It has been a rather uneventful last week regarding both economic policy and data releases – with Portugal’s debt swap being the major exception. As widely expected, European central banks remained on the sidelines, while the few data releases mostly confirmed recent trends: a promising US, tentative signs of stabilization in the EMU, and a weaker Asia.....….
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This week, Eurostat will release EMU industrial production for August. While we expect some payback for the good July figure, factory output should continue to hold up well when compared to the depressed manufacturing PMI levels. As we point out in our first focus piece, the PMI figures seem to have lost some of their predictive power, giving way to the EuroCoin index, now indicating that the EMU recession is bottoming out. But uncertainty remains high.
The current dichotomy between soft survey results and more resilient hard data also holds true for Germany. Recent strong deterioration in the business climate has been driven by the auto sector. Although facing strong headwinds, auto fundamentals have not been as gloomy of late, not least due to rising demand from the US. Therefore, industrial activity over the next few months, while staying weak, will unlikely match the troughs observed in the business surveys.
Next month, the US electorate will vote. Although Mr. Romney won the first TV debate last week, President Obama is leading the polls with a clear advantage in the all-decisive swing states, implying that the post-election political landscape in the US will look very similar to the current one. But in order to set the course for a more sustainable fiscal future, the political parties will eventually have to cooperate again – with the first test, i.e. circumnavigating the fiscal cliff, occurring prior to the end of the current legislative period.
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