In the euro area, the main confidence indices referred to November will be released this week (PMI, IFO, INSEE, BNB)……..
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Few economic data releases this week in the United States. Housing starts and existing home sales should undergo modest corrections in October, albeit without compromising the positive trend of the residential construction sector. In November, consumer confidence should remain on the relatively high levels recorded in recent months.
Monday 19 November
Euro area
Italy. Orders and sales in the industrial sector should be down in September, after rising sharply, probably due to seasonal adjustment distortions, in August, in line with output. We expect a – 2.5% decline in orders (from a previous rate of +2.9% m/m) -0.5% in sales (from -0.7% m/m). The latest data all indicate that economic activity in the industrial sector, after stabilising in the summer, may slow again in the autumn months.
United States
Existing home sales should be little changed in October, at 4.74 mln from 4.75 mln in September. Pending sales rose sharply in August, and subsequently corrected modestly in September. Existing home sales in September dropped by 1.7% m/m, after surging in August. The uptrend continues, however, at a moderate pace: September and October simply corrected an excessively strong rate in August.
Tuesday 20 November
Euro area
Germany. October producer prices could moderate, thanks to slowing commodity prices. The PPI index could be down by 0.1% in the month, after rising by 0.3% in September, translating into a year-on-year slowdown to 1.5% from 1.7%.
During the extraordinary Eurogroup meeting, the European authorities should resume the discussion of two issues still open on the Greek front: finding cover for the country’s increased financial requirements in 2013-2016, and defining a credible path to restore public debt to sustainable levels. The pushing back of fiscal objectives by two years (primary surplus of 4.5% in 2016 rather than in 2014), deteriorating forecasts on income from privatisations, and the downward revision of growth estimates, have led to an increase in Greece’s financial requirements between 2013 and 2016 (of around 32 billion euros), which currently lack cover.
The Eurogroup could find a temporary solution to finance cash requirements up to 2014: several hypotheses are on the table, including a reduction of the interest rates applied to the funds obtained through the international bailout programmes, and a rescheduling of maturities. The second problem is evidence that, given the current state of affairs, Greece will not be able to reach the debt target of 120% of GDP in 2020. The Eurogroup is highly unlikely to find a solution to this aspect. There is a disagreement on the issue of debt sustainability between the European countries on the one side, willing to push back in time the achievement of the 120% target, and the IMF, favourable to restructuring the official debt (OSI) held by the Union’s Member States.
United States
Housing starts should be down in October, to 835k from 872k in September. The September increase (+110k) should be reabsorbed in part in October, in any case leaving housing starts on a positive trend, in line with their performance over the past year. In September, a good portion of the monthly change was concentrated in the multi-family segment, typically highly volatile. Permits in October should be down, at 865k from 890k in September.
Wednesday 21 November
Euro area
Italy. The final vote on the Stability Law is due at the House of Representatives. After the changes agreed on following negotiations between the government and the main parties, which have deeply changed the structure of the bill (abolishment of the Irpef income tax rate cut, reduction of the VAT hike, and introduction of an Irap tax cut as of 2014) at like-for-like balances (around 3 billion euros, i.e. fiscal consolidation easing worth two-tenths of GDP in 2013, negligible effects on the following years), the approval process in Parliament should be rather smooth.
United States
Consumer confidence as surveyed by the University of Michigan in November (final) should confirm the preliminary reading’s rise to 84.9.
Thursday 22 November
Euro area
The flash estimate of the composite PMI index for November could recover only marginally, to 46 from 45.7 in October (a low since June 2009). The recovery could be driven by the manufacturing sector (45.9 from 45.4), after the drop in October, whereas services should be little changed at 46.1. The level of PMI indices remains compatible with a decline in productive activity between the end of 2012 and the beginning of 2013.
The European Commission’s preliminary estimate of consumer confidence could come in at – 25.8 in November, little changed compared to October and not far off the lows since 2009 hit in September. Households’ sentiment is resilient in Germany, but may have been affected in peripheral countries by the announcement of new austerity measures. Confidence levels are still not compatible with a recovery of consumption on a 3-6 month horizon.
The extraordinary Eurogroup Council meeting should define the financial picture for 2014- 2020, setting a spending ceiling for the Union. The task should prove to be a difficult one, as the Council proposes a substantial cut (around 80 billion) compared to the draft Budget set forth by the European Commission (1,033 billion euros). The difficulty in reaching an agreement lies in the strongly diverging positions of countries such as the United Kingdom, Sweden, Germany, and Holland on the one side, that call for substantial spending cuts (to their benefit) to the detriment of countries such as Italy (which would see its contribution unchanged as opposed to a simultaneous reduction in the funds received), and France.
Friday 23 November
Euro area
Germany. The second estimate of 3Q GDP data should confirm the preliminary reading, down by only one-tenth to 0.2% q/q and 0.9% y/y. We expect moderate growth, approximately in line with GDP, for private consumption, public consumption, and investments, and a rise of around 1% in exports and imports. In year-on-year terms, as disclosed by the statistics office, positive contributions were made by exports, private consumption and the construction sector, as opposed to drags from corporate investments and inventories. Risks are that economic activity may accentuate in the present quarter.
France. Business confidence as measured by INSEE could score a marginal recovery in November, to 87, after falling sharply and unexpectedly in October to 85, a level last seen in the summer of 2009. A more convincing recovery of the index is hindered by the weak economic context and by the anticipation of negative effects of fiscal consolidation on corporate earnings. Confidence remains on levels well below the long-term average (of around 100) and compatible with a slowdown in productive activity in 4Q 2012, after the +0.2% q/q rise recorded in the summer months.
Germany. The IFO index is forecast to drop for the seventh month in a row in November. We expect an index of 99.4 from 100 in October, already below the long-term average (of 100.9). The decline could be sharper for the assessment of current conditions (106.5 from 107.3 previously) than for expectations (in any case down to 92.5 from 93.2). The IFO is pointing to a further slowdown in productive activity in Germany in 4Q 2012, after the very slight decline over the summer months.
Belgium. The BNB index could drop again in November, albeit less than in October. We estimate a reading of -13.8 from -13.5 last month. The October survey had registered a widespread deterioration in confidence across sectors. Signals from the manufacturing sector (considered as an anticipator of economic activity in the euro area) are not compatible with a significant recovery.
Appendix
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