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US GDP (Q3, 2nd revision)
US durable goods orders (Aug)
EZ HICP (Sep, prel)
EZ M3 money supply (Aug)
GE IfO survey (Sep)
GDP (Q3, 2nd revision)
GfK consumer confidence (Sep)
BoE Credit Conditions Survey (Q3)
BoE FPC statement
Softer economic tone weighs on market sentiment ...A softer tone to economic indicators and a growing impatience with the debate surrounding Spanish assistance prompted markets to pull back following the strong momentum of the last few weeks. The coming week’s economic calendar is light, but includes some important, if low-key economic releases, such as the latest updates of UK and US GDP estimates for Q2.
UK GDP continues to be revised higher ? ...UK Q2 GDP updates for the coming week look set to illustrate the perils of policy decisions based on preliminary numbers, particularly when one-off factors are having such an impact. Q2 posted an upward revision to -0.5% from an initial estimate of -0.7%. The latest industrial and construction sector reports suggest a further upward revision to -0.4% is likely this time, albeit that retail sales changes may offset much of this. Moreover, the historic evidence shows that between 1994-2009, quarterly growth averaged a further 0.2% upward revision. Chart 1 shows how historic monetary policy changes appear to make more sense in the light of initial rather than current estimates of GDP. This may explain why the Bank of England now time produces its own ‘backcasts’ of official data. It also explains the MPC’s current patience in allowing some of the more distortionary ‘transient factors’ to pass out of the economic figures to reveal a clearer underlying trend.
UK to post an H2 rebound...We forecast a much stronger H2, with Q3 expected to be robust, buoyed by a reversal of the bank holiday effect, a normalisation of weather conditions and the accounting of Olympic ticket sales. The coming week's saving ratio looks set to have risen sharply in Q2, suggesting some capacity for additional household spending in the quarters ahead, and a modest rise in consumer sentiment.
US softness ahead of fiscal tightening ... The US also releases Q2 GDP updates over the coming week although markets do not forecast revisions to the latest estimate of 1.7%. Markets continue to worry about the looming ‘fiscal cliff’ and we suspect these concerns in part explain the soft business activity surveys posted last week. August’s Chicago PMI is due on Friday the last important monthly release ahead of the following week’s ISM survey - and markets will watch for continued softness here. However, fears of an impending tightening weighing on current activity should be most evident in investment spending. Hence Wednesday’s durable goods orders for August will be closely watched. An expected 4.5% decline in the head line number reflects the more volatile transport sector orders. However, excluding these, market expectations for a 0.4% rise barely unwinds the previous months’ declines.
Euro area continues to watch Spanish developments ...In the Euro area it is a relatively quiet week for scheduled releases and market focus will remain on the discussions Spain appears to be having on the conditionality that would accompany any request for ECB bond support. There are reports that an official plan could be published on Thursday. Individual country business surveys are also released in the coming week, including the latest German IfO survey. Following mixed results in this week's survey evidence, we expect little fresh news. Indeed, it is probably too soon to expect improvements in financing conditions to be boosting economic activity. Hopes for further monetary stimulus to support growth are likely to be guided by preliminary estimates of September's inflation and underlying M3 money growth, also released over the coming week.
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