The Week Ahead In The Eurozone: PMI Indices, German IFO And Spanish Election

In the Eurozone over next week fresh evidences that the economy may fall in recession in Q4 ’11 and further weaken in Q1 ’12 are expected from the PMI indices for November. Having fallen to 47.1 and to 46.4 respectively in October, both the PMI manufacturing and the PMI services may further decline in November: continue on seekingalpha...

A Look Into The Depths Of Europe's Recession

The ZEW index released on Tuesday 15th confirmed that the outlook for the German economy – and as a consequence of the whole of the Euro zone economy - may further deteriorate in the next few months. The most important economic indication in the next few days (continue on seekingalpha)

Can The U.S. Consumer Save The World And The Equity Markets?

Economic data for September (for the data and projections I used this calendar) released over the last few weeks came out better than expected, signaling the U.S. economic activity rebounded after the weakness over the summer...continue on seekingalpha

Bank Of England Policy Could Weaken The Sterling

The Bank of England released today the minutes of the monetary policy committee meeting of October 5 and 6, in which a GBP 75 billion increase (to GBP 275 billion) of the asset purchase program was decided. The minutes confirmed that the BoE sees the risk that inflation (continue...)

The Week Ahead: European Summit And U.S. Economic Data

In the eurozone, the focus will be on the October 23rd European leader summit that is expected to deliver a strong solution of the eurozone financial crisis. The expectations became strong (continue on seekingalpha)

Fed: no other money untill recession. Or a further decline of the equity market...

The minutes of the 20 September monetary policy meeting - in which the Operation Twist was decided - indicated the FOMC members had different views on the best profile for the monetary policy. While 3 members out of 10 opposed the decision to implement the Operation Twist, two members preferred a stronger policy action, increasing speculation that the Fed may decide a QE3 in one of the next monetary policy meeting (the next one is on November 1-2).

Conclusion: in our view the minutes of the Fed did not give any indication of a further easing of monetary policy at the tail end of the year. The Fomc may decide to implement a QE3 program only in the case the economic outlook would deteriorate strongly and the possibilities of recession further increase. However, the better than expected data released since early October (ISM manufacturing – ISM non-manufacturing – employment report) indicated that the economic outlook in the short term may be better than expected (many economist revised upward their Q3’s GDP estimates after these data were released). For these reasons we do not see a QE3 plan in the short term.

UK unemployment rate and Euro zone industrial production

The UK unemployment rate rose to the highest in 17 years in August (from 7.9% to 8.1%) with the number of unemployed increased to 2.57 million, the most since 1994. In the Euro zone the industrial production rose by 1.2% m/m (after +1.1% m/m in July) and 5.3% y/y in August. The data benefited from the the increase of industrial production in Italy (4.3% m/m) and France (+0.6% m/m) that offset the decline in Germany (-1% m/m).                         

Conclusion: the increase of the unemployment rate is a clear sign of the weakenig of the UK economy and strenghtned the view of the BoE that the UK economy needed an easing of monetary policy as soon as in October despite the high level of inflation. Following the aneamic rate of growth in Q2 (0.1% q/q), the UK economy may fall short of economists expectations also in Q3 (the NIESR today predicted a 0.5% q/q growth in Q3).

The Euro zone industrial production data indicated that the Euro zone outlook in the short term may be better than expected. However, with the main business confidence indices in a downward trend, we expect the rebound over the summer to be temporary and the financial crisis over the summer to weigh on the data starting from September.