UK Next Week s Agenda and Wrap Up, September 23-27

Transcription

1 Next Week s Agenda and Wrap Up, September Headlines for the UK economy and global highlights - Wrap up - Next week s agenda - Financial overview - Government bond yields - Financial forecast - Chart of the week - The economy - News and statements during the week 20 Sep, 2013 Helena Trygg, , hetr01@handelsbanken.se

2 Headlines for the UK and key global highlights UK Consumer prices are still above the Bank of England s 2 percent target and the latest figures confirm the trend of broadly stable inflation since spring last year. Headline CPI, all items, was reported at 2.7 percent compared to August last year. The largest contributions to the fall in the rate came from the transport (particularly motor fuels and air transport) and clothing sectors. These were partially offset by an upward contribution from furniture, household equipment and maintenance. The new measure CPIH (which includes owner occupiers housing) was unchanged from July at 2.5 percent. Minutes from the latest Monetary Policy Committee at the Bank of England showed a united MPC in the voting process and the minutes stress that, if the recovery falters, the case for more QE will be stronger. But for now, it looks like the Committee again has adopted a wait-and-see mode. The labour market is strengthening and inflation is moving sideways, which makes the MPC comfortable enough not to do anything this month. Retail sales unexpectedly fell the most in 10 months in August as demand for food plunged. The decline was also due to household goods. Retailers reported that food sales returned to a more normal level last month after being boosted by hot weather in July, according to the ONS. Excluding food, sales rose 0.4 percent in August. The report also showed that non-store retailing surged a record 28.7 percent in August from a year earlier. The statistics office said the exceptionally high growth was due to a weak figure in 2012 during the London Olympic Games. In contrast to the disappointing retail sales figures, CBI Industrial Trends Survey suggests that the recovery in the manufacturing sector is continuing to show strength. The survey s main total orders balance picked up in September to its highest level since August Public finances - Weak receipts growth in August was more than offset by a fall in central government spending. Central government spending fell in August, compared to last year, because of lower central government grants to local authorities. Overall, there continues to be significant uncertainty around the prospects for full-year borrowing. This will depend partly on the extent to which recent developments in the economy feed through into stronger receipts growth. Global Turnaround from Federal Reserve. The FOMC decided to maintain the Fed s assets purchases of USD 85bn a month as well as its forward guidance due to concerns that a sharp rise in borrowing costs in recent months could slow the pace of improvement in the economy and labour market. The decision surprised financial markets, which had expected tapering. The Committee was awaiting more evidence that the progress will be sustained before adjusting the pace of its purchases. The statement after the meeting on September also stressed that asset purchases are not on a preset course and that the Committee s decision about the pace will remain contingent on the Committee s economic outlook as well as its assessment of the likely efficacy and costs of such purchases. In the future, markets will likely become more cautious in trusting the Fed. That could be problematic since the Fed s current policy relies very much on forward guidance. In our view, the FOMC paid too little attention to the bad consequences of further asset purchases, such as excessive risk taking, an increased risk of sharp bond selloffs as the Fed falls behind the curve or increased probability of a rocky exit from the current policy accommodation. 2

3 Wrap Up, September Monday 3 Rightmove house prices, Sep -1.5/4.5 (p: -1.8/5.5) Tuesday CPI, Aug 0.4/2.7 (e: 0.5/2.7, p: 0.0/2.8) CPI Core, Aug /2.0 (e: /2.0, p: /2.0) PPI input prices, Aug -0.2/2.8 (e: 0.2/3.0, p: 1.2/5.1) PPI output prices, Aug 0.1/1.6 (e: 0.2/1.8, p: 0.2/2.1) PPI output core, Aug 0.0/1.0 (e: 0.1/1.1, p: 0.1/1.1) RPI, Aug 0.5/3.3 (e: 0.4/3.2, p: 0.0/3.1) RPI ex mortgage interest payments, Aug /3.3 (e: /3.2, p: /3.2) ONS House prices, Jul /3.3 (e: /3.4, p: /3.1) Wednesday Bank of England minutes Thursday Retail sales ex auto, Aug -1.0/2.3 (e: 0.0/3.2, p: 1.2/3.2) Retail sales, Aug -0.9/2.1 (e: 0.4/3.3, p: 1.1/3.0) CBI Trends total orders, Sep 9 (e: 2, p: 0) CPI Trends selling prices, Sep 3 (e: 2, p: 0) Auction of 1¼% Treasury Gilt Friday Public finances, Aug -3.0bn (e: 5.2bn, p: -21.1bn) PSNB ex interventions, Aug 13.2bn (e: 13.3bn, p: 0.2bn) PSNB ex Royal Mail, Aug 13.2bn (e: 13.3bn, p: 0.7bn) Public sector net borrowing, Aug 11.5bn (e: 11.9bn, p: -1.1bn) m-o-m/y-o-y a = Actual e = Estimate p = Prior

4 Next week s agenda, September Monday No major events Tuesday BBA Loans for house purchase, Aug (e: 38.95k, p: 37.2k) Wednesday CBI Reported Sales, Sep (e: 23, p: 27) Thursday GDP final estimate, Q2 (e: 0.7/1.5, p: 0.7/1.5) Current account balance, Q2 (e: -11.0bn, p: bn) Total business invetment, Q2 (e: 0.9/-3.5, p: 0.9/-3.5) Friday GfK Consumer confidence, Sep (e: -11, p: - 13) Nationwide House prices, Sep (e: 0.5/4.4, p: 0.6/3.5) Index of services, Jul (e: 0.4/0.6, p: 0.0/0.6) 4 m-o-m/y-o-y a = Actual e = Estimate p = Prior

5 Financial overview 5

6 Government bond yields 6

7 Financial forecast Policy rates last 3 m onths 6 m onths 12 m onths USA Eurozone United Kingdom Ten year governm ent bond yields USA Eurozone UK governm ent bond yields 2 year year year UK sw aps 2 year year year FX last 3 months 6 months 12 months EUR/USD EUR/GBP GBP/USD Sources: Handelsbanken Capital Markets and Macrobond Base rates last 3 months 6 months 12 months United Kingdom

8 Chart of the week our favourite graph 8

9 The economy consumer prices, retail sales and wage growth. Over the last five years, the three main contributors to the 12-month inflation rate have been food & non-alcoholic beverages; housing, water, electricity, gas & other fuels; and transport (including motor fuels). Combined, these three sectors have, on average, accounted for over half of the 12-month inflation rate each month. Meanwhile, retail sales fell in August due to declining sales in food and furniture. From January 2013, the amount spent and quantity bought in the non-store retailing sector have shown continued strength. The exceptionally high growth in August 2013 compared with 2012 was largely due to the August 2012 figure, where feedback suggests that sales suffered as consumers watched the Olympics and Paralympics. Since January 2008, wages have increased by approximately 10 percent while consumer prices have increased by almost double. Households are still squeezed with high household debt and low earnings growth and private consumption will most likely be muted looking forward. 9

10 News and statements during the week When it comes to monetary policy, Bank of England Governor Mark Carney is finding actions speak louder than words. Investors are demanding the highest yield on 10-year gilts relative to Treasuries in seven months as they accumulate bets that the BOE will start raising interest rates before the Federal Reserve. UK bond yields rose after minutes published Sept. 18 showed policy makers agreed this month that the economy no longer needs more stimulus. Rates on Treasures tumbled the same day after the Fed said it would keep pumping $85 billion a month into the U.S. financial system to boost growth. (Bloomberg) Mark Carney is being haunted by the Bank of England s forecasting history as he tries to convince investors that the next rise in interest rates is at least three years away. As the newly installed central bank chief defends his view of gradually falling unemployment and benign inflation in the face of resurgent economy, his task is being made harder by a legacy of errors in BoE predictions for growth and prices. Those misfirings have left investors with more reason to doubt the policy parameters set by the cental bank, which Carney took over in July. With the recovery building momentum, suspicion the unemployment rate will fall faster than the BoE projects, or that inflation will prove more aggressive than Carney has indicated and driven 10-year gilt yields to the highest since (Bloomberg) UK stocks advanced the most in more than two weeks as the Federal Reserve refrained from reducing its $85 billion of monthly asset purchases. A gauge of London-listed lenders added 1.1 percent following the Fed s decision. Aberdeen Asset Management Plc jumped 6.7 percent as emerging-market stocks rose to their highest level since May. Asos Plc rallied 11 percent as the online fashion retailer posted quarterly sales growth that exceeded analysts projections. Booker Group Plc rose 2.7 percent after the food wholesaler said total revenue jumped. (Bloomberg) The government made about GBP 60 million in profit on a first sale of its stake in Lloyds Banking Group Plc, in a move toward full private ownership of Britain s largest mortgage lender. UK Financial Investments Ltd., which oversees the government stake, sold 4.28 billion shares for GBP 3.2 billion, or about 6 percent of the company s issued stock, the London-based body said in a statement on Tuesday. The shares were priced at 75 pence, a 3.1 percent discount to yesterday s closing price and above the 73.6 pence the U.K. originally paid after providing a GBP 20 billion bailout in Chancellor of the Exchequer George Osborne, constrained by the biggest austerity program since World War II, could use the proceeds to fund tax cuts or more spending before the next general election, due in He has said Royal Bank of Scotland Group Plc, which received a GBP 45.5 billion rescue, is still burdened by too many poor assets to be sold. Five years ago, the previous government used taxpayers money to bail out the banks and I ve been absolutely determined to get that money back for taxpayers so we can pay down debts, Osborne said in an ed statement. The stake sale is another step in the long journey to repair what went so badly wrong in the British economy. (Bloomberg) 10

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