EZ stress tests and FOMC tone

Genevieve Signoret

Macro Views

Wednesday’s FOMC decision is a no brainer. But how about its tone?

We expect the FOMC to announce the end of tapering in its Wednesday communiqué. We see U.S. data on track for growth acceleration this quarter and in 2015, hence expect the Fed to agree with us and refrain from backing off their self-referential forecast that they’ll start hiking rates next year.

We expect the FOMC to try to calm markets by emphasizing that, notwithstanding their forecasts for their own decisions, these decisions in fact will depend on incoming data. Also, that they’re likely to raise rates gradually.

We see a rather large downside risk that instead they’ll treat us like grownups and fail to cushion the hard truth that rate hikes will likely begin next year.  And a small upside risk that they’ll turn soft on us as the Bank of England has done and revise out the date at which they expect a first rate hike.

Will euro area bank stress tests be credible this time?

Rumor has it that 11–25 of 130 euro area banks failed the stress tests that the ECB will divulge on Sunday. More important than the actual results is their credibility. Prior tests in this regard flopped.

The EC can’t force France into deflation (phew!)

On Timón Económico this week, we report with relief that France can and will refuse to adhere to the European Commission’s 3% fiscal deficit rule. In today’s French economy, to do so would be pro-cyclical and in fact deflationary.

Slack in the USA is moving opposite to slack in the euro area and Japan

We also show—again—that slack in the USA while growing in the euro area and Japan. We do this through charts depicting global industrial capacity utilization rates. Note that not even in the USA have they recovered to pre–Great-Recession levels.

Data support our optimism on household demand in USA and Mexico

Third, we show that, on trend, U.S. real retail sales are advancing at a steady slow pace of 1.7%, while in Mexico they’re accelerating.

Need a fact sheet on Iguala?

Finally, don’t miss our briefer on the Mexico Iguala crisis.

Next week in detail

Events in red are those most likely to shake markets.

Sunday 26

  • Euro Area: ECB banking comprehensive assessment. See comments above.
  • Ukraine: Parliamentary election.
  • Tunisia: Parliamentary election.
  • Brazil: Presidential election, second round. After the first round, folks were excited, because polls showed pro-market Aécio Neves close to beating Dilma Rousseff. But the latest polls point to a victory for the incumbent.

Monday 27

  • Euro Area: Money supply and commercial bank lending (Sep).
  • USA: Markit services PMI (Oct, flash).
  • Mexico: Foreign trade (Sep).

Tuesday 28

  • USA: S&P/Case-Shiller house prices (Aug), durable goods orders (Sep). Conference Board consumer confidence (Oct).
  • Mexico: Capacity utilization (Aug).

Wednesday 29

  • Japan: Industrial production (Sep).
  • Euro Area: ECB bank lending survey (Q3).
  • USA: Monetary policy decision. TransEconomics and consensus: rate unchanged at 0.0–0.25% and an end to QE. See detailed comments above.
  • Brazil: Monetary policy decision. In September, inflation moved past the Copom’s upper bound to 6.7%. Growth is stagnant. Consensus: Unchanged at 11.0%.

Thursday 30

  • Korea: Industrial production (Sep).
  • Germany:Unemployment rate (Oct), consumer prices (Oct, flash). Consensus, consumer price index: 0.9% (from 0.8% in Sep).
  • USA:Unemployment claims (Oct 25), GDP (Q3, flash). Consensus: 3.0% in Q3 quarter on quarter saar (from 4.6% in Q2).
  • Mexico: Federal government income and spending (Sep).

Friday 31

  • Japan: Unemployment rate (Sep), consumer prices (Sep), monetary policy decision.BoJ may change its forward guidance to prepare markets for it to take three or more rather than two years to reach sustained 2% inflation.
  • Turkey: Foreign trade (Sep).
  • Euro Area: Unemployment rate (Sep), consumer prices (Oct, flash). Consensus, consumer price index: 0.4% year on year in Oct (from 0.3% in Sep).
  • USA: Personal income, consumption and savings (Sep), U. Michigan consumer confidence and inflation expectations (Oct, final). Consensus: PCE inflation, 1.5% year on year (from 1.5% in Aug). We expect continued moderate growth rates for consumer spending, with only slight acceleration.
  • Mexico:Money supply and commercial bank lending (Sep), monetary policy decision, deadline for Senate to pass 2015 revenue law in Mexico.  Consensus and TransEconomics: no change at 3.0%.

Saturday 1

  • China: NBS manufacturing PMI (Oct).
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