U.K. Inflation to China Communist Party Plenary: Global Economy

Coming up in the global economy this week are readings on inflation in the U.K. and growth in the euro region, the third Communist Party plenary session in China and retail sales in Brazil. In the U.S., Janet Yellen’s confirmation hearing in her bid to become the next chairman of the Federal Reserve will take center stage.


-- Bank of England Governor Mark Carney will make public the central bank’s quarterly inflation report on Nov. 13 as the economy shows signs of gathering steam.

-- That may prompt policy makers to bring forward expectations of when unemployment will fall below 7 percent, which the BOE has set as a threshold for raising rates, according to economist Jonathan Loynes.

-- “There must be a good chance that the unemployment forecast is reduced, not least because of what is likely to be a slightly stronger profile for GDP growth,” Loynes at Capital Economics Ltd. wrote in a Nov. 8 note to clients. “Such a shift so soon after the introduction of forward guidance could fuel expectations of further adjustments in the future, hence causing the markets to bring forward their rate-hike expectations again.”


-- Growth figures on Nov. 14 may show gross domestic product expanded 0.1 percent after a 0.3 percent gain in the second quarter, bolstering the European Central Bank’s case that last week’s rate cut was warranted.

-- “Stabilization in domestic demand in the euro zone is still hesitant and fragile,” Morgan Stanley economists, including Daniele Antonucci in London, wrote in a Nov. 8 note to clients.


-- The meeting includes President Xi Jinping and Premier Li Keqiang. It was at such a gathering in 1978 that Deng Xiaoping and his allies inaugurated changes that began to open China to foreign investment and loosen state controls over the economy.

-- “In our view, reforms are the only way to avoid systemic crisis, rebalance the economy, and unleash growth potential,” Chang Jian, China economist at Barclays Plc in Hong Kong who previously worked for the World Bank, said in a research report. “History shows that economic growth tends to be lower after major third plenum meetings. This is because structural reforms, while good in the longer term, tend to slow growth in the near term.”


-- On Nov. 12, the central bank will probably keep its reference rate at 7.25 percent after its most aggressive tightening cycle in almost eight years, reflecting easing inflation pressure and a slowing expansion.

-- “Given the downturn in the economic growth cycle and the fact that inflation has been coming in below the central bank’s inflation projections over the last couple of months, Bank Indonesia will be very reluctant to hike interest rates further,” said Robert Prior-Wandesforde, a Singapore-based economist at Credit Suisse Group AG. “Instead, it is more likely to react to recent developments by allowing the rupiah to soften further.”


-- A Nov. 14 report may show economic growth slowed to 1.6 percent in the third quarter from 3.8 percent in the previous three months. Weaker consumer spending and export volumes were likely the main reasons, according to Barclays Plc.

-- “Although the yen depreciation from last November might be expected to contribute to an increase in export volume -- real exports -- such expectations had yet to materialize during the third quarter,” Tokyo-based economists Kyohei Morita and Yuichiro Nagai wrote in a Nov. 8 report, adding shipments to Asia were weak. “Any increase in export volume due to the yen’s depreciation is more likely to affect consumer goods, but these only account for about 15 percent of overall Japanese exports.”


-- The Senate Banking Committee holds the hearing on Nov. 14, eclipsing all other U.S. economic data this week.

-- The debate over what to do about the expanding Fed balance sheet will “intensify next year as the number of doves on the FOMC declines,” Steven Ricchiuto, chief U.S. economist at Mizuho Securities USA Inc. in New York, wrote in a Nov. 1 research report. “Not only will Chairman Bernanke’s dovish vote disappear but the rotation of the regional bank presidents will further diminish the ranks of the doves.”

-- “We expect her to say the economy needs more stimulus, but we doubt she is going to tip her hand with respect to the timing of tapering, as the much stronger-than-expected October employment data put a December taper back on the table,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in a Nov. 7 note. “However, if there are any surprises in her testimony, she may sound more in the middle of the center of the QE dove/hawk debate only because as the head of the Fed, she will have to forge a consensus among the two factions.”


-- The national statistics agency’s Nov. 13 report may show Brazil’s retail sales increased 0.8 percent in September. That would be the third-best gain in 15 months.

-- “It’s good news for third-quarter GDP,” Guilherme Maia, an economist at Votorantim Ctvm Ltda, said by phone from Sao Paulo. “Most analysts were expecting a negative reading for third-quarter GDP, because of the industry and agricultural sectors. With these retail numbers, maybe analysts will start to revise up their GDP forecasts.”

-- Still, any optimism should be curbed. Record household indebtedness combined with higher interest rates mean retail sales will no longer continue apace with recent years, when they grew as much as 10 percent on an annual basis, said Carlos Thadeu de Freitas, chief economist at the National Commerce Confederation.

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