Today’s data calendar lacks punch, so after reviewing today’s UK retail sales and US existing home sales, I will have a word on the upcoming G20 meeting. Possible sovereign credit rating actions, after the markets close, include Austria (Fitch, AAA, stable outlook), Ireland (Fitch, BBB+, stable outlook) and Spain (Moody’s, BAA3, stable outlook). There will be two speeches from the Federal Reserve, FOMC member James Bullard (centrist) at 18:10 GMT and Richard Fisher (hawk) at 18:45 GMT. Expect both of them to maintain that tapering will proceed as planned.
UK January Retail Sales (09:30 GMT). After posting unbelievably high numbers for December, the retail sector is expected to cool a little bit — but not by much. The consensus forecast for sales excluding autos is 5.5 percent from year ago, slightly lower than 6.1 percent in December. In monthly terms, that would mean a decrease of one percent from December for the core retail sales. The unofficial statistics for January were released on February 10 by the British Retail Consortium and showed strong annual growth numbers.
US January Existing Home Sales (15:00 GMT). The January home sales are expected to decline a bit to 4.7 million annual rate from 4.87 million in December. The higher mortgage rates, thanks to the Federal Reserve’s tapering plans, have caused sales to drop since September, with only a small bounce in December. Obviously, there have been other reasons as well, for example weather-related effects have been more severe than usual and the US default scare was also not exactly confidence-inducing.
Note that at the height of the housing bubble, sales peaked in September 2005, way before house prices started their decline in 2007. This pattern is common to most asset markets — participants are unwilling to adjust prices, so assets take more time before they are sold, and volume plummets. Only when the sellers adjust their prices lower, will the transactions happen. So this is our million-dollar question: what if the recent months’ fall of home sales is something more than an understandable one-off fluke?
Weekend’s G20 meeting
The International Monetary Fund (IMF) published its Note on Global Prospects and Policy Challenges for the G20 participants.The key bits were covered by Businessweek: go slow on removing the monetary easing, watch out for deflation in Europe and the emerging markets, no big surprises there. The not-so-hidden advice is that the Federal Reserve should be very careful with tapering as emerging market shocks are possible. For the emerging markets the advice was to let their currency exchange rates bear most of the adjustments, as long as they have reserves.
Last night, the Organisation for Economic Co-operation and Development (OECD) released its annual Economic Policy Reforms: Going for Growth. The editorial headline was ‘Avoiding the low-growth trap’, emphasising that creating and maintaining growth should be the top priority for the participating countries. Structural reforms in the labour markets, and further liberalisation of the service sector and international trade were seen as the most promising option. After the recent turmoil in the emerging economies, weak growth in developed economies and the upcoming European elections, ideas like decreasing agricultural subsidies or exposing domestic industries to full international competition will not go down well in practice.
The Bloomberg guide to the meeting is worth reading for the probable themes, but one should not expect much concrete action. The United States will be on the defensive, and tell the emerging economies to get their own houses in order. Europe will remain stunned, as usual, and everyone kind of hopes that China will grow faster — but that is not what China wants at this point. It would be best for any positions left over the weekend to be able to handle a slight negative surprise from the G20. If you use Twitter, you might want to follow the official account @G20Australia.