Monday, November 8, 2010

U.S. and Global Outlook

Trade Balance • Wednesday
The trade deficit widened in August to $46.3 billion. Export growth slowed to just 0.2 percent month-over-month as civilian aircraft orders plunged following a surge in July. Higher soybean prices drove a big jump in exports of foods, feeds and beverages. Imports rose 2.1 percent on the month. Semiconductor imports jumped as companies continued to invest in computers and equipment to bolster productivity. Imports of toys and games rose as consumers took advantage of discounts and tax holidays. Soybean prices continued to rise in September, so food exports could see another large increase. Civilian aircraft exports likely bounced back. On the import side, semiconductor imports likely remained strong, but consumer goods imports may have weakened based on weaker-than-expected consumer spending in September. Initial estimates show trade subtracted 2.0 percentage points from Q3 GDP.
Previous: -$46.3B Wells Fargo: -$44.1B
Consensus: -$45.0B

Import Prices • Wednesday
Import prices fell 0.3 percent month-over-month in September. Lower prices for petroleum led the decline, while industrial supplies prices also fell noticeably. Excluding petroleum, prices rose. The dollar declined further in October, which could factor into higher import prices for October. Oil prices averaged in the low $80s per barrel in October compared to the mid $70s in September, so this increase in petroleum prices should help to boost overall import prices. Based on continued increases in metals prices in October, we are likely to see more increases in imported metals prices for the month. If weakness in consumer spending in September carried over to October, we could see a pullback in prices for consumer goods imports, although the weaker dollar could somewhat offset this. So far, the weaker dollar has really only affected commodities prices, but sooner or later dollar weakness will likely lift overall prices.

Previous: -0.3% Wells Fargo: 1.6%
Consensus: 1.1%

Michigan Consumer Sentiment • Friday
The University of Michigan Consumer Sentiment Index slid to 67.7 in October, the lowest level since November 2009, from 68.2 in September. This is far below the average of 89 for the five years before the recession. Consumer confidence remains subdued amid myriad problems in the economy, including high unemployment, tight credit and the seemingly never-ending foreclosure situation. Coupled with uncertainty regarding taxes and health care, consumers are probably more confused than anything. Yet, actions speak louder than words, as consumer spending rose 2.6 percent in the third quarter and added 1.8 percentage points to GDP, both better than in the second quarter. Built-up savings and deep discounts likely supported spending. The uncertainty over the election will likely now give way to uncertainty over what Congress will actually be able to accomplish.
Previous: 67.7
Consensus: 69.0

U.K. Industrial Production • Tuesday
Following its deep downturn in 2008-2009, industrial production (IP) in the United Kingdom is growing again. That said, IP remains more than 10 percent below its peak in early 2008. The purchasing managers’ index for the manufacturing sector remains above the demarcation line that separates expansion from contraction, suggesting that the trend increase in IP remains intact. Indeed, the consensus forecast anticipates that IP rose again in September.
The other item of interest to investors will be the Bank of England’s quarterly Inflation Report, in which the Bank presents its two-year forecasts of GDP growth and CPI inflation. Although the Monetary Policy Committee refrained from increasing the size of its asset-purchase program this week, another round of quantitative easing could eventually be in store if the Bank marks down its growth and/or inflation forecasts.
Previous: 0.3%
Consensus: 0.4% (month-over-month)

Chinese Industrial Production • Thursday
Next week sees the usual mid-month barrage of Chinese economic data. One of the most closely watched indicators will be data on industrial production in October, which are slated for release on Thursday. The manufacturing PMI trended lower through August, but it has subsequently risen again, suggesting that production is stabilizing. Indeed, the consensus forecast anticipates that the year-over-year rate of IP growth edged higher in October.
Industrial production is not the only indicator of note next week. Trade data for October will likely show how export and import growth are faring. Growth in retail sales has been steady all year around 18 percent, a rate that is expected to have been maintained last month. The outlook for further tightening by the central bank will be determined, at least in part, by CPI data for October that are scheduled to be released on Thursday.

Previous: 13.3%
Consensus: 13.5% (year-over-year)

Eurozone GDP Growth • Friday
On a peak-to-trough basis, real GDP in the euro area dropped more than 5 percent between Q1-2008 and Q2-2009, which is deeper than the 4 percent downturn that the United States suffered. However, the Eurozone economy is growing again, and real GDP grew at an annualized rate of 3.9 percent in the second quarter of this year. That said, available monthly indicators suggest that growth slowed in third quarter. Official data will print on Friday.

Moreover, the pace of growth varies across individual countries in the Eurozone. Germany posted its strongest rate of growth since re-unification in the second quarter, while the Irish and Greek economies continued to contract. Many countries release their own GDP data on Friday, so it will be interesting to see if the uneven pace of the expansion among individual Eurozone economies continued into the third quarter.
Previous: 1.0% Wells Fargo: 0.5%
Consensus: 0.5% (not annualized)
Full report : U.S. and Global Outlook 

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