Global
• In the US GDP data for Q4 are up for release. We expect to see a growth rate of 3.0% in line with consensus, up from 1.8% in Q3. Stronger consumption growth, a boost from net exports and positive contribution from inventories will lift GDP growth. The Fed meeting on Wednesday will be the first meeting with Fed interest rate projections and it will be very interesting to find out when Fed expects the first interest rate hike and how much tightening is expected in the following years. We expect the first hike to come in the second half of 2013. Other releases next week will be durable goods orders and home sales and house prices.
• In the euro area the focus continues to be on the negotiations in Greece. A preliminary PSI agreement between the Greek government and IIF on a debt swap is expected to be reached by the end of this week and the hope is that it can be ready for the Eurogroup-meeting on Monday. The main dispute remains what the coupon should be. At this point it is not clear whether collective action clauses will be imposed. Collective action clauses will effectively force those investors who do not want to participate in the debt swap voluntarily to take part. Note that this could come after a preliminary PSI agreement has been reached. Hence, even if a PSI agreement is reached over the weekend, Greek lawmakers could decide to change the law so that all private investors will be forced to take part in the debt swap. In this scenario CDScontracts will be triggered. The net notional amount of these CDS contracts is EUR5- 10bn, so they do not pose a threat to the banking system. Furthermore, the European
banking system is in the process of recapitalisation, so in case of large shortfalls in some banks government support can be expected. Note that the deadline for banks to submit their recapitalisation plan is today, for a list of the banks involved see EBA.
Speculation on whether the ECB will sell its holdings of Greek bonds at the purchase price has also increased. Different media reports suggest that this could reduce the Greek debt by around EUR15bn, but as is the case with the collective action clauses such a move is expected to come after the PSI agreement has been finalised.
• On the release front we will get both flash PMI and IFO numbers in the coming week. We expect the gradual improvement to continue. The PMI new order-inventory balance that tends to lead the composite figures has turned. This is in line with this week’s very strong ZEW figures. Also euro area M3 figures are worth keeping an eye on.
• By far the most interesting data in the UK next week is the first release of Q4 GDP on Wednesday. After expanding 0.6% in Q3, the economy has undoubtedly slowed, but the big question is if it has also contracted. Economic data surprised on the upside in Q4, but maybe only because expectations were very low. PMIs have corrected higher and private spending seems to have been relatively strong. Industrial production is falling, but the worst should be over now. We believe output in Q4 was broadly flat compared to Q3. It could be a small decline or a small increase and as no breakdown of the data is provided until next month it will be difficult to say where the contributions to growth stem from. Contrary to most in the market, we see some chance of a positive surprise, which could be quite important for spending propensity and general consumer sentiment. The Eurozone crisis is dragging on the UK economy and making exports more difficult. The pound has, in our view, come to a point where it will not continue to perform against the euro and could in fact weaken as the market warms up for more quantitative easing from the Bank of England next month.
The coming week sees the publication of money supply data and KOF’s leading indicator in Switzerland. However, focus in Switzerland, at least from a FX market perspective, remains on the way forward following Hildebrand’s exit from the Swiss National Bank (SNB). His sudden exit has prompted investors to scale back expectations of a potential hike of the 1.20 minimum target. As a result, EUR/CHF has corrected back below 1.21. We continue to expect the 1.20 minimum target to be maintained and hence for EUR/CHF to remain above 1.20. The case for a move higher in EUR/CHF has weakened, however, and we doubt that the Swiss franc will weaken noteworthy over the coming months.
• In Japan the main event next week will be the Bank of Japan’s (BoJ) monetary meeting on 24 January. We do not expect any additional non-conventional easing measures to be announced in connection with the meeting. There is still ample room to expand asset purchases within the JPY15trn ceiling for asset purchases that has so far been announced. However, we still believe further QE is possible in Japan in H1 2012. First growth has slowed substantially in Q4 11 (we estimate to just 0.7% q/q AR). Despite BoJ’s efforts the size of its QE so far is modest compared to other central banks and this might be adding to continued appreciation pressure on JPY.
Hence, BoJ could eventually be forced to respond more forcefully by expanding its asset purchases faster. Foreign trade, retail sales and consumer prices for December will also be released next week. We expect exports to recover from a weak November, where Japan’s export was hit by flooding in Thailand.
• In China the Chinese New Year holiday starts on Monday and most of China will be off next week. So no major releases scheduled next week.
Scandi
• In Denmark December unemployment and January consumer confidence are on the menu. We expect the number of jobless to be unchanged from November to December at 163,000, or 6.2% of the labour force, and consumer confidence to improve slightly, with the expectations index climbing from -9.8 to -7 in January, mainly because confidence normally rises in the first month of the year. However, with the introduction of 3.5% fixed-rate loans opening up the possibility of smaller mortgage bills, and economic data in general promising a fine start to the year, consumers may prove somewhat less downbeat.
• In Sweden next week will provide a plethora of data covering most aspects of the Swedish economy in something resembling a ketchup bottle effect, first there is nothing, then there is nothing, and then, come Thursday and Friday, it all explodes onto our plates/screens (you get the picture). On Thursday (26 January) we first receive business and consumer confidence data (at 09:15 CET) from the National Institute for Economic Research (NIER). Fifteen minutes later (at 09:30 CET) trade balance and producer prices (incl. export and import prices) will be released, giving us a fuller description of how the export industry faired during the last quarter of 2011. Our take is a seasonally normal upturn in trade balance (to SEK7bn), but that would nonetheless imply a weak Q4 number, pushing the contribution from net exports to GDP deep into red. At the same time (09:30 CET), the labour force survey (incl. the unemployment rate) will be published, but we do not suspect any large movements just yet, instead a more gradual deterioration in hours worked and employment is foreseen. On Friday (at 09:30 CET) household data take centre-stage.
Household lending and retail sales figures are in the cards, with market focus tilted towards retail sales. We expect a strong rebound after a long period of weak postings, due mainly to ample anecdotic evidence on large, and early sales, as well as a positive “heads-up” from the STIL flash index on clothing and shoe sales.
• In Norway the week’s only significant release will be the Q4 business tendency survey for the manufacturing sector. There was a steep fall in the PMI in Q4, yet exports of traditional goods only fell just over 1% q/q and industrial production held up fairly well, so the business tendency survey may help clarify just what was going on in Norwegian manufacturing at the end of the year. Based on the PMI, we would anticipate a drop in the indicator from 4.9 in Q3 to -1.5 in Q4, driven by a fall in export orders and lower employment.