Euro Finance Ministers to Rising Russian Income: Global Economy

Coming up in the global economy this week are a meeting of euro-area finance ministers, disposable income in Russia, German business confidence and U.S. retail sales. In Australia, the head of the central bank will comment on the Australian dollar, while a decision on interest rates is due from the Chilean central bank.

EURO-ZONE FINANCE MINISTERS

-- The region’s 17 finance ministers convene in Brussels on Nov. 22 for an extraordinary meeting to discuss the European Union’s first-ever preliminary diagnosis of countries’ draft 2014 budgets.

-- While the ministers can’t change what the European Commission included in its advice published on Nov. 15, the meeting will show how committed the bloc’s governments are to German-led calls for continued austerity in 2014.

-- “In the absence of market pressure, the European Commission is the only vigilante in town,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “Essentially Brussels is mounting a rearguard action to try to save what little credibility is left from the euro zone’s economic-reform agenda.”

EYE ON ECB

-- The European Central Bank will return to center stage this week when President Mario Draghi, Governing Council member Jens Weidmann and other officials address the European Banking Congress on Nov. 22 in Frankfurt. With euro-region growth slowing and inflation less than half the central bank’s target, policy makers are considering options including asset purchases (RSTAMOM) to keep the economy on track.

-- “For the ECB’s monetary policy to have any traction, it has to go to the next level,” said Steven Barrow, an economist at Standard Bank Plc in London. “The bank has shown it can be innovative with monetary policy. It has helped to save banks with its LTROs and save sovereign bonds with its OMT. The next challenge is to save the euro zone from the scourge of deflation.”

RUSSIAN INCOME

-- Russia’s inflation-adjusted disposable income probably rose 2 percent, according to the median estimate of seven analysts surveyed by Bloomberg, rebounding from a 1.3 percent contraction in September that was the worst reading in almost two years. The report is due late in the week.

-- Persistent growth in consumer spending, the main driver of economic growth is “the main guarantee that Russia will not slip into recession,” Vladimir Osakovskiy, chief economist for Russia at Bank of America Merrill Lynch in Moscow, said by e-mail. “The financial health of the Russian consumer remains relatively robust as strong real wage growth suggests.”

TURKEY’S INTEREST RATES

-- Policy makers at Turkey’s central bank are likely to keep the benchmark repurchase rate at 4.5 percent on Nov. 19.

-- While Governor Erdem Basci has said he’s committed to maintain rates at current levels through the end of the year, “the central bank won’t be comfortable with recent lira weakness, which is starting to have a significant impact on core and headline inflation,” said Mohammed Kazmi, an analyst at Royal Bank of Scotland Group Plc in London. “We can therefore expect the bank to reiterate its commitment to tighten policy through more extraordinary ways.”

U.S. RETAIL SALES

-- Purchases were probably little changed in October as auto demand softened and lower gasoline prices hurt receipts at service stations, according to the median forecast of economists surveyed before a Commerce Department report Nov. 20.

-- Sales “will be weak on account of the government shutdown,” economists at Bank of America Corp. in New York said in a Nov. 15 note. “We expect a bounce back in November and December as the government reopened and furloughed workers received their back pay.”

-- Stores will probably need to rely heavily on discounts to move merchandise, according to John Morris, a retail apparel analyst at BMO Capital Markets Corp. in New York. “The retail apparel holiday shopping season is always promotional -- but this year the flood gates are open and we anticipate a promotional battlefield,” Morris wrote in a Nov. 13 note. “Weak back-to-school shopping numbers followed by a government shutdown and now cracks in Obamacare have led to soft mall traffic thus far and high inventories as we head into the holiday season.”

-- The drop in fuel costs also won’t be much help to consumers, said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto. The savings from cheaper gasoline will boost other purchases by about 0.2 percentage point over the next year, Ashworth wrote in a Nov. 15 note. “The upshot is that while the fading fiscal drag is a legitimate reason to expect a pickup in GDP growth, the recent decline in gasoline prices is not. It simply hasn’t been big enough.”

RESERVE BANK OF AUSTRALIA

-- Governor Glenn Stevens speaks on the Australian dollar at a Nov. 21 economists’ function to mark the 30th anniversary of the currency’s float. After keeping the benchmark interest rate at a record-low 2.5 percent earlier this month, Stevens said the currency is “uncomfortably high.”

-- Matthew Johnson, a Sydney-based interest-rate strategist at UBS AG, estimates the central bank would view the Aussie dollar about 6 percent overvalued at present, based on models the RBA is likely to employ. “This is a notable degree of overvaluation, as it is outside of the one standard deviation envelope,” he said in a Nov. 15 report. “The obvious catalyst for a lower Australian dollar is a slowing in the pace of bond purchases by the FOMC.”

ASIA ECONOMIC DATA

-- Economists surveyed by Bloomberg project reports this week will show growth in Thailand accelerated in the third quarter, Singapore’s economy contracted at a slower pace than in the previous quarter and consumer prices increased in Malaysia.

-- The figures will underscore concerns of the balance between growth and inflation in a region that’s been expanding faster than the rest of the world.

-- The “surprise rate hike” by Indonesia’s central bank last week “once again highlights the question of what is the appropriate policy stance for Asian central banks at this uncertain juncture,” Glenn Maguire, chief economist for the Asia-Pacific at Australia & New Zealand Banking Group Ltd. in Singapore, said in a Nov. 14 report. “Given our own view is largely constructive on Asia’s activity fundamentals going forward, we are more inclined to note inflationary consequences of weaker exchange rates and suggest policy bias should be tighter.”

CHILE’S CENTRAL BANK

-- Chile’s central bank announces its interest-rate decision on about Nov. 17, one month after unexpectedly reducing it by a quarter point to 4.75 percent for the first time since January 2012.

-- “Break-even inflation has fallen, so they could cut to anchor expectations,” said Nathan Pincheira, an economist at Banchile in Santiago. “All the factors today indicate that there has to be a rate cut before year-end, one more 25 bp cut is interiorized. Considering that and that the central bank already started an expansive cycle in October, it’s better to cut in November than in December.”

-- Still, “considering the evolution of the exchange rate in the past few weeks and the pressure it is causing on tradable goods, it seems unlikely that the central bank will decide to cut rates,” said Benjamin Sierra, an economist at Scotiabank in Santiago.

To contact the reporter on this story: Carlos Torres in Washington at ctorres2@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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