Weekly Column: What can we Learn from the Week of the 24 November?

Every  Monday, I record a podcast in French (here) on macroeconomic news of the previous week and on macroeconomic news expected for the week to come.
The translation in English of the podcast can be found below

Four points have to be mentioned in the week beginning on November the 24th

The first point is the absence of commitment on production at the OPEC meeting in Vienna (November the 27th). The downward impact on oil price was strong. The Brent is now priced circa USD 70. Since the beginning of the year, the price is down by -36% in dollar and by almost 30% in euro.
This will have a positive impact on activity for developed countries and it will be a strong support for a recovery, specifically in the Euro Area. We do not expect a rapid change in behavior. The last meeting does not provide elements that could lead to a rapid convergence of interest.

The second point is the GDP shape in the US, United Kingdom and Germany. We had last week the 2nd GDP estimate for the third quarter of 2014. In the US GDP was revised on the upside at 3.9% (annual rate), UK estimate was stable compared to the first at 2.8% and Germany had a poor 0.26% at annual rate.
The upward revision in the US from 3.5% to 3.9% reflects a stronger private demand.
What we need to have in mind is that private demand is the main driver to GDP growth in the medium to long-term. In the US, since the 2nd quarter of 2009 it is up by 2.7% (annual rate), in the United Kingdom it is up by 1.8% and in Germany by 1.4%. For the Euro Area, from the same starting point and up to the second quarter, private demand is down by -0.3% (annual rate).
A long-lasting growth process goes through a strong private demand.

In the Euro Area, the inflation rate was at 0.3% only in November. Compared to last December, inflation rate to November is negative. It’s new and reinforces the perception of a deflation risk. The core inflation rate is at 0.7%.
By countries, Germany inflation is slowing at 0.5%, Italy is stable at 0.17% and Spain is back to strong negative number at -0.5% (France is not available).
The deflation risk has not disappeared and the Euro Area needs the vigilance of the ECB to fight it.
ea-2014-November-CPIondecemberThe last point to be mentioned is the relative improvement in national surveys in Germany, France and Italy.
This is still fragile. In Germany the IFO survey improvement was based on internal demand. Usually the impulse comes from the external sector and can be seen through the manufacturing sector. This is not the case currently.
In France, the business climate index from INSEE was stronger. But if this index and its components (Industry, retail, construction, services) improved, they were still well below their historical average.
The stabilization seen in Italy (Istat survey) shows nevertheless a lack of strong demand (weak orders flows)
France-Germany-ItalyIs it a first step to a recovery or a mirage: that’s the question?

In the coming week, three important events

The first will be the ECB meeting next Thursday (December the 4th). It is not a well-placed meeting as it is between speeches by Mario Draghi and Vitor Constâncio who said that new tools could be necessary to rein the Euro Area and the second TLTRO operation that will take place on December the 11th: so any strong expectations. We will be more attentive to the next meeting on January the 22nd. We will have the results of the TLTRO and be more aware of the necessity of a QE on sovereign debt.

The second issue will be on jobs creation in November in the US. The October number was weaker than what was seen since April. From April to September the jobs creation number was well above the 2011, 2012 and 2013 average showing a stronger dynamics in 2014. In October the two numbers were almost similar. Was it a white noise or a change in the momentum?
We will also be attentive to wage growth. For the private sector it was just 2% on a year which is not the trigger for a higher inflation profile.

The third issue will be on PMI and ISM surveys for November. They will be released on Monday for the manufacturing sector and on Wednesday for the services.
Flash estimates in the Euro Area, in China and in the USA showed a weaker momentum
In the USA, the main point will be on the global ISM index which is trending on the downside for the last couple of months. It will be an important point to look at.

Have a god week

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