Three major central banks meet to discuss monetary policy this week. Arguably of most interest to us will be the Bank of England's decision on whether or not to extend its programme of asset purchases in the light of recent disappointing Q3 GDP data. In the US, attention will be focused on the FOMC's policy statement, where we expect the Fed to repeat that the interest rates are likely to remain at low levels for an extended period. October non-farm payrolls data are also published this week, following September's disappointing outturn. Finally, the ECB looks set to leave its key refinancing rate on hold, with markets becoming more focused on possible 'exit strategies' for unconventional, rather than conventional, monetary policies.
The Bank of England's Monetary Policy Committee (MPC) announces its policy decision this week. We look for Bank Rate to remain on hold at 0.5%. Perhaps the key economic data release since October's MPC meeting has been the preliminary estimate of Q3 UK GDP, which registered a 0.4% quarter-on-quarter contraction, against expectations of modest growth. Activity was some 5.2% lower than in Q3 last year, compared with a 4.8% annual decline envisaged by the Bank in its August Inflation Report. So an extension of its asset purchase programme (i.e. quantitative easing, or QE) seems, at the very least, likely to appear on the Bank's agenda this month. For choice, we look for an increase of £25-£50bn on top of the existing £175bn total of asset purchases. Interestingly, October's MPC minutes showed that the Bank attributed at least some of the upswing in 'riskier' assets to the impact of its QE policy to date. This being so, we acknowledge that an extension in the asset purchase programme could drive markets even higher and cause concern at the Bank. Beyond this, we get important economic data in the form of October's PMI surveys. For manufacturing, we look for a reading of 49.8 compared with 49.5 in September, while in services our forecast stands at 54.7 versus a previous outturn 55.3. Thursday sees the release of September's industrial production data, where we envisage an outturn of +0.7% m/m. The recent preliminary Q3 GDP data, pointed to an increase of around 0.6% m/m, but any significant shortfall in industrial production would, in isolation, hint at a downward revision to GDP. The next estimate of GDP is published on 25 November.
In the US, continuing economic uncertainty makes it likely that the Fed will maintain the target range for the federal funds rate at 0.0%-0.25%. And despite the recent return to growth in Q3, we think it may be too soon for the Fed to abandon its language that exceptionally low levels of the federal funds rate are likely for an "extended period". Indeed, the recently-released September FOMC minutes noted that while the economic outlook had improved, "the level of economic activity was likely to be quite weak and resource utilization low". Needless to say, rising unemployment poses a serious threat to the nascent US recovery. This week sees October's non-farm payrolls report, where we see employment falling by 200,000 after September's disappointing decline of 263,000. As in Europe, this week features the latest round of purchasing managers' surveys, with October's US ISM manufacturing report expected to register an improvement to 53.0 from 52.6, based partly on last week's firm Chicago PMI data. We expect the non-manufacturing survey, due on Wednesday, to register 51.5 from 50.9 previously.
The ECB also announces its monetary policy decision this week, where we envisage an unchanged refinancing rate of 1.0% and a policy stance that remains 'appropriate'. Given the dataflow over the past month, we think it is unlikely that Jean-Claude Trichet will have changed his view that the euro-zone recovery will proceed at a 'gradual' pace going forward. Furthermore, he seems poised to reiterate his support for a strong US dollar policy, with markets watching closely for any more references that the ECB might 'co-operate as appropriate' with the US authorities on currency movements. Perhaps most importantly, it will be interesting to see whether Mr. Trichet elaborates on Council Member Axel Weber's recent comments that the ECB may not offer one-year Long-Term Refinancing Operations next year. In terms of regular economic data, the final readings for October's euro-zone PMI surveys are scheduled for release this week, along with retail sales data (see calendar).
Lloyds TSB Bank http://www.lloydstsbfinancialmarkets.com
Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.
No comments:
Post a Comment