Market Movers Ahead

In the  US  the main mover next week is expected to be retail sales. We look for continued decent growth in both core and headline retail sales of 0.3% m/m. This would put private consumption on track for just below 3% growth in Q4. The trade balance is also released. We expect to see a further rise in export growth, which has picked up slightly in recent months. Import growth should also rise further as domestic demand has improved. The Beige Book is not likely to offer much that is new in the way of information, but rather confirm the picture of a strengthening recovery.

In Euroland  next week’s main event is the ECB Governing Council meeting on Thursday. We expect the ECB to take a ‘wait and see’ approach. Macro data appears to have stopped deteriorating and market sentiment has improved in recent weeks. If a slow economic recovery materialises, as we expect, the ECB will not cut rates any more, but will keep the refinancing rate at 1% for a prolonged period. Market reaction is set to be moderate if the ECB keeps rates unchanged, while a rate cut could pull short rates down somewhat. 

Government bond auctions in Spain on Thursday and in Italy on Friday are set to be watched closely. German industrial production data for November, due to be released on Monday, are expected to show a moderate decline reflecting the lower factory orders level. Euro area industrial production data on Thursday are expected to show a similar decline. National inflation data for December and Italian budget data for Q3 may also attract some attention. Merkel and Sarkozy meet on Monday and Merkel is set to host a meeting with Mario Monti on Wednesday. We do not expect major new announcements following these meetings.

The most interesting aspect about the Bank of England meeting next week is whether the Monetary Policy Committee will raise the ceiling for asset purchases. We don’t believe it will, as it would indicate quantitative easing faster, which isn’t necessary with the recent stream of sound data still fresh in the memory. The BoE would likely keep the base rate unchanged at 0.50% and the asset purchase target at GBP275bn and the meeting is likely to have very limited market impact. Usually, January meetings are quite dull with no significant news announced. The British pound has strengthened recently and we believe this trend can continue as the eurozone woes continue to dominate the financial agenda.

In China economic data for December and Q4 11 GDP growth could be released late next week, but a final release date has not yet been scheduled and the data might not be released until the following week. In Q4 we expect GDP growth to have eased substantially from 9.1% y/y to 8.1% y/y. Sequentially expect GDP to have increased  7% q/q AR, which is largely unchanged compared with the previous two quarters. Q4 would be the fourth quarter in row of GDP growth below trend. On a negative note, we expect CPI inflation in December to have accelerated slightly from 4.2% y/y to 4.5% y/y on the back of higher food prices. Food prices usually increase ahead of the Chinese New Year holiday and because the Chinese New Year holiday in 2012 starts earlier (23 January) than last year (3 February) the increase in food prices appears to have started a bit earlier than last year. Hence, the increase in inflation in December should prove temporary and we still expect inflation to drop below 3.5% y/y in 2012 should prove temporary and we still expect inflation to drop below 3.5% y/y in 2012. That said higher inflation in December might scare the market, as this could suggest continued elevated inflation and limited room to ease monetary policy. We still expect the Peoples’ Bank of China to cut the reserve requirement by 50bp before the Chinese New Year holiday starts on 23 January. Industrial production, retail sales, fixed asset investment and foreign trade for December could also be released next week.

In  Japan  we have a relatively light calendar next week. The main release is
machinery orders for November, which we expect to  recover following the sharp contraction in the previous month.

Scandi

• In Denmark, the coming week brings a veritable deluge of data. Figures for foreign trade and industrial production and orders in November will shed light on the current state of the economy. Danish manufacturers and exporters have proved surprisingly resilient in the face of the latest storm in the global economy. Order books still seem to be in good shape, so we expect growth of 0.7% in industrial production and 1.0% in exports from October to November. This export growth would ensure a continued trade surplus and we forecast a current account surplus of DKK9bn in November. The week also brings consumer prices for December. We expect inflation to edge down to 2.4% y/y, due partly to  lower petrol prices and  base effects from previous price increases.

• Swedish CPI data for December is released on January 12 and despite the fact that the Riksbank actually cut the repo rate, higher short-term mortgage rates  are in fact expected to add to the CPI. This illustrates that the transmission mechanism (just like in Euroland) is somewhat disturbed by effects of higher term funding costs for banks,which also translate to lending rates. However, higher mortgage rates  – and some seasonal increases in food prices  – are expected to be partially offset by lower clothing prices. In total we expect a 0.4% m-o-m increase in the CPI while the y/y rate drops from 2.8% to 2.5%. In general we expect the inflation rate to continue to decline in the coming months.

• Industrial orders and production data (due to be reported on January 10) deserve some attention too. On the back of recent surveys and PMI data we are probably going to see a gradual slowdown being confirmed in hard data

• In Norway, the week’s big release is December inflation. While inflation is far from the most important factor in the Norwegian economy at present, we expect continued high cost  growth and surprisingly  robust  demand for consumer goods to  limit  the scope for inflation to slow notably. The fall in November was probably due largely to reductions in prices for winter clothing and sports equipment on account of the unusually warm weather. We therefore expect core inflation to rise moderately to 1.1% y/y, which is somewhat lower than Norges Bank assumed  in the  October monetary policy report, but scarcely enough to  cause the market to re-price interest rate expectations.