Data, ECB may help set tone for investors

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Filomena Scalise

London - A rush of key economic releases this week and the European Central Bank's last meeting of the year may help set the tone for investors and traders looking ahead to 2014.

Like the two years preceding it, 2013 has been a damp squib for the global economy, beset by political wrangling in the United States, recession in Europe and disappointing growth in China.

Economists are optimistic that next year augurs better - even if only slightly - and data this week should point the way towards this gradual improvement.

Surveys from the world's No.1 economy are expected to show steady growth in American businesses going into next year, even if few expect much of an improvement.

And official data are expected to confirm the US economy grew at the fastest pace in a year from July through September, although the pace of hiring probably sagged last month.

“The US is looking in the strongest position,” said Andrew Kenningham, senior global economist at Capital Economics, on the prospects for next year.

Data last week showed that the British economy grew at its fastest pace in three years in the third quarter.

“So you've got the Anglo-Saxon world doing pretty well, the euro zone doing poorly - despite Germany - and Japan still doing poorly.”

With emerging markets avoiding major crises, he said that points to global growth rising incrementally over the next two years, from around 3.0 percent this year to 3.5 percent in 2015.

Analysts forecast US economic growth for the third quarter will be revised up to 3.0 percent in The ISM business surveys and Friday's US employment data are the biggest market-moving indicators this week, while as economists expect the US economy added 185,000 more non-farm jobs in November, less than the 204,000 created the previous month.

Kenningham said the outlook should improve for the US next year, assuming Washington's political impasses does not result in more sudden fiscal retrenchment.

 

NO SURPRISE PRESENTS FROM THE ECB

Few expect the ECB's December policy decision to result in another shock for the markets after it cut interest rates to a record low of 0.25 percent last month.

But the tone of ECB President Mario Draghi's comments in Thursday's press conference may provide hints on how he intends to conduct monetary policy next year - especially as he will be armed with new forecasts from the bank's staff.

Draghi will be helped by the fact that euro zone inflation ticked up last month to 0.9 percent after slumping to 0.7 percent in October, which prompted talk of a deflation scare and more radical monetary policy action.

“The increase in euro area inflation in November is, in our view, only the first in a series of increases that will drive the inflation rate to 1.5 percent by the end of 2014,” wrote Michael Rottmann, head of fixed income strategy at UniCredit.

“This implies that the discussion of a negative deposit rate and the even more controversial speculation about a quantitative easing equivalent in the euro area are likely to vanish.”

Instead, most economists polled by Reuters believe the ECB will offer banks more access to cheap cash over a long term.

But whatever measures the ECB takes, the going looks tough for the euro zone next year.

“We expect the euro zone economy will grow, but very minimally, next year. It's stabilised, but it's not anywhere near being in a position to post a long period of rapid growth”, said Kenningham from Capital Economics.

He expects it will expand just 0.5 percent next year, at the pessimistic end of a consensus of economists who predict growth double that.

Britain, however, has been leading the nascent recovery in Europe of late, after almost three years of stagnation.

Although the Bank of England also announces policy on Thursday, the attention will focus on British finance minister George Osborne's autumn statement on the health of the economy and government finances, due on the same day. - Reuters


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