Goldman summarizes the key events in the past week as well as the main developments in the week to follow.
Week in Review
Last week focused on the European crisis, Hungary, the US job market and PMI numbers. The Spanish deficit was revised wider than previously thought, weighing on bonds in the first trading week of the year. In Hungary, legislation passed in late 2011 has lead to tensions with the IMF/EU about financial assistance, increasing the risk of a balance of payments crisis and thus weakening the HUF. We thus changed our EUR/HUF forecast to 340, 350 and 320 to reflect these new developments.
In the US, non-farm payrolls showed stronger gains than expected on the back of gains in employment for "couriers and messengers", which likely reflects temporary employment for holiday gift delivery. However, underlying growth was still firmer than in the preceding months. The FOMC announced to publish forecasts for the fed funds rate starting in January, as well as information about the balance sheet with potential implications for further asset purchases.
PMIs improved on both sides of the Atlantic with ISM moving to a solid 53.9. While there are still some seasonality issues in the data due to the sharp decline in '08/09 and which might have contributed to the positive reading, they can only explain part of the strong data in the US. The Euro-zone and UK composite PMIs rebounded sharply but the former remained firmly in recessionary territory, in line with our view of a contraction in Q4 2011.
Despite the positive surprises in key data releases this week, risky assets did not mange to rally much beyond the first one or two days. The intensifying concerns about the Eurozone crisis moves are increasingly in the spotlight with pretty much all critical issues again openly debated after the holiday lull. Issues like the paid-in capita into the ESM, the Greek PSI, the upcoming Italian funding hump or the proposed transaction tax have started to dominate the headlines again. The Euro closed the week on the lows and we expect this trend to continue for now. The logic of our getting-worse-before-it-will-get-better call on the Eurozone crisis is in fact consistent with a short-term move in EUR/$ towards the 1.20 area.
Week Ahead
The meeting between Merkel and Sarkozy on Monday is likely to be the main focus of next week, as well as continued debate of the Greek PSI. Overall, this process is likely to push the EUR lower in the next couple of weeks, while the missing details for better fiscal policy coordination are getting negotiated.
On the macro side, we expect IP in Germany to have slowed by 0.2% mom in November and consensus expects the aggregate Euro-zone IP to have contracted by the same amount. But we also get November IP in many other places, including the UK and India.
Already released over the weekend, Chinese money supply data has been stronger than expected and the amount of new loans issues in December is clear evidence of policy easing.
Related to the global cycle, we expect Taiwan exports to have rebounded by 3.5% yoy in December, broadly in line with consensus and China exports to remain firm at 13.8% yoy. Despite numerous central bank meetings this week, we expect there will be almost no policy change. Chile is likely to be the only outlier, where consensus expects a cut by 25bp to 5.00%.
Monday 9 January
- Germany IP (Nov): We expect -0.2% mom above consensus of -0.5% after 0.8% in October.
- Taiwan Exports (Dec): We expect 3.5% yoy below consensus of 3.7%, after 1.3% in November.
- Merkel & Sarkozy Meeting
- Also Interesting: Hungarian trade and budget balances, Turkish Industrial production.
Tuesday 10 January
- France IP (Nov): Consensus expects 0.1%mom after a 0% in October.
- China Exports (Dec): We expect 13.8% yoy above consensus of 13.4%, after 13.8% in November.
- German Retail Sales (Nov): Consensus expects another flat 0.0% mom reading.
- Also Interesting: Swedish industrial production.
Wednesday 11 January
- Poland CB Meeting: Consensus expects no change from 4.50%.
- Turkey Current Account (Nov): The external deficit remains one of the biggest problems for the Turkish economy. Consensus -$5.2bn.
- Also Interesting: Spanish, Mexican industrial production, Fed Beige book
Thursday 12 January
- ECB Meeting: We expect no change from 1.00%, in line with consensus.
- BOE Meeting: We expect no change from 0.50%, in line with consensus.
- BI Meeting: We expect no change from 6.00%, in line with consensus.
- Chile CB Meeting: Consensus expects a 25bp cut to 5.00%.
- Peru CB Meeting: Consensus expects no change from 4.25%.
- China CPI (Dec): We expect 4.2% yoy above consensus of 4.0%, after 4.2% in November.
- US Retail Sales (Dec): Consensus expects 0.2% mom after 0.2% in November.
- Also Interesting: Euro-zone/German/Italian/UK/India IP (Nov), France CPI (Dec), Japan trade and current account balances (Nov), Spanish bond auction.
Friday 13 January
- BoK Meeting: We expect no change from 3.25%, in line with consensus.
- U Michigan Consumer Confidence (Jan): Consensus expects 70.4 after 69.9 in December.
- Also Interesting: Italian bond auction.