The Eurogroup meeting on 22 November will discuss the Commission’s opinions on member states’ draft budgets and whether they comply with the country specific recommendations adopted in July. The meeting will also include the Commission’s assessment of the fiscal outlook for the Eurozone and its policy implications. Member states have to finalise their budgets before the end of the year in light of these discussions. The latest reviews of Portugal and Greece will also likely take center stage following the decision by Ireland this week to exit its bailout programme without a precautionary credit line. We expect most Eurozone business surveys to resume their march higher this month, following a temporary setback in October. While we believe the cyclical momentum remains positive, business confidence should benefit from rising risk sentiment as well as the surprise ECB rate cut and overall low interest rate environment.
Eurozone flash PMIs are likely to rise further into expansion territory, more so in the manufacturing sector this month, a view which is also backed by the internal dynamics of PMI sub-components despite the October pause. Notwithstanding their recent poor GDP performance, France and Italy might experience the sharpest PMI rebounds in the near-term. Our forecast is for the Eurozone composite PMI index to rise back to its September level of 52.2.
We also look for the German ZEW and IFO indices to post decent increases in November on the back of a record new in the DAX (for the former) and stronger growth and business expectations (for the latter). Both surveys are now close to local highs, however, and could soon look toppish, in our view.
German GDP looks set to be confirmed at +0.3% QoQ in Q3, with the breakdown reflecting the positive contribution from domestic demand, fuelling the hope that the investment cycle might give a further boost to the recovery, both in Germany and in its Eurozone trade partners.
UK MPC minutes will be scrutinized for any hints to a possible change to the 7% threshold on the unemployment rate. Following the release of the November inflation report, which revealed that the 7% threshold on the unemployment rate may be achieved as soon as in Q414 based on constant interest rates, the timing of the next rate hike looks closer than we had previously thought. The 7% threshold is certainly not a trigger, as the BoE vigorously emphasised, and there is a lot of uncertainty over the future path of the unemployment rate. It would be interesting to see if the possibility of revision in that threshold has been debated or if other measures of slack get increased attention among members of the MPC. In terms of the outcome of votes, we expect unanimity on both the decision on the Bank rate and the size of the asset purchase programme.
Eurozone flash PMIs are likely to rise further into expansion territory, more so in the manufacturing sector this month, a view which is also backed by the internal dynamics of PMI sub-components despite the October pause. Notwithstanding their recent poor GDP performance, France and Italy might experience the sharpest PMI rebounds in the near-term. Our forecast is for the Eurozone composite PMI index to rise back to its September level of 52.2.
We also look for the German ZEW and IFO indices to post decent increases in November on the back of a record new in the DAX (for the former) and stronger growth and business expectations (for the latter). Both surveys are now close to local highs, however, and could soon look toppish, in our view.
German GDP looks set to be confirmed at +0.3% QoQ in Q3, with the breakdown reflecting the positive contribution from domestic demand, fuelling the hope that the investment cycle might give a further boost to the recovery, both in Germany and in its Eurozone trade partners.
UK MPC minutes will be scrutinized for any hints to a possible change to the 7% threshold on the unemployment rate. Following the release of the November inflation report, which revealed that the 7% threshold on the unemployment rate may be achieved as soon as in Q414 based on constant interest rates, the timing of the next rate hike looks closer than we had previously thought. The 7% threshold is certainly not a trigger, as the BoE vigorously emphasised, and there is a lot of uncertainty over the future path of the unemployment rate. It would be interesting to see if the possibility of revision in that threshold has been debated or if other measures of slack get increased attention among members of the MPC. In terms of the outcome of votes, we expect unanimity on both the decision on the Bank rate and the size of the asset purchase programme.
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