In the euro area, focus will be on the ECB meeting, on the EU Commission’s autumn economic forecasts (and recommendations relating to EDP), and on a possible informal Eurogroup meeting on Greece…….
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As regards economic data releases, industrial output data will be published in the three main countries, and should highlight a sharp correction in September in Italy and France in particular, after the unexpected surge in August.
The data calendar is rather quiet this week in the United States. Market focus will be on the Presidential elections, along with the renewal of all House seats and a third of Senate seats. In October, the non-manufacturing ISM should drop moderately, and import prices are estimated to be up by 0.2% m/m. The trade balance deficit is estimated to have increased in September with both imports and exports on the rise.
Monday 5 November
United States
The October non-manufacturing ISM is estimated to be down to 53.5 from 55.1 in September. The September survey was markedly positive, with both activity and orders improving significantly (to 59.9 and 57.7, respectively), albeit accompanied by a drop in theemployment index (to 51.1 from 53.8). The Richmond Fed’s October survey of the nonmanufacturing sector pointed to a weakening of activity and revenues, with stagnant employment. October data could be negatively impacted by the effects of hurricane Sandy in the closing survey days.
Tuesday 6 November
Euro area
The second estimate of the October services PMI should confirm the preliminary reading at 46.2 (little changed compared to the previous month). The index remains at its lowest levels since 2009, still not compatible with a recovery in value added in the services sector.
Consequently, the composite PMI could be revised slightly upwards to 45.9 (down two-tenths vs. September).
Producer prices in the euro area are expected to have undergone no change in September, down sharply compared to the rises seen in the previous two months. On a year-on-year basis, the PPI would slow to 2.4%, after accelerating visibly to 2.7% in August. Moderation in September is mostly explained by the energy component.
Germany. Factory orders are expected to fall again, albeit more slightly (-0.3%, in our estimate) in September after crashing in August (-1.3% m/m). The year-on-year trend should stay in deep negative territory (-0.6% in our view).
United States
The outcome of the Presidential election is very uncertain, and polls point to a close match between the two candidates. The outcome may even be so close as to prompt a recount in some states, prolonging uncertainty. The republican majority is likely to be confirmed in the House; at the Senate, the Democrats are slightly more likely to retain a narrow majority: in any case, neither party seems to be in the position to clinch the qualified majority needed to fend off a minority-led filibustering. High chances of a split Congress strongly curb the President’s agenda-setting power. The stock markets would in any case react much more positively to a Romney victory, as the Republican platform provides for lower taxes than the Democrat’s on dividends, capital gains, estate, gift and high income.. On the other hand, bond markets would react better to Obama’s confirmation in office, on expectations for greater continuity in monetary policy. However, the main impact on the economy and on the markets in 2013 will be reaped by the functioning of Congress and by its ability to reach a compromise to carry out fiscal consolidation and tackle the debt limit, despite political divisions and different preelection agendas.
Wednesday 7 November
Euro area
Retail sales in the euro area are expected to have dropped back down in September, by threetenths based on our estimates, from +0.2% m/m in August. The decline is mostly the result of plunging sales in Spain (-7.3% m/m) following the VAT hike, whereas in Germany sales accelerated significantly (+1.5% m/m). The drop should not compromise a rebound in the Summer quarter, of +0.4% in our estimation, vs. -0.6% q/q in the Spring months.
Germany. Industrial production is expected to drop again in September (our estimate: -0.7% m/m) after declining -0.5% m/m in August. Anyway the reading would translate into a return of year-on-year growth into positive territory, albeit a temporary one in our opinion. The surveys are consistent with a further slowdown in manufacturing activity also in the euro area’s leading economy.
The EU Commission will release its autumn economic forecasts, which should bring a substantial downward revision in projected growth compared to the spring forecasts, for peripheral countries in particular (sharp lowering of both the estimates for 2012 and 2013 for Italy, and only for 2013 in Spain’s case). The 1% euro area GDP forecast for 2013 will also surely be revised. Within the framework of the excessive deficit procedure, recommendations are expected to be made to Spain, albeit without imposing further consolidation measures in addition to those already included in the 2013 Budget.
United States
The trade balance deficit should widen in September to -45 billion dollars from -44.2 billion in August. Exports are expected to recover, after contracting in August (total exports -1% m/m, – 1.6% m/m for goods), but imports are forecast to grow at a faster pace, driven in part by higher oil prices. Import prices increased by 1.1% m/m in September, with oil prices on the ruse by 4.6% m/m; export prices rose by 0.8% m/m: agricultural goods +1.1% m/m, food +0.9% m/m. Given a deficit in line with forecasts in September, the non advance estimate of 3Q GDP should not change significantly.
Thursday 8 November
Euro area
Retail sales in the euro area are expected to have dropped back down in September, by threetenths based on our estimates, from +0.2% m/m in August. The decline is mostly the result of plunging sales in Spain (-7.3% m/m) following the VAT hike, whereas in Germany sales accelerated significantly (+1.5% m/m). The drop should not compromise a rebound in the Summer quarter, of +0.4% in our estimation, vs. -0.6% q/q in the Spring months.
Germany. Industrial production is expected to drop again in September (our estimate: -0.7% m/m) after declining -0.5% m/m in August. Anyway the reading would translate into a return of year-on-year growth into positive territory, albeit a temporary one in our opinion. The surveys are consistent with a further slowdown in manufacturing activity also in the euro area’s leading economy.
The EU Commission will release its autumn economic forecasts, which should bring a substantial downward revision in projected growth compared to the spring forecasts, for peripheral countries in particular (sharp lowering of both the estimates for 2012 and 2013 for Italy, and only for 2013 in Spain’s case). The 1% euro area GDP forecast for 2013 will also surely be revised. Within the framework of the excessive deficit procedure, recommendations are expected to be made to Spain, albeit without imposing further consolidation measures in addition to those already included in the 2013 Budget.
The Eurogroup of finance ministers may hold another informal consultation on the Greece programme, before the regular meeting of November 12th that is expected to approve the payment of the next tranche of financial support. However, Juncker has stated that the informal meeting will only take place if the documentation becomes available in time. The situation remains unclear: the Greek parliament is expected to vote on the budget measures and the structural reforms only the day before the regular Eurogroup meeting, and one of the parties in the governing coalition, ND, has already announced its intention to vote against. While the two main coalition partners do have enough votes to pass the bill despite the defection of ND, the margin they enjoy is too narrow to be comfortable.
Friday 9 November
Euro area
Germany. Inflation is expected to be confirmed stable at 2% in October (harmonised rate of 2.1%). In the month, prices should be confirmed flat on the national index, and on the rise by one tenth in harmonised terms. In October, the downward thrust lent by the energy component was balanced by price increases in the services sector. Based on our scenario, German inflation should moderate significantly already as of November.
France. Industrial output is expected to turn back down in September, after the unexpected 1.5% rise in August (in our opinion influenced by the month’s typical volatility). We estimate a -0.8% m/m decline. Output in year-on-year terms would return into moderately positive territory, from -0.4% in August, and would mark the first quarterly increase in a year and a half. However, surveys indicate that the improvement achieved over the summer months could prove ephemeral.
Italia. Industrial output is expected to correct in September, after surging unexpectedly in August (+1.7% m/m, in our view influenced by seasonal adjustment issues). The decline in the month could be as large as two percentage points. In year-on-year terms, output would drop to -7.9%. In any case, output should prove to have broadly stabilised in 3Q, interrupting the downtrend recorded throughout the past year. However, there are signals that output may drop back in the closing three months of the year.
United States
Import prices are estimated to have risen in October by 0.2% m/m, vs. +1.1% m/m in September. Oil prices dropped in last 10 days of the month, whereas the dollar stayed broadly flat.
Consumer confidence as surveyed by the University of Michigan in November (preliminary) should improve slightly, to 83, versus a final October reading of 82.6. In November, confidence should return to levels in line with those recorded in early October, following the trend of the other confidence indices, which are stably higher than they were in 3Q. Households’ confidence is being supported by the recovery of the real estate market.
Appendix
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