Market Outlook - BNP PARIBAS - Investment Services India

Key Data PreviewChart 1: UK Public Sector Net Borrowing (GBP bn) BNP Paribas Forecast: Small Improvement1801601401201008060402002010 20092008 2011April May June July Aug Sept Oct Nov Dec Jan Feb MarSources: Reuters EcoWin ProSep (f) Aug Jul JunPSNB ex interventions 14.0 15.9 -2.4 13.6Key Point:Borrowing should improve on last September’s data,but there are risks of slippage further out.UK: Public Sector Finances (September)Release Date: Friday 21 OctoberThe public sector net borrowing requirement wasGBP 15.9bn in September, around GBP 2bn higher than lastyear. The increase over last year mainly reflected a GBP3.5bn rise in central government spending, compared with aGBP 2.2bn rise in revenue.For the cumulative year April to August, net borrowingcurrently stands around GBP 3.9bn below where it was lastyear. That is smaller than the decline would need to be tomatch the OBR forecasts set out in March, thoughcomparisons are complicated by the bank payroll tax thatwas in place last year. Revenue is also expected to be higherin the second half of 2011/12 for a number of reasons.Spending over the first five months of the year seems broadlyon track with the budget forecasts.The September data is a large month for governmentborrowing, constituting over 10% of total borrowing last year.On current trends we should see a deficit of aroundGBP 14bn, reflecting a further small improvement in thedeficit.More broadly, with the economy slipping it will not be terriblysurprising to see the overall net borrowing figures disappointin the months to come.40200-20-60Chart 2: French Industrial Survey vs. OutputManufacturing Output (% y/y, RHS)Survey: Own Production Outlook-40 Survey: General Production Outlook-8004 05 06 07 08 09 10 11Source: INSEE, Reuters EcoWin ProNNormalised Indices (sa) Oct (f) Sep Aug Oct 10Industry 97 99 102 102Services 95 95 99 100Key Point:Industry should ease further in October with the outlookfor own production converging toward the weak generalproduction outlook.100-10-20-30-40BNP Paribas Forecast: Continued DeclineFrance: INSEE Business Survey (October)Release Date: Friday 21 OctoberThe INSEE industrial business survey showed a massivedivergence in the last two months between the generalproduction outlook and the own production outlook, whichhas, traditionally been a better indicator of actual industrialproduction. However, in certain situations, like the previousdepression, the general outlook was a good leading indicatorof the recession to come. The general outlook diffusion indexstood at -29 in September, i.e. 1.0 standard deviation belowaverage, while the own production outlook print was +4, oronly 0.2 standard deviations below average.Actual manufacturing output was strong in both July andAugust, up 1.8% and 0.7% m/m respectively, which shouldresult in a 1.5% q/q gain in Q3, if we assume production wasunchanged in September. However, we fear there may be acontraction in the production figures in Q4.It will be interesting to watch the divergence between theown and the general production outlook in October. Weforecast a much greater contraction between the own outputthis month, with no recovery in general outlook. This wouldbe consistent with the continued decline of the headlineindex for industry.In the services sector, we have already seen a massive dropin September, and we do not expect a further decline thismonth.Market Economics 20 October 2011Market Mover56www.GlobalMarkets.bnpparibas.com