3 Numbers: Germany's retail outlook weak, EZ inflation, US PCE indices
- Poor retail sales could make Germans more accommodative
- Eurozone inflation expected to hit a new low
- US consumers still in spending mood, but little immediate inflation danger
By Juhani Huopainen
The European morning brings plenty of interesting data from the two big crisis countries: Spain and Italy. Spain’s current account, business confidence and retail sales, and Italy’s unemployment, inflation and gross domestic product are published today.
The latest escalation of the Ukrainian crisis has led to emergency meetings being planned for over the weekend, where further sanctions against Russia will be discussed. A need for a rapid response is clear, but it is uncertain if Europe has the resolve to tighten the screws enough to make a difference. I don’t think the Kremlin would have escalated unless they thought it would bring them a better deal.
US data is always of interest, and after yesterday’s nice upward revision to second-quarter GDP (see Stephen Pope's comments on TradingFloor), signs of further strength and inflationary pressure could come from the personal income and spending data. The University of Michigan consumer sentiment data should receive less attention, as plenty of other sentiment indices have already been published for the same data period.
Germany July Retail Sales (06:00 GMT)
German retail sales are expected to post a monthly gain of 0.1% in July, after a 1.3% increase in June. The expected change from the previous year is 1.5%, up from 0.4% in June.
Eurozone August Flash Consumer Price Index (09:00 GMT).
The inflation rate is expected to have continued to fall in August to 0.3%, down from 0.4% in July, and way below the ECB’s 2% target. Core inflation, which excludes volatile food and energy prices, is expected to remain unchanged at 0.8%.
The ECB’s main tools in its fight against the low inflation are the Targeted Long Term Refinancing Operation, or cheap loans to banks, which will be available to the markets from September 18, and the Asset-Backed Securities program, which is in the works and will take a considerable amount of time before it is available.
Still, investors do not expect next week’s policy-setting meeting to come up with anything but further promises to act if the TLTRO fails to have the desired effect. With the Ukrainian crisis remaining a big threat to the outlook and break-even inflation rates suggesting markets do not see inflation picking up in the short-to-medium term, perhaps the best one could hope for is a stabilisation of the inflation rate to current levels.
One thing to watch are comments over the recent fall of the euro – EURUSD is now at 1.32, while it visited 1.40 in the beginning of May. Lower values of the euro should help lift the inflation rate, but some estimates that have been thrown around suggest that the recent fall would only add about 0.1% to the annual inflation rate.
The July unemployment rate will be released at the same time, but as it is not a policy target of the central bank, it should get less attention. Still, it has been trending down for several months now, and it would be nice to see the gradual decline continuing.
Source: Saxo Bank
US July Personal income, spending, PCE core (12:30 GMT)
Personal income is expected to have increased by 0.3% and spending by 0.1%. All eyes will be on the Personal Consumption Expenditures price index, which is deemed by the Federal Reserve Bank to be the most reliable inflation gauge. The headline and core PCE indices are expected to both come in at around 1.5%, showing little sign of accelerating inflation.