- Swiss Consumer Price Index
- SVME Purchasing Managers Index
- Euro zone Reuters PMI Manufacturing
- CIPS PMI Manufacturing
- ECB Rate Decision
- U.S. Personal Income & Spending
- U.S. PCE Deflator
- U.S. ISM Manufacturing
Swiss Consumer Price Index (AUG) (08:00 GMT, 04:00 EST)
CPI (MoM)
Consensus: 0.3%
Previous: -0.5%
Outlook: Inflation is expected to cross into positive territory in August, with predictions of a 0.3 percent increase in consumer prices following the previous month's 0.5 dip. If expectations are met, the increase will be the first return to solid inflation since April and may spark potential interest rate hike discussions among Swiss monetary policy officials. The return in inflation is being largely attributed to the recent strong surge in oil and energy prices. Oil rose above $70 per barrel in New York commodities trading on the 29th of August. Price inflation would point to a gain in consumer spending, as lagging demand has prohibited producers from passing higher input costs onto final prices. As such, positive results could prove bullish for the Swiss economy.
Previous: The measure of the prices for consumer goods dipped 0.5 percent in July, matching the largest decline since the same month last year. The fall in prices could prove to stall what has otherwise been fertile ground for growth in the second quarter. Prices for clothes paced the fall, dropping 18 percent. Oil prices, on the other hand, rose 4.9 percent for the month and have added weight to companies' costs and further narrowed their otherwise slim bottom lines.
Swiss SVME-Purchasing Managers Index (AUG)(07:30 GMT, 03:30 EDT)
Consensus: 52.6
Previous: 52.4
Outlook: Swiss manufacturing looks to accelerate recent growth, as the national currency's 12 percent year-to-date decline against the U.S. dollar boosts export competitiveness. The purchasing managers index, which is based on a survey of 200 executives, is predicted to rise to 52.6*the highest reading since March. Experts have expressed increased optimism in Swiss economic recovery, as recent data points to improved growth. The KOF leading economic indicator, which approximates the direction of expansion in the coming six to nine months, rose to its highest level since September of 2004. Given such positive potential, tomorrow's PMI data should have no difficulty meeting expectations. The only negative factor continues to be the price of oil*which has recently soared to fresh record-highs on supply concerns out of the U.S.
Previous: Manufacturing growth increased for the second consecutive month in July, as yearly declines in the Swiss franc increased foreign demand for national exports. Positive results in July's survey supported the notion that the Swiss economy is recovering from recently slow expansion. With unemployment near record-highs in the first three months of the year, GDP remained exactly unchanged. This prompted officials at the National Bank of Sweden to keep rates low at a paltry 0.75 percent. Recent evidence leads many to believe, however, that the central bank will raise rates by the end of 2005. Such optimistic data certainly adds to the strength of the Swiss franc, which has recently rallied approximately 4 percent against the dollar since the middle of July.
Euro-Zone Reuters PMI Manufacturing (MoM) (AUG) (08:00 GMT, 04:00 EST)
Consensus: 51.0
Previous: 50.8
Outlook: Manufacturing for the dozen nations sharing the euro is expected to accelerate expansion as member nations continue to find a firmer footing despite increasing energy prices and an appreciating currency. While the two largest economies in the union, Germany and France, expect manufacturing to improve for August, to 50.4 and 52.0 respectively; Germany has grounds for being the biggest contributor. Europe's largest economy has continued to recover, as it grew 0.3 percent in the second quarter*following a 0.4 percent contraction in the first. Growth in Germany was buoyed in August by domestic demand, which was encompassed by company spending on inventories and equipment as well as government spending. German companies have also remained highly competitive amongst its global partners as wages are held relatively constant and debt remains low. The resurgence in growth experienced by its economy is expected to disseminate among its follow member countries. Possible barriers may exist for continued expansion in manufacturing, however, as energy prices rise and producers find consumers are less and less capable of taking on the passed on costs. For factory output destined for export, orders may also be hurt by the appreciating shared currency.
Previous: The Reuters index measuring Euro-Zone manufacturing reported expansion for the first month in four, offering indications that economic growth is accelerating. Manufacturing has improved for the area, paced by growth in the sector for the two largest members. France, the union's second largest economy, experienced manufacturing expansion to a reading of 51.2 for the month. Retailers' sales likewise improved to 51.9 on the back of improved consumer confidence from a surprise drop unemployment. While the German manufacturing sector failed to breach into expansionary territory, a similar trend of improved retail sales backed strong government spending and equipment investment*improving outlook for future results.
European Central Bank Interest Rate Announcement
Consensus: 2.0%
Previous: 2.0%
Outlook: Markets widely expect that the European Central Bank will leave short-term interest rates unchanged. Despite pleas from politicians across the single currency zone, ECB officials have remained steadfast in keeping interest rates at current levels despite slow economic expansion. Their efforts to keep monetary supply moderated have subsequently been justified by a recent Euro-zone recovery. More recently, rising oil prices and gaining consumer demand have seen overall price levels in the Euro-zone rise as well. As a result, many analysts now say that the ECB is more likely to take a hawkish tone in future meetings. Median estimates predict that benchmark rates will subsequently rise to 2.25 percent by the second half of 2006. Markets will listen closely to bankers' comments, if any, to judge overall sentiment on European economies.
Previous: The European Central Bank left rates unchanged at 2.0 percent as the single-currency economy showed signs of economic recovery. The euro's significant decline against the U.S. dollar has justified the central bank's refusal to cave into politicians' demands for two reasons. A cheaper euro has sparked a recovery in European exports, as goods become more competitive in foreign markets. Likewise significant, the currency's decline has also exacerbated sharp rises in the price of oil. Given that the commodity is traded in U.S. dollars, a falling euro only worsens energy price inflationary pressures. Despite calls for more accommodative monetary policy from member states, the ECB is likely to keep course and could potentially raise rates within the coming year.
UK CIPS PMI Manufacturing (MoM) (AUG) (08:30 GMT, 04:30 EDT)
Consensus: 49.5
Previous: 49.2
Outlook: The Chartered Institute of Purchasing and Supply's purchasing managers' index for the UK manufacturing sector is expected to continue its climb back towards an expansionary reading in August with a 49.5 consensus. A rise in the manufacturing level for Europe's second largest economy may indicate that the Bank of England's first rate cut in nearly two years, bringing the short-term lending rate to 4.50 percent, may be providing enough optimism among business owners to overcome the recent slowdown in consumer consumption. Domestic consumption has slowed to its lowest level year-over-year since 1995 at a meager 1.5 percent in the second quarter. Consumers have stopped turning their pounds into the economy as confidence has fallen to *4, a nine month low. Confidence has withered as the 10-year property boom has curbed, while consumer debt remains at record levels, and oil prices continue to press to new highs. With these dour indicators to overcome, the lowering of the benchmark lending rate may stimulate much needed growth in manufacturing for the country in the near future.
Previous: The UK manufacturing PMI survey reading continued to show contraction in the sector, registering at 49.2 in July. The slowdown in manufacturing has detracted from expected second quarter growth of 1.8 percent*the slowest pace since 1Q 2002. Manufacturing continues to be assaulted on both the domestic and foreign front. Exports of goods have suffered for the UK since the second quarter, as orders destined for one of their largest trade partners, the Euro-Zone, have suffered on low consumer demand. Domestic consumer spending also remained soft. The most recent employment and wage data seemed to push consumer confidence further into negative territory on the month.
U.S. Personal Income & Spending (JUL) (12:30 GMT, 8:30 EDT)
Personal Income
Consensus: 0.5%
Previous: 0.5%
Personal Spending
Consensus: 1.0%
Previous: 0.8%
Outlook: For July, personal income growth is expected to remain at a 0.5% monthly rate, while spending growth is expected to accelerate again to 1.0% from 0.8%. Looking at the employment statistics, payrolls increased by 207,000 in July, while hourly earnings increased by 6 cents*much greater than June's increase of 3 cents. This definitely gives upside risk to the income growth number. Faster growth of spending is also well justified by the latest retail sales data which shows that auto sales advanced further in July than they did in June. This will be another hefty boost to spending on durable goods in this release. However, this kind of spending probably won't be sustained in the next few months as the pressure from energy prices builds. Also, the past few months have produced the lowest savings rates this nation has ever seen except for the -0.2% figure seen in October of 2001. Assuming that the median estimates are correct, July's savings rate will drop into negative territory again meaning that there isn't much steam building that could support this type of consumption going into the end of 2005.
Previous: In June, personal income growth accelerated more than expected to 0.5% from 0.2% in May while spending grew by 0.8% while not changing between April and May. Manufacturing wages fell after three months of increases whereas services industry wages continued their rise and grew by 0.3%. This drove personal spending to expand in all categories with the largest increase being in durable goods. Much of this could be from the additional purchases of automobiles prompted by promotions such as the General Motors employee discount. With all this zeal in spending, savings fell to a total of $1.9 billion out of over $10 trillion of income, thereby making the nation's savings rate nil. This is the lowest savings rate since it was briefly negative in 2001.
U.S. PCE Deflator (JUL) (12:30 GMT, 8:30 EDT)
Consensus: 2.7%
Previous: 2.2%
Outlook: July's PCE deflator is expected to follow the momentum of the earlier released CPI and accelerated to 2.7% from 2.2%. The change will, of course, be mostly from gasoline prices. Meanwhile the implementation of the employee discount promotion by Ford and Chrysler and further discounts on summer items will partly offset the energy cost increases. Core PCE is expected to stay unchanged at 1.9%. Historically, this is still at the high end of the acceptable range. Since this is the inflation indicator that is preferred by Fed Chairman Alan Greenspan, the current climate should justify several rate hikes in the months ahead.
Previous: In June, the PCE deflator, which measures changes in price of consumer goods compared to a year ago, dropped to 2.2% from 2.5% in May. Part of the effect was due to the fact that June 2004 had a fairly high index number to begin with, but a lot of it has to do with the automobile discounts given by General Motors in June. Durable goods prices dropped by 0.5% compared to a year ago while May's figure was -0.2%. Inflation in nondurables fell as well to 2.1% from 2.6% as the summer discounts, especially on apparel, rolled in. Services prices stayed fairly stable with growth of 2.9% compared to the 3.0% that was seen in the four months prior to June. On the core basis, prices were slightly more stable as inflation declined slightly to 1.9% from 2.0%.
U.S. ISM Manufacturing (AUG)(14:00 GMT, 10:00 EDT)
Consensus: 57.0
Previous: 56.6
Outlook: Median estimates predict that U.S. ISM manufacturing will rise to its highest level on the year. Such predictions may be overstated, however, as today's Chicago Purchasing Manager survey showed that manufacturing in the Chicago area unexpectedly declined for the first time since April 2003. These results suggest that record-high oil prices are slowing factory demand and dragging down output. Consequently, outlook for tomorrow's ISM data is less optimistic. The economic release will be particularly important to watch, as it could likely weigh on the U.S. Federal Reserve's future interest rate considerations. The Fed has historically never raised interest rates with an ISM manufacturing reading below 50. With Chicago PMI crossing below 50, markets could see national ISM numbers likewise dip below the neutral mark.
Previous: July's ISM manufacturing report showed that manufacturing rose to its highest level in a year, prompting improved optimism in American industrial production. Sky-rocketing oil prices seemed to have little effect on the figure, as new orders rose to their yearly high and production expanded at its fastest rate since September. Manufacturing had rebounded after swollen inventories prevented firms from boosting output earlier in the year. Heavy discounting in the automotive sector subsequently cleared stockpiles and allowed U.S. auto-makers to raise production. July's positive report dispelled many doubts that surging energy costs would slow American industry. Subsequent data, however, suggests that future results may reflect the effects of crude oil trading at all-time record highs.
Richard Lee is a Currency Strategist at FXCM.
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