With the dollar rally showing no sign of abating, expectations of US fiscal and monetary policy could continue to set the market theme in an otherwise relatively quiet week for economic data. The main highlights on the data front will come from Eurozone flash PMI numbers and Japanese inflation figures.
Eurozone business surveys in focus
ECB President Mario Draghi said this week the recovery in the Eurozone was becoming more broad-based and recent PMI data supports this view. Flash PMI data out on Thursday is expected to show a sustained recovery in November. The Markit manufacturing PMI is expected to show the flash reading decline slightly to 53.2 in November from 53.5 in October. The services PMI is forecast to improve however, increasing from 52.8 to 53.0 in November, while the composite PMI is expected to stay unchanged at 53.3.
Any upside surprises are unlikely to change the ECB’s outlook that the euro area is still reliant on continued accommodative monetary policy for growth, and the Bank remains on track to extend the duration of its QE program in December. The need for ongoing monetary support applies even to the bloc’s power house, Germany. Its economy slowed from 0.4% to 0.2% quarter-on-quarter growth in the July-September period according to the flash estimate. The second estimate of GDP growth is released on Thursday and is expected to confirm the preliminary reading. Also due the same day for Germany is the Ifo business survey. The Ifo business climate index is expected to increase slightly from 110.5 to 110.6 in November.
UK GDP revision could point to slowing investment
The UK will also see the release of second estimates to its GDP data for the third quarter. The British economy posted a surprisingly strong growth of 0.5% q/q in the three months immediately after the Brexit referendum according to the preliminary estimate. The second reading is expected to stay unrevised but the more detailed breakdown that accompanies the second release could signal a slowdown in business spending. Business investment was up 1% q/q in the second quarter and is forecast to ease to 0.9% in the third quarter. A worse figure is possible given the uncertainty created for businesses from the Brexit vote, and would likely add pressure on the pound, which has failed to find much support from recent positive data.
US durable goods and flash PMIs eyed
The US will have the busiest calendar next week, with durable goods orders and flash PMIs being the more significant ones. The October durable goods orders numbers are out on Wednesday and are expected to show a monthly gain of 1.1% in the headline measure. If follows a drop of -0.3% in September. The core measure of durable goods, which is considered a close indicator of business spending, is forecast to rise by 0.5% month-on-month in October, after slumping 1.3% the prior month.
Business survey data for the US next week will include the Markit flash PMIs and the University of Michigan final consumer sentiment index. The flash manufacturing and services PMIs, released on Wednesday and Friday respectively, are both forecast to be unchanged in November compared to October. However, with both indices having climbed to one-year highs in October, an unchanged reading can only be a positive indication and would further support the case for a Fed rate hike in December.
Also due next week for the United States are housing data, consisting of existing home sales on Tuesday and new home sales on Wednesday.
Japan deflation expected to ease in October
Consumer prices in Japan fell for the seventh consecutive month in September but CPI data out on Thursday could show the downward spiral finally easing in October. Core CPI, which excludes fresh food prices and is the Bank of Japan’s targeted measure, is forecast to rise to -0.4% year-on-year in October from -0.5% in September. The Bank of Japan has been struggling to lift inflation despite years of ultra-loose monetary policy. The yen’s recent slide against the dollar and other major currencies will therefore likely be welcomed by the Bank as it should put upwards pressure on import prices as well as boost exports.
Japanese exports have been falling year-on-year since the fourth quarter of 2015 due to the strengthening yen but it is too early for the its recent depreciation to positively impact exports just yet. Trade data out on Monday is expected to show exports falling by 8.6% y/y in October compared to 6.9% the prior month.