPI (Thu) is expected to confirm a continuation of November’s 0.2% annual rise.
Mixed messages from UK labour market. The minutes from this month’s MPC policy meeting suggest that, despite another drop in unemployment, the recent run of very weak inflation prints may have contributed to a dip in pay growth, to 2.4%, in the three months to October. Taken together, these wage and unemployment developments have mixed implications for both domestic cost pressures and household spending. With Wednesday’s labour market data expected to show a similar picture - we expect wage growth and unemployment to fall to 2.0% and 5.1%, respectively-December’s retail sales figures (Fri) will be scanned for signs that consumption remains poised to continue driving activity. Although December’s public finance figures (Fri) should show an improvement from November’s £14bn shortfall, a protracted period of weak pay growth could further threaten the OBR’s 2015-16 £69bn borrowing target. Meanwhile, speeches by BoE Governor Carney (Tue) and external MPC member Vlieghe (Mon) may elaborate on the risks from a premature tightening of policy.
ECB and BoC to remain pat. As the ECB (Thu) is likely to leave policy unchanged, market attention will focus on President Draghi’s press conference for clues about further potential loosening. January survey data, including the German ZEW (Tue) and euro area preliminary PMIs (Fri), will also offer guidance on the economic outlook. Wednesday sees the Bank of Canada policy announcement. The recent fall in the Canadian dollar has broadly offset the negative impact of lower oil prices
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