The latest interest rate decisions by the Bank of England and the European Central Bank, due on Thursday, provide the central events of interest this week but there will be plenty of economic data for investors to absorb.
The ECB is widely expected to raise eurozone rates to 3.25 per cent and the main focus of interest will lie in the press conference to see if there is any effort to scale back current market expectations that rates will rise to 3.5 per cent by the end of the year.
Eurozone 10-year bond yields have declined by 44 basis points since early July, suggesting that the peak for economic growth in this cycle may already have passed.
The Bank of England's interest rate decision this week is much more finely balanced. The Bank has already signalled that it is likely to raise rates further and a move in November appears likely as policymakers will have updated forecasts on growth and inflation to consider.
John Butler of HSBC expects the Bank to move in November, but he says: "With growth above trend, money growth very strong and the housing market back to where it was in 2004, the question for the monetary policy committee is why wait?"
Policymakers will see mortgage equity withdrawal (Mew) for the second quarter, due on Tuesday, providing support for the need for higher rates. Mew is expected to increase from £12.5bn in the first quarter to £12.75bn, equivalent to 5.8 per cent of households' disposable income. With activity in the property market rising, Mew is once again building in importance as a support for consumer spending.
Friday brings UK manufacturing output and industrial production data for August. The consensus forecast suggests that year-on-year growth in manufacturing output will rise from 1 per cent in July to 1.4 per cent. Maintenance work on North Sea oil rigs means industrial output is expected to rise more modestly, from -0.4 per cent in August to 0.8 per cent.
The recovery in the sector remains tentative, however, and the various purchasing managers' reports on manufacturing (due on Monday) and the service sector (due out on Wednesday) are expected to point to a softening in global economic activity.
Manufacturing activity growth is expected to ease back in both the UK and eurozone in September.
However, the US Institute of Supply Management manufacturing report will be of more interest to see if the sharp fall in the recent Philadelphia Fed regional manufacturing survey is replicated. The consensus forecast is for the headline ISM manufacturing to decline from 54.5 in August to 53.5 (a reading above 50 indicates expansion.) The US non-manufacturing ISM is also expected to decline from 57 in August to 56. Taken together, these two surveys would suggest that the slowdown in the housing market is starting to spreading across the rest of the economy.
There may also be more signs of a slowdown in the US economy in US employment data for September, due on Friday. The consensus forecast is for a rise of 123,000 in non-farm payrolls after an increase of 128,000 in July. The pace of expansion in the US labour market is moderating gradually and the slowdown in the property market is leading to modest job losses in related areas such as residential construction and real estate.
Source: Financial Times