Business climate surveys and forecasts show growth in China, Germany and UK
Yesterday’s euphoria over the prospect for a comprehensive solution to the eurozone debt crisis was given a hefty reality check by German Finance Minister Schaeuble yesterday afternoon. Speaking at Chatham House he baldly stated that ‘we won’t have a solution this weekend’ as part of what appears to be a systematic German attempt to water down expectations. The German government wants the private sector to take a much larger write-down than the 21% already agreed, which is still meeting resistance from French and German banks.
Having rallied yesterday morning, stock markets closed lower and that weakness fell through to Wall Street, which fell by 2%. Equity markets will therefore become ever more dependent on economic data today. Unfortunately there seems to be plenty of scope for disappointment. The Chinese economy grew by 9.1% in the year to September, which was a little down from the 9.5% growth rate seen in Q2. While growth was a little below market expectations and at the slowest pace for two years, it was still extremely impressive given the global economic uncertainty. We have revised up our GDP forecasts for 2011 and 2012, but Asian bourses concentrated on the slowdown to activity and sold-off.
Along with the rest of the market, we look for a 0.4% rise in UK September CPI, which would see the annual rate rise to 4.9%, its highest level since September 2008. The range of forecasts lies between 4.5% and 5.2%, which is fairly narrow, but partly reflects the similarity of forecasting methodology. We look for core CPI to rise from 3.1% to 3.3%, partly reflecting our view that this rise in inflation reflects more than just food and energy price increases. Previously, a large CPI print would have led to an increase in interest rate expectations and so support sterling, but with the MPC clearly on hold and purchasing government gilts at the moment, market reaction will likely focus on the squeeze on real incomes, which reduces activity and is sterling negative. Governor King is speaking in Liverpool this evening and will have plenty of explaining to do.
The German business climate survey from the Centre for European Economic Research (ZEW) is the first measure we get of sentiment for October. So far, the investment community has proved to be a little more pessimistic than hard economic data, which suggests some over-reaction to the eurozone debt crisis. The Ifo survey has tended to be more robust and closer in line with GDP. The German economy should post reasonably growth in Q3, but the ZEW will doubtless be interpreted as heralding a slowdown in Q4.
US producer prices are expected to rise by 0.2%in September, but that would still see the annual rate ease from 6.5% to 6.4%. Core prices are expected to rise by 0.1%, which would keep the annual rate at 2.5%.
What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.