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US non-farm payrolls (Oct)
US ISM index (Oct)
EZ manufacturiing PMI (Oct, final)
EZ HICP (Oct, prel)
CH manufacturing PMI (Oct)
Lloyds Business Barometer (Oct)
Manufacturing PMI (Oct)
BoE personal lending (Sep)
M4 money supply (Sep)
Doubts creep into markets amidst global economic risks ... Financial markets paused for breath as the economic landscape remains uncertain. Stocks fell this week and currently stand just below levels at the start of October. Admittedly, global ‘core’ bond yields remain higher, and particularly in the UK reflecting a recent shift in QE expectations. The persistence of higher yields seems related to the perceived removal of tail risks, particularly in the Euro area. However, global economic uncertainties over the coming weeks may weigh on sentiment.
Global activity reaching a crossroads ?...This week brings the latest batch of global manufacturing PMIs. These are key barometers of global activity and have been harbingers of the softening in recent quarters. However, this month’s indicators will be scoured for some sense that we may be close to a turning point. ‘Flash’ estimates of euro area PMIs showed further manufacturing weakness in October. However, preliminary estimates from China suggest the official PMI should rise. We forecast a rise to 50.5, which would be the first reading above 50 for three months. We attribute some of the pick-up in China to domestic infrastructure spend, which in turn reflects the authorities’ efforts to spur the domestic economy. Indeed, stimulus across a range of emerging markets provides hopes for a broader revival in activity over the coming quarters. In the US, the outlook remains complicated by concerns surrounding the ‘fiscal cliff ’. We forecast a modest dip in the ISM this month. These concerns could grow before they fade.
Gauging UK trends after upbeat Q3 GDP...The domestic economy looks likely to be caught between the divergent euro/non-euro trends in manufacturing. The still greater influence of the currency union is likely to dominate, but we do not expect as sharp a drop in the manufacturing PMI as across the euro area, pencilling in a fall to 48.1 from 48.4. Our own Business Barometer will provide a more detailed outlook on Monday. We will also monitor domestic trends in the coming week. Mortgage approvals, household lending and money supply all look set to post some signs of modest improvement on Monday. MPC members have repeatedly suggested that the FLS will take some time to impact the economy, but a number of other positive developments over the summer have resulted in the BoE reporting an easing in credit conditions, particularly to households, in recent months. This provides a genuine cause for optimism amidst the more volatile GDP figures. It also appears part of the reason why Governor King and Deputy Governor Bean appear prepared to let QE expire over the coming weeks, despite only the first signs of a more sustainable period of economic expansion emerging.
US payrolls more important for election than policy? ...This week’s modest rebound in US Q3 GDP and the decision by the Federal Reserve to leave policy unchanged underlined the economic outlook. This coming Friday’s payrolls report for October will have more importance for the following week’s election. The ADP survey on Wednesday will give a steer towards Friday’s release, although we warn that methodological changes this month will include downward revisions to previous months, more in line with the recent subdued payrolls reports. However, jobless claims continue to suggest the labour market has remained broadly stable. Our forecasts envisage payrolls posting another lacklustre 95k, but much variation on either side of this could exert some influence on what appears a tight race for the White House, adding to the uncertain outlook.
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