Friday June 5, 2015 - 16:26:14 GMT
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Week Ahead - ECONOMIC DATA ANALYSIS FRIDAY 5 JUNE 2015
GREECE: NOTHING IS AGREED UNTIL EVERYTHING IS AGREED
Bundling of upcoming Greek IMF payments pushes the ‘hard’ deadline to end-June
First official data on UK and Eurozone activity picture in Q2
US retail sales unlikely to be a step-change for US outlook following strong payrolls
Bundling of Greek IMF dues in June sets a hard deadline at the end of the month. Ongoing Greek negotiations with creditors, which had seemed to be approaching ‘final’ bargaining positions - with notable progress around ameliorating fiscal surplus targets - risked being upset by a Greek decision to bundle upcoming dues to the IMF into one payment at the end of June. Last used by Zambia in the 1980s, the move removes near-term default risk while emphasising the parlous state of Greek finances, shifting the focus to the overall bailout expiry date at the end of the month. A softer deadline of the 14th of June - time needed to permit the approval of necessary legislation by Germany’s Bundestag - forms an interim hurdle. Negotiations around the release of liquidity to meet upcoming payments now appear secondary to broader questions around what happens when the current bailout programme expires. The failure to reach a new overall agreement - or another creative extension - would entail the likely withdrawal of the ECB’s ELA facility to Greece and, with a challenging profile for external Greek obligations over July and August, a disorderly Grexit.
Bund sell-off risks tightening Eurozone monetary conditions against an improving growth backdrop. Rising Eurozone and global yields - running counter to the intended short-run effect of the ECB’s asset purchase programme - seem unlikely to result in calls to raise the pace of QE purchases. With costs of borrowing to corporates still drifting lower (Chart 2), and the Euro effective exchange rate still 7% below its level in December 2014, the ECB’s monetary stimulus is still seen to be having the desired effect. Meanwhile, Eurozone industrial production data (Fri) will help gauge the extent of the improvement in the activity outlook at the start of Q2. German IP data (Mon) could follow the strength seen in already-released factory orders data.
First hard data on UK activity picture in Q2. With UK GDP growth of 0.3% in Q1 so far unrevised from its first estimate - against BoE expectations of 0.5% in mature data - some recent softening in business surveys, notably of PMIs, suggests that the bounceback in Q2 may be more modest than previously expected. On the evidence so far, we expect growth of 0.6%, but April’s industrial production (Wed) and construction (Fri) reports will provide the first official insight to Q2 activity. Within our 0.6% GDP growth expectation we anticipate some pullback in both following strong prints for March. Meanwhile, Mark Carney’s Mansion House speech could provide a steer on the UK rate outlook.
US retail sales report key, but unlikely to markedly shift post-payrolls sentiment. Even in the aftermath of the solid May employment report, the onus remains on lasting evidence of a return to US growth in Q2 and over 2015 for the FOMC to proceed towards the tightening of monetary policy this year. The apparent reluctance of US consumers to spend the windfall from lower fuel costs remains surprising, and will be watched for in the May retail sales report (Thu). Robust car sales and recovering gasoline prices are expected to support a strong monthly gain in values sold, although the ‘control group’ figure - which feeds into estimates of GDP - is likely to be weaker. June’s Michigan consumer sentiment survey (Fri) will also be of keen interest.
Global activity outlook also hinging on Chinese momentum. With the strength of growth in the US still not altogether convincing and Greek risks to the Eurozone remaining a worry, May’s Chinese data will also provide further insight as to whether activity is stabilising following the authorities’ recent incremental stimulative measures. Trade data (Mon) alongside industrial production and retail sales (Tue) will also be watched for commodity demand implications for Australia and New Zealand, with the RBNZ’s June rate decision (Thu) seen as finely balanced between a 25bp cut and hold.
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