Weekly market preview – 13 January 2014
A somewhat quieter week following the usual jobs and central bank releases in the week gone. This week sees the focus largely placed upon the US economy, where the major event comes in the form of the retail sales data on Tuesday. In the UK, a similar story where the retail sales figure is likely to provide the biggest event of note at the end of the week. Meanwhile, the eurozone is largely going to be focused upon the German constitutional hearing that has been shifted back from last week.
In Asia, there are no major events of note, whereas the Australian jobs data on Thursday is going to be key for the Oceania region.
US
The US economy can look ahead to what is a relatively busy week in comparison to some of the other major economies, with the top tier items coming in the form of the retail sales data along with two key surveys.
The US retail sales figure is due on Tuesday, bringing a closer look at consumer behavior for December. Following the November release which saw the highest sales growth rate in five months, this month analysts are pointing towards a somewhat more subdued level of growth at 0.4%. The impact of the festive season often means we see a positive figure, with the last December fall occurring back in 2009. However, the behaviour of consumers around the festive period has been a good indicator of what state confidence is in within the economy. This is particularly evident when noting that the pre-recession average of 0.8% gave way to a 4 year average around -0.7% for the four years following the crash. Recently we have seen a moderate pickup, with the past three months averaging 0.4% growth each December. This happens to be the estimate for this week’s reading and thus there is a clarity that an out-performance would be better than the recent average, whereas any figure below 0.4% would mean there is a clear stagnation or deterioration in spending over the Christmas period.
On Thursday, the Philly Fed manufacturing index figure is released, painting a picture of how manufacturers perceive the current economic condition to be. Bear in mind that this survey is typically something which generally only has a significant effect if it falls markedly short or higher than market expectations. This is in contrast to some of the more notable releases which seemingly bring volatility irrespective of the announcement. On this occasion, the expectation is for a rise to 10, coming off the back of two disappointing months in this figure.
The next survey in question comes on Friday, with the highly regarding University of Michigan consumer sentiment index. This measure is a leading indicator as it gives the first idea of how the January month appears to be playing out from a consumer standpoint. Coming in the same week as the retail sales figure, the two provide us with both a quantitative and qualitative idea of how the all important consumer market is coping in a time where confidence appears to be picking up. The expectations point towards a further improvement that would take this preliminary reading to 82.5, the highest level since last July. Given that this is a preliminary reading, there is likely to be a degree of inaccuracy to this in relation to where we stand at the end of the month. However, it also means that the markets pay more attention to it as a potential volatility driver given that it provides us with the most up to date information.
UK
A relatively quiet week for the UK economy, where the major events of note come on Tuesday and Friday with the release of CPI and retail sales data. The CPI measure of inflation is always key to the UK economy, given that it reflects the primary mandate for the BoE as provided by the chancellor. However, as we progress out of the recent environment of high inflation and closer towards the target level of 2.0%, the worries are subsiding as to whether the current accommodative monetary environment cannot last.
Mark Carney’s policy of forward guidance, promising long term low rates until unemployment reaches 7.0%, was initially slated for it’s prerequisite that medium term expectations of inflation are at or below 2.5%. However, now that this expectation seems more realistic, the unemployment rate has tumbled to bring further questions regarding whether the policy really provides the safety businesses and individuals seek. That being said, now that the markets have focused upon the unemployment rate, the expectation is that inflation will remain subdued and thus should we see a significant rise, the markets are likely to react adversely. Expectations point towards the rate remaining at 2.1% this month following a fall of 0.6% over the past two months.
On Friday, the UK retail sales figure is due to be announced with much anticipation as we attempt to gauge how successful this festive season has been for the retailers. As one would expect, the monthly figure is largely expected to rise, with 0.5% being touted following a 0.3% the month prior. However, it is the year on year figure which is of most interest with the ability to understand where this Christmas stands in relation to previously. BRC calculations point towards a rise of around 1.8%, which would be less than the November to November reading, yet certainly respectable.
Eurozone
A very quiet week for the eurozone, with the German constitutional court hearing representing the only major release of note. This was originally scheduled for the last week, however it is provisionally now expected on Friday.
The hearing originally took place in June 2013, when the then ECB member Jörg Asmussen and Bundesbank president Jens Weidmann argued over the validity of the ECB’s controversial Outright Monetary Transactions (OMT) programme. The OMT policy is widely perceived as a key central confidence backstops for the weaker and troubled eurozone nations, serving to reduce the yields of sovereign bonds. This in turn lowers the likeliness of further crises driven by reduced liquidity at reasonable rates for the peripheral and indebted eurozone nations.
Whilst the OMT programme is increasingly unlikely to be used within this crisis, a move by the Germans to threaten it’s existence could throw some of the more fragile economies back into crisis. If the German courts decide that the OMT programme is unconstitutional, this could be a really major event which could catch many off guard.
Asia & Oceania
There are no major events of note this week.
In Australia on the other hand, there is the release of the jobs data to look out for. The Australian economy has been through a tough 2013, with the reallocation of resources within China focusing upon driving increased domestic consumption in response to the erosion of global demand. In much the same way as any chain relationship, the strength of one section is entirely reliant upon the other related chinks. For China, the lack of global demand drove a realisation that overcapacity needed to be adressed, in turn lowering their imports of commodities from the likes of Australia. Add to this the appreciation of the Australian dollar and overall the demand for the once booming mining industry became a severe issue going forward. However, with the recent rise in growth within China coupled with a depreciation of the Australian dollar, things are beginning to look a little more rosy for 2014.
From an employment standpoint, the picture has been disappointing and we are looking for signs of improvement this month. Last month we saw the first substantial rise and estimate beat for five months in the employment change measure. Similarly, the unemployment rate has failed to break below 5.7% for the past six months, currently at and expected to remain at 5.8%. Unfortunately, market expectations point towards the employment change falling back to around 10,300 levels following a jump higher by 21,000 in November. However, both these figures are well worth looking out for as the signs are there that the Australian economy is turning a corner and this measure is key to understanding whether that is happening.
Read the full report at Alpari News Room
