In the euro area, the EU Commission’s survey and Italy business confidence should confirm that economic activity remains in mild recession, and that for the time being there are no signals of an improvement in the short term………
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Inflation is expected to moderate significantly in Germany, to 1.9%y/y, from 2.1% previously, and to 2.4% in the euro area, while staying stable in Italy at 2.8%. Euro area unemployment should continue to move on a rising trend and may reach 11.7% in October, a new high since 1995. We see French consumption of manufactured goods sliding in November. The second extraordinary meeting of the Eurogroup could finally result in the unblocking of the tranche of the bailout package for Greece, after the negative outcome of 20 November. German sales should drop 0.5% m/m after the 0,8% rise in September.
The week ahead will bring a host of data releases in the United States. Data should generally prove only moderately positive. The second estimate of 3Q GDP will be significantly revised upwards, on the back of stronger net exports and inventories, but the pace of growth will slow again by the end of the year. As regards October data, orders of durable goods and new home sales are estimated to have grown, whereas personal spending and income should come in broadly flat. The Beige Book is not expected to change the view that the labour market is still far off the “sustainable” adjustment the Fed is striving for.
Monday 26 November
Euro area
Italy. We look for a stable reading in consumer confidence in November at 86.5, after the improvement recorded in October. Sentiment remains at historically lows (long-term average: 104.9), depressed by negative news on the development of the macro outlook. We expect a stable reading also for the current assessment (at 92) and for the forward looking component, at 76. The indications which may come from the confidence index are compatible with an ongoing contraction in consumption in the months ahead.
Greece. Anticipation ahead of the extraordinary Eurogroup, which could finally reach a decision on the unblocking of the 31.5 billion euro tranche, as well as on the payment of the September and December tranches, which would raise the funds available to the country to 44 billion. Negotiations on how to fund Greece’s financial requirements in the 2013-2016 period, and on how to restore the country’s public debt to a sustainable path in the medium term, came to a halt on Tuesday, 20 November, due to the need to analyse in depth the solutions proposed to solve the fiscal issues on the table (the options discussed include: a reduction of interest on loans issued by Member States, the lengthening of maturities, and the establishment of a 10 billion euro fund to repurchase debt on the market). In any case, diverging views are evident among European Union countries, and make the talks all the more complex.
Tuesday 27 November
United States
Orders of durable goods in October are estimated to have risen by 0.3% m/m, driven once again by the civil aviation component. As regards the reading net of transport, we forecast a change of only 0.1% m/m. The indications on orders provided by the October ISM were positive, although the Philly Fed pointed to a contraction.
Consumer confidence as surveyed by the Conference Board in November should correct marginally, to 71.8 from 72.2 in October. The University of Michigan survey recorded a contraction in the final November reading, as opposed to a preliminary rate on the rise. The weekly Bloomberg Comfort confidence index is sending mixed signals, with the current situation indicator on the decline, and the forward looking component on the rise. Hurricane Sandy, concerns tied to the fiscal cliff, and the stock market correction should contribute to a drop in the confidence of households in the coming month.
The Fed will publish its Beige Book ahead of the FOMC meeting of 11-12 December. The report should provide indications on the effects of the hurricane Sandy, and signal widespread stagnation in manufacturing sector activity, even in the states unharmed by the storm. No changes compared to the previous months are expected in terms of the labour market and prices. Therefore, the Beige Book will probably not clear expectations for an expansion of QE3 at the FOMC meeting on 12 December, to replace purchases within the framework of Operation Twist, that will expire at the end of the year.
Wednesday 28 November
Euro area
Annual M3 growth is estimated to reaccelerate to 2.8%, after slowing last month (2.7%), therefore returning to August level; the quarterly moving average should level off at 2.8%. The trend of lending to the private sector should stay negative, albeit less so than in September (when it contracted by 0.8%).
Germany. Inflation could ease by four tenths in November, to 1.8% y/y on the national index, and to 1.9%y/y on the harmonised measure. On the month, consumer prices should be down by 0.2% as pressures from the energy component, recede. Inflation should drop by a further few tenths between now and year-end, and slow further in the opening months of 2013.
United States
New home sales in October should be up to 390k from 380k in September. October data will be affected by opposite forces: the effects of hurricane Sandy should result in a drop in sales in the North East of the country, while in the other regions the uptrend should continue, also driven by the drop in mortgage rates, which accompanied the opening of QE3. Homebuilders’ confidence continued to improve sharply. The inventory of unsold homes in 3Q 2012 averaged 4.6 months, in line with an ongoing construction activity, as highlighted by the positive trend of housing starts.
Thursday 29 November
Euro area
Germany. The November unemployment rate is expected to prove stable, after rising to 6.9% the previous month. Monthly surveys suggest that unemployment may rise further in the months ahead. The slowdown of the cycle could drive unemployment up to an average rate of 7.2% next year, yet well below the levels reached in 2009 (8.1%).
Italy. We expect business confidence to move back to the lows hit over the summer (87.3), after recovering early in the autumn. Therefore, confidence is still significantly lower than the long-term average (100.4) and not far off the lows hit in 2009 (83). These levels are compatible with a slowdown in economic activity at the end of the year, in line with our estimates.
The European Commission’s economic sentiment index for the euro area should remain stable in November at 84.5, a low since 2009. Consumer confidence is expected to be in line with the preliminary rate of -26.9, vs. -25.7 in October. Sentiment among enterprises should edge back up in manufacturing (to -17 from -18), while it may deteriorate further in services (to -13 from -12.1), as indicated by the PMI flash estimate.
United States
The second estimate of 3Q GDP should be significantly revised upwards, from an advance rate of 2% q/q ann. to 2.8% q/q ann. The revision should be prompted by stronger data on inventories and net exports, which should more than balance the expected downward corrections of public spending and private consumption. Foreign trade data and inventories released following the publication of the advance estimate proved stronger than the forecasts for September, on which the Bureau of Economic Analysis based its estimates. In particular, exports should be up by 1.5% q/q ann. against an advance estimate of -1.4% q/q ann.; imports should also be on the rise (vs. a -0.2% q/q ann. contraction of the advance estimate), although the revision of exports will be stronger and will prevail on the estimated contribution of net exports. An increase in inventories in 3Q 2012 would have negative implications for growth in 4Q 2012, which should experience a new slowdown in its expansion rate.
Friday 30 November
Euro area
France. Consumer spending in October is expected to contract moderately: after rebounding slightly in September, by 0.1% m/m, retail sales could drop by 0.3%, compressed by weakness in the auto sector. The monthly contraction would translate into a decline of -0.6% on the year and of -0.5% on the quarter. Consumption prospects remain grim as income is set to suffer from deteriorating labour market conditions and tighter fiscal policy.
Spain. Unfavourable seasonal effects could drive Spanish inflation to 3.6% y/y in November, from a previous rate of 3.5% y/y. The harmonised rate is forecast at 3.7% y/y, from 3.5% y/y in October. The trend of consumer prices is expected to moderate only in 2013, and in particular from June onwards, w the effect of the VAT hike on annual year-on-year data comparisons will start to wane. The average annual inflation rate in Spain is estimated at 2.6% this year, and should slow to 2.4% in 2013.
Italy. The unemployment rate could rise to 10.9% in October. On a quarterly basis, unemployment should rise to 10.8%, from a previous 10.6%. The deterioration in labour market conditions follows what was essentially a stabilisation trend over the summer, due in part to an increase in the number of inactive workers and in part to a drop in employment numbers. Prospects for the labour market remain negative: the unemployment rate could continue to rise until the spring of 2013.
Germany. Retail sales should drop 0.5% m/m after the strong rise recorded in September. We expect German consumer spending to remain in moderate expansion as real disposable income should continue to grow at a good pace.
The ascent of euro area unemployment is set to continue and may hit 11.7% in October, marking a high since 1995. The outlook for the labour market, in peripheral countries in particular, points to a further deterioration in the first half of 2013. We expect an average annual unemployment rate of 11.7% next year, up from an estimated 11.3% in 2012.
Inflation in the euro area should slow to 2.4% in November, from a previous rate of 2.5%. Prices should be flat on the month. Inflation, barring surprises from the energy components, is estimated to drop below 2% by next February, and to average 1.8% next year, from 2.5%.
Italy. Inflation is forecast to rise to 2.7% y/y at the national level in November, from 2.6% y/y last month, whereas the harmonised rate should come in stable at 2.8%. Consumer prices are estimated to stay flat on the month. We expect inflation to moderate by the year-end.
United States
Personal spending in October should be unchanged compared to the previous month. Retail sales contracted in October (-0.3% m/m), mostly due to the durable goods components, also as a result of the effects of hurricane Sandy; spending on non-durable goods, on the other hand, should be supported by the stocking up on essential goods ahead of the storm.
Personal income is estimated to have risen by 0.1% m/m, based on the information included in the October employment report, which showed a drop in wages and work hours, as opposed to a relatively solid rise in the number of employed people (+171k). The savings rate is forecast to rise marginally, to 3.4% from 3.3% in September. The consumption deflators (both overall and core) are expected to be up by 0.1% m/m. The core deflator would therefore maintain its year-on–year trend of 1.7%; as regards the overall deflator, the forecast annual change (1.8% y/y from 1.7% y/y) should stay below the Fed’s target of 2%.
The November Chicago PMI should be down to 49.6 from 49.9 in October. The index would therefore stay on levels compatible with a stagnation of activity for the third month in a row. All surveys highlighted the weakness of the orders component. The other components of the survey should stay marginally higher than 50
Appendix
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