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

Key Data Preview
120
115
110
105
100
95
90
85
80
Chart 9: 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
Jul (f) Jun May Apr
Headline 102.1 101.8 101.5 101.7
Expectations 101.4 102.4 103.7 104.0
Current Conditions 102.6 101.1 99.4 99.3
Key Point:
Expectations have topped out but strength in the
industrial sector is boosting current conditions.
BNP Paribas Forecast: Mixed Picture
Germany: Ifo Business Climate (July)
Release Date: Friday 23 July
Ifo’s ‘headline’ business climate index has gone sideways
in the most recent couple of months, with declines in the
expectations sub-index broadly offset by improvements in
the current assessment of business conditions.
We expect a similar outcome in July. The fall-out from the
debt crisis in the eurozone and the German government’s
decision to implement a fiscal austerity plan are again likely
to weigh on expectations.
There is a high correlation between Ifo’s expectations index
and the ZEW survey’s equivalent. The latter declined by a
larger than expected margin for the third straight month in
July, with both factors above cited for the deterioration.
In contrast, Ifo’s current assessment of business conditions
should continue to improve, in line with buoyant activity in
the export and manufacturing sectors in Germany. Output
in the industrial sector is on track to increase at a record
pace of around 5% q/q in Q2.
The rate of increase in incoming orders, however, seems to
be topping out, pointing to Ifo’s current assessment index
probably following suit in the coming months. It is already
close to its cycle peaks recording in previous upswings with
the exception of 2006’s ‘pre-crisis boom’ (see chart).
Chart 10: French Sales of Manuf. Goods (3m avg)
20
15
10
5
0
-5
Total (% 3m/3m annualised)
-10
Total excl. autos (% 3m/3m annualised)
-15
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
07 08 09 10
Source: Reuters EcoWin Pro
Volume index Jun (f) May Apr Jun 09
SA-WDA
% m/m -0.6 0.7 -1.3 1.9
% y/y -0.5 1.9 1.0 1.3
Key Point:
The seasonal sales only started on 30 June, so the
impact will be smaller than usual during that month,
temporarily pushing down overall sales.
BNP Paribas Forecast: Distorted Again
France: Hh Consumption of Manuf. Goods (June)
Release Date: Friday 23 July
The June retail sales data are of particular importance.
Over the past few months, private consumption has been
severely distorted by the car purchase incentives and their
progressive phasing out. This is largely complete.
Nevertheless, we do not necessarily have a clearer view of
the underlying strength of PCE.
May sales were bolstered by an increase of electronic
goods sales, ahead of the World Cup. This helped to revive
retail sales momentum. However, as this factor was most
probably short-lived, it remains to be seen whether
household consumption can remain the engine of French
growth.
The main uncertainty concerns sales of clothes and shoes
(the second most volatile item after new cars); we expect a
relatively solid trend although seasonal sales only started
on the last day of the month so the bulk of sales may only
show up in July. This item should thus drag on seasonally
adjusted retail sales in June.
The last concern with regard to PCE is the impact of the
announcement of the pension reform and the prospect of
fiscal tightening. We believe this has adversely affected
household confidence but should not impact actual
consumption.
Market Economics 166 July 2010
Market Mover
62
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