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Week Ahead: an end to recession – technically at least
We preview the main financial events in the coming week.
The word ‘recovery’ has begun popping up.
We’ve already seen it in the stock market, with shares rising fairly steadily now since May. And even the euro – having spent more than a year in decline – has been strengthening in the past few months as the euro crisis slips into hibernation.
Now, it’s being whispered in economic circles. China’s economic downturn may have troughed. Recent GDP data seem to show that the dreaded 'hard landing' has been averted, even if the days of 10% growth are over. Wednesday’s October Flash HSBC Manufacturing PMI for China will provide more clues as to the whether the country's leaders have achieved the stability they craved ahead of next month's once-a-decade leadership transition.That does however mean less global market-boosting stimulus is likely.
Growth, elections and a cliff stateside
In the US, where the Fed is throwing everything it has at the economy, the labour market has improved while consumer sentiment has hit a five-year high, according to the University of Michigan’s consumer index. While the Fed’s Federal Open Market Committee (FOMC) is unlikely to make any changes to its policy when it concludes its meeting on Thursday, a GDP reading for the third quarter of the year is expected to show improvements from the previous three months.
The better data will please president Barack Obama as he faces down Republican presidential hopeful – and current frontrunner in the polls – Mitt Romney in the third and final debate on Wednesday.
The fiscal cliff, though, remains an ominous barrier to any real improvements in the US economy.
In Europe, Mario Draghi’s July pledge to do ‘whatever it takes’ to save the euro – and the subsequent announcement of the OMT bond-buying scheme – have kept the bond vigilantes at bay while Spain edges towards a bailout. But amid harsh austerity measures in many countries, the euro area remains in an economic funk.
In Spain regional elections on Sunday in the Basque country and prime minister Mariano Rajoy’s home region of Galicia could remind investors of the country’s precarious financial position – as well as further stoking pro-independence sentiment in the country’s autonomous regions.
Meanwhile, the biggest diarised economic data signal for the wider eurozone next week comes in the form of the euro area flash PMIs, due on Wednesday.
UK: out of recession?
In the UK, after a rare string of upbeat economic data this week – rising employment, improving retail sales, better public finances – this coming Thursday is expected to bring confirmation that the double-dip recession is finally over, technically at least.
Economists reckon the third-quarter GDP number – the first of three revisions and based on little data – could show growth of around 0.5%, in part a recovery from the damage wrought by the Diamond Jubilee celebrations.
Any UK economic progress is tempered by the ongoing weakness in its main export market, the eurozone, as well as the government’s austerity programme, which the International Monetary Fund has begun rallying against. And a better GDP reading may not be enough to prevent a further expansion of the Bank of England’s quantitative easing scheme when the current £375 billion of purchases comes to an end in November.
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