In the euro area, focus will be on the outcome of the Eurogroup at the start of the week….
Sign up for our free newsletter to receive weekly news from BONDWorld
Click here to register for your free copy
Monthly data releases will be few, and outline another drop in industrial output in May (as well as confirming the containment of inflation pressures).
Economic data due in the United States will confirm downside pressures on prices. The minutes of the FOMC meeting should support expectations for the implementation of new stimulus, through fresh security purchases including MBS.
Monday 9 July
Euro area
France. Industrial output is expected to be down in May, after rising considerably more than expected in April (solely on the back of energy). We estimate a four-tenths decline month-onmonth. The year-on-year change would slip back into negative territory as a result, in our estimation to -1% from +0.9% y/y the previous month. Based on confidence surveys, productive activity should stay weak in the months ahead.
Italy. Industrial output is forecast to drop sharply for the second month in a row in May, by – 1.4% in our estimate from a previous -1.9%. In the month, weak economic conditions were made worse by the earthquake in Emilia Romagna (in our view the impact could be in excess of 0.5%). The year-on-year change would stay deep in the red at -10.3%, both in unadjusted terms and adjusted by workdays. Output is expected to contract further in June, hit by the further effects of the earthquake.
Wednesday 11 July
United States
In May the trade balance should show a deficit of 48.5 billion, from 50.1 billion in April. The main contributions to deficit reduction should come from a drop in oil prices and from a further weakening in port activity and Japanese data. Exports, on the other hand, should be up slightly, after contracting in April by -0.8% m/m.
The minutes of the FOMC meeting of 20 June should show that the balance of opinions within the Committee has tilted further in favour of new stimulus, although there will surely have been dissenters. The minutes could provide some indication on the type of purchases the FOMC may put in place in the event of a further slowdown in growth and/or setback in the re-absorption of labour market slack. We believe a QE3 package could be announced by September, worth around 400-600 billion, and including MBS purchases .
Thursday 12 July
Euro area
France. Consumer prices are expected to have decreased by two-tenths in June, after contracting by one-tenth in May. The decline is guided by energy prices. Year-on-year inflation will fall from 2.3% to 2.1% in terms of the harmonised index, and from 2% to 1.7% at the national level. The drop in commodity prices, alongside the decision not to proceed with the planned VAT hike, have also cooled the projected profile of French inflation.
Industrial output in the euro area is expected to drop again in May. However, the decline should be smaller than in April (-0.2% from -1.1% m/m). As a result, the year-on-year rate will drop further into negative territory, to -3.5% from -2.4% y/y. This would leave output on course for a -1.1% q/q decline in the spring quarter (vs. -0.4% q/q in the winter quarter).
United States
In June, import prices are expected to be down by -1.3% m/m, again on the back of lower oilprices. Net of oil, prices should correct marginally (-0.1% m/m), as a result of the strengthening of the dollar. Year-on-year, import prices should stay in negative territory, at – 0.9% y/y from -0.3% y/y in May.
Friday 13 July
Euro area
The second reading of June consumer price data in Italy and Spain should confirm preliminary estimates, of +0.1% to 3.6% a/a, and -0.1% to 1.8% respectively (based on harmonised EU indices). This would be compatible with a stable euro area CPI at 2.4% in June. The CPI may stay broadly unchanged in the coming months, and start to drop visibly only at the end of 2012, or more probably at the beginning of 2013.
United States
In June the PPI is expected to contract for the third month in a row, by -0.3% m/m, less than the previous month’s -1% m/m decline. The ISM price index plunged to 37 in June from 47.5, and all surveys point to further price declines. The contribution of the energy component will continue to prove decisive, albeit more contained than in May; food prices are expected to stabilise after dropping sharply in the previous month (-0.6% m/m). The year-on-year ch’ange in the PPI should be negative again, down to 0.3% y/y from 0.7% y/y. The core PPI, on the other hand, should confirm the trend expressed in the past two months, rising by +0.2% m/m.
June consumer confidence (preliminary) as surveyed by the University of Michigan should come in at 73, not far off the final May reading (73.2). All households’ confidence surveys have recently dropped back to the same levels as at the beginning of the year, and the weekly Bloomberg Comfort Index failed to show any improvement at the end of June compared to the average over previous weeks. Despite the very sharp drop in gasoline prices, several negatives are weighing on households, including uncertainty over future fiscal policy and weak labour market. Also, the expiration of extended unemployment benefits, definitive for both the emergency programmes by December 2012, means around 2.5 million people will be stripped of income support.
Appendix
Analyst Certification
The financial analysts who prepared this report, and whose names and roles appear on the first page, certify that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures: The analysts who prepared this report do not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.
Important Disclosures
This research has been prepared by Intesa Sanpaolo S.p.A. and distributed by Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for the contents of this report. Please also note that Intesa Sanpaolo S.p.A. reserves the right to issue this document to its own clients. Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both authorised by the Banca d’Italia, are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.
Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor.
This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. It should not be regarded as a substitute for the exercise of the recipient’s own judgement.
No Intesa Sanpaolo S.p.A. or Banca IMI S.p.A. entities accept any liability whatsoever for any direct, consequential or indirect loss arising from any use of material contained in this report.
This document may only be reproduced or published together with the name of Intesa Sanpaolo S.p.A. and Banca IMI S.p.A.. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. have in place a Joint Conflicts Management Policy for managing effectively the conflicts of interest which might affect the impartiality of all investment research which is held out, or where it is reasonable for the user to rely on the research, as being an impartial assessment of the value or prospects of its subject matter. A copy of this Policy is available to the recipient of this research upon making a written request to the Compliance Officer, Intesa Sanpaolo S.p.A., 90 Queen Street, London EC4N 1SA.
Intesa Sanpaolo S.p.A. has formalised a set of principles and procedures for dealing with conflicts of interest (“Research Policy”). The Research Policy is clearly explained in the relevant section of Banca IMI’s web site (www.bancaimi.com).
Member companies of the Intesa Sanpaolo Group, or their directors and/or representatives and/or employees and/or members of their households, may have a long or short position in any securities mentioned at any time, and may make a purchase and/or sale, or offer to make a purchase and/or sale, of any of the securities from time to time in the open market or otherwise. Intesa Sanpaolo S.p.A. issues and circulates research to Qualified Institutional Investors in the USA only through Banca IMI Securities Corp., 245 Park Avenue, 35th floor, 10167 New York, NY,USA, Tel: (1) 212 326 1230. Residents in Italy: This document is intended for distribution only to professional investors as defined in art.31, Consob Regulation no. 11522 of 1.07.1998 either as a printed document and/or in electronic form. Person and residents in the UK: This document is not for distribution in the United Kingdom to persons who would be defined as private customers under rules of the FSA.
US persons: This document is intended for distribution in the United States only to Qualified Institutional Investors as defined in Rule 144a of the Securities Act of 1933. US Customers wishing to effect a transaction should do so only by contacting a representative at Banca IMI Securities Corp. in the US (see contact details above).
Valuation Methodology
Trading Ideas are based on the market’s expectations, investors’ positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.
Coverage Policy And Frequency Of Research Reports
Intesa Sanpaolo S.p.A. trading ideas are made in both a very short time horizon (the current day or subsequent days) or in a horizon ranging from one week to three months, in conjunction with any exceptional event that affects the issuer’s operations. In the case of a short note, we advise investors to refer to the most recent report published by Intesa Sanpaolo S.p.A’s Research Department for a full analysis of valuation methodology, earnings assumptions and risks. Research is available on IMI’s web site (www.bancaimi.com) or by contacting your sales representative.
Source: BONDWorld – Intesa Sanpaolo – Research Department
Newsletter
