Market Economics | Interest Rate Strategy - BNP PARIBAS ...

Key Data Preview
120
115
110
105
100
95
90
85
80
Chart 1: German Ifo Business Climate
Expectations (4-Mth Lag)
Current Conditions
75
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
Jan (f) Dec Nov Oct
Headline 110.9 109.9 109.3 107.7
Expectations 107.9 106.9 106.3 105.2
Current Conditions 113.9 112.9 112.3 110.2
Key Point:
Sentiment will remain elevated, with the economic
expansion broadening out.
BNP Paribas Forecast: Stronger for Longer
Germany: Ifo Business Climate (January)
Release Date: Friday 21 January
Ifo’s business climate index climbed for the seventh month
in succession in December, rising above its high point
during the previous expansion of 2005-2008.
The sub-indices measuring current business conditions
and future expectations both improved, with the former at
an exceptionally elevated level (see chart).
The assessment of current business conditions in Germany
is still a little short of its cycle high in 2006 (115.5) and we
expect a further improvement in December.
The improvement in Ifo’s sentiment surveys was initially
due to the exceptional strength in the manufacturing and
export sectors but domestic sectors, including retail, have
also shown a pronounced improvement more recently. The
business climate index for the retail sector has risen to its
strongest level since the early 1990s. Survey participants
have signalled a moderation in the rate of externally driven
growth relative to the spring peaks but domestic demand is
taking up the baton.
The latest round of hard activity data has been strong in
Germany, with industrial orders recording one of the largest
increases on record in November. This points to a further
pick-up in expectations.
Chart 2: UK Retail Sales vs RICS Sales to Stocks
Source: Reuters EcoWin Pro
Dec (f) Nov Oct Sep
% m/m -2.0 0.3 0.7 -0.5
% y/y -0.8 1.1 0.4 0.3
% 3m/3m -0.1 0.2 0.5 1.1
% 3m/yr 0.2 0.6 0.6 0.8
Key Point:
We expect retail sales to show an initial fall of 2%
m/m, with the risk of a downward revision at a later
stage.
BNP Paribas Forecast: Sharp Fall
UK: Retail Sales (December)
Release Date: Friday 21 January
We expect UK retail sales to fall by 2% m/m in December,
largely due to snow-related disruption. The coldest
December on record and widespread snow prevented
shoppers from getting to the high street and deliveries to
stores. As a guide, the last time there was disruption of this
nature (January 2010), the initial estimate of retail sales
was for a 1.2% m/m fall. This was subsequently revised
down to a decline of over 3% m/m. We suspect a similar
outcome is likely this time round.
Within the breakdown, clothing sales are likely to perform
well given the experience of January 2010 and anecdotal
reports – not least from the BRC retail sales monitor.
Meanwhile, the headline measure also includes auto fuel
sales. These plunged by 8.5% m/m in January 2010 as
fewer road journeys were made. Given the proximity to
Christmas and the likelihood that travel plans were
abandoned, we expect this component to fall by at least as
much.
The bottom line is there is likely to be a sizeable fall that
will be vulnerable to revision. Further, the fall is likely to be
temporary and a bounce back to some extent the following
month is likely. We suspect that the VAT hike in January
will mean the bounce is rather muted.
Market Economics 20 January 2011
Market Mover
71
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