In the euro area, the IFO and the BNB index may slide in December whilst the INSEE index will likely stay unchanged. National confidence indices are consistent with a mild technical recession over the year turn in core countries as well. Marginally more positive indications should come from households’ confidence indices, expected to be on the recovery in the euro area and in Italy……….
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Busy calendar of data releases this week in the United States. However, market focus will be on the talks over the fiscal cliff: before Christmas, an agreement could be found to allow Congress to approve the necessary legislation to avoid the fiscal cliff. The first December surveys should show stagnation of activity in the manufacturing sector. November data should be moderately positive: housing starts, permits, sales of existing homes, and retail sales should all be up; orders of durable goods, on the other hand, should show a correction. The third estimate of 3Q GDP del should be revised upwards once more, following the revision of foreign trade figures.
Monday 17 December
United States
The NY Fed’s Empire index should continue to recover at a modest pace in December, in line with October and November, after plummeting in 3Q. We expect the index to rise back to 1.5from -5.2 in November (-10.4 in September), based on an ISM reading of 49.5 and on the waning negative effects of hurricane Sandy. The November survey had restored orders and deliveries to positive territory, although forward-looking indices stayed on lower levels than in September and October. Indications from the manufacturing sector remain weak in 4Q.
Wednesday 19 December
Euro area
Germany. The December IFO business confidence index could retrace the unexpected increase recorded in November and slide back to a reading of 101, in line with long term average. We look for a decline in the current conditions index to 107,8 from an earlier 108,1, whilst expectations should remain broadly unchanged. As of late, the IFO index hovered at levels higher than the German manufacturing PMI (which fell half a point in December), but is still compatible nonetheless with a slowdown of the German economy at the turn of the year.
Since August, the IFO averaged 101.3, as opposed to 107.5 in the first seven months of the year. The gap between expectations and current situation, while showing some improvement in November, was still in territory compatible with a technical recession for the German economy over the year turn.
United States
Housing starts in November are expected to rise back to 900k from 894k in October. Employment data in the construction sector in November weakened, but the trend of housing starts is solid: therefore, we expect a stabilisation in November, but not a retracement. Permits should keep increasing, to 880k from 868k in October.
Thursday 20 December
Euro area
Germany. Producer prices should fall 0,1% m/m November (by -0.1%), on easing pressure from the energy component. Inflation should slow by one tenth to 1.4% y/y to the then move sideways in the coming months.
Belgium. The BNB confidence index may prove little changed in December, at -13.9 from -13.4 in November, a level significantly below long term average but well above the minim touched in 2009 (-31.4).
The flash estimate should show euro area consumer confidence rising slightly in December (to -25.5), from -26.9 last month, the lowest level since 2009. Morale would remain at very depressed levels, justified by the deteriorating employment trend, sub-par wage growth and, still restrictive financial conditions in euro area countries.
United States
The third estimate of 3Q GDP should be revised upwards to 3.0% q/q ann. as a result of stronger contributions from foreign trade and the construction sector. Growth will slow back in 4Q, also due to the fact that most of the change recorded in the summer quarter was due to inventory replenishment.
The December Philadelphia Fed index should show an improvement, rising back to -1 after crashing to -10.7 in November. The November dive was due in part to Hurricane Sandy: the 6- month expectations index was broadly flat in October and November, on levels close to those recorded in 2Q. All the indications from the manufacturing sector are weak, but we expect a gradual recovery starting in early 2013, as uncertainty over the fiscal cliff clears somewhat.
Sales of existing homes are expected to have risen rise to 4.9 million ann. in November, in the wake of positive data from the builders’ survey and on pending home sales. This latter index surged in October.
Friday 21 December
Euro area
France. In December, the INSEE business confidence index could stabilise at 88, a level reached in November after hitting a string of lows for the period (since 2009) in the course of the autumn. The index would still remain well below the long-term average of 100. For the time being, there is no margin to foresee a more convincing recovery as business sentiment is being dampened by both the weak economic environment and expectations for a negative fallout on corporate profits of fiscal tightening next year.
Italy. Consumer confidence may edge back up in December to 85, after plunging in November to a long-term low of 84.8. The correction compared to the November slide is only marginal: the survey was completed only days after the announcement of the current government’s impending resignation, and this may have prevented a sharper rebound from the previous month’s lows. The consumer confidence remains consistent with an on-going contraction in consumer spending in the months ahead.
United States
Personal spending should be up in November by 0.5% m/m, driven by motor vehicle sales, which recovered in the month the ground lost in October due to hurricane Sandy. Personal income is expected to increase by 0.4% m/m. The savings rate, on the other hand, should drop further, to 3.3% from 3.4% in October.
Orders of durable goods are expected to be down in November by 0.4% m/m, from +0.5% m/m in October, dragged down by the civil aviation component. Aircraft orders were extraordinarily strong in the previous months, and are now dropping back to normal. Net of the transport item, orders should be marginally weaker (-0.2% m/m), after rebounding by +1.8% m/m in October. The orders component of the ISM dropped in November to 50.3 from 54.2 in October, after two positive months which had pushed the index above the 50-point threshold, vs. an average of 48 between June and August. There are no indications of a surge in orders.
Consumer confidence as surveyed by the University of Michigan in December (final) should confirm the plunge recorded by the preliminary survey. The sharp drop in the first December survey, especially strong for expectations (-13 points to 64.6) should be only marginally corrected: households are mostly concerned about fiscal tightening in 2013.
Appendix
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