From Goldman Sachs
Politics and policy were paramount last week. In the US, President Obama gained reelection with a remarkably clear margin after a hard-fought campaign. Stock markets took a nosedive the next day even though the probabilities of an Obama victory had been estimated to be quite high in the days prior. While Republicans retained their lead in the House, Democrats remained in power in the Senate and even extended their majority there. This preserves the pre-election split in the distribution of power, a fact which has raised further concerns about a timely solution to the fiscal cliff at year-end. While we see a fair chance that the debate could drag into January 2013, we continue to anticipate a year-end agreement (although a “grand bargain” is unlikely during the lame-duck session). Meanwhile, the Greek parliament very narrowly passed a new round of budget cuts and structural reforms, helping to pave the way for the disbursement of the next €31.5 bn loan tranche.
At their meetings last week, central banks left policy rates broadly unchanged. The ECB did not signal a shift towards additional easing, although there were some noteworthy changes in the statement suggestive of greater concern about the economic outlook. We think that further ECB action will target the monetary policy transmission mechanism rather then policy rates overall, as the key problem remains that the ECB’s policy stance is not being transmitted evenly across the Euro area. In the UK, the BoE also left policy rates unchanged and did not extend its official QE program. It did, however, announce that coupon payments accumulated by the BoE’s Asset Purchase Facility (£35 bn by March 2013) will be transferred to the Treasury to pay down government debt, a step Governor King described as “having an effect similar” to further asset purchases. Monetary policy was also left unchanged in Korea, Indonesia, and Malaysia, in line with consensus expectations except in the latter case, where a cut was expected.
The upcoming week comes less loaded with policy events. The only major one is the Eurogroup meeting on Monday, however EU officials have already confirmed that no decision on the next Greek aid tranche will be made before the Troika’s next report on Greece’s adherence to the bailout conditions. Greece has scheduled an auction for Tuesday in order to roll over €3.1 bn in T-bills expiring by the end of the week. Additionally, in the US, the President has invited leadership of both parties for a first round of talks on the fiscal cliff. The data calendars also look lighter, with the publication of the FOMC minutes on Wednesday, and US Philly Fed on Thursday.
In China, the leadership transition congress will end on Wednesday, with the personnel decisions to be made public on Thursday, We are also expecting data on M2 growth and CNY loans this week after the recent data releases were quite positive. Apart from a benign October CPI reading, Industrial Production and FAI (particularly the infrastructure subcomponent) also showed good momentum, while the Trade Balance beat market expectations. The only central bank meeting of the week will be in Chile on Tuesday, while the BoE will publish its inflation report on Wednesday.
The Week Ahead:
Monday, November 12
- Eurogroup meeting
- Also Interesting: Russia GDP, Israel Trade Balance, Czech Republic CA, Poland CA, Mexico IP
Tuesday, November 13
- UK CPI: A slight uptick to 2.3%yoy from last month’s reading of 2.2%yoy is forecast.
- Greece T-Bill Auction
- Chile Monetary Policy Meeting: no change in the policy rate, currently at 5.0%, is forecast.
- Also Interesting: Italy HCPI, Spain HCPI, Hungary Consumer Prices, UK CPI
Wednesday, November 14
- China National Congress scheduled to end
- US Retail Sales: Our expectation is for a reading of -1.2%, down from 1.1% last month, and lower than consensus at -0.2%.
- US PPI: We expect a more subdued rise of 0.3%, in line with consensus expectations after a rise of 1.1% last month.
- UK ILO Unemployment Rate (Sept): Our forecast is for the rate to remain stable from August at 7.9%.
- UK BoE Inflation Report
- Also Interesting: France HCPI, UK Employment Growth, Euro area IP, Poland Consumer Prices, Argentina CPI
Thursday, November 15
- US Philadelphia Fed: We forecast a plus of 2.0, higher than consensus at 1.5 and lower than last month at 5.7.
- US CPI: After last month’s rise of 0.6%, we forecast a stable reading from last month at 0.2%, in line with consensus.
- US Empire Manufacturing Index
- UK Retail Sales: Our forecast is for a decline to 2.2%yoy from last month’s 2.9%yoy.
- Also Interesting: Russia Gross International Reserves, Turkey CA, Norway Trade Balance, Euro area GDP, Euro area HCPI, Canada
- Manufacturing Sales, Canada Existing Home Sales
Friday, November 16
- US IP: In line with consensus, we forecast a rise of 0.2% after a plus of 0.4% last month.
- US Treasury International Capital (TIC)
- Also Interesting: Italy Trade Balance, Hungary IP, Euro area Trade Balance, US Capacity Utilization, Mexico Real GDP
* * *
And for those who missed it before, here is a detailed calendar of Europen events until the end of the year from Deutsche.
- 10 November: VVD-PvdA (Liberal-Labour) government to assume power in the Netherlands.
- 11 November: Greek 2013 Budget to be voted on in parliament.
- 12 November: Merkel visits Portugal.
- 12/13 November: Eurogroup/ECOFIN finance ministers’ meetings. Chances are EU finance ministers will still be discussing how to finance an extension of the Greek loan programme. Cyprus had aimed to agree its aid programme with the Troika in time for this meeting, but with international lenders resuming talks with Cyprus only on 9 November, the Eurogroup on 3 December now looks to be the likely timetable target.
- 13 November: Italy auction. Bills.
- 13 November: Greece auction. Bills.
- 14 November: Portuguese strike. The CGTP (General Confederation of Portuguese Workers), the largest trade union confederation in Portugal, is to stage a strike against the government’s austerity measures.
- 14 November: Italy auction. Bonds.
- 15 November: Q3 GDP reports. Eurostat will publish the flash estimate of euro area GDP growth for Q3 2012. DB's current estimate is -0.2% qoq11.
- 18 November: France UMP party leadership election. France’s main opposition party, the centreright UMP, is to elect its new leader. The congress is the party’s first since former French president (and then UMP leader) Nicolas Sarkozy lost the presidential elections in spring 2012. Francois Fillon, the moderate pro-European former prime minister under the presidency of Sarkozy, is favourite to be elected with Jean-Francois Cope, the Secretary General of UMP, being the other candidate.
- 19-20 November: ECB workshop on excess liquidity and money market functioning. ”The workshop organised by the ECB intends bringing together central bankers, practitioners and academics to discuss the current state of health of money markets, the impact on their functioning of the recently implemented non-standard measures and the possible side effects of large amounts of excess liquidity currently present in many developed economies” (European Commission). The market will watch this closely for any suggestions about the operations of the OMT and/or prospects for policy rates to fall into negative territory.
- 20 November: Spain auction. Bills.
- 21 November: Spain auction. Bonds.
- 22-23 November: EU Leaders’ Summit. Officially to discuss the EU Budget for 2014-2020, but also an occasion to address crisis policies (including Greece, Spain and Cyprus if necessary). Following the UK parliament’s rejection of the Cameron government position of a real-term freezing of the EU budget at worst — the opposition and rebels wanted a realterms cut — it appears unlikely the EU will yet reach a comprehensive agreement on the new Budget.
- 25 November: Catalonia regional election. Early elections for the parliament of the autonomous region called by Arturo Mas, head of the Catalan regional government.
- 25 November: Italy centre-left primaries, first round. The centre-left coalition led by the Italian Democratic Party (PD) is due to elect a leader for the Italian parliamentary elections to be held no later than April 2013. PD’s incumbent leader Pierluigi Bersani looks to be the favourite. with Matteo Renzi, the Mayor of Florence, likely to be his main challenger. Nichi Vendola, the governor of Puglia and leader of the junior coalition party SEL12, is the other prominent candidate. The first round is due to be held on 25 November. Should no candidate secure 50% of the vote, a second round run-off will be held on 2 December. PD is currently leading in the opinion polls with 25%-29% support in the opinion polls held in October.
- 27 November: Spain auction. Bills.
- 27 November: Italy auction. Bonds.
- 28 November: Italy auction. Bills.
- 29 November: Italy auction. Bonds.
- 2 December (tentative): Italy centre-left primaries, second round. See 25 November entry.
- 3-4 December: Eurogroup/ECOFIN meetings. The regular meeting of the euro area 17 finance ministers followed by the EU 27 ministers.
- 4-6 December: German SPD Annual Party Conference.
- 5 December: Spain auction. Bonds.
- 5-7 December: German CDU Annual Party Congress.
- 6 December: ECB Governing Council meeting, followed by the interest rate announcement and press conference.
- 9 December: German SPD Party Special Conference to elect challenger for 2013 federal elections.
- 11 December: Spain auction. Bills.
- 12 December: Italy auction. Bills.
- 13-14 December: European Council summit. The final gathering of 2012 of the EU 27 heads of state and Government. One intention is to sign off on the legislation embodying the common bank supervisory regime under the ECB.
- 13 December: Spain auction. Bonds.
- 13 December: Italy auction. Bonds.
- 16 December (tentative): Italy PDL primaries. The centre-right Italian People of Freedom (PDL) party is planning to hold primaries to select its leader for the upcoming Italian parliamentary elections to be held no later than April 2013. The party was previously led by ex-Prime Minister Silvio Berlusconi, who announced on 24 October that he would not be running in the PDL primaries and would not be seeking re-election as Prime Minister.
- 18 December: Spain auction. Bills.
- 27 December: Italy auction. Bills.
- 28 December: Italy auction. Bonds.