In the Euro area, the ZEW index (the first confidence survey for March) might be little changed with regard to expectations and show a further improvement in the view of the present situation, confirming the generally robust health ...…
The coming week is packed with data and events in the United States. The regional March manufacturing surveys should again signal robust expansion in activity. Industrial production is expected to show robust growth in February. All the price indices will show a vigorous dynamic in the headline aggregates, and a moderate dynamic in the core aggregates. February new starts and building permits should confirm the stagnation of residential building activity, stuck at 2H10 levels. The FOMC meeting is not expected to signal any imminent developments on the monetary policy strategy.
Monday 14 March
– Industrial production in the Euro area might be up a meagre 0.2% mom in January (after 0.3% mom in December). Year-on-year growth adjusted for working days, despite slowing on the previous month, would remain robust (we estimate 6.7% vs. 8.8% yoy). The level of output would thus be around 10% below the pre-crisis highs but 15% above the low recorded in April 2009. In January, output barely grew in Germany (0.1% mom, ex construction), slumped in Italy (-1.5% mom), and bounced in France (+1.8% mom). Looking ahead, after broadly stagnating around year-end, Euro area output might accelerate again in the coming months.
– Meeting of the Eurogroup, followed on Tuesday 15 by the Ecofin meeting, to discuss the legislative proposals to reinforce economic governance, and specifically: preventive and corrective arms to the Stability and Growth Pact, enforcement of budgetary surveillance in the Euro area, prevention, correction and strengthening of corrective measures to the macroeconomic imbalances and requirements for budgetary frameworks for member states.
Tuesday 15 March
– France. Consumer prices are expected to be up 0.5% mom in February after falling by 0.2% mom in January; year-on-year inflation might slow one-tenth to 1.7% on the national measure and remain steady at 1.9% on the harmonised index. A substantial contribution to month-on-month prices growth should come from energy in the wake of the fuel price hikes (avg. 2.5% in the month). Apparel and footwear prices should rebound after the January fall (-7.9% mom) due to the end-of-season clearance sales. Inflation will likely remain at the current levels for much of the year.
– Germany. The ZEW index of expectations regarding the German economy among analysts and institutional investors might retrace to 15.4 from 15.7. The index, which still signals an improvement six months forward, should continue to flag up the robust health of the German economy. The present situation indicator should rise further to 87 from 85.2, just shy of the all-time high recorded in June 2007.
– The NY Fed Empire index is expected to rise to 22 in March from 15.4 in February. The relationship between the Empire and the ISM, and that with the Philly Fed, would suggest growth in the Empire to 30, closing the gap that has continued to widen in recent months.
The breakdown of the February survey was much poorer than the findings of the other surveys, showing a correction in new orders in stark contrast to the indications of the ISM and the Philly Fed. Both the input and output price indices should continue rising.
– Import prices should be up 0.8% mom in February after + 1.5% mom in January. The oil price will contribute positively to the index, though less so than in January (+3.4% mom). Prices ex oil will remain on a robust growth path close to the average for the last three months (0.7% mom avg., +1.1% mom in January). Prices are affected by tensions on the commodity markets as well as by a weakening USD exchange rate.
– The index of homebuilder confidence as measured by the NAHB should rise to 17 in March from 16 in the last four months. The February survey noted an improvement in the expectations sub-indices. The weather might help, after three months of exceptionally rigid conditions.
– The FOMC meeting should end with few changes. The statement is expected to note the improvement in growth and particularly in the employment dynamic. However, stress will gain be laid on the fact that the pace of payrolls growth is insufficient to return the unemployment rate to normal any time soon. In its price indications, the statement should confirm what Bernanke said: the recent spikes in commodity prices should have only a modest and shortlived effect on inflation. The FOMC will reiterate its commitment to constantly review the purchases programme in relation to the economic prospects, although there should be no indication of changes to the programme. Since January the statement has no longer given explicit indications on the pace of monthly purchases, as was done in November and December (around USD 105Bn per month): discussions on this point are probably ongoing, as may be inferred from the broad range of views expressed recently. No clear consensus position has emerged as yet, not even on the case for staggering the purchases in recent months, as was done with the QE1 programme. More information should be forthcoming between March and May.
Wednesday 16 March
– Italy. The second estimate of consumer prices in February should confirm growth of 0.3% mom (vs.0.4% mom in January) and the acceleration in year-on-year inflation to 2.4% from 2.1% yoy. On the harmonised measure prices should be confirmed up 0.2% from -1.6% mom before, and, yearon-year, price growth to 2.1% from 1.9% yoy. We estimate a full-year average on the national measure of 2.2%, but in Italy too the risks to the inflation forecasts inevitably lie to the upside at this time.
– The second estimate of consumer prices in the Euro area in February should confirm the first estimate of a 2.4%, vs. 2.3% yoy in January. The figure is consistent with month-on-month growth of 0.4% mom (vs. -0.7% mom in January). Core inflation should remain low (our estimate: 1.2% yoy). It is now virtually certain that Euro area inflation will remain above 2% for almost the whole year.
– New starts are expected to fall to 580k in February from 596k in January. The expected fall is partly due to the weather and partly to the volatility of the multi-family units sector. In January, new starts in this segment grew by 77.7% mom, which should be followed by a correction. In addition, a gap has opened up between starts and permits which should also close, confirming the levels seen in permits, i.e. close to 560k units, in the middle of the narrow range seen since mid-2010. Permits should stabilise at 565k, close to the January levels (563k) which were down sharply on December.
– The PPI should be up 0.7% mom in February, while the core index should be up 0.2% mom, after +0.5% mom in January. Petrol should make a moderate contribution to the increase in prices in February, while food and natural gas prices should surge. The trend in core intermediate goods prices is buoyant (+1% mom in January, +0.7% mom avg. in the last three months) and signals there are also pressures on the less volatile components.
Thursday 17 March
– The CPI is expected to be up 0.5% mom in February, after +0.4% mom in January. The core index should be up 0.1% mom (1.1% yoy from 1% yoy in January). Food and energy prices should show large gains, with some of the spike in commodity prices feeding through to final prices. With regard to the core component, housing ex-energy should confirm the modest uptrend of +0.1% mom, as has been the case for several months now; apparel and education should correct after the January increases (+1% mom for apparel, +0.6% mom for education), while healthcare should accelerate slightly towards trend by at least 0.2% mom, after +0.1% mom in January.
– Industrial production should be up 0.7% mom in February after shrinking by -0.1% mom in January, probably due in part to the bad weather. All sectors should report healthy gains. Hours worked as recorded by the employment report were up, notably in manufacturing. Manufacturing output should continue on the uptrend seen in previous months, as signalled by the strong sector survey figures across all areas in both the composite and production indices. The auto sector will again make a positive contribution to the overall dynamic. Utilities and mining output should also be up. Capacity utilisation should rise to 76.6%.
– The Philadelphia Fed index should retrace slightly to 32 in March after surging to 35.9 in February (series high since January 2004). There might also be corrections in the individual components, though without altering the general picture. The breakdown of the February survey was very positive: new orders stabilised at 23.7 in February, at the January levels and at their highest since 2004; deliveries expanded b y 11.8 points to 35.2; backlog orders and delivery times were also up, as were payrolls. The March indications should again point to very solid expansion in the sector. The price component should continue to rise (21 in February, -9.8 in October 2010). Expectations six months forward might correct from 40.1 in February.
The financial analysts who prepared this report, and whose names and roles appear on the first page, certify that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures: The analysts who prepared this report do not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.
This research has been prepared by Intesa Sanpaolo S.p.A. and distributed by Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for the contents of this report. Please also note that Intesa Sanpaolo S.p.A. reserves the right to issue this document to its own clients. Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both authorised by the Banca d’Italia, are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.
Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor.
This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. It should not be regarded as a substitute for the exercise of the recipient’s own judgement.
No Intesa Sanpaolo S.p.A. or Banca IMI S.p.A. entities accept any liability whatsoever for any direct, consequential or indirect loss arising from any use of material contained in this report.
This document may only be reproduced or published together with the name of Intesa Sanpaolo S.p.A. and Banca IMI S.p.A.. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. have in place a Joint Conflicts Management Policy for managing effectively the conflicts of interest which might affect the impartiality of all investment research which is held out, or where it is reasonable for the user to rely on the research, as being an impartial assessment of the value or prospects of its subject matter. A copy of this Policy is available to the recipient of this research upon making a written request to the Compliance Officer, Intesa Sanpaolo S.p.A., 90 Queen Street, London EC4N 1SA.
Intesa Sanpaolo S.p.A. has formalised a set of principles and procedures for dealing with conflicts of interest (“Research Policy”). The Research Policy is clearly explained in the relevant section of Banca IMI’s web site (www.bancaimi.com).
Member companies of the Intesa Sanpaolo Group, or their directors and/or representatives and/or employees and/or members of their households, may have a long or short position in any securities mentioned at any time, and may make a purchase and/or sale, or offer to make a purchase and/or sale, of any of the securities from time to time in the open market or otherwise. Intesa Sanpaolo S.p.A. issues and circulates research to Qualified Institutional Investors in the USA only through Banca IMI Securities Corp., 245 Park Avenue, 35th floor, 10167 New York, NY,USA, Tel: (1) 212 326 1230. Residents in Italy: This document is intended for distribution only to professional investors as defined in art.31, Consob Regulation no. 11522 of 1.07.1998 either as a printed document and/or in electronic form. Person and residents in the UK: This document is not for distribution in the United Kingdom to persons who would be defined as private customers under rules of the FSA.
US persons: This document is intended for distribution in the United States only to Qualified Institutional Investors as defined in Rule 144a of the Securities Act of 1933. US Customers wishing to effect a transaction should do so only by contacting a representative at Banca IMI Securities Corp. in the US (see contact details above).
Trading Ideas are based on the market’s expectations, investors’ positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.
Coverage Policy And Frequency Of Research Reports
Intesa Sanpaolo S.p.A. trading ideas are made in both a very short time horizon (the current day or subsequent days) or in a horizon ranging from one week to three months, in conjunction with any exceptional event that affects the issuer’s operations. In the case of a short note, we advise investors to refer to the most recent report published by Intesa Sanpaolo S.p.A’s Research Department for a full analysis of valuation methodology, earnings assumptions and risks. Research is available on IMI’s web site (www.bancaimi.com) or by contacting your sales representative.
Source: BONDWorld – Intesa Sanpaolo – Research Department