* Euro zone PMIs to show modest strength
* Fed minutes to reveal clues to tapering timetable
* China PMI may flash further stabilisation signal
By Alan Wheatley, Global Economics Correspondent
LONDON, Aug 18 A blend of past and present holds
the key this week to gauging global economic prospects.
Month-old minutes from the Federal Reserve could offer hints
on when the U.S. central bank will scale back its extraordinary
stimulus and up-to-date sentiment indicators will help track
momentum in the reviving euro zone.
The single currency area ended an 18-month recession last
quarter, growing 0.3 percent, and August business surveys are
likely to show the modest recovery is slowly broadening out.
As well as a further rise in the euro zone composite
purchasing managers' index (PMI), economists expect readings for
the area-wide service sector and for French manufacturing to
have punched through the no-change mark of 50 to show growth.
"The PMIs will confirm that pick-up we saw in the second
quarter," said Daniel McCormack, a strategist at Macquarie in
London. "All the evidence so far suggests that the trend has
continued into the third quarter."
By the same token, the evidence is not pointing to a
V-shaped recovery. For a start, April-June growth was flattered
by a seasonal surge in auto production and a weather-related
boost to German construction. Italy and Spain remained in
"With fiscal austerity likely to remain a drag on growth and
the financial sector still in a state of disrepair, growth looks
likely to remain below average in the foreseeable future," said
Jonathan Loynes with Capital Economics, a London consultancy.
And that annual average growth rate since the birth of the
single currency in 1999 is just 1.3 percent.
DECODING THE FED
The U.S. economy is also performing poorly compared with
past recoveries, but the Fed has been preparing markets since
May for a reduction in the volume of bonds it has been buying to
keep interest rates low and stimulate demand.
The only question is when the Fed will begin 'tapering' its
asset purchases, now $85 billion a month. Investors will
therefore be poring over the minutes of the central bank's July
30/31 deliberations for clues on whether the first move could
come as early as September.
A lot will depend on the intervening data flow.
Jason Ware, chief analyst at Albion Financial Group in Salt
Lake City, said the economy was stuck in an "uneven,
muddle-through, sub-par recovery," but pointed to some
encouraging underlying trends.
Retail sales have been resilient despite tax increases; the
rolling six-month average of job growth has risen significantly;
and the housing market is holding up despite a recent rise in
mortgage rates as bond markets price in reduced Fed stimulus.
Housing dominates this week's U.S. data releases. Economists
expect a rise in existing home sales for July but a pullback in
new home sales after a jump in June.
"We're seeing continued strength in housing, which I think
is key. Some data points have shown a slowing in activity, but I
don't think we're going to pivot back the other way," Ware said.
Alongside improving confidence in Europe, signs of
stabilisation in China have helped brighten the global economic
picture this month.
August's PMI manufacturing survey for China conducted for
HSBC is likely to confirm that though the index stayed below the
50 mark, the world's second-largest economy is picking up from
an early-year trough.
Ken Courtis, a private-equity investor and fund manager
active in China, said worries about the risks facing the
economy, especially of a crash in the real estate sector, were
Courtis, a former vice-chairman of Goldman Sachs in Asia,
said he remained broadly confident about China - certainly when
compared with countries on the euro zone periphery or the likes
of India and Russia.
"If I had to draw up a ranking of these countries, China
would be more near the top of the list," he said.