Following the European Central Bank’s surprise cut in interest rates this month, eurozone inflation numbers released this week will be closely watched, while housing market and consumer confidence indicators in the US and UK will help gauge the state of the recovery on both sides of the Atlantic.
Inflation in the eurozone fell to 0.7 per cent in October, from 1.1 per cent the previous month, the lowest level since early 2010, and well below the ECB’s 2 per cent target. Fears of deflation in some member countries prompted the ECB’s rate cut.
The first estimate of inflation this month, published on Friday, is expected to show a slight upward movement, while in Germany, data due on Thursday is likely to show inflation still at 1.2 per cent. The GfK consumer confidence indicator for Germany, out on Wednesday, is expected to show sentiment remaining high, supporting consumer spending into the new year.
Consumer confidence will be the key release in the US. The Conference Board measure fell sharply in October, due to concerns about the political impasse. The extent of the rebound in sentiment, in the week of the Thanksgiving and Black Friday holiday shopping season will be seen in Monday’s release.
Continuing strength in the US housing market is likely to be seen in the data. Annual price rises on the S&P/Case-Shiller 20-city index are expected to be slightly higher at 13 per cent, while data for housing starts will be published for two months, October and the September data delayed due to the government shutdown.
The housing market will also take centre stage in UK releases. House prices as measured by the Nationwide Building Society will be published during the week. National measures of house price inflation give a false picture, as the market is so dominated by the rapid increase in London property prices. Prices in the regions will be scrutinised to see if this trend is spreading.
Mortgage approvals last month, due on Friday, will have been boosted by the government’s help-to-buy scheme and may have gone over 70,000 for the first time since January 2008. Consumer credit data are in the same release, which grew at the fastest pace since 2008 in September, at 5.8 per cent.
Rising consumer credit and signs of a nascent house price boom will cast some doubt on the success of the government’s aim of rebalancing the UK economy. The second estimate of gross domestic product in the third quarter, out on Wednesday, will provide more detailed information on the sources of the encouraging 0.8 per cent growth in the quarter.
That overall figure is not expected to be revised, so attention will focus on the contributions of business investment and trade. Analysts expect trade to have been a drag on growth, implying that consumer spending will have been very strong. Given signs from surveys that businesses may be more inclined to invest, any signs of a pick-up in business investment – which has fallen in four of the last five quarters – will be a welcome boost.
In Japan, consumer price inflation for October is out on Thursday. Headline inflation turned positive in June and will be watched for any signs of a return of deflationary pressures.
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