LONDON, Nov 23: US and euro zone output data will be the focus for financial markets next week, as investors look for further indications of economic recovery in both regions.
The European economies’ vital signs have been mixed in recent days. The German economy, the euro zone’s biggest, contracted in the third quarter while French output rose by more than expected in the same period. German business confidence hit an eight-year low.
By contrast, strong consumption data in the US and progress in the US-led military campaign in Afghanistan raised expectations of a US recovery.
But US gross domestic product data, which is due next Friday, is expected to show the economy contracted by 0.9 per cent in the third quarter after a 0.4 per cent decline in the second, according to economists polled by Reuters.
Few people would be surprised by a downwards move, said Kelly Tonkin, an economist at Lehman Brothers.
Even with the wider economy in a downturn, the US consumer has shown resilience.
US consumer confidence figures for November, due to be released by the Conference Board on Tuesday, are expected to give further indication of a US economic upturn. Analysts forecast a rise to 87.9 from October’s 85.5.
Recent data raised expectations that US consumer confidence would rise from its October level, when it had plunged from to 85.5 from 97.0 , well below economists’ expectations.
The University of Michigan’s consumer sentiment index showed a slight rise in November, compared with October, and US retail sales figures for October showed an unexpected, sharp increase of 7.1 per cent versus a forecast 2.7 per cent rise.
The equity market and the amount of existing wealth helped consumer spending. But this is offset by weakness in the labour market, Tonkin said.
Jobless claims in the United States declined for the fourth consecutive week in the seven days to November 17, dropping to their lowest level since September. But unemployment rose to 5.4 per cent in October from 4.9 per cent in September, its biggest rise in two decades.
Hopes for a rise in consumer confidence might be disappointed with the negative impact of the labour market, David Kohl, strategist at Julius Baer Investments said.
Europe would see a pretty quiet week in terms of data, Tonkin said. Euro area third quarter GDP and flash consumer price inflation (CPI) figures for November are due on Friday.
No big surprises for the output data were expected with the two largest euro economies, Germany and France, already having released their third-quarter figures.
Anyone who’s able to do arithmetic will be able to figure out the euro zone GDP figures, Kohl said. We won’t see any surprises.
French GDP grew by 0.5 per cent from the second quarter, the strongest rate of GDP growth since the fourth quarter of 2000. But German GDP fell 0.1 per cent from the previous three months.
Analysts expect Thursday’s French Insee business climate index to be marginally better than last week’s comparable index for Germany. The October Ifo index, based on a survey of 7,000 west German firms, fell to an eight-year low of 84.7 from 85.0 in September.
I don’t see the French index fall to levels as low as in Germany, Tonkin said. The French economy has performed better than the German one. It wasn’t hit as hard on the construction sector, which is very important to the German economy. And French consumers seem more willing to spend. That has helped business as well.
Analysts forecast a small decline in the French business climate index, to 91 or 92 from 93.0 in the previous month.
The European Central Bank (ECB) releases M3 growth data on Wednesday, with the money supply data for the first time excluding non-resident holdings of short-term debt instruments.
The ECB had said earlier this month that foreigners’ holdings of instruments included in M3 were complicating the use of M3 as a key indicator for inflation. Foreign holdings included in M3 are seen as less likely to stoke inflation within the euro zone.
In recent months, non-resident holdings have added about 0.75 percentage point to annual M3 growth, according to ECB estimates in November. M3 has surged over the last few months, reaching 7.6 per cent year-on-year in September, its highest figure in more than eight years.
Economists forecast October year-on-year M3 growth to fall to around 6.5 per cent.—Reuters