US markets are closed today for the Thanksgiving holiday, but several economic reports for Europe are scheduled, including revised data for Spain’s third-quarter GDP. Later, the European Central Bank publishes new money supply numbers for October, followed by Gfk’s report on consumer sentiment in Germany.
Spain: Q3 GDP Revision (0800 GMT): Growth has moderated in Europe’s fourth-largest economy, as today’s revised numbers on third-quarter GDP will reaffirm. Although the previously reported 0.8% quarterly gain in output in Q3 is still strong by Eurozone standards, the deceleration from Q2’s 1.0% advance has heightened worries for the currency bloc’s growth leader among the big-four economies.
Will the downshift in Q3 spill over into this year’s final quarter? No, according to Spain’s economy minister, Luis de Guindo, who offered an upbeat analysis in an interview this past Sunday. “Early indications tell us that at least for the month of October growth was stronger than the third quarter,” he advised.
Business sentiment in Spain is still bullish, but next month’s general elections are weighing on expectations. “The prospect of a period of political uncertainty has the potential to put the brakes on the economy around the turn of the year as firms and clients alike operate a wait-and-see approach,” a Markit economist noted earlier this month.
FocusEconomics advised last week that “early polls point to a fragmented Parliament, which is unchartered waters for the country and could increase the risk of policy inaction going forward.”
Meantime, BBVA’s new forecast sees a slower rate of growth for Spain next year: 2.7%, down from 3.2% that the bank projects for the full-year increase this year. The key headwinds include “the loss of momentum of world demand, exhaustion of certain cyclical factors and increasing uncertainty, which is partly associated with the Spanish electoral cycle,” BBVA explained.
Today’s revision of GDP data for Q3 is widely expected to remain unchanged at 0.8%, matching the initial estimate for quarter-over-quarter growth. But until we move past the December elections, the macro outlook for Spain is in a holding pattern.
Eurozone: Money Supply (0900 GMT): “We will do what we must to raise inflation as quickly as possible,” Mario Draghi said last week (Draghi says ECB will do what it must to spur price gains). The ECB president’s words will be on everyone’s minds today when reading the October update of money supply numbers.
Recent history shows that the pace of growth in monetary liquidity has softened. The broad money supply (M3) increased 4.9% in September vs. the year-earlier level, moderately below the recent high of 5.4%. Narrowly defined money (M1) has also posted slightly softer numbers lately, rising at an annual rate of 11.7% at the end of the third quarter, below the 12.3% peak in July.
The monetary trend would be of minor importance if inflation was higher. But the recent dip into mildly negative territory, which revived slightly to a still-weak 0.1% year-over-year rate in October, will keep the money supply numbers front and centre until firmer pricing conditions return.
The pace of annual growth for M3 is expected to hold at 4.9% in today’s update for October, according to Econoday.com’s consensus forecast. The crowd, however, will likely view no change as benign in the wake of this week’s encouraging news on business sentiment. The flash data for the Composite Eurozone PMI reached a four-and-a-half year high this month, implying that GDP growth will tick up to 0.4% from 0.3% in Q3.
It’s still debatable if the currency area’s macro trend is on track to strengthen. But in the wake of the latest PMI release, the crowd will have a bit more tolerance for a modest deceleration in the growth rate of money supply from levels earlier in the year.
Germany: Gfk Consumer Climate (1200 GMT): Business sentiment in Germany is holding up a bit better than expected, according to this week’s release from the Ifo Institute. The group’s Business Climate Index inched up in November to the highest level since mid-2014. “German industry appears more optimistic again with regard to future exports,” said the head of the Munich-based Ifo. “The weakness of the euro is a support here.”
Indeed, the euro has fallen roughly 7% against the US dollar over the past month. As of midday yesterday, the EURUSD was trading just above the 1.06 mark, the lowest since April.
It’ll be interesting to see how sentiment in the consumer sector compares. Animal spirits via the stock market have certainly revived lately. The DAX Index rose on Tuesday to a three-month high. In recent weeks the benchmark has clawed back all the losses since the mid-August announcement of China's currency devaluation – a statement that sent financial markets tumbling the world over.
Will the recovery in business sentiment and German equity prices reverse the recent slide in consumer sentiment? Gfk’s benchmark of the mood slipped to a nine-month low of 9.4 in last month’s update, which is labeled as a month-ahead forecast. The upbeat data from other sources implies that we’ll at least see consumer sentiment stabilise after months of grinding lower. If so, the outlook will look a bit brighter for Europe’s biggest economy.
Disclosure: Originally published at Saxo Bank TradingFloor.com