Last week was a scratch in terms of events, if not in terms of multiple expansion, as 2012 forward EPS continued contraction even as the market continued rising and is on the verge of taking out 2012 highs - surely an immediate catalyst for the New QE it is pricing in. This week promises to be just as boring with few events on the global docket as Europe continues to bask in mid-August vacation, and prepare for the September event crunch. Via DB, In Europe, apart from GDP tomorrow we will also get inflation data from the UK, Spain and France as well as the German ZEW survey. Greece will also auction EU3.125bn in 12-week T-bills to help repay a EU3.2bn bond due 20 August held by the ECB. Elsewhere will get Spanish trade balance and euroland inflation data on Thursday, German PPI and the Euroland trade balance on Friday. In the US we will get PPI, retail sales and business inventories tomorrow. On Wednesday we get US CPI, industrial production, NY Fed manufacturing, and the NAHB housing index. Building permits/Housing starts and Philly Fed survey are the highlights for Thursday before the preliminary UofM consumer sentiment survey on Friday.
Quick summary of what to expect in the coming week via GS:
The week ahead is unlikely to offer the kind of information that would decisively change market direction. However, there are bits and pieces in the calendar, which could help update our own tracking of underlying global growth trends. The most distinctive of those is the Philly Fed survey on Thursday, a key input for our Global Leading Indicator. Another one is the University of Michigan consumer sentiment survey on Friday. The GLI itself will follow the publication of these releases. Broadly speaking, the market expects stabilization in consumer confidence and a mild rebound in the business survey.
Euro-area GDP data will also be interesting to follow after Germany releases its second quarter provisional GDP growth numbers. The market anticipates that contractionary growth dynamics in the single currency union accelerated in the second quarter of the year.
We also have a few central bank related events this week. In the UK, we do not think the minutes from the August MPC meeting will surprise markets in any direction. Also, we do not expect a policy change either in Turkey or in Chile this week.
Monday August 13
- Interesting: Mexico IP, Turkey Current Account
Tuesday August 14
- Germany GDP (2Q Provisional): Consensus expects 0.9%yoy down from 1.7%yoy in the previous quarter.
- UK CPI (July): We expect 2.1%yoy, below consensus at 2.3%yoy and down from 2.4%yoy in June.
- Euro-area GDP (2Q): Consensus expects -0.4%yoy down from the print of -0.1%yoy in the previous quarter.
- Euro-area IP (June): Consensus expects -0.2%mom down from 0.9%mom in May.
- US Retail Sales (July): We and consensus expect retail sales to increase by 0.3%mom up from -0.5%mom in June.
- Also Interesting: Euro-area IP, India WPI, BOJ Minutes, Japan Tertiary Activity Index, Hungary CPI, Hungary GDP, Poland CPI, UK
- Housing Market Survey, US Business Inventories.
Wednesday August 15
- UK Unemployment Rate (3m-Jun): We and consensus expect 8.1% unchanged from 8.1% previously.
- US CPI (July): We expect a print of 0.14%, slightly below consensus expectations of 0.2%mom up from 0.0% in June.
- US Empire Manufacturing Index (Aug): Consensus expects +7.20 down from +7.39 in July
- US TIC Data (June)
- BOE MPC Minutes
- Also Interesting: US IP and Capacity Utilization, Malaysia CPI, Malaysia GDP, Russia IP, Hungary IP, Israel CPI
Thursday August 16
- UK Retail Sales (July): We expect 0.5%mom (2.7%yoy) above consensus at -0.2%mom (1.7%yoy). The print in June was 0.3%mom (2.2%yoy).
- Euro-area CPI (July): Consensus expects -0.6%mom down from -0.1%mom in June.
- Turkey Monetary Policy Meeting: We and consensus expect the benchmark repo-rate to remain unchanged at 5.75%.
- US Philadelphia Fed Survey (August): We forecast an improvement in the index to -6 from -12.9 in July; consensus expects a -5 print.
- Chile MPC: We and consensus expect no change in the base rate at 5.0%
- Also Interesting: Israel GDP, Mexico GDP, US Housing Starts, US Initial Jobless Claims
Friday August 17
- US Michigan Consumer Sentiment Survey (August): Consensus expects a flat print for University of Michigan at 72.2 relative to 72.3 in July
- Also Interesting: Canada CPI, Brazil CPI
* * *
And, via DB, here is how the event calendar in Europe is shaping up through October:
- 13 August: Italy auction. Bills
- 14 August: Greece auction. The PDMA intends to auction E3.1bn of 3-month T-Bills. See 20 August entry below for the relevance.
- 14 August: Euro area Q2 GDP flash estimate. We expect the euro area economy to contract 0.3% qoq in Q2 (-0.5% yoy). The consensus expectation is - 0.2% to -0.3% qoq. This will be the second contraction in output in three quarters. While the euro area avoids the technical definition of recession (two consecutive quarters of contraction), chances are Q3 will see another negative print and return the economy to recession this summer. Averting technical recession is Q2 is a little meaningless, however. We expect Q2 2012 to show the fifth consecutive decline in domestic demand. See separate article in this issue of Focus Europe.
- 20 August: Greek bond redemption. Greece is due to repay EUR3.1bn of GGBs. Following the PSI, these would be GGBs owned by the ECB and EIB. While agreement on how to reconfigure the second loan programme is unlikely before September, it is unlikely the EU will hold-out from paying funds to Greece to repay the ECB/EIB and precipitate a problem in August. Chances are Greece will issue new t-bills to finance the redemption. Germany’s Die Welt newspaper reported recently that the ECB had decided to raise the limit on Greek ELA to permit local banks to finance a volume of T-bill issuances equivalent to the size of the bond being redeemed (6 August 2012).
- 21 August: Greece auction. Bills
- 21 August: Spain auction. Bills
- 28 August: Spain auction. Bills
- 28 August: Italy auction. Bonds
- 29 August: Italy auction. Bills
- 30 August: Italy auction. Bonds
- September: Moody’s due to conclude review of Spanish sovereign rating. Logically Moody's should wait until there is clarity on direct recap before making a decision on Spain’s rating. Since governments have not made progress fleshing out a direct recapitalisation facility — indeed, have created some ambiguity as to whether it will be non-recourse — there is a distinct risk that Moody's, in another move to be “ahead of the curve”, decides to downgrade Spain within the next 3 months. Moody’s currently rates Spain Baa3, the lowest investment grade rating.
- September: Detailed bottom-up Spanish bank stress tests due for publication.
- 4 September: Greece auction. Bills
- 6 September: Spain auction. Bonds
- 6 September: ECB Governing Council meeting. The markets will be hoping for clarity on the modalities of the new bond purchasing scheme as well as how the ECB intends to address the seniority question. The new ECB staff forecasts will be released. There is a strong chance of the GDP growth forecasts being revised down, giving the ECB a basis to cut interest rates. We expect a 25bp refi rate cut, but assuming the ‘quantitative’ arrangements announced on 2 August materialise, there may be less pressure on the ECB to consider a negative deposit rate.
- 11 September: Greece auction. Bills
- 12 September: German Constitutional Court ESM ruling. The German Constitutional Court is to rule on the complaints lodged against the ESM and fiscal compact. The chances of the ESM being vetoed are low. However, the Court might again strengthen the German Parliament’s prerogatives as regards future European integration. Germany is the last approval needed for the ESM to come into effect. Then the first instalment of the capital has to be paid by the ESM members within 15 days of the ESM treaty entering into force. There are two other countries where Constitutional Court queries are outstanding — Austria and Ireland. Neither Austria (which may take another 3-6 months) nor Ireland are large enough to hold back the ESM — the ESM will come into force when countries representing 90% of the subscribed capital have approved it. Germany has an effective veto power in that case (note, this week the French Constitutional Court ruled that a constitutional change will not be required to ratify the Fiscal Compact in France).
- 12 September: Dutch Election. In April, the VVD/CDA minority government failed when Geert Wilders' PVV party withdrew its support amid negotiations for the 2013 austerity budget. A crisis was averted when three smaller parties came forward to give support to a budget, but an early election was unavoidable. Domestic austerity and European crisis issues will likely play important roles in the election. Opinion polls point to the antiausterity Socialist Party now being the most popular party in the Netherlands. Unlike France, Dutch politics remains fragmented. Despite the support, there is no guarantee the Socialists will end up in power. Nevertheless, the success of the Socialists’ ‘antiausterity’ message could influence Dutch policymaking in general. The Queen has an amount of discretion in choosing who to offer the mandate for rule. The trouble is, none of the ‘standard’ coalition combinations currently secures a majority. Forming a new government could take time, measured in months. In the meantime the outgoing (minority) government remains responsible for policy. The danger is this might impede Europe’s ability to achieve real progress on integration in the latter stages of 2011.
- 12 September: Italy auction. Bills
- 13-14 September: G20 Finance Ministers and Central Bankers meeting. In Mexico.
- 13 September: Italy auction. Bonds
- 14-15 September: Eurogroup/ECOFIN meetings. This was supposed to be the finance ministers meeting when adjustments to Greece's second loan programme will be considered, although there are risks of this being pushed back to the October Eurogroup meeting. The remaining EUR23bn recapitalisation of the Greek banks is due to complete by the end of September, assuming a positive review of the loan programme. This is also when finance ministers should have their first discussion on the proposals for a common bank supervisory regime under the ECB. Any delays, with knock-on delays for a direct bank recapitalisation mechanism, will disappoint the market. Options for a reconsideration of Ireland’s legacy bank bailout policies may also be discussed (decision not due until October ECOFIN meeting).
- 18 September: Greece auction. Bills
- 18 September: Spain auction. Bills
- 20 September: Spain auction. Bonds
- 25 September: Spain auction. Bills
- 25 September: Italy auction. Bonds
- 26 September: Italy auction. Bills
- 27 September: Italy auction. Bonds
- 29 September: Italy auction. Bills
- 4 October: ECB Council meeting. Another occasion for the ECB to consider the stance on policy, both standard and non-standard.
- 8-9 October: Eurogroup/ECOFIN finance ministers meetings. This is due to be the finance ministers' meeting at which decisions will be taken on how to reduce the Irish legacy bank funding costs, for example, through swapping the promissory notes for EFSF bonds. See Focus Europe, 6 July 2012 for an analysis of the options. This week, the Wall Street Journal (9 August 2012) reported that finance ministers may delay the conclusion of their review of the second Greek loan programme until the October Eurogroup meeting. Delaying concluding the September review and disbursement would keep Greece under pressure to implement reforms. It would also give the Troika more time to consider how to resolve Greece's debt sustainability challenge. October is also when the ESM backstop facility is expected to be operational.
- 18-19 October: EU leaders' summit. Likely to be on the agenda for this meeting are the proposals for a common supervisory regime for banks under the ECB -- this will be the basis for a direct bank recapitalisation mechanism in the future -- and the more detailed euro integration roadmap from Van Rompuy, Barroso, Juncker and Draghi.
- 28 October: Finnish municipal elections. Markets will be particularly attuned to the fortunes of the anti- EU True Finns party. In the last municipal elections in 2008, the True Finns party increased its proportion of the vote from 0.9% to 5.4%. Opinion polls this summer have put the party's support in the 11-16% range. This would be a less substantial swing to th eTF compared to the parliamentary elections in April 2011 when the proportion of the vote compared to the preceding election increased from 4.1% to 19.1%.