Europe Coming back into Focus after the US Elections

Europe Coming back into Focus after the US Elections
by, David Frank, Economist

There is a number of data releases this week on the economic calendar that should support the US Federal Reserve (Fed) hiking its benchmark rate in December. There had been some concern that Donald Trump’s stunning win would give the Fed a reason to pause. However the Republican sweep to victory which included the Congress and Senate could mean a significant hike in fiscal stimulus. This should keep the Trump reaction in the financial markets in play this week. US Treasury yields and the US Dollar are moving higher. Elsewhere, in the global markets, the first round of reaction to the Trump victory has taken its course. This means investors can now focus back on Europe and Asian economic news.

Today, markets got their first look at Japanese economic growth. The third quarter gross domestic product (Q3 GDP) came in at 2.9 percent, above forecasts and 0.8 percent quarter on quarter. This was up from last quarter’s growth of 0.7 percent.

Recently the Bank of Japan (BOJ) said that further central bank action would be limited as they need time to assess prior fiscal and monetary efforts to boost growth. The BOJ also said, in its most recent quarterly report, that monetary policy alone would not be enough to meet its target of two percent inflation.

Europe Eyes Brexit and UK Economic Data

Europe is once again noting Brexit fallout returning to the news cycle and its impact is effecting the economy of the United Kingdom (UK). UK consumer price rose one percent in September compared to 0.6 percent August. This is its highest level since November 2014. Inflation is expected to inch higher to 1.1 percent in October as petrol prices rise but food price deflation continues.

The inflation in the UK is expected to rise as the British Pound continues to weaken. The recent UK inflation report highlighted better growth prospects post Brexit but an increase in cost pressure thanks to a weakening Sterling across its major Forex trading partners. The Bank of England (BOE) expects inflation to beat its two percent target by 2017 and to peak at 2.8 percent in early 2018.

The next inflation data out of the UK is due this Tuesday. It is expected to come in higher thus supporting the British Pound. BOE Governor Mark Carney said there are limits to which inflation will be tolerated. In effect, the selloff in the Sterling has limited what the BOE can do to assist the British economy.

Also, on Tuesday, there is some key European data set to be released. The Eurozone is getting ready to release its Q3 GDP number. Economic growth is expected to show a quarterly growth confirmed at 0.3 percent for the third quarter. The yearly number is expected to come in at 1.6 percent. Prior to the Eurozone release, Germany will release its Q3 GDP data, expected to rise at 0.4 percent quarterly. Economic growth for Italy, on a quarterly basis, is expected to come in flat.

 

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