Activity on the European calendar will remain brisk in the week ahead, with several notable economic updates, including a fresh gauge of Euro Area inflation and consumer confidence. Market participants will also be watching the Bank of England’s monetary policy decisions closely, as well as any signs of progress on Brexit.
Monday, December 17
The week shifts into high gear on Monday, beginning with Turkey’s unemployment rate for September.
The Turkish economy has been suffering from a slowdown in domestic demand, as well as private consumption and investment spending, amid tighter financial and credit conditions, and with leading indicators pointing to a sustained increase in unemployment.
The number of unemployed persons in September rose by 330k to 3.75m compared to the same year-ago period, with the unemployment rate up 0.8% to 11.4%.
Meanwhile, the first estimate for euro area exports rose 11.4% year-on-year in October 2018 to €209.7bn, while imports surged 14.8% to €195.8bn over the same period. As a result, the euro area recorded a €14.0bn surplus, according to Eurostat.
However, Euro Are inflation dipped lower, despite efforts by the European Central Bank to stimulate the economy.
While the annual rate increased from its 1.5% clip last year, it slowed to 1.9% in November from 2.2% in the prior month, with the largest drags incurred by Denmark (0.7%), Ireland (0.8%) and Portugal (0.9%).
In late November, ECB president Mario Draghi said before the European Parliament’s Committee on Economic and Monetary Affairs that a slowdown in euro area growth mainly reflects weaker trade growth, but also some country and sector-specific factors, while the employment is expected to slow somewhat as labor supply shortages become more binding.
The ECB at its December 13 monetary policy meeting elected to keep its key interest rates unchanged and announced the end of its asset purchase program.
Germany’s contribution to euro area growth has also been a drag on the broader economy.
The Bundesbank in its November monthly report said that economic output in Germany “dipped slightly” in the third quarter of 2018. The bank, citing figures from the Federal Statistical Office’s flash estimate, noted that real gross domestic product (GDP) contracted by 0.2% compared to the previous quarter.
The Bundesbank noted that the main cause of this decline was a “strong temporary one-off effect” in the auto sector, driven by major issues linked to the new EU-wide standard for measuring exhaust emissions. It added that at the same time, “private consumption was temporarily absent as a driving force of the economy.”
Tuesday, December 18
Germany - ifo business climate (December)
Further indications of weakness in the German economy may be gleaned from recent ifo business climate readings.
The ifo said sentiment among German businesses declined further in November, with the index having fallen to 102.0 points from 102.9 in October – marking its third consecutive decrease. ifo Institute president Clemens Fuest observed that companies scaled back their assessments of the current business situation “albeit from a high level,” and business expectations also “clouded over.”
Clemens added that the German economy is “cooling down,” underscored by continued deterioration in manufacturing.
Wednesday, December 19
UK – Inflation Rate (November)
Consumer prices in the UK remained at 2.2% in October, unchanged from the prior month. According to the Office for National Statistics (ONS), the large downward contributions to the change in the 12-month rate came from food and non-alcoholic beverages, clothing and footwear, while some transport items were offset by upward contributions from rising petrol, diesel and domestic gas prices.
The Consumer Prices Index (CPI) 12-month rate was 2.4% in October 2018, unchanged from September 2018.
Thursday, December 20
UK – Bank of England Interest Rate Decision
The BoE’s Monetary Policy Committee (MPC) at the conclusion to its meeting at the end of October, voted unanimously to maintain the Bank Rate at 0.75%.
The MPC also elected to maintain its purchases of non-financial investment-grade corporate bonds at £10bn, as well as UK government bonds at £435 bn.
The BoE said the economic outlook will “depend significantly on the nature of EU withdrawal, in particular the form of new trading arrangements, the smoothness of the transition to them and the responses of households, businesses and financial markets.”
The central bank added that “implications for the appropriate path of monetary policy will depend on the balance of the effects on demand, supply and the exchange rate,” and that the monetary policy response to Brexit, “whatever form it takes, will not be automatic and could be in either direction.”
In terms of Brexit, Marc Chandler, chief market strategist at Bannockburn Global Forex, noted that the UK government is pushing back against calls for a second referendum, which appeared to be gaining support. Separately, he said, there is some effort to allow the House of Commons to vote on the various alternatives, including a second referendum and a no-deal exit.
Chandler said that under such conditions, “it is possible that no path has a majority.” He observed sterling straddling Monday at $1.26, with a large (£1.6bn) option at $1.2700.
UK – GfK Consumer Confidence (Dec)
It appears Brexit uncertainties have also thrown a wet blanket over consumers’ appetite for spending.
Joe Staton, GfK’s client strategy director, recently attributed concerns over household finances, the general economy and purchase intentions, to political uncertainties over the Brexit outcome.
GfK’s Consumer Confidence Index decreased by three points in November 2018 to -13.
Friday, December 21
Euro Area – Flash Consumer Confidence (Dec)
In November 2018, the European Commission noted that flash estimate of consumer confidence decreased “markedly” in the euro area and the EU, with declines of 1.2 and 1.0, respectively. However, at −3.9 for the euro area, and −3.7 for the EU, the EC said both indicators remain well above their respective long-term averages of −12.0 (euro area) and −11.1 (EU).
ECB president Draghi said at the central bank’s press conference in mid-December that domestic demand, supported by the bank’s accommodative monetary policy stance, “continues to underpin the economic expansion in the euro area.” He added that the strength of the labor market, “as reflected in ongoing employment gains and rising wages, still supports private consumption.”
Ahead of the weekend, investors will also receive updates on Italian business and consumer confidence figures, British and Danish third-quarter GDP, and Spanish trade data, among a slew of other reports.
In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more.
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