The Global Markets Weekly – 12/6/13

Posted December 10, 2013 by rvillareal

Taper, or Not?

U.S. data of the week left the FOMC with a much closer call on the tapering question.  Real economy results were generally quite strong, including a November ISM Manufacturing Survey featuring robust new orders, a big upward revision to third-quarter GDP growth, and a healthy November employment report showing another good payroll employment increase and a 0.3-point drop in the unemployment rate.[private]

However, data also threw out arguments for caution about any shift in the direction of “tightening.”  Of most concern to some FOMC participants, October PCE price measures showed yet another decline in year-on-year increases, with the overall measure slipping to +0.7%, from +0.9% in September, and the core figure to +1.1% from 1.2%.

The GDP data were troubling too, with the entire upward revision—some 0.8 percentage point—accounted for by inventory investment.  That raised the threat of an abrupt fourth-quarter production slowdown, as companies struggle to get stocks under control.  The ISM numbers gave no hint of that, but they have not been infallible lately.

For Decision Economics, the week’s data, including very strong November light vehicle sales and a big December rebound in University of Michigan Consumer Sentiment, tip the odds to 60/40 in favor of a December tapering move—though one accompanied by some softening move, perhaps a cut in the 6.5%  unemployment-rate threshold for consideration of outright rate increases.

• U.S.: There is little on the schedule other than the very important November retail sales data (Thu), updating the consumer spending story.  That report, like the employment report, always has some potential to bring landscape-shifting revisions too.
• Eurozone: Given the somewhat more mixed messages in the latest batches of business survey data, there should be even more emphasis on official October production updates due this week.  Most notable will be German Industrial Output (Mon).
• UK: Manufacturing PMI and other alternatively-sourced survey data for the sector have clearly overstated the more moderate strength seen in official numbers, albeit with it likely that more strength will be seen in October Industrial Production (Tue).
• Japan:  There are many releases scheduled, but relatively few of immediate interest—notably revised third-quarter GDP (Mon), November bank lending (Mon), October tertiary industry activity (Tue), and October machinery orders (Wed).
• Emerging Markets/Regions:  In China, key November data is due: CPI, trade, fixed capital formation, retail sales and monetary aggregates.   In India, the main item is October industrial production (Thu). In Korea, the BOK meets (Thu). and is highly unlikely to change rates.  In Mexico, November inflation (Mon) will show only a marginal increase, while October industrial production is unlikely to show any renewed vitality, and will likely contract.  In Turkey, Q3 GDP (Tue) is reasonably)expected to have grown a bit less in annual terms than Q2’s  4.4% Y/Y.

gmw_1206[/private]