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Friday October 24, 2014 - 15:42:06 GMT
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 Friday 24 October 2014


  • ECB to deliver its Comprehensive Assessment on Sunday
  • FOMC to end QE but leave forward guidance broadly unchanged
  • Modest uptick in euro area inflation to do little to ease slowdown fears

Market moves over the past week have reflected some signs of relief over the extent of the slowdown in global growth following reasonably firm GDP data in both China and the UK. The past week’s better-than-expected euro area PMIs also eased regional recession fears. Equity markets reacted positively to these developments with the S&P 500 and FTSE 100 up almost 5% and 2.5% respectively, on the week.

The official results of the ECB’s Comprehensive Assessment (of the health of the region’s banks balance sheets) are published on Sunday. These could well dominate market sentiment over the coming days. The Comprehensive Assessment will include a risk assessment, an Asset Quality Review (AQR) and a stress test. While individual banks will have already been made aware of the findings, the public disclosure represents the start of the two-week window, for institutions deemed to be short of capital to put forward their capital raising plans.

Over the course of the week, the focus is likely to shift back to the euro area economic outlook. The October ‘flash’ euro area PMIs pointed to some stabilisation in several parts of the region, in particular Germany. However, forward-looking components of the German PMIs and the ZEW survey suggest that sentiment remains fragile. This concern could be exacerbated by the October German IFO (Mon.) which is forecast to post a fifth consecutive decline, from 104.7 to 104.5.

With fears of outright euro area deflation German state CPI data for October will be closely watched on Thursday morning ahead of the official release in the afternoon and the euro area preliminary CPI the next day. While an unchanged “core” rate and modest uptick in the headline rate are likely to help the ECB justify keeping policy unchanged for now, the prevailing weakness of growth and inflation raise the distinct prospect of further stimulus (QE) over the coming months.

In contrast, the outlook for the US remains more upbeat. Following the distortions to growth in the first half of the year, the Q3 GDP release (Thurs.) will provide the first ‘clean’ reading of quarterly growth for 2014. We expect the economy grew at a solid annualised pace of 3.0% in Q3. Ahead of this, September durable goods orders (Tues.) are forecast to show some stabilisation following August’s steep 18.4% decline. Consumer confidence surveys from the Conference Board (Tues.) and Uni. of Michigan (Fri.) are also expected to remain relatively upbeat, while the Chicago PMI (Fri.) is predicted to drop back a little in October, but remain at an elevated level.

The FOMC meeting is expected to announce a reduction of $15bn in its monthly pace of bond purchases, effectively bringing an end to their QE programme. While this is widely expected, changes to the accompanying policy statement will attract significant attention. The minutes of the September meeting noted most of the Committee were concerned that a change in the ‘considerable time’ language would lead to an unwanted tightening in financial conditions. Comments from various Fed officials in recent weeks have done little to change this perception and we expect the FOMC to make little change to its policy guidance at this meeting.

Elsewhere, it is a thin week for UK data. Following the 0.7% q/q preliminary estimate for Q3 GDP, attention will turn back to the prospects for Q4. Ahead of the guiding PMI surveys for October, the release of our own Lloyds Bank Business Confidence Barometer (Thurs.) will be watched for an early insight into the strength of activity. Earlier in the week (Tues.) money supply, mortgage approvals and consumer credit are also due. 





This document, its contents and any related communication (altogether, the 'Communication') does not constitute or form part of any offer to sell or an invitation to subscribe for, hold or purchase any securities or any other investment. This Communication shall not form the basis of or be relied on in connection with any contract or commitment whatsoever. This Communication is not intended to form, and should not form, the basis of any investment decision. This Communication is not and should not be treated as investment research, a research recommendation, an opinion or advice. Recipients should conduct their own independent enquiries and obtain their own professional legal, regulatory, tax or accounting advice as appropriate. Any transaction which a recipient of this Communication may subsequently enter into may only be on the basis of such enquiries and advice, and that recipient’s own knowledge and experience. This Communication has been prepared by, and is subject to the copyright of, Lloyds. This Communication may not, in whole or in part, be reproduced, transmitted, stored in a retrieval system or translated in any other language in any form, by any means without the prior written consent of Lloyds. This Communication is provided for information purposes only, and is confidential and may not be referred to, disclosed, reproduced or redistributed, in whole or in part, to any other person. This Communication is based on current public information.


 Whilst Lloyds TSB ank plc (“Lloyds TSB”) and Bank of Scotland plc ("Bank of Scotland") have exercised reasonable care in preparing this material and any views or information expressed or presented are based on sources it believes to be accurate and reliable, no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of the facts and data contained herein.


This material has been prepared for information purposes only and Lloyds TSB, Bank of Scotland, their directors, officers and employees are not responsible for any consequences arising from any reliance upon such information. Under no circumstances should this material be treated as an offer or solicitation to offer, to buy or sell any product or enter into any transaction. If you receive information from us which is inconsistent with other information which you have received from us, you should refer this to your Lloyds TSB or Bank of Scotland Relationship Manager for clarification.


Lloyds Bank Corporate Markets, Lloyds TSB Corporate Markets and Lloyds TSB are trading names of Lloyds TSB Bank plc, Lloyds TSB Scotland plc and Bank of Scotland plc. Lloyds TSB Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065. Lloyds TSB Scotland plc. Registered Office: Henry Duncan House, 120 George Street, Edinburgh EH2 4LH. Registered in Scotland no. 95237. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no. SC32700. Authorised and regulated by the Financial Services Authority under registration numbers 119278, 191240 and 169628 respectively.


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