Market Outlook - BNP PARIBAS - Investment Services India

Key Data Preview543210-1-2-3Chart 15: French Retail Sales vs. ConfidenceRetail Sales (% y/y, volume)Household Confid.(EU Survey, RHS)04 05 06 07 08 09 10 11Source: INSEE, Reuters EcoWin ProVolume (sa-wda) Sep (f) Aug Jul Sep 10% m/m -0.7 0.2 -0.2 0.9% y/y -1.3 0.3 -1.4 1.9Key Point:Poor household confidence points towards a drop insales after the holiday period.50-5-10-15-20-25-30-35-40BNP Paribas Forecast: DecliningFrance: Retail Sales (September)Release Date: Friday 28 OctoberReal retail sales were fairly stable in July and August afterthe June 0.9% m/m gain. The sharp decline of householdconfidence, when the fears of economic downturn werespreading, and the financial crisis intensified apparently failedto hit consumption.The breakdown shows a slightly different picture. Sales ofdurable goods diminished as consumers restrainedexpenditure. This was compensated during the summer byrelatively strong activity in tourism, despite adverse weather.Sales of miscellaneous goods, energy (petrol and diesel)were up and we believe activity in services was robust. Thismay change in September. Sales of energy should declinefrom their previous peak. Because of poor confidence, we donot expect any rebound in sales of manufactured goods,especially durable goods. The exception may be car saleswhere manufacturers’ discounts probably helped, but the y/ychange will surely decline rapidly over the coming monthsbecause of a strong base effect.The only sector where there is potential for a recovery is foodsales. These should rebound from an abnormally low level.However, the German experience where retail sales in realterms continuously declined for years after reunification,shows a rebound is not warranted. The poor economicsituation may result in a similar evolution in France, wherepeople abandon traditional brands, shops and supermarketsin favour of hard discounters, which shows up in the data inthe form of a continuous sales decline in real terms.Chart 16: US Confidence vs. ConsumptionSources: Reuters EcoWin Pro% m/m Sep (f) Aug Jul JunPersonal Income 0.5 -0.1 0.3 0.2Consumption 0.4 0.2 0.8 -0.1Core PCE Prices 0.0 0.1 0.2 0.2BNP Paribas Forecast: Flat to DownUS: Personal Income & Spending (September)Release Date: Friday 28 OctoberPersonal consumption is forecast to rise 0.4% in August aftera 0.2% gain in July. Nominal core retail sales rose a robust0.6%, and auto sales jumped 4.9%. However, a decline inutility spending should weigh on service spending, whichcomprises 2/3 of all personal spending. Overall, the gainwould be consistent with a moderate rebound in consumptiongrowth in Q3.Meanwhile, personal income is forecast to rise a solid 0.5%after a decline of 0.1% reflecting the rise in both aggregatehours worked and average hourly earnings. Income appearsto have grown notably more slowly in Q3 than spending,suggesting a decline in the personal saving rate.The core PCE price index is expected to be flat inSeptember, down from a 0.1% m/m rise in September. Themoderation in core inflation momentum should come fromlower OER and core goods price inflation. This would leavethe annual pace of core PCE inflation at 1.6%.Key Point:A jump in auto sales is expected to lead to robustpersonal spending in September.Market Economics 20 October 2011Market Mover63www.GlobalMarkets.bnpparibas.com