Turmoil in Italy and Greece has subsided somewhat as both countries have appointed new technocratic governments.With a slew of major economic data coming out of the U.S. and Europe, Societe Generale’s Miichala Marcussen highlights seven economic issues to watch for this week.
- The Italian Senate agreed to a series of austerity measures, and the country is forming a new government headed by Italian economist and former EU Commissioner Mario Monti. But markets still lack faith in Europe’s second largest economy, and Italy had to pay euro-era record yields for its debt auction this morning. Economists are now watching to see if Monti can restore market faith with his new government and if he can bring Italy back from the risk of a full-blown debt crisis.
- Tuesday’s Q3 GDP report for the eurozone is expected to come in line with expectations at 0.2% quarter-over-quarter growth. But a country-by-country dissection would be gloomier. While Germany is expected to post 0.6% quarter-over-quarter growth, Greece’s GDP growth is expected to disappoint. Germany’s November ZEW indicator of economic sentiment is expected to decline and suggest weakness on concerns of recession in the eurozone. Economists believe the weak growth and piling on of austerity measures it hitting equities and sovereign borrowing costs.
- The U.S. is looking at major economic data this week. Markets are watching for retail sales data, PPI on Tuesday; industrial production on Wednesday; and jobless claims and housing starts on Thursday. The week will also reveal manufacturing data for New York and Philadelphia. For the most part economists expect favourable data with lower inflation.
- With some progress in Europe, all eyes will turn towards the U.S. fiscal situation. Looking ahead to November 23, the debt super committee is expected to extend payroll tax cuts and unemployment benefits for one more year, in a last minute decision.
- Societe Generale analysts only expect changes to the Bank of Japan’s asset purchase program if prices of risky assets fall. If the European debt crisis were to worsen, Japan would see the yen cap and risky asset price tested. All the chatter is about yen intervention after the currency appreciated again last week.
- At Wednesday’s press conference Bank of England governor Meryvn King is expected to announce a substantial downgrade to the current outlook of 1.7% in 2011 and 2.2% in 2012. Economists think the monetary policy committee will remain responsive to the risks to the UK economy and will double the size of QE2 to £150 billion by February 2012.
- Greece appointed Lucas Papademos the new prime minister of its 15-week interim government and opinion polls from the weekend show support for Papademos at around 70% – 75%. While focus has shifted from Greece to Italy, the risk of disorderly default is still very real.