In the euro area, focus this week will be on the ECB meeting. Macroeconomic data due for release should not reap particular effects on the markets, confirming depressed PMIs, persistently weak retail sales both in Germany and in the area euro as a whole, a tendency towards a further increase in unemployment in Italy and in the euro area, and a likely drop in manufacturing orders in Germany……
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A host of economic data is due for release this week in the United States. The September employment report should record a change in non-farm payrolls only slightly larger than in August. The unemployment rate may be up due to higher participation. ISM indices should prove broadly unchanged in September, signalling a stagnation of manufacturing and a modest expansion of the non-manufacturing sector; construction spending should record a moderate increase. Auto sales should be in line with August data. The minutes of the September FOMC meeting are expected to reveal consensus for a likely extension of QE3 into 2013, even in the face of some opponents of the program.
Monday 1 October
Euro area
The September manufacturing PMI should confirm the preliminary estimate of 46 (up from 45.1 in August). The divergence between the German index, on the rise, and the French, on the decline, will also be confirmed. The first reading of the Italian PMI could reveal easing pessimism, rising to 44.1 from 43.6. The level of the euro area PMI remains compatible with a contraction in GDP.
The unemployment rate in the euro area is estimated to be up by one tenth in August, to 11.4%; this would mark a new historical high since the series began over 20 years ago. Unemployment could prove to have stayed stable in core Europe, as opposed to a further rise in peripheral countries. Future prospects are for an ongoing deterioration in labour market conditions until the first half of 2013.
Italy. The unemployment rate may rise back up in August, to an estimated 10.8%, after staying stable at 10.7% in July. Youth unemployment could rise to a new historical high. The deterioration of labour market conditions should continue through the first half of 2013.
Germany. Retail sales are expected to have recovered modestly in August, to +0.2% m/m from -1% m/m in July. The marginal recovery forecast in August would translate into a -0.9% contraction in year-on-year terms. In Germany as well, the trend of consumer spending is by no means brilliant, and is expected to have slowed this quarter.
United States
The manufacturing sector ISM should climb back to 50 in September, from 49.6 in August.The Philly Fed and Dallas Fed indices stayed in negative territory, while rebounding moderately; the Richmond Fed index improved to 4 in September, from -9 in August, rising above zero for the first time since May. The Empire, on the other hand, slipped even further, although broken down data drew a markedly less bleak picture than the activity index, suggesting that the overall reading priced in excessive pessimism. In any case, there is no indication of the ISM managing to rise significantly above 50: the index would stay at around 50 for the fourth month in a row, confirming a lack of direction and a stagnation of activity. Until uncertainties lift on the fiscal outlook and on the “fiscal cliff”, businesses are likely to remain extremely cautious, and the postpone spending and hiring decisions. This means significant weakness should persist at least until November.
Construction spending in August should be up by +0.2% m/m, after the surprise decline in July (-0.9% m/m). In previous months, spending in the residential segment had increased at brisker rates than justified by the underlying trend, also positive, of housing starts; therefore, the sector should show modest growth. The other components of construction spendine (commercial and public, which together account for around 80% of the total) should prove stagnant, containing the overall trend, despite the generally positive performance of the residential sector.
Tuesday 2 October
Euro area
The PPI will rise sharply in August, both on a monthly basis (+0.9% m/m in our estimation), and year-on-year (from 1.8% to 2.8%), following the increases recorded in all the main countries (Germany +0.5%, France +1.2%, Italy +0.8%, Spain +1.1%). Energy was the main driver of the increases. However, going forward, pressures upstream of the production chain do not seem not pose a significant threat to the outlook, especially net of the most volatile components.
United States
Auto sales in September are estimated to approximately stable at 14.4 million ann.; September is the tail-end month for the sale of 2012 models, in waiting for deliveries of new models to start in October. Sales should stay at their current levels in the closing months of the year.
Wednesday 3 October
Euro area
In September, the composite PMI could confirm the preliminary reading of 45.9, down marginally from 46.3 in August. The services index could also be confirmed at 46 (down from 47.2 the previous month). The divergence between a rising index in Germany and a declinino one in France should be replicated in the services sector as well. The initial estimate of the Italian services PMI could bring a drop to 41, after the rebound to 44 in August.
Retail sales in the euro area are expected to have contracted again in August, we estimate by at least two tenths of a percentage point. Demand should stay weak in all euro area countries, and low consumer confidence does not allow for expectations of a trend reversal in consumption in the months ahead.
United States
The non-manufacturing ISM is expected to be little changed in September, and to stay at 53.5, not far off the 53.7 index in August, in line with the average for the past five months. Broken down survey data in August was broadly in line with the July breakdown. The sector is still expanding at a moderate pace, with no indication of accelerating.
Thursday 4 October
United States
The minutes of the September FOMC meeting will be important in shedding some light on the opinions of participants with regards to the future of QE3. We believe there is widespread consensus in favour of an extension of QE3 into the opening quarters of 2013, together with an expansion of the total amount of outright security purchases, to keep the total purchased at the long end of the curve broadly stable: at the end of the year, when Operation Twist will be over, the FOMC should announce around 40-45Bn in purchases of Treasuries, on top of the 40Bn in MBS included in the programme specified in September. The minutes should also show widespread consensus on the forecast of broadly unchanged labour market conditions in the next two quarters. Furthermore, the minutes are expected to document an intense discussion (still open at the moment) on the anchoring of new stimulus measures to a “substantial improvement” in labour market conditions. For now, the condition on which tobase continuation of the stimulus programme should stay intentionally vague, given the difficulties in finding an agreement on more specific conditions.
Friday 5 October
Euro area
Germany. After rebounding in July (+0.5%), factory orders are expected to drop again in August, by -0.4% in our estimation. Foreign orders should continue to weaken, from other euro area countries in particular. The indications provided by forward-looking indices support expectations for a further weakening of demand in the second quarter of the year.
United States
The September employment report should record a change in non-farm payrolls of 115k, from 96k in August (average for the past three months: 94k). In August, employment data was distorted by the shutdown of auto production facilities over the summer for maintenance: September should bring a resurgence in the underlying trend of job creation, to close to 120- 130k (average since the beginning of the year: 139k). Employment in the private sector should be up by 120k. The unemployment rate could climb back to 8.2% in the wake of a modest recovery of the participation rate, after the two-tenths correction seen in August. Hourly wages should grow by 0.2% m/m.
Appendix
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