A full set of data releases puts risk back on the table today. While this evening’s Federal Open Market Committee (FOMC) meeting remains the key event, there is still a great deal of disquiet over the eurozone package with the Finnish government the latest to start raising difficulties. Equities remain on the defensive as Italian 10-year yields pushed through 6.75% before consolidating at 6.66%.
The euro managed to struggle back above $1.32 this morning, while euro-sterling hovered below £0.8460.
The December ZEW survey will doubtless cause more despondency by showing the current situation and expectations component for German growth slowing further. So far, the ZEW survey has proved a little weaker than actual hard data, but the eurozone economy is likely to re-enter recession next year as fiscal austerity measures bite and confidence remains depressed.
Those hoping for an extension to Quantitative Easing in February will need to see a further decline in headline inflation to ensure that the Monetary Policy Committee (MPC) has sufficient room to act in the New Year. Consensus looks for a 0.2% rise in consumer prices, which would be enough to see the annual rate ease from 5.0% to 4.8%. We look for a 0.1% increase in November, noting that the BRC shop price index suggested that non-food goods were heavily discounted to encourage sales, so look for annual inflation to ease to 4.7%.
Before a run of decent data releases, there had been a slight feeling in the market that today’s FOMC meeting could see the Fed introduce a new round of asset purchases. However, Bernanke will have to deal with at least three dissenters today and the stronger than anticipated set of data releases would suggest that the Fed defers any expansion in asset purchase for now. Indeed, it is possible that the statement acknowledges the recent increase in activity, although it will doubtless nod to potential problems in the eurozone as a downside risk to the outlook for growth.
Certainly today’s data should keep the Fed happy, with the market looking for retail sales to rise by 0.6% in November after October’s 0.5% increase. Automobile sales will provide much of the stimulus, with ex-auto sales only rising by 0.4%. The NFIB Small Business Optimism survey for November will hopefully show that conditions are improving. The weakness of small businesses, caused partly by a lack of credit, has been a significant factor in depressing the labour market. However, there are signs of recovery and although the market is only looking for the headline index to rise from 90.2 to 91.5, there is a chance that it might rival February’s high of 94.5.
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Posted in Daily Market News on Dec 12 2011 by alex