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Forex: Preview of economic releases in the next two weeksEconomics Weekly: Preview of economic releases in the next two weeks
Week of December 26 2005
US and European markets are closed on Monday, UK markets remain shut on Tuesday as well. Investors may concentrate on economic data from Japan. The jobless rate is expected to decline from 4.5% to 4.3%, due to stronger economic growth in recent quarters – 2.7% annual growth in Q2 and 2.8% in Q3. This renewed growth is bringing an end to seven years of deflation and annual core CPI is expected to increase by 0.2% in November, only the second positive number since April 1998. Following comments from the Bank of Japan (BoJ), a positive set of core CPI data could reinforce the view that the BoJ could soon shift monetary policy to a less expansionary mode. The flash estimate for November industrial output is expected to show a strong 1.9% increase on the month, reflecting buoyant export sales. Investors will also focus on retail sales looking for confirmation that economic growth can become more self-sustainable in 2006.
On Wednesday, US consumer confidence is expected to continue its rebound from post hurricane lows. A further drop in mortgage rates over the last few weeks and steady oil prices are expected to have bolstered morale. The median forecast is for a rise to 102 in December from 98.9 in November. EU-12 economic growth perked up in Q3'05 as exporters continued to capitalise on a 13% depreciation of the euro against the dollar this year. Investment showed some recovery in the third quarter, but the consumer side of the economy remains fragile. With the leading German institutes recently raising their forecasts for German GDP growth this year, investors will turn to the release of German consumer confidence on Wednesday for evidence that domestic demand could finally be strengthening.
On Thursday, EU-12 M3 money supply data for November is expected to show stable annual growth of around 8%, around twice the nominal growth rate of gdp. The consistently elevated level of M3 growth (above 4.5% ECB reference target), and above target CPI inflation were behind the ECB’s recent interest rate hike.
The week is quiet for the UK, except for the release of BBA mortgage lending data for November on Thursday, which will give some indication of the strength of the housing market ahead of the full Bank of England release the week after. Other clues to the housing market will be published on Friday when the Nationwide publishes its December house price index; house price data in recent months have been stable to strong, most recently illustrated by a rise in the RICS index for the first time in 15 months. Although the UK economy is growing at half last year’s rate, there are signs from the housing market and retail spending that it could be over the worst and this could be reflected in a less negative GfK consumer confidence index in December, up from -8 in November to -6, on Friday.
Week of January 3rd 2006
UK, US and Japanese markets are closed on Monday 2nd of January, but the rest of the week is pretty packed with data, most of which are likely to confirm trends seen towards the end of 2005. The UK releases PMI data; on Tuesday expected to show stable manufacturing at around 51.0 in December, see chart 1. A solid services index of 56.0 is expected on Thursday, up from 55.8 in November, see chart 2. On Wednesday, the Bank of England releases lending to individuals data for November; the market median forecast for consumer credit is expected to be stable at £1.3bn, while net mortgage lending could rise from £7.6bn to £7.8bn in the month. Also, the average forecast for housing approvals, a key predictor of housing market trends, is for 113,000, the same as a month earlier, and the highest level since June 2004 - the risk to the forecast is also on the upside. With this in mind, 2006 will be an interesting year for the UK housing market.
In the EU, our forecast is for the manufacturing PMI to strengthen to 53.6 in December up from 52.8 a month earlier; echoing a solid increase for business confidence in Germany andb Italy. This will take the index above the key expansion level of 50 for a sixth consecutive month. By contrast, little change on the month is expected in the EU-12 services PMI released on Thursday at around 55. Also, published on Thursday, EU-12 producer prices could come off a touch on the month and retail sales should show growth of around 0.3% in November, hovering just below 1% growth on the year. German factory orders for November could show very strong growth on the year of 12%, highlighting the improvement in Germany’s industrial base over the course of this year thanks to buoyant overseas demand for capital goods. Eurozone CPI for December is forecast to have slowed for a second month to 2.4%, released on Wednesday.
US data releases will culminate in the key non-farm payroll release on Friday; the market median forecast is for a 150,000 increase in jobs in December, a more average level, down from 215,000 in November. Stable average earnings growth of 3.2% on the year is benign for US inflation, which has dipped to 1.8%. The ISM survey index for manufacturing due Tuesday is expected to remain stable at 58, while the services ISM index due Thursday could move above 60 again, reflecting continuing strong growth in the services side of the US economy. The minutes of the December 13 Fed FOMC meeting will be published on Tuesday and will be closely examined to understand what a more dovish FOMC statement could mean for the fed funds rate.
The next Economics Weekly is published on January 9th 2006. We wish all our readers a Happy Christmas and a prosperous New Year
Nichola James, Senior Economist
Kenneth Broux, Economist
Lloyds TSB Bank,
London EC3R 8BQ
0207 283 - 1000
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