This week the main confidence indices in the Euro Area for the month of October will be published…….
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The indices are expected to stabilise on moderate levels, signalling that while sentiment should not deteriorate further, a swift recovery is still not on the cards: easing tensions on the financial markets prevented confidence from plunging to even lower levels, but the challenging context (restrictive fiscal policies and slowdown of the global economy) is hindering a return into expansive territory. Final data on 2011deficit and debt, to be released at the beginning of the week by Eurostat, will also be of interest.
The data due out this week in the United States should confirm a picture of moderate growth, with mixed performances among sectors. In September, new home sales should accelerate, and orders of durable goods should recover after plunging in August, while maintaining a trend in line with a contraction in business fixed investments. The advance 3Q 2012 GDP estimate should outline a slightly more solid pace of growth than in the previous quarter, albeit still slower than 2%. The FOMC meeting is expected to be on “wait and see” mode, with no major developments.
Monday 22 October
Euro area
Public finances. Eurostat will publish its definitive estimates of 2011 deficit and debt in the euro area countries. Spanish data will command particular attention, as the resources handed out by the Madrid government to support the banking system should trigger a revision of the 2011 deficit in the order of 0.5% of GDP, and may even weigh on the structural deficit. Euro area debt should be confirmed at 87.2% of GDP.
Tuesday 23 October
Euro area
The advance October estimate of consumer confidence as surveyed by the European Commission is expected to stabilise at -26, well below the long-term average (-12.4). While easing tensions on the financial markets should cool pessimism somewhat, a brightening of households’ sentiment is being hindered by expectations for the effects of restrictive financial policies next year. Therefore, the consumption outlook up to the end of the year remains rather subdued.
France. The INSEE business confidence index could climb back to 91 in October, after stabilising over the summer. The indications provided by some components of last month’s report were for a marginal improvement, but not such as to fuel a faster brightening in confidence: the recovery of the index is being hindered by the weak global context, as well as by the negative effects fiscal restriction will have next year on corporate earnings. An index on such stubbornly low levels (vs. a historical average of around 100) is compatible with stagnant productive activity in the months ahead.
Wednesday 24 October
Euro area
The preliminary estimate of the October composite PMI index could mark a recovery to 46.4 from 46.1 the previous month. Progress could prove to be stronger in the manufacturing sector (46.5) than in services (46.3). Indices would in any case stay at levels compatible with a slight decline in productive activity.
Germany. The IFO index could come in broadly flat in October at 101.2 (from 101.4), still above the long-term average (100.9). The index of expectations for the months ahead should stay at 93.2 (long-term average of 100.1), whereas the assessment of current conditions is likely to have worsened, to 109.5 from 110.3 previously (long-term average of 101.8). The gap between expectations and the current situation signalled a slowdown in GDP growth already last summer, and the trend should be confirmed in the autumn months. We estimate GDP growth in 4Q 2012 at 0.1%-0.2%.
Italy. October consumer confidence is expected to rebound moderately to 86.5, after stabilising in September at 86.2. The stronger trend of the financial markets may have improved sentiment among consumers, but confidence is being prevented from brightening further by uncertainties tied to the austerity measures and to labour market conditions. Survey data was collected in the first 10 workdays of the month, and therefore the announcement (on 10 October) of the measures contained in the Stability Law should have a limited impact this month. The current situation component could prove to be in line with the August level (94), while the general forward-looking index is expected to recover to 77.5 from 76.9. In any case, the confidence survey is expected to provide indications compatible with an ongoing contraction in consumption in the months ahead.
United States
New home sales are expected to rise in September, to 390k from 373k in August. The strong improvement in builders’ confidence and in the current sales index in September bodes well for sales. However, the correlation between the two series has weakened since the start of the crisis: in the past, the current levels of the builders’ confidence index implied sales of around 850k. Lingering credit restraints and the slowed creation of new households due to high unemployment levels, continue to represent a lasting drag on the pace of growth of the residential real estate sector.
No changes should come from the FOMC meeting. The view on the economy is not expected to differ from the September assessment, as economic data continue to indicate that growth is proceeding at a “moderate pace”, with consumption increasing somewhat more, as opposed to a contraction in investments. The unemployment rate should drop, while still outlining a weak labour market trend due to modest aggregate growth, also hindered by fiscal policy uncertainties. The press release should stress the flexibility of the new MBS purchase programme, reasserting that the labour market is still far from equilibrium levels due to a lack of demand, justifying a continuation of purchases.
Thursday 25 October
Euro area
Annual M3 growth is forecast stable at 2.9% in September, placing the moving quarterly average at 3.1% (from 3.2% previously). The M1 aggregate is estimated to have kept growing at a sharp pace (+5.1% in August), as opposed to a persistently negative trend of lending to enterprises (-0.8% in August).
United States
Orders of durable goods in September are expected to be up by 6.5% m/m, after plunging in August (-13.2% m/m), driven by the civil aviation sector. Net of the transport component, orders should be up by only 0.5% m/m. The manufacturing sector ISM showed quite a good a recovery in the orders component, back up to 52.3 after three consecutive months below the 50-point threshold. In 4Q 2012, orders could also pick up in the defence sector, driven by a recovery in spending authorisations in the closing months of the year. In any case, the trend of capital goods orders remains negative, placing downward pressures on forecasts for investments in machinery and software in 4Q 2012.
Friday 26 October
Euro area
Italy. Business confidence could drop back down in October (to 87.8 in our estimation), after surprising on the upside last month with a reading of 88.3. The improvement in confidence recorded in September is not very likely to continue in October, given the challenging economic environment in Italy. The index remains on depressed levels, well below the longterm average of 100.4, compatible with persistently economic growth, albeit no longer deteriorating. Survey data was collected between October 1st and 19, therefore the announcement (on 10 October) of the measures contained in the Stability Law may already have an impact on the survey (not a positive one, in our view, given the strengthening of fiscal pressure on enterprises).
United States
The advance 3Q 2012 GDP estimate should outline a 1.7% q/q ann. growth rate, on the rise from a modest rate of1.3% q/q ann. in 2Q. The data should reveal a moderate recovery in consumption following the slowdown in 2Q 2012 (to 2.2% q/q ann. from 1.3% q/q ann.), a further rise in residential investments, as opposed to weaker non-residential fixed investments and public spending. Net exports should continue to contribute negatively to growth by around -0.3pp. The strongest positive contribution to growth in the quarter should come from inventories.
Consumer confidence as surveyed by the University of Michigan in October (final) should correct slightly after the surge in the preliminary October index, dropping to 82.5 from 83.1
Appendix
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