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Industrial production data to underscore diverging performances
By George Johns, UK Macroeconomist, Corporate Markets
The UK data calendar kicks off early on Tuesday morning with the release of the December BRC retail sales monitor and the RICS housing market report. November retail sales were surprisingly weak since there was an expectation for consumers to bring forward expenditure ahead of the rise in VAT on 1 January. But the issue may have been more relevant for the December trading period, with retailers campaigning hard to boost sales ahead of the VAT rise.
UK
We forecast a rise in the BRC’s rate of annual sales growth, to 5% from 4.1% in November. Turning to the RICS survey, we look for the headline house price balance to be unchanged at +35 in December (after rising for nine straight months), though the fall in the price expectations balance in the previous report presents some downside risks. For Tuesday’s trade data we expect a small (£0.4bn) narrowing in the headline deficit to £6.7bn in November and for inflation-watchers, the detail on import price developments will be of interest. We expect Wednesday’s industrial production data to show a 0.2% monthly gain in output during November, broadly in line with PMI developments. However, that would still leave the three-month-on-three-month rate in negative territory in November (at -0.3%), so a strong monthly gain will be needed to have been registered on the official data for December to ensure that industrial production makes a positive contribution to GDP during Q4 as a whole.
US
In the US, the week begins on a quiet note, with no significant data or events scheduled until Wednesday, when the Federal Reserve releases its latest Beige book. The content - which details current economic conditions by sector - will be used as the basis of discussion for the FOMC meeting on 27 January. On Thursday, the December retail sales report is published. The much stronger-than-expected gain of 1.3% in November was interpreted as a signal that consumer confidence may have improved on signs of a recovering labour market and some stabilisation in the housing market. We expect this trend to persist and have pencilled in a 0.6% monthly gain for December.
CPI data for the same month (Friday) are forecast to show a 0.2% gain at the headline level, pushing the annual rate of inflation up one percentage point to 2.8%. But, with unfavourable energy price base effects working through the data, the rise in core inflation is expected to be far less pronounced, at 1.9% from 1.7%. Also on Friday, a 0.7% m/m rise in December industrial production should ensure that the sector made a positive contribution to Q4 GDP growth, while January readings for the Empire Manufacturing and the Michigan confidence reports are expected to show that the US recovery continued to gain traction into the New Year.
Eurozone
We look for an unchanged refinancing rate of 1% at Thursday’s ECB meeting.
In the press conference, President Trichet is expected to repeat the view of the Governing Council that the economic recovery path going forward will be ‘uneven’. To date, the ECB has been at pains to stress that the measures taken to start unwinding its ‘unconventional’ policy measures do not represent an attempt to influence money market rates such as EONIA (which would send a message of imminent tightening to financial markets). The latter looks set to occur during the course of this year, but not as early as January’s meeting.
On the data front, Eurozone industrial production (Wednesday) is forecast to post a 0.4% rise in November, though that would leave the three-month-on-three month rate of growth at -1% (down a touch from -0.9% in Q3). In fact, assuming our forecast for November is realised, output would have to grow by a fairly chunky 1.7% in December alone to avoid detracting from GDP growth in the fourth quarter. At the end of the week, the final estimate of December CPI is expected to be confirmed at 0.9% on an annual rate, up from 0.5%, with the core rate of inflation broadly unchanged at 0.9%.
* All charts are sourced to Lloyds TSB Corporate Markets Economic Research, Bloomberg, IMF and Datastream
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