Today’s data calendar is packed, but only the European third quarter’s gross domestic production growth figures stand out as important. European Union's finance ministers will today discuss the union's budget for the 2015, and two central bankers will be speaking (Federal Reserve Bank St Louis president James Bullard 14:10 GMT and ECB's Benoit Cœuré 21:00 GMT). In addition to the retail sales data discussed below, we also get the US Michigan consumer sentiment for November at 14:55 GMT and the euro area’s inflation for October at 10:00 GMT.
European Q3 Gross Domestic Production (06:30-10:00 GMT): The first estimates for the most important European countries and the euro area as a whole will be published today. Spain’s earlier-reported growth held up pretty well in the third quarter, coming in at 0.5%, only slightly lower than 0.6% in the second quarter. Unfortunately, the consensus does not expect such luck for the rest of the European countries.
First one out will be France at 06:30 GMT, with the consensus expecting a minuscule 0.1% growth after a flat second quarter. The low readings for the purchasing manager indices suggest that there is little chance of a positive surprise.
Germany’s growth at 07:00 GMT is expected also to be a very low 0.1%, but still an improvement from the second quarter’s decrease of 0.2%. Unfortunately, Germany apparently needs to have a much weaker economy for it to be able to tolerate higher fiscal spending or easier monetary policies in the euro area. As with France, the purchasing manager indices suggest that also Germany will not be able to provide a notable positive surprise.
Italy’s GDP at 09:00 GMT is expected to have contracted by 0.4%, and it will be interesting to see if there will be any political reaction – Italy's President Matteo Renzi has demonstrated that he can be very vocal and oppose the European Union’s decisions.
Euro area's growth is also expected to be 0.1%, making the "recovering periphery" story quite unusable by the optimists. At this point I am hoping for bad numbers, because that would be just what is needed ahead of the weekend's G-20 summit.
US October Retail Sales (13:30 GMT): The fall of 0.2% in September’s retail sales were a bit of shocker, but keen observers would note that the monthly rate-of-change has been falling since March, and even with another weak month the time series would remain within the range it has been oscillating in since 2010. Thus it is possible that the consensus expecting an increase of 0.2% could turn out to be overly optimistic.
The spread between the US and the euro area’s economic surprise indices has been decreasing, just as I suggested couple of months ago. While there is still more room for the US to keep producing negative surprises and Europe to produce positive surprises, there is only a month or two left for the spread between the two series to revert toward the mean.
Note that positive surprises do not suggest that data is bad or good. A positive surprise can be had even with a terrible data – just as long as expectations are even worse. Even with that caveat, I don't think that the surprise indices will cross anytime soon under the current economic policy stance.
G-20 meeting: The key event after today will be the meeting of the G-20 heads of government in Brisbane, Australia, held on November 15-16, 2014. The discussions will surely concentrate on Europe’s economic woes, and any signs of a political consensus being formed at the meeting would be a positive surprise for the markets.
The International Monetary Fund’s (IMF) note prepared for the meeting called for accommodative monetary policy in the euro area and Japan, and suggested that countries that are worried about high level of asset prices, macroprudential policies should be used in order to prevent premature monetary tightening. Mind you, the full note is good reading to get an overview of the global state of things.
The note also said that countries with high current account surpluses should increase domestic demand, and that countries with “clearly identified needs” and economic slack should increase infrastructure investment. Both of these are clearly targeted towards Germany.
This echoes US treasury secretary Jacob Lew, who earlier this week stated that the current policies in Europe have not achieved growth objectives. He called for national authorities and other European bodies to act, while commending the European Central Bank’s “forceful steps”. See Bloomberg, Reuters, Financial Times and the US treasury for more.
The markets do not currently have high hopes that the latest version of the euro crisis – non-existent growth with zero inflation, with a threat of a deflationary spiral – will be solved any time soon. While I am not expecting the Germans to budge, it is worth remembering that this would be the perfect time for the markets to be seriously surprised, if something real would come out of the meeting.
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