Friday October 23, 2015 - 16:33:23 GMT
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WEEK AHEAD ECONOMIC DATA ANALYSIS 23 OCToBER 2105
NOT YELLEN FROM THE ROOFTOP
- US FOMC to stand pat, but risk of further policy easing in Japan
- UK and US GDP to slow in Q3, but underlying activity holding up relatively well
- Eurozone inflation and US wage growth also in focus
Risk sentiment was supported last week by a smaller-than-expected easing in China’s Q3 GDP growth rate to 6.9% y/y and cuts in interest rates and the reserve requirement ratio by the PBoC. China’s top officials in the coming week will hold its Fifth Plenum to agree the five-year economic plan for 2016-2020. In Europe, a strong signal from ECB President Draghi on the likelihood of further policy stimulus helped to weaken the euro. Mr Draghi emphasised that “the degree of monetary accommodation will be re-examined” at the next meeting in December and that “all the instruments available” will be considered, including the possibility of a cut in the deposit rate.
The US FOMC is almost certain to leave policy unchanged (Wed) as members wait for more evidence before deciding on whether to pull the trigger. There is no scheduled press conference at this meeting, but the statement will be perused closely for any hints about the potential for ‘liftoff’ in December. With another two employment reports to be released before then, we expect the statement to remain noncommital about the timing of the first rate rise. For now, we have maintained our central view that policy tightening starts in December, in line with the majority of economists.
The advance estimate of US Q3 GDP (Thu) will appear deceptively weak, In particular, the Bank of Japan policy meeting (Fri) appears to be a close call on whether further easing will take place. Recent data indicate that the economy may have contracted again in Q3. The September industrial production figures (Wed) could therefore be pivotal for policymakers. Thus far, there has been no explicit signal from Japanese officials of more impending policy stimulus. Sweden’s Riksbank and the Reserve Bank of New Zealand (both Wed) will also announce their policy decisions. Policy rates are expected to remain on hold at -0.35% and 2.75%, respectively.
There is a risk of policy easing by other central banks next week. In particular, the Bank of Japan policy meeting (Fri) appears to be a close call on whether further easing will take place. Recent data indicate that the economy may have contracted again in Q3. The September industrial production figures (Wed) could therefore be pivotal for policymakers. Thus far, there has been no explicit signal from Japanese officials of more impending policy stimulus. Sweden’s Riksbank and the Reserve Bank of New Zealand (both Wed) will also announce their policy decisions. Policy rates are expected to remain on hold at -0.35% and 2.75%, respectively.
Eurozone inflation (Fri) is set to remain weak. with the flash estimate for October expected to be 0.0% y/y on the headline measure and 0.9% y/y for the core rate. The ECB has already signalled that it is preparing the ground to expand stimulus later in the year on account of increased concerns that it might miss its inflation target over the medium term. The German IFO business survey (Mon) may weaken, with sentiment possibly affected by the Volkswagen scandal.
The first estimate of UK Q3 GDP (Tue) is expected to show a slight weakening in the pace of growth from 0.7% q/q in Q2, but it is still forecast to remain relatively robust at 0.6% q/q in line with the Bank of England’s central staff forecast. Evidence from the latest PMI survey, in particular for services, may be overstating the degree of slowdown. Our own Lloyds Business Barometer survey indicates that activity has held up relatively well in Q3, as chart 2 shows and the October survey (Fri) will provide an early indication of activity for the start of Q4.
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