Article / 29 January 2014 at 6:29 GMT

3 Numbers to Watch: UK HPI, Spain retail & Eurozone money supply

editor/analyst /
United States

•  Bull run in UK house prices may influence monetary policy
•  Spain's economy minister buoyant over figures
•  Any recovery will be tardy

Much attention today will be focused on the US Federal Reserve’s policy statement, which is scheduled for 19.00 GMT.  Saxo Bank's Nick Beecroft predicted yesterday that “we will see a continuation of the USD 10 billion a month of tapering". Before the announcement, which will come during Ben Bernanke’s last Federal Open Market Committee (FOMC) meeting, keep a close eye on several numbers emerging on the other side of the pond. These should include updates on housing prices for the UK, retail sales in Spain, and the money supply for the eurozone.

UK nationwide housing price index (07.00 GMT)

The Bank of England governor Mark Carney is scheduled to speak today at 13.15 GMT and one of the topics that’s on the agenda is how or if the bull run in housing prices will influence monetary policy in the months to come. Some analysts say that the residential property market is a bubble these days, which prompts questions about whether or not the central bank will take steps to slow the pace of borrowing for new home purchases. Accordingly, today’s monthly update on prices via the Nationwide Building Society will be closely watched for guidance on what to expect from Carney and company.

Meantime, the UK housing market is hot. Prices jumped 1.4 percent in December, the biggest monthly gain in four years, according to Nationwide. On a year-over-year basis, prices are ahead by more than 8 percent through last month — the most since mid-2010. The run-up in housing prices would be less of an issue if the economy were convincingly sluggish otherwise. But that is not the case. The jobless rate has fallen to 7.1 percent, or just over the 7 percent mark that Carney says is a point at which discussions about raising interest rates is a bit more pressing.

Slowing or reversing the housing bubble, if that’s what it is, does not necessarily require higher rates. Any number of alternative options are available that could take some of the froth out of the housing market without prematurely threatening the broader economic recovery. Carney’s recent comments, however, suggest that he is not yet inclined to take away the punch bowl in property. Earlier this month, he said: "We've had an acceleration [in house prices] from quite a low level. Any time we see a sharp increase in credit growth we take an interest. We do have to put in some context though that it is still running below historic averages."

If Carney is set to update his thinking, perhaps he’ll enlighten the crowd in his speech later today. To decide if that is likely, consider Nationwide’s report.

Source: Nationwide Building Society

 Spain Retail Sales (08.00 GMT)

Luis de Guindos, Spain's economy minister, has predicted that his country's economy will expand by 1 percent this year, which is a bit stronger than the official projection. "2014 will be the first year since the crisis began six years ago that we'll have growth of almost one percent and net creation of employment in the next few quarters," he told Reuters. Is that just the usual political bluster? Or is there hard-data support for thinking positively for Europe’s fourth-largest economy? The stakes are certainly high. Spain has suffered the most among the eurozone’s main economies. If this battered nation can mount even a modest run of growth in the year ahead, the macro outlook for Europe should be brighter by more than a trivial degree.

In search of fresh perspective, the market will focus on today’s retail sales report for December. The previous release looked encouraging, with real retail spending increasing 2 percent in November over the previous month — the first monthly gain since August. The year-over-year trend is looking better too, with sales advancing in two of the past three months — the best run for retail sales on an annual basis in recent history.

Even if today’s number is encouraging, it’s still premature to expect a quick turnaround of any magnitude. Indeed, Spain’s unemployment is still at a nosebleed 26 percent and rising. Nonetheless, the International Monetary Fund (IMF) is seeing improvement in the works. In its newly published World Economic Outlook from last week, the fund projected that Spain’s GDP will grow by 0.6 percent this year, a bit faster than the 0.4 percent rise in its October estimate. By that standard, the economy minister’s expectations for a 1 percent growth look somewhat excessive… unless today’s retail sales data suggest otherwise.


EU Money Supply (09.00 GMT)

The decelerating pace of growth in the money supply has been a substantial headwind for the eurozone lately. That's a serious problem, given that the annual rate of inflation has slumped to less than 1 percent in recent months. In short, the risk of disinflation/deflation is increased. This is more than an artefact of general price benchmarks, by the way. For instance, house prices are continuing to fall across much of Europe, offering a dark reminder that outright deflation is squeezing key sectors of the real economy.

But perhaps the worst has passed with the complications of “d” risk if the money supply is stable or (even better) rising. Today’s report may bring good news on this front. In the previous release, both narrow (M1) and broad (M3) measures of money inched higher in the year-over-year comparisons for the first time in several months. It’s too early to say if this is a change in policy to any meaningful degree. What is clear is that if the growth rate in M1 and M3 continues to slow, the prospects for growth are less encouraging. Indeed, bank lending to the private sector retreated at a record pace in November, according to data from the European Central Bank (ECB). Recently, Howard Archer, the chief European economist at IHS Economics, warned: "Worryingly, there is still no sign of any trend change in bank lending to eurozone businesses, which heaps pressure on the ECB to act."

Minting money at a faster rate is no silver bullet for the EU, especially at this late date. But the issue at the moment is less about promoting growth vs. clearing away growth obstacles by revising misguided policy decisions of the past. There are some emerging bright spots for Europe’s economic outlook at the moment but those tentative bright spots may dim if the money supply growth continues to ease off.

Source: European Central Bank



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