- UK CPI is expected to rise to a two-year high in today’s November update
- Economists project ZEW survey data for Germany to tick higher in December
- US Small business optimism in November is on track to reach an 18-month high
The pace of economic releases picks up today, including an early look at Germany’s economic profile via ZEW survey data for December.
We’ll also see the UK inflation report for November and last month’s profile on the mood in the US small company sector based on NFIB's Small Business Optimism Index.
UK: Consumer Price Index (0930 GMT): Consumer prices are projected to rise 1.1% in November against the year-earlier level, according to Econoday.com’s consensus forecast.
If the estimate holds, headline inflation will tick up to the fastest rate in two years. But the news isn’t likely to convince the Bank of England to announce a hike in interest rates in Thursday’s policy announcement.
Although a 1.1% annual rise in headline inflation would mark the highest pace in two years, there’s still a long way to go to reach the BoE’s 2% inflation target.
Meantime, economists expect that the economic growth will decelerate in the near term, keeping pressure on the central bank to delay monetary tightening.
The British Chambers of Commerce yesterday predicted that UK output will slow to 1.1% next year, down from 2.1% growth in 2016.
“Higher inflation and continued uncertainty over Brexit will weigh on the UK’s growth prospects, with consumer spending and business investment likely to be hardest hit,” said the BCC’s director-general.
“Average earnings should hold steady but inflationary pressures are expected to erode real wages, which will hit the spending power of households.”
The outlook for slower growth and higher inflation will put the BoE in a tough spot in the months ahead as it tries to balance two competing forces that imply a conflicting set of monetary prescriptions.
For the moment, however, the central bank can afford to tolerate higher inflation. But the patience could wear thin if inflation continues to move closer to the 2% target.
Germany: ZEW Economic Survey (1000 GMT): Europe’s biggest economy faces a number of risks, but for the moment the macro trend is on track for a modest acceleration, according to the Economy Ministry.
“Uncertainties remain high, however, not least because of Brexit, the unpredictability of future US policy, and the political situation in Italy,” the ministry advised in its monthly analysis. Nonetheless, the near-term path still looks brighter, the agency said.
Today’s survey data that tracks opinions in Germany’s financial sector is expected to reaffirm the ministry’s upbeat outlook, if only on the margins.
ZEW’s current situation index will tick higher, rising to 59.2 for December – close to the highest level this year, according to TradingEconomic.com’s consensus forecast.
Meanwhile, the economic expectations data is projected to inch up to 14.0, a six-month high.
Germany’s stockmarket is inclined to see a brighter economic trend these days too.
The DAX Index rose to a new year-to-date high in mid-day trading on Monday, in part because analysts think that today’s ZEW report won’t spoil the party.
US: Small Business Optimism Index (1100 GMT): Judging by the US equity market, the economic outlook has improved quite a bit since Donald Trump won the presidential election last month.
The question is whether the attitude adjustment also applies to the small business sector?
Today’s update is expected to offer a down payment for answering in the affirmative. Econoday.com’s consensus forecast sees the Small Business Optimism Index rising to 96.5 for November - the highest reading in a year-and-a-half.
If the forecast holds, the news will inspire expectations that we’ll also see a pick-up in small company job growth in the months ahead.
A rising trend would certainly be welcome after the recent slowdown in the number of new employees added at firms with less than 50 workers, based on ADP figures.
The economic rationale for a brighter mood among small companies: the incoming Trump administration is expected to cut taxes and regulations – burdens that small firms have long cited as headwinds to growth.
It’s anyone’s guess if a meaningful change in government policy is truly coming, or if it’ll provide substantial relief for small companies. In any case, expectations have taken wing and the brighter mood will probably show up in today’s report.
Disclosure: Originally published at Saxo Bank TradingFloor.com