Week Ahead: European confidence indicators to stabilise

Week in Review: Data published earlier in October on German production, exports and orders in August was disappointing, leading markets to fret over the possibility of a double dip in Europe. The PMI released his week, reassured the markets somewhat, as it showed a small rise in composite indicator from 52 to 52.2, still low but above the zero-growth threshold. The sub-indicators of output prices and employment gave rise to some concerns though, as the reading for prices fell fell from 48.5 to 47.1, the lowest since 2010, raising fears of deflation, and the employment indicator fell below 50 for the first time in a year, pointing to net job losses.

Week ahead: October business and consumer confidence in Europe will be out this week, as well as the first estimate of US GDP. Makets will be looking at these data mainly for guidance on monetary policy. Should data come in weaker than expected in Europe, this may push the ECB to start buying Government Bonds. On the other side of the pond, better than expected US GDP may lead the Federal Reserve to raise rates before mid 2015. In early October, in a survey of 19 primary dealers, i.e. the banks that deal directly with the Fed, 15 banks said the U.S. central bank’s first rate increase would occur by June 2015.

Sunday 26 October:

  • Brazil elections: Dilma Rousseff and Aécio Neves have been neck to neck in polls over the last few weeks. However, Rousseff gained ground on Thursday by six to eight percentage points over Neves, according to two opinion polls.
  • European banks’ stress tests results will be published: rumors that several banks had failed these tests have led markets to sell the euro in the last few days.

Monday 27 October:

  • The October German business confidence indicator IFO is expected to roughly stabilise.

Thursday 30 October:

  • First estimate of German GDP in Q3: markets expect growth to ease somewhat from 0.6%qoq in Q2 to 0.5%qoq in Q3. GDP data should not be affected by the seasonality that affected production, orders and exports’ data in August
  • European Commission ESI (European sentiment indicator): consensus is for a stabilisation around 100, its long term average

 Friday 31st October:

  • October inflation flash estimate: consensus is for inflation to edge up to 0.4%yoy after 0.3%yoy in September. Though the decline in inflation is partly related to oil prices, investors are rightly concerned about the possibility of deflation in Europe. The question is, when will the ECB be worried enough to consider using further quantitative measures (namely sovereign bond purchases) and whether these will be helpful to take inflation expectation back to close to 2%.