Europe- The Week Ahead-法国巴黎证券(亚洲)

Thispublicationisclassifiedasobjectiveresearch.Pleaserefertoimportantinformationattheendofthereport.’CallaghanThehighlightsinthecalendarthisweekincluderatedecisionsbytheBankofEnglandandECB,aswellastherestoftheDecemberinflationdataintheeuroarea.PersistentupwardsurprisesoninflationandinflationexpectationsdataaremakingtheBankofEngland’sjobmuchharder.TheMPCisunderstandablyconcernedabouttighteningtooearlygiventhecurrentfiscalsqueezeontheeconomy,butisseeingapersistentriseininflationexpectations(Chart1).Moregenerally,inflationnewshasgonefrombadtoworse.Inthelastweek,thepricecomponentsoftheCIPSsurveysrosesharply,petrolpriceshitnewhighsandrisingsoftcommoditiesarelikelytoreinforcetheupwardtrendinfoodinflation.Wealsobelievethatutilitybillscouldincreasebyupto30%thisyear.Giventhesedevelopments,wenowexpectCPIinflationtoexceed4%y/ybyFebruary.Thisislikelytopushinflationexpectationsevenhigherandposeathreattonextyear’swagesettlementprocess.Inlightofthis,wenowexpecttheBanktohikeBankRatebyQ3thisyear(ourpreviousforecastwasQ22012).Intheverynearterm–includingthisweek–weexpecttheBanktobecautiousgiventheconsiderablevolatilityintheeconomicdataanduncertaintysurroundingtheeffectsoftheVAThikeandfurtherfiscaltighteningthatwilltakeeffectthisyear.Nonetheless,theminutesofthiscomingweek’sMPCmeeting(releasedlatethismonth)arelikelytoshowfurtheruneaseaboutdevelopmentsininflation.Chart1:UKNOPInflationExpectationsvs5y5yFwdBreakevensSource:ReutersEcoWinProAsidefromtheBankofEnglanddecision,theUKcalendarthisweekisrelativelylight.IndustrialproductiondataforNovemberarelikelytoberobustgiventhesurgeintheCIPSmanufacturingsurveyinrecentmonths.Meanwhile,thePPIinflationdataarelikelytoreflectbuildingupstreampricepressures.TheECBdoesn’thavethesameinflationaryproblemsastheBankofEngland,althoughtheriseintheflashHICPinflationratebackabove2%islikelytohaveruffledsomemembers’feathersontheGoverningCouncil.Rather,thedilemmafacingtheECBishowtosetasinglepolicyrateforacurrencyunionincreasinglycharacterisedbydivergence–asevidentinlastweek’sPMIandEuropeanCommissionsurveydata.NochangetoBankRatethisweekexpected,butpersistentlybadnewsoninflationismakingtheBoE’sjobmuchharderWithCPIinflationnowlikelytoexceed4%byFebruary,withfurtherimplicationsforexpectations,wenowexpecttheBanktohikeratesbyQ3thisyearThedatacalendarisrelativelylightforthetheUKthisweekTheECB’sdilemmaishowtogovernanincreasinglydivergentgroupofcountrieswithasinglepolicyrateMarketEconomics,10January20112’sreluctancetostepupitspurchasessubstantially(Chart2);thecontinuedout-performanceofGermany;thereturnofinflationabove2%;andthelikelychoiceofthenextPresidentattheendoftheyear.However,weareunlikelytogetanysubstantialinsightintotheECB’sthinkingontheseissues.Increasingly,majordecisionmakingattheECBisfollowingaquarterlyschedulecoincidingwiththelatestforecastsandupdatesonmonetarypolicyoperations.Inbetween,thepressconferenceshavelongcomeacrossasholdingoperations.ThereismoreeuroareaDecemberinflationdataoutthisweek,culminatinginthefinalHICPreleasefortheeurozoneonFriday.TheDecemberinflationnumbersoutsofarhavebeenalmostuniformlystrongerthanmarketexpectations,withthebiggestsurpriseSpain’s2.9%y/yprint,up0.7pponNovemberandoverhalfapercentagepointstrongerthanconsensus.Chart2:ECBSecuritiesMarketsProgrammeSource:ECBOnThursday,FrenchCPIinflationshouldriseto1.8%y/yfrom1.6%y/yinNovember.Thedynamicsshouldbesimilartothoseacrosstheeuroarea–acombinationofstrongerenergyandfoodinflationoverthemonth.OilpricesroseparticularlysharplyinDecember,andtheirimpactoninflationintheeurozonewasboostedbytheslideintheeuroduringNovember.Foodpriceinflationisalsoontheriseastherallyinsoftcommoditypricethatstartedinmid-2010beginstocomethroughtoconsumerprices.Incontrast,coreinflationshouldactuallyfalloverthemonthonseasonaldiscountbaseeffects–adynamicwehavealreadyseeninGermany.OnFriday,eurozoneHICPinflationshouldconfirmtheflashestimateof2.2%y/yinDecember–up0.3pponNovemberandthefirst2%+printsincelate2008.Thebreakdownshouldconfirmthattherisewasafoodandenergyphenomenon–coreinflationshouldhaveremainedstableat1.1%y/yforthethirdconsecutivemonth.Lookingahead,headlineinflationintheeuroareashouldremainaroundtheselevelsuntilthespring,whenenergypricebaseeffectsbetweenMarchandMaydragitbackbelow2%.Thefirstpressconferenceoftheyearislikelytoemphasiseawholehostofimportantissuesfor2011However,weareunlikelytogetanysubstantialinsightontheGoverningCouncil’sviewoftheseissuesTheremainingDecemberinflationdatafortheeuroareaisoutthisweek–culminatinginthefinalHICPreleasefortheeurozoneonFridayTheflashHICP2.2%printshouldbeconfirmed,withinflationpushedhigherbyfood&energyinflationMarketEconomics,10January20113