lunedì 10 ottobre 2011

The week ahead: focus on the Euro zone

On Sunday Chancellor Merkel and President Sarkozy said they will announce a comprehensive package of measures to stabilise the euro zone, including the recapitalisation of European banks if they need it, ahead of the November 3/4 G20 meeting. They did not provide any detail on the plan and promised to give them by the end of October. The main issues coming from the press conference are: 1) not giving any detail on the plan, Merkel and Sarkozy did not eliminate concerns that that the two governments had yet managed to resolve their differences on which entity will in charge to recapitalize the banks; 2) getting the other 15 member states to agree can prove challenging. The next key date is the 23 October EU Council when further elements to address the situation in Greece, the bank recapitalisation and the enhanced efficiency of stabilisation tools (EFSF) will be discussed.
The Slovakian Parliament will vote on Tuesday 11th on the approval of the EFSF. The latest headlines over the weekend suggest the governing coalition has still not found a compromise and will meet on Monday again. With Slovakia being the last country to vote for the approval of the EFSF, the plan is very likely to have a positive vote.
On Tuesday 11 the Italian Government will sell EUR7bn of 1 year BOT and EUR2.5bn of 3 months BOT. On Thursday 13 the Italian Government will 5/7/10/14 year BTP. In the latest long term government bond auction on September 29, Italy solo bonds due in 2022 to yield 5.86%, up from the 5.22% it paid Aug. With long term yields declined in early October, yields in the Thursday’s auction are likely to be lower than in September. The main issue is the level of the demand after Italy raised less than targeted in September: we do not expect a strong improvement in the demand as concerns on the Italian economic outlook remain elevated due to high public debt.
The Euro zone industrial production may decline by 0.7% m/m (after +1% m/m) in August after German industrial production declined by 1% m/m. The data would increase the possibilities that the Euro zone economy may fall in recession as soon as in Q4.
In the USA the focus over the week will be on the consumer spending outlook. Retail sales are likely to rebound by 0.4 m/m (0.0% m/m in August) and by 0.2 % m/m (+0.1% m/m in August) in September. The data would be in line with a 0.4% q/q increase of real consumer spending in Q3 ’11. The University of Michigan consumer confidence index may increase from 59.4 in September to 60 in October, remaining well below long-term average (90) and indicating a poor outlook for the consumer spending in Q4 ’11.
The minutes of the Fed 20 September monetary policy meeting are not likely to give any indication of a further easing of monetary policy in the next meetings.

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