Investors watch for signs of US slowdown going global
Investors are trying to assess the extent to which the slowdown in the US economy will lead to a broader global downturn. This week's data releases could provide further evidence as to why concerns for the outlook for 2007 are rising. The continuing US property market slowdown will be reflected in Monday's existing home sales data, expected to fall from 6.33m in July to 6.20m in August. New homes sales for August on Wednesday are expected to decline from 1.07m in July to 1.05m.
However, the slowdown in the housing market has had less of an impact on US consumer confidence than two other factors: the summer's rise in gasoline prices, offset by ongoing employment gains. September's consumer confidence index, due on Tuesday, is expected to rebound from 99.6 in August to 102.0, helped by the recent retreat in gasoline prices.
US employment is continuing to increase and this is feeding through to robust income growth for consumers. US nominal personal income growth for August, due on Friday, is expected to rise from 7.1 per cent in July to 9.3 per cent, while year-on-year growth in spending is forecast to strengthen from 5.9 per cent to 6.2 per cent.
The fall in oil prices should ease pressure on headline measures of inflation. German harmonised inflation for September, due on Monday, is expected to fall from 1.8 per cent in August to 1.5 per cent.
The initial estimate for headline eurozone inflation for September, due on Friday, is expected to fall from 2.3 per cent in August to 1.9 per cent. However, the European Central Bank is still concerned about the pace of credit expansion, with M3 growth for August, due on Wednesday, expected to slow from 7.8 per cent in July to 7.5 per cent. This is still well above the level that the ECB would consider consistent with price stability.
Unemployment in France in August, due on Friday, is expected to edge down from 8.9 per cent in July to 8.8 per cent, a seventh successive monthly decline. This is part of of a gradual improvement in eurozone labour market conditions and should be reflected in a rise in consumer confidence data released on the same day.
A key question for global investors is whether weaker US consumer spending will be offset by stronger spending in the eurozone. However, John Butler of HSBC says there is little sign that hopes that the eurozone consumer will surprise all by throwing caution to the wind and indulging in a spending spree will become reality, especially in an environment where real wages are falling. Mr Butler warns that the eurozone could be heading into a global slowdown with monetary policy still tightening.
In the UK, the growth in mortgage borrowing has risen in recent months, while consumer credit growth is slowing. This pattern is expected to continue in August's data, released on Friday. Potential homebuyers should be aware that the UK also faces the challenge of slower economic growth and tighter monetary policy next year.
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