A mixed week ahead, with markets trying to take in all the data from the week just gone. Given that many of the major economic releases have been seen in that first week of the month, we are looking primarily at second tier announcements for potential volatility in the markets. In the US, the main event will come in the form of the retail sales number, which many expect to be strong given the recent massive jobs report numbers. In the UK, the only event of note comes on Tuesday, with the manufacturing production figure.
Meanwhile in the eurozone, the announcement of the latest takeup of the TLTRO programme is going to be key to determining the effectiveness of ECB’s recent monetary policies.
In Asia, the CPI reading out of China will be crucial to as it provides us with an idea of whether the PBOC is likely to enact any further monetary stimulus. On the other hand, the Japanese focus will be upon the final Q3 GDP number amid a very quiet week. Finally, the Australian economy is looking towards a busy week, which culminates in Thursday’s jobs report.
US
The US economy is coming off the back of an absolutely massive jobs report, where the payroll figure of 321,000 represents the highest in almost 3 years. Given that we have seen such a figure in November, coming into the festive month of December, there is a chance we could see this kind of jobs growth continue apace into the new year. This week looks somewhat less exciting from an announcement point of view, with the release of retail sales and consumer sentiment figures the only real events of substance.
Thursday’s retail sales number looks particularly interesting given the recent jobs report because we now see that there wages are rising, hours worked are increasing and hiring is rising faster. This means greater amount of disposable income should be available to consumers who will most likely go out and spent it at the shops, especially with the existence of Black Friday on 28 November. This month-on-month figure tends to be temperamental, yet with estimates pointing towards a positive figure of 0.3% to match last month, I believe we could see a strong number.
On Friday, the release of the preliminary University of Michigan consumer sentiment survey will be interesting for an economy that is so reliant upon the consumer base as a source of demand which subsequently drives growth. The latest figure released last year was the highest in over 7 years and thus there is a clearly positive trend in place which I expect to continue. The market estimates point towards a rise from last month’s figure of 88.8 to somewhere close to 89.1.
UK
A very quiet week ahead for the UK, where the manufacturing production figure is one of very few interesting releases. This figure is interesting predominantly because of the fact that it is a measure of actual output as opposed to simply a view of what the sector is perceived to look like as we get in a PMI figure. The manufacturing sector is the second largest in the UK, after the services sector.
Thus, it is going to interesting to see if the sector can remain in positive growth, following a strong year which has seen only a single month of contraction. Estimates point towards a fall in the monthly figure from 0.4% to 0.2%, while the year-on-year figure is expected to improve from 2.9% to 3.2%.
Eurozone
A key week for the eurozone for one reason; the release of the figures from the latest tranche of TLTROs. This policy is one of the most crucial arrows to Mario Draghi’s bow in a bid to bring inflation back to something resembling normality. Quite frankly, the steps taken so far by the ECB have been nothing short disastrous, with none appearing to bring any form of growth or inflation upside.
Thus despite his best wishes, it appears to be the case that the monetary policy steps taken so far have only had a tangible effect upon the markets and not the real most important targets such as price stability. With that in mind, it came as no surprise to see the TLTRO programme that the ECB pinned their hopes upon had a shockingly poor uptake in September, with banks choosing to only utilise €82.6 billion of the funds despite expectations closer to €150 billion. Thus heads now turn to the December tranche which is hoped will make up for the poor September uptake and prove that banks truly buy into the ECB’s plan to stimulate the single currency region.
Unfortunately I do not expect a massive takeup, because if anything growth prospects have worsened in the eurozone and as such the banks will be hesitant to lend and take on too much risk until we see signs of a strong recovery. It is highly likely that we see an improved figure but anything short of €150 billion would bring question marks over whether this policy really has the ability to make an impact.
In terms of monetary policy, the expectation is a weak TLTRO takeup would mean people believe a QE programme could be coming. However, should we see a strong move towards the policy on Thursday, it could mean a buoyant Draghi would be likely to appear at next meeting, safe in the knowledge that he could stoke investment going forward with this measure.
Asia & Oceania
Asian markets will be in focus this week as data from China, Japan and Australia will set the tone for what could be another busy week for global markets. The week will start with Japan with the final revisions for third quarter GDP growth set for release. Previous numbers have shown a contraction but next week’s revision could well show that the contraction was not as deep as first expected.
The reason for this is that business investment that was previously estimated to have fallen by 0.2% has actually seen a 3.1% capital increase for Japanese firms. Business investment accounts for around 14% of Japanese GDP. Despite what could be a positive revision it is probably still a long shot to say that the economy did not contract in Q3 but with both Barclays and JP Morgan citing reasons why a contraction may not have happened it wouldn’t be a total surprise to see this revision tick positive. Expectations are that the number will still be a contraction but only of 0.1%.
Asia also sees data from China and Australia this week, the headlines of which are CPI from China and unemployment from Australia. With China still struggling with growth numbers there is a potential of the world’s seconds largest economy falling by the wayside somewhat and falling into the same trap as other major economies.
One thing that has saved them has been the slightly higher inflation figures, and with their economy not being reliant on the oil price, the Chinese have managed to sustain a higher inflation rate. This week’s number is expected at 1.6%, a numbers till very much manageable but quite a long way off the central bank target of 3.5%. This gap means there is still a significant amount of legroom for the PBOC to ease further and thus be on the lookout for this figure as a driver of future monetary action.
Australian unemployment is the last number of any note out of Asia next week. Again, expectations are for the rate to remain close to 12 year highs as business still struggle under uncertain economic conditions. The unemployment rate this week will also set the tone for monetary policy over the next 12 months. Commentators in Australian had been calling for raise to start to rise, however the high unemployment has led for the doves to remain fully in control.
Back in October the central bank warned that rates would be on hold for an extended period of time and much like the US it will be a situation where the economy will not be able to sustain a change in monetary policy until unemployment at least starts to fall back to sustainable levels.
DISCLAIMER: Any views or opinions presented are solely those of the author and do not necessarily represent those of Alpari (UK) Limited, unless otherwise specifically stated. This content does not constitute investment advice.