Danske Daily: Awaiting FOMC Statement, US Growth Data

All eyes will be on this evening's FOMC statement. We do not expect any changes in policy but think that the Fed will stay on track to start tapering in September despite more dovish comments from chairman Bernanke recently. The statement could include more direct guidance on the timing and pace of tapering than the current 'substantial improvement' in the labour market. We expect such a change to indicate that if labour market improvement continues at the current pace, tapering will start this year. Earlier today we will receive the first release of US Q2 GDP growth. We expect GDP growth to print only a modest 0.8% q/q AR, which is likely to be noted in the FOMC statement. On top of the standard release, we will also get the so-called comprehensive revision of the national accounts data. This includes revisions to GDP back to 2009 and substantive changes in concepts, definitions and classifications. These changes should boost the level of GDP by 3% but not necessarily change growth rates.

Euro area flash inflation is expected to remain unchanged at 1.6% y/y in July. Further ahead we forecast lower inflation due to low wage pressure, declining oil prices, slowly increasing food prices and a drop in previous years' tax hikes.

Unemployment in Germany and the euro area are expected to remain unchanged at 6.8% and 12.2% respectively. In Germany unemployment might have fallen a bit in July and we foresee a lower unemployment rate in H2. This is supported by German PMI employment, which signals a 0.1pp lower unemployment rate on a three-month horizon. In the euro area PMI employment expectations indicate that the unemployment rate has not yet stabilised but that it is increasing at a slowing pace.

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