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Article / 28 November 2012 at 5:31 GMT

3 Numbers To Watch: ECB Money Supply, DE CPI, US New Home Sales

James Picerno James Picerno
editor/analyst /
United States

Today's Eurozone money supply numbers will provide context for assessing the ECB's early reaction to recession, while an update on German consumer prices reveals if disinflation is taking root. Later in the day, new home sales figures for the US offer another read on the state of the housing rebound.

ECB Money Supply (09:00 GMT) Is the European Central Bank firing up the monetary engines to offset the new slowdown that's squeezing the Continent? "The euro area will remain in recession until early 2013," the OECD advised earlier this week. Today’s release of money supply data for October will provide a clue on the ECB's reaction to another round of economic weakness.

In the previous monthly profile, M3 (the broad definition of money supply) increased 2.7% vs. the year-earlier level. Some analysts think that's a meager pace to deal with Europe’s macro headwinds, particularly for the ailing Club Med nations. It's still early for deciding how the central bank will proceed, but September's 2.7% rate for M3 is the second month of deceleration. The narrow M1 aggregate looks more encouraging, posting a 5.0% gain for the year through September, but here too the latest change is one of slower growth compared with August.


No one will be surprised at this late date to learn that monetary growth rates are lower than they could be (or should be?). The German influence on promoting austerity in euro zone money matters is no secret. But does the onset of another recession change the game plan, if only on the margins?

ECB governing council member Jens Weidmann last week reminded everyone of the German perspective. “Monetary policy is not a panacea,” he said. Fair enough, but the euro zone is again confronting recession, which threatens to nip Germany.

The hawks argue that annual euro zone inflation of 2.5% through last month is still too high to rationalize stronger monetary medicine. But inflation may be slipping (it was 2.6% in September). Indeed, rising energy prices kept inflation higher recently, but with Brent oil trending lower, combined with the disinflationary blowback from recession, the rationale for erring on the side of austerity in all things monetary is weakening.

German Consumer Price Index (13:00 GMT) Speaking of German austerity and its effects, consumer price inflation remains low in annual terms for Europe's largest economy. That suits German policymakers, but the rest of Europe grumbles that low inflation at a time of broad economic weakness is misguided. For good or ill, consumer inflation in Germany was a spare 2.0% for the year through October, according to the national measure, and it will soften to a 1.9% national rate in today’s update, according to the consensus forecast.

Fading pricing pressures in Germany is a contentious topic at a time of recession. No doubt there’ll be a new round of debate over cause and effect. Expect plenty of angst in the markets if today's inflation report dispenses a big downside surprise. That’s unlikely, but with the euro zone's recession nipping at Germany’s heels, a slightly lower-than-expected CPI number can't be ruled out.

US New Home Sales (15:00 GMT) The October update is expected to show a holding pattern after September’s strong 5.7% increase in new home sales. Short of a hefty downside surprise in today's sales report, any number that's within shouting distance of last month’s 389,000 annualized figure—a two-and-a-half-year high—will satisfy.


The crowd’s apt to be tolerant, given the favorable trends in a variety of housing metrics these days. The steady rise this year for newly constructed single-family homes, for instance, is a strong sign that this critical sector of the economy continues to heal. Sentiment among home builders is also moving in the right direction, according to the National Association of Home Builders. The group’s Housing Market Index touched a six-year high in its November release, reflecting growing demand and falling housing inventories, NAHB explained.

The favorable tailwind for housing leaves some wiggle room for today’s update on sales. Analysts also recognize that Hurricane Sandy may have dented demand last month. But an October number that’s anywhere near September’s level will be considered a sign that the positive trend is intact.

James Picerno James Picerno
M3 y/y growth for Oct is higher than expected: 3.9% vs. a 2.8% consensus forecast. Is the ECB shedding its austerity aura? It's a bit easier to answer in the affirmative after today's monetary report. The euro zone recession, it seems, is unleashing an attitude adjustment in central banking.


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