There will be some interesting economic data releases during the previous week, which could determine whether worries about global growth will intensify or calm down. Chinese 3rd quarter growth and flash Eurozone Purchasing Managers’ surveys for October will be key, while UK 3rd quarter GDP and inflation in the United States will also be looked at.
Chinese GDP comes out on Tuesday, October 21, and the expectation is for a year-on-year growth rate of 7.4% – very close to the Chinese leadership’s target of 7.5% growth for 2014. Reassuring news about the growth rate of the world’s second largest economy could help to steady investors’ nerves about a potential slowdown in global economic growth. China is facing headwinds from a cooling of the property market and this is a downside risk for the Chinese economy. Exports on the other hand have held up relatively well, according to the latest releases.
Wednesday will also be interesting as inflation data out of Australia and the US will be announced. Although the Fed likes to concentrate more on the Personal Consumption Expenditure (PCE) price index, CPI and PCE most often move in a similar direction. Both the headline and the core rates are expected to remain steady at 1.7% year-on-year during September, putting little pressure on the Fed to hike up interest rates. In Australia, the trimmed mean CPI is forecasted to come down to 2.7% during the third quarter from 2.9% in the second quarter. On Wednesday, the Bank of England minutes will also be released and it will be interesting to check whether the 7-2 majority in favor of keeping rates the same versus raising them, will stay the same for the third consecutive meeting.
Thursday will feature some important indicators regarding business confidence and economic conditions for the Eurozone. Preliminary manufacturing and services PMI numbers from Markit will be released and they are expected to show a slowdown – with manufacturing possibly just dipping into contraction territory. Any sharper deterioration of the business climate in the Eurozone could have an impact on markets as there is considerable uncertainty about the region’s economic prospects. Divergences between the major economies and particularly between Germany and France will also be an important point to watch. On Thursday, manufacturing PMI numbers for China and the US will also be released – although the concern about the world’s largest and second-largest economies is not as intense as compared to the Eurozone.
Finally, on Friday, UK advance growth figures for the third quarter will be released – as the UK and China are the two biggest economies that release their quarterly GDP statistics the earliest. Economists expect a mild slowdown in the UK, with quarter-on-quarter growth dipping to 0.7% in Q3 according to a Reuters’ poll of economists against the previous quarter’s 0.9% growth rate. Still the year-on-year growth rate of 3.0% is something most developed countries can only aspire to – especially the UK’s neighbors on the continent. The pound has been under pressure lately because of mixed data and during the past week lower-than-expected inflation hurt the prospects for a quicker interest rate rise. The pound is fighting to hold on to the 1.60 level against the dollar lately.