The Global Markets Weekly – 9/15/14

Posted September 15, 2014 by rvillareal

Another Sign that Eurozone Q2 Weakness Merely a Pause?[private]

Overshooting expectations this time around, Eurozone industrial production rebounded clearly in July. Output jumped 1.0% month-to-month after the 0.3% and 1.1% respective declines of the two previous months, both coming after a 1.1% April jump. Meanwhile, helped by a weak July 2013 result, the year-on-year rate increased sharply to a cycle-high of 2.2%, from 0.2% in June.

The month-to-month increase was not uniform, the overall jump being tempered by yet another fall in energy output (-1.3%), still testifying to recent weather distortions, and a drop in production of consumer durables (-1.2%).  But, there was great strength in capital goods (+2.6%) and there were decent gains in consumer nondurables (+1.2%) and intermediate goods (+0.5%).  The data point to a clear recovery in output this quarter after the second-quarter stall, with July production up 0.5% from the second-quarter average.

While far from strong, these numbers largely corroborate the still-solid picture regarding activity offered by both business and bank-lending survey data.  They also suggest that much of the weakness in the second quarter may have been accentuated by working-day factors rather than by a genuine shift-down in underlying growth.  Indeed, in that regard, it is notable that despite the apparent second-quarter slowing in output, employment growth picked up further, actually doubling from +0.1% quarter-on-quarter in the first quarter to +0.2%, the best reading in three years.

• U.S.: This week brings a list of important items, including the FOMC Meeting (Concluding Wed), August producer prices (Tue), consumer prices (Wed), and industrial production (Mon), plus housing news in the form of the September NAHB Housing Market Index (Wed) and August housing starts (Thu).
• Eurozone: The first of the innovative Targeted LTROs is auctioned (Thu) by the ECB. Otherwise, the coming week is short on key economic releases.  Final HICP data for August (Wed) should confirm the mixed messages seen in flash data.
• UK: There is an array of key data this week, but surely all will be overshadowed by the Referendum on Scottish Independence (Thu), albeit with the opinion polls beforehand likely to cause more volatility.
• Japan: The schedule carries only two items of interest: a speech by Governor Kuroda (Tue) and August merchandise trade data (Thu).
• Emerging Markets/Regions: In China, key monthly indicators for August appear over the weekend, with market Consensus seemingly unable to detect/forecast any change from the preceding period. In India, the WPI arrives (Mon).  The index has lost weight in the RBI’s policymaking analysis, but it is still relevant. In Mexico, Q2 aggregate demand and supply data are due (Mon).  Interest is tied mostly to the demand breakdown, providing some clarity regarding the GDP deceleration in the quarter.

gmw_0912[/private]