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Deflation risks and inflation reality

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  • Euro flash CPI is due, as Bloomberg run alarmist headlines about investors' belief in the risk of Euro deflation. Investors are generally so bad at predicting inflation that this could be seen as an encouraging sign. Yesterday's regional CPI data was in line or slightly higher than consensus.
  • Euro area preliminary GDP will be monitored as much for the detail as for the headline. France is expected to offer weak but positive growth (not the negative growth the PMI data indicates). German growth in the context of export demand is likely to be the main focus, however.
  • The UK is only offering construction output data - none of the drama of the Euro area. There are many reports of construction supply constraints in the UK, and for the UK economy it is bricks not BRICs that matter.
  • US retail sales should bounce back in October - we see 0.2% with upside risks to either the October or the September data. The labour market is good, the economy is performing well, and there is a new smartphone out there. It is hard to see how the US consumer could resist the lure of the mall.

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