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1159 matches for " July":
July's retail sales report, released on Friday, looks set to be the third in a row to surprise the consensus to the upside.
Data released on Friday in Brazil and recent political events helped to open the door further to a final rate cut in August. The IPCA-15--which previews the full CPI-- rose 0.3% month-to-month in July, well below market expectations, 0.5%.
Let's get straight to the point: It's very unlikely that July's payroll numbers will be as good as June's. Too many direct and indirect indicators of employment and broader economic activity are now moving in the wrong direction.
With just five days of July remaining, it seems likely that the trends in most of the key near-real-time indicators will end the month close to the levels seen at the end of June.
We expect July's consumer prices report, released on Wednesday, to show that CPI inflation ticked up to 0.7% in July, from 0.6% in June.
We expect the Fed to leave rates on hold today, but the FOMC's new forecasts likely will continue to show policymakers expect two hikes this year, unchanged from the March projections. We remain of the view that September is the more likely date for the next hike, because we think sluggish June payrolls will prevent action in July.
The jump in CPI inflation to 1.0% in July, from 0.6% in June, caught all analysts by surprise.
• U.S. - Cutting rates by 50bp would be risky for the Fed • EUROZONE - Further ECB easing all but confirmed • U.K. - A pause at the BOE means more hikes in 2020 • LATAM - A pick-up in external demand will soon support economies in LatAm • * Our Asia economics team is on annual leave, publication will resume July 30.
Japan's flash Jibun Bank PMIs for July showed continued improvement, but only just.
In one line: Decent July means net foreign trade unlikely to be a big drag on Q3 GDP growth.
We expect July's GDP report, released on Friday, to show that overall output rose by about 7.0% month-to-month, bringing it to 11.5% below its pre-Covid peak.
Friday's sole economic report provided further clarity on the impact on Germany's inflation data from the Value-Added-Tax cut in July.
Our hopes of another solid increase in payrolls in July were severely dented by yesterday's ADP report, showing that private payrolls rose only 167K in July.
July's BoJ meeting was a quiet one, with the Board keeping the -0.10% policy balance rate and the 10- year yield target of "around zero", as widely predicted.
We are not worried, at all, by the slowdown in headline payroll growth to 157K in July from an upwardly-revised 248K in June.
In one line: On the mend, but a full recovery remains a long way off
In one line: A good start to Q3.
In one line: A poor start to the third quarter and downside risks remain.
In one line: Soft start to the third quarter; the trade war is a huge drag.
In one line: An expected modest increase, but inflation should fall later in Q3.
In one line: Better domestic conditions offset by rising external risks.
Yesterday's national accounts showed that the downturn in the economy on the eve of the Covid-19 outbreak was sharper than first estimated.
Today brings a raft of data with the potential to move markets, but we're far from convinced that the two most closely-watched reports--ADP employment and the ISM manufacturing survey--will tell us much about the future.
In one line: Manufacturing is leading the rebound.
In one line: A modest and expected increase; underlying inflation is stable.
In one line: Inflation is well under control; the BCB will cut rates next week.
In one line: Undershooting expectations, and further opening the door to a final rate cut in August.
Yesterday's EZ data showed that French households came out swinging as the economy reopened. Consumers' spending, ex-services, jumped by 36.6% month-to-month in May, driving the year-over-year rate up to -8.3%, from -32.7% in April.
In one line: Resilient manufacturing output offsets weakness elsewhere.
In one line: Good industrial production numbers; the labour market is still struggling.
In one line: A soft start to the quarter, but leading indicators point to a decent Q3 as a whole.
In one line: A sharp Covid-related increase, but the large output gap should push inflation down soon.
China's economy looks to have shrugged off the supposed "second wave" of Covid-19, sparked by a cluster in Beijing's largest wholesale market for fruit and veg, looking at June's PMIs.
In one line: A poor start to Q3; investment will remain a drag in the near term.
In one line: Activity is rebounding, but employment still is falling rapidly.
In one line: Lifted by a robust export growth.
In one line: Ouch.
In one line: A Q3 rebound in net exports underway?
In one line: Expect more of the same for the rest of 2020.
In one line: A surprisingly modest rate cut, despite suffering the worst economic contraction ever.
In one line: A German recession edges ever closer.
In one line: Not pretty, but mostly due to crazy volatility in Germany.
In one line: Another poor performance is underway in Q3.
In one line: Decent, but Q3 as a whole doesn't look good.
In one line: No recession here.
In one line: Solid.
In one line: Low interest rates for the foreseeable future.
The downward pressure from factory-gate prices on Chinese industrial profits will continue to ease in the coming months.
In one line: The end of imputation reveals significant inflation.
In one line: Still no benchmark rate cuts on the horizon
In one line: Improving, but still way below pre-crisis levels.
In one line: Solid, but subordinate to politics.
In one line: A relief after ADP, but August will be weaker; No V here.
In one line: It's a V, but not a real one.
In one line: The recovery continues, but some sectors are struggling,
We were happy to see initial jobless claims fall to a 15-week low of 1,314K yesterday, but the labor market is still in a terrible state.
Yesterday's trade data in Germany added to the evidence of a relatively slow rebound as the domestic and European economies emerged from lockdown.
We expect May's GDP report, released on Tuesday, to provide an early blow to hopes that the economy will embark on a V-shaped recovery this year.
In one line: Ignore the leap in the core; the underlying trend is weakening.
In one line: A surprisingly modest rate cut, despite suffering the worst economic contraction ever.
In one line: Probably just one isolated soft month; consumers have the means to spend more.
In one line: Strength reflects the release of pent-up demand, which soon will be sated.
In one line: Continued strength not indicative of households' overall spending.
In one line: Old news.
In one line: The end of imputation reveals significant inflation.
In one line: Consistent with a brutal period of layoffs ahead.
In one line: The EU digs in, and comes up with a response.
In one line: Confidence high and stable; inflation expectations steady.
In one line: The calm before the storm.
In one line: Ignore the headline; what matters is the emerging rising trend in single-family permits.
In one line: Make the most of this; it won't last.
In one line: Consumption on track for 3-to-3.5% in Q2; core inflation mean-reverting.
In one line: Spectacular, thanks in large part to the Amazon Prime event.
In one line: Activity is rebounding, but employment still is falling rapidly.
In one line: Still well below pre-Covid levels, despite few restrictions remaining in place.
In one line: Still reflecting market conditions only immediately after the lockdown ended.
In one line: Lenders likely won't facilitate a lasting surge in sales.
In one line: Ouch.
In one line: A startling catch-up.
In one line: Recovery continues, but further significant near-term gains are unlikely.
In one line: Probably this year's peak.
In one line: Borrowing still set to total about 17% of GDP this year, despite the declining monthly trend.
In one line: Sampling issues have disfigured the LFS data; a sharp downturn remains in motion.
In one line: The pace of deterioration will quicken imminently.
In one line: A jobless recovery can only extend so far.
In one line: Pent-up demand temporary supports prices; the trend still is downward.
In one line: Encouraging.
In one line: Solid, but subordinate to politics.
In one line: Big upside surprise should quash near-term rate cut speculation.
In one line: Consumers are defiantly optimistic, despite the Brexit saga.
In one line: Starting to converge with other weaker measures.
In one line: Clearer signs of "stagflation".
In one line: Work is continuing to dry up as no-deal Brexit risk mounts.
In one line: The wage-price link is firmly intact; the MPC's hands are tied.
In one line: Mixed messages warn against coming to strong conclusions.
In one line: The deterioration of the labour market continued in early Q3.
In one line: Is Germany in recession? Yes, if you ask the IFO survey.
In one line: Probably still artificially low due to the original Brexit deadline.
In one line: Crying wolf, again.
In one line: Probably this year's weakest point.
In one line: Modest revival weakens the case for fresh monetary stimulus.
In one line: Philly Fed soars; Empire State steady; Richmond Fed tanks; which to believe?
In one line: Disappointing, but the trend is still rising.
In one line: Not yet an accelerating trend, but labor cost and tariff pressures are visible.
In one line: No bottom yet for core orders.
In one line: A welcome partial rebound, but a real recovery is unlikely before the fall.
In one line: Treading water, but should strengthen markedly soon.
In one line: A grudging ease makes one-and-done a decent bet, data permitting.
In one line: Close to the nadir.
In one line: Boosted by Amazon Prime Day, but the underlying trend is solid.
In one line: Still pointing to a recovery in demand.
In one line: Small deficits reflect volatility, not an emerging boost from the weaker pound.
In one line: Decent momentum in private consumption, but threats are rising.
In one line: Hit by lower energy and services inflation.
Governor Bailey signalled a potential shift in the Bank of England's approach to withdrawing monetary stimulus--whenever the time comes--last month in an article for Bloomberg Opinion.
The MPC's view that the economy likely will grow at an above-trend rate over the coming quarters was challenged immediately last week by the PMIs.
The private sector in China has finally joined the party, boosting the durability of the economic recovery.
Friday's final June PMI data confirmed the survey's recovery through Q2. The composite index edged higher to 48.5, from 31.9 in May, extending its rebound from a low of just 13.6 in April.
Last week we reported on the V-shaped recovery in German retail sales--see here--as lockdowns ended mid- way through Q2.
Japan's Tankan survey for Q2 was unsurprisingly grim, given the devastation caused by the near- global lockdown in the first half of the quarter, and the nationwide state of emergency that enveloped April and May.
ADP's measure of May private payrolls undershot the official estimate by 5.6 million, surprising everyone after it nailed the April catastrophe.
The release of pent-up Japanese consumer demand in June was emphatic, with retail sales values jumping by 13.1% month-on-month.
We remain concerned that huge job losses are imminent, slowing the economic recovery after a mid-summer spurt.
The only significant surprise in the terrible second quarter GDP numbers was the 2.7% increase in government spending, led by near-40% leap in the federal nondefense component.
One of the key positive signs in the Eurozone data since the virus hit has been the evidence that households' liquid money balances have been well supported by job retention schemes, extended unemployment insurance, and aggressive monetary stimulus.
The recovery in the industrial sector from Covid-19 finally commenced in earnest in June, after May's stalled start.
The short answer to the question posed by our title is: We don't know. But that's the point, because we shouldn't be needing to ask the question at all.
India's services PMI for June underscores the half-hearted nature of Unlock 1.0, with the daily number of new cases of Covid-19 still rocketing.
It is becoming increasingly safe to say that any bounce in private consumption following the end of Japan's state of emergency will be muted and difficult to sustain.
China's GDP report for the second quarter sprung an upside surprise, with the economy growing by 3.2% year-over-year--on paper--marking a sharp reversal from the 6.8% plunge in the first quarter, due to the country's nationwide lockdown.
The stock of bank lending to businesses is on course to fall in June, after a modest increase in May and huge jumps in March and April.
Today's ECB meeting will be a snoozer.
The weekly initial jobless claims numbers have been a useful proxy for the real-time performance of the economy since Covid-19 struck.
Yesterday's ECB meeting was a snoozer, just as we predicted.
Headline retail sales in June were just 1% below their January peak, and about 3% below the level they would have reached if the pre-Covid trend had continued.
The next couple of months likely will see some activity data rebound to close to pre-Covid levels, fuelling hopes of a V-shaped recovery.
Speculation has mounted in the press that the Chancellor will raise the threshold for Stamp Duty Land Tax temporarily to £500K, from £125K, in today's Summer Statement.
Yesterday's manufacturing data in Germany followed the lead from Monday's relatively underwhelming new orders report; see here.
The Labour Force Survey continues to understate massively the damage caused by Covid-19.
Japan's trade balance remained in the red in June, though the deficit narrowed sharply, to -¥269B from -¥838B in May.
The U.K.'s property obsession has been immune to Covid-19, so far.
Industrial profits in China continued to strengthen in June, rising by 11.5% year-over-year, marking an acceleration from 6.0% in the previous month.
We argued in the Monitor on Friday--see here--that the Fed likely will increase the pace of its Treasury purchases, in order to ensure that the wave of supply needed to finance the next Covid relief bill does not drive up yields.
If Congress passes another Covid relief bill early next month, as we fully expect, it will have to be financed quickly via increased debt issuance.
U.K. equities are falling ever further out of favour.
Korea's GDP report for the second quarter was a huge let-down.
The 2008-to-09 recession was a mild experience for most households which remained employed and benefited from a huge decline in mortgage rates.
The downturn in Japan's all-industry activity index slowed in May to -3.5% month-on-month, from April's significantly revised 7.6% plunge.
June's surge in retail sales is not a sign that households' total spending is zipping back to pre- downturn levels.
Net trade in India likely contributed positively to headline GDP growth in the lockdown-plagued second quarter, but for all the wrong reasons.
After a busy week of data, and a holiday weekend ahead, it's worth stepping back a bit and evaluating the arguments over the timing of the next Fed hike. The first question, though, is whether the data will support action, on the Fed's own terms. The April FOMC minutes said: "Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June".
House Democrats and Senate Republicans are so far apart on both the structure and the size of the next Coronavirus relief package that it's hard to see a bill passing Congress in less than a couple weeks or so, and it could easily take longer.
Tracking the consumer services sector has become more important since Covid-19, as it was flattened by the lockdown in Q2 and it might prove to be an incubator of new infections, if it becomes too busy.
• U.S. - The boom in multi-family construction is over, for now • EUROZONE - The ECB will lay the ground for a rate cut this week • U.K. - A general election is coming, but not until 2020 • LATAM - A stable currency will allow rate cuts in Mexico in H2 • * Our Asia economics team is on annual leave.
We need to start today with a word of warning about today's initial jobless claims, where the risk to the consensus seems mostly to be to the upside.
The recovery of consumer confidence in Korea remains undeterred by the lingering risk of a second wave.
Korea's fledgling export recovery seemingly hit a roadblock this month.
The Fed made no changes to policy yesterday, as was almost universally expected.
June's money and credit data show that firms have accumulated a large cash pile since the start of the Covid-19 outbreak, despite sales falling through the floor.
We have been puzzled in recent weeks to see clear indications of softening economic activity--falling restaurant diner numbers, fewer small firms open for business and falling employment, and reduced footfall at businesses--while data from the travel business continued to improve.
Complacency and wishful thinking seem to be creeping back into the government's approach to containing Covid-19.
We remain very bullish on the housing market, given sustained 11-year highs in applications for new mortgages to finance house purchase.
We look for a 12.5% month-to-month jump in the official measure of retail sales in June, released on Friday. This easily would top the consensus, 8.3%, for a second consecutive month.
The release today of the final reading of the composite PMI for June will provoke further debate over its usefulness in charting the economy's recovery from the Covid-19 shock.
The end of Korea's first Covid-19 wave, coupled with the government's economic support measures, has been a boon for the retail industry.
This week's economic reports have provided clear, and uplifting, evidence that EZ consumers came out swinging as lockdowns were lifted.
We still expect CPI inflation to decline a little further in the second half of this year, despite its surprise increase to 0.6% in June, from 0.5% in May.
If you had predicted at the start of the year that the ECB balance sheet would leap by just over €1.5T in H1, you would have been laughed out of the room.
In one line: Disappointingly poor, but partly due to weakness in construction.
In one line: The recovery continues, but it is now slowing.
In one line: Normal services are resuming; uncertainty lies ahead.
In one line: Another setback, but the V-shaped rebound is intact.
In one line: An almost V-shaped rebound, but total trade volume is still depressed.
In one line: The rebound continues, but will the NRW lockdown reverse this trend?
In one line: It's a V, but not a real one.
In one line: Boosted by leap in inflation of clothing; it won't last.
In one line: Ignore the leap in the core; the underlying trend is weakening.
In one line: Hit by the VAT cut, but domestic services inflation remain resilient.
In one line: On hold, but more is probably on the way.
In one line: Solid; export orders soared, offsetting a plunge in domestic orders
In one line: Rebounding.
In one line: Robust.
In one line: Don't extrapolate low EZ inflation; both the headline and core will rise into year-end.
In one line: Normal, and poor, services resumed.
In one line: The second wave has hit confidence.
In one line: Rising food inflation offset plunge in energy inflation; core stable.
In one line: All over the place.
In one line: The ECB is loading its bazooka, but with what?
In one line: A rate cut and QE are on the way.
In one line: Ugly; manufacturing is sinking without a trace.
In one line: Soft, but still consistent with decent GDP growth.
In one line: Still improving.
In one line: A modest rebound; net portfolio outflows are still subdued, but that should change soon.
In one line: Hit by a primary income deficit; that won't last.
In one line: The rebound is stalling.
In one line: Earth to Trump, the PBoC isn't devaluing the yuan
In one line: Living on borrowed time.
In one line: Machine tool orders feeling for the floor
Easing isn't going exactly to plan... a trade deal would really help
The costs of the government's failure to lock down quickly in response to the Covid-19 pandemic, ultimately necessitating long-lasting restrictions, were visible in May's GDP figures.
In one line: A slow start to Q3.
In one line: Expect more of the same for the rest of 2020.
China's GDP report for the second quarter is due a week from today, and the prevailing wisdom is that the bounce-back was strong enough for headline growth to return to the black.
The immediate impact of the Covid-19 crisis on the auto market was calamitous.
The Chancellor's Summer Statement contained a targeted package of measures aiming to sustain employment and support the ailing hospitality sector. In total, these measures could inject up to £30B into the economy, depending on take-up by households and firms.
In one line: Ignore the headline; the details weren't that bad.
We aren't much bothered by the one-tenth overshoot in the June core CPI, reported yesterday.
Yesterday's EZ manufacturing data were slightly underwhelming, at least compared to expectations.
The second Covid wave has not yet crested, but it won't be long. That might sound preposterous, given the endless headlines about record numbers of new cases and deaths in southern and western states.
Japan's second wave of Covid-19 is in its early phase, though the virus appears to be spreading rapidly.
Friday's economic data in the Eurozone provided further evidence of a sharp rebound in manufacturing output as the economy reopened. Industrial production in France jumped by 19.6% month-to-month in May, lifting the year-over-year rate to -23.4% from -35.0% in April.
June's consumer price figures, released on Wednesday, probably will be overshadowed this week by data for May for GDP--see our detailed preview here--and the labour market.
In one line: France is breaking the bank, but the ECB is here to help.
The year-over-year collapse of industrial production in India eased substantially in May, to -35%, from -58% in April, close to our -32% forecast.
Today's official euro area manufacturing report will be a corker.
China's trade surplus plunged to $46.4B in June, from $62.9B in May, largely in line with our below- consensus forecast.
The Johns Hopkins database shows a mixed coronavirus picture in the Andes, with the trend in new cases still rising in Argentina and Colombia, but relatively flat for about the past two weeks in Peru.
We have no argument with the FOMC's view that the Covid crisis is a disinflationary event, but the run of three straight outright month-to-month declines in the core CPI likely came to an end in June.
We're bracing for another ugly set of labour market data on Thursday, showing that both employment and earnings fell sharply in May and June.
In one line: The downtrend resumes, but take the headline with a pinch of salt.
In one line: A solid m/m increase; the quarter as whole should be decent.
In one line: Base effects signal 30%-plus consumption growth in Q3; core PCE deflator has further to rise.
In one line: Disappointing near-real-time claims are more important than the good retail sales data.
In one line: Rising activity from a low base is not enough to lift employment.
In one line: A relief after ADP, but August will be weaker; No V here.
In one line: Headline is very flattering; core orders rising but outlook is cloudy.
We have revised up our third quarter GDP forecast to 25% from 15%, in the wake of last week's data. Consumers' spending is on course to rise by 36.6% if July's level of spending is maintained, though we're assuming a smaller 33% increase, on the grounds that the expiration of the enhanced unemployment benefits on July 31 will trigger a dip in spending for a time.
Korea's unemployment rate plunged unexpectedly in August, to 3.2%--the lowest in a year--from 4.2% in July, defying expectations for no change and the renewed pressure on the economy from the second wave of Covid-19.
The Caixin services PMI fell to 51.5 in August, from 52.8 in July.
Data yesterday showed that the recovery in German manufacturing picked up the pace midway through Q3. Factory orders jumped by 4.5% month-to-month in August, accelerating after a revised 3.3% gain in July.
Japan in July recorded its first trade surplus in three months, as exports continued to show more signs of life.
The advance indicators of July payrolls are wildly contradictory, so you should be prepared for anything from a consensus-busting jump to a renewed outright drop, in both Friday's official numbers and today's ADP report.
The Fed's Senior Loan Officer Surveys in April and July were deeply alarming, signaling that banks were aggressively tightening lending standards for firms of all sizes.
GDP data for July, released on Friday, showed that the economic recovery following the Covid-19 lockdown still does not look V-shaped, even though virtually all restrictions on economic activity had been lifted.
Yesterday's detailed July CPI report ought to have provided the first clear evidence of the effect on euro area inflation from the Covid-19 shock.
We look for a 210K increase in July payrolls. That would be consistent with the message from an array of private sector surveys, as well as the recent trend.
The escalation of the second wave of Covid-19 in Japan in July did little to stop the recovery in labour cash earnings growth.
In the wake of the surprise 0.6% July surge in the core CPI, the biggest increase since January 1991--most forecasters look for mean reversion to 0.2% in today's August report.
Yesterday's final EZ manufacturing PMIs for July extended the run of gains since the nadir during lockdown.
Under normal circumstances, sustained ISM manufacturing readings around the July level, 54.2, would be consistent with GDP growth of about 2% year-over-year.
Yesterday's final PMI data for August confirmed that the composite index in the EZ fell to 51.9, from 54.9 in July, slightly higher than the first estimate, 51.6.
While we were out, most of the core domestic economic data were quite strong, with the exception of the soft July home sales numbers and the Michigan consumer sentiment survey.
The third quarter ended with a bit of a bang for retailers, with sales rising strongly, even in the woebegone department store sector. The apparent loss of momentum in July and August reversed, with the sector reporting a 9.7% jump in sales.
A range of indicators show that the pace of the economic recovery shifted up a gear in July, when all shops were open for the entire month, and most consumer services providers finally were permitted to reopen.
CPI inflation fell to 0.2% in August, from 1.0% in July, but exceeded our forecast and the consensus, both zero.
Advance Eurozone consumer sentiment fell disappointingly to -7.1 in July, from -5.6 in June, but it is consistent with a solid trend in retail sales growth. Household consumption in the zone has surged in the last four quarters, and a modest loss of momentum in Q3 and Q4 is a reasonable bet. But we see little risk of a sharp slowdown in the shor t run, and the trend in spending growth should stabilize at an annualised 1.5% this year.
Today's ZEW investor sentiment report in Germany will kick off a busy week for Eurozone economic survey data, which likely will be tainted by the U.K. referendum result. We think the headline ZEW expectations index fell to about five in July, from 19.2 in June, below the consensus forecast, 9.2. Our forecastis based on the experience from recent "unexpected" shocks to investors' sentiment.
In one line: The rate of increase of U.S. cases is slowing; daily new cases to dip in late July?
China's manufacturing PMI edged up in July. Services in China are finally starting to feel the pinch. Korean IP looks poised for a stronger increase in July, notwithstanding Japan's export curbs.
July's fifth straight undershoot to consensus in the core CPI was very different the previous four. Only one component--lodging away from home--prevented the first 0.2% month-to-month print since February.
July's consumer price figures, released on Wednesday, look set to show that CPI inflation rose to 2.5%, from 2.4% in June.
We expect July's consumer prices report, due on Wednesday, to reveal that CPI inflation dropped to 1.8% in July, from 2.0% in June.
Last week's news that the composite PMI collapsed to 47.7 in July--its lowest level since April 2009--from 52.4 in June is the first clear indication that the U.K. is heading for a recession.
• U.S. - Strong economic data could still kill a July Fed rate cut • EUROZONE - The German economy hit a brick wall in Q2 • U.K. - Markets are overestimating the probability of a BOE rate cut • ASIA - The Tankan underscores Japan's fragile economy • LATAM - Manufacturing in Brazil is showing tentative signs of stabilisation
Friday's July PMI reports presented investors with a rather confusing story. The composite PMI in the Eurozone fell trivially to 52.9 in July, from 53.1 in June, despite rising PMIs in Germany and France. The final data on 3 August will give the full story, but Markit noted that private sector growth outside the core slowed to its weakest pace since December 2014.
The CBI's Industrial Trends Survey, for July and Q3, supplied encouraging evidence yesterday that the manufacturing upswing still has momentum.
Non-core crosscurrents in Japanese CPI cancelled each other out in June. Ignore the headline... The details of Korea's 20-day export in July weren't that bad. The end is in sight for PPI deflation in Korea.
Yesterday's PMIs kicked off a busy week for Eurozone data on a downbeat note. The composite EZ PMI fell to a five-month low of 55.8 in July, from 56.3 in June; it was constrained by a 0.6 point dip in the manufacturing index to 56.8.
July's consumer price figures--published on August 15th, while we are on vacation--look set to show that June's drop in CPI inflation was just a blip. We think that CPI inflation ticked up to 2.7% in July, from 2.6% in June, on track to slightly exceed 3% toward the end of this year.
Brazil's inflation data continue to disappoint, but they are showing some signs of improvement, at the margin. The mid-month CPI, the IPCA-15 index, jumped to 9.3% year-over-year in July, up from 8.8% in June, soaring well above the upper bound of the inflation target and reaching the highest level since December 2003, as shown in our first chart.
It would be easy to characterize the Fed as quite split at the July meeting.
Soon after last week's vote to keep Bank Rate at 0.50%, the MPC's doves were quick to assert that monetary easing is still imminent. A speech by Andy Haldane, published on July 15, called for "... a package of mutually complementary monetary policy easing measures" that should be "delivered promptly and muscularly". Meanwhile, Gertjan Vlieghe, who was alone in voting for a rate cut in July, wrote in The Financial Times last week that he also favours "a package of additional measures" in August.
Chief U.K. Economist Samuel Tombs on U.K. New Car Registrations, July
CPI inflation is on track to fall back to 2.0% in the winter and below the MPC's target thereafter, despite rising to 2.5% in July, from 2.4% in June.
Chief U.K. Economist Samuel Tombs on U.K. Retail Sales in July
July's retail sales report signalled a good start to the third quarter but also implied that second quarter spending was stronger than previously thought. The upward revisions--totalling 0.5% for total sales and 0.4% for non-auto sales--were the biggest for some time, but we were not unduly surprised.
Yesterday's public finance figures showed that the public sector, excluding public sector banks, ran a surplus of £0.2B in July, a modest improvement on borrowing of £0.4B a year ago.
July's consumer price figures, due tomorrow, likely will bring early evidence that sterling's Brexit-driven depreciation already is pushing up inflation. We think that CPI inflation picked up to 0.6% in July from 0.5% in June, exceeding the consensus forecast for an unchanged reading. Experience of past depreciations suggests that July's figures likely won't be the last time the consensus is surprised by the speed of the rise in inflation.
GDP data for Q2 are due July 26; we expect the report to show a marginal dip in growth, to a seasonally adjusted 0.8% quarter-on-quarter, from 1.0% in Q1.
The Eurozone's current account surplus plunged to €18.0B in May from €24.0B, the biggest monthly fall since July 2013, but an upward revision to the April data makes the headline look worse than it is. These numbers are volatile, even after seasonal adjustments, and revisions have been larger than normal this year, so we need to smooth the data to get the true story.
Industrial sector activity in the euro area was broadly stable at the beginning of the third quarter, despite the headline dip in the July manufacturing PMI. The Eurozone index fell to 52.0 in July, from 52.8 in June, but if it holds at this level it will be unchanged in Q3 compared with the second quarter.
The manufacturing industry in France is recovering slowly, but surely. The headline INSEE index rose to 102 in July from 101 in June, close to a post-crisis high, pointing to steady improvement for manufacturers. Our first chart shows the main leading components of the survey, indicating a modest, but positive, trend in output. The increase in sentiment in July was driven by firming new orders--especially in the export sector--pushing the new orders-to-inventory ratio to an 18-month high.
Let's be clear: The July retail sales numbers do not mean the consumer is rolling over, and the PPI numbers do not mean that disinflation pressure is intensifying. We argued in the Monitor last Friday, ahead of the sales data, that the 4.2% surge in second quarter consumption--likely to be revised up slightly--could not last, and the relative sluggishness of the July core retail sales numbers is part of the necessary correction. Headline sales were depressed by falling gasoline prices, which subtracted 0.2%.
After June respite, China will hit Q3 headwinds...Japan probably dodged a Q2 GDP contraction...The BOK's surprise cut in July is a one-and-done...The case for additional RBI cuts narrows further
In one line: U.S. Case growth is slowing; daily new cases to start falling in mid/late July
The consensus that industrial production increased by just 0.2% month-to-month in July looks too cautious.
Today brings an array of economic data, including the jobless claims report, brought forward because July 4 falls on Thursday.
The pick-up in GDP in July is a re assuring sign that the economy is on course to grow at a solid rate in Q3, thereby substantially weakening the case for the MPC to cut Bank Rate before Britain's Brexit path is known.
The July trade deficit likely fell significantly further than the consensus forecast for a dip to $42.2B from $43.8B in June, despite the sharp drop in the ISM manufacturing export orders index. Our optimism is not just wishful thinking on our p art; our forecast is based on the BEA's new advance trade report. These data passed unnoticed in the markets and the media. The July report, released August 28, wasn't even listed on Bloomberg's U.S. calendar, which does manage to find space for such useless indicators as the Challenger job cut survey and Kansas City Fed manufacturing index. Baffling.
Tokyo inflation surprised us on Friday, rising to 0.9% in July, from 0.6% in June.
Volatility in commodities and emerging markets has intensified since the beginning of July, with the stock market drama in China taking centre stage. The bubble in Chinese equities inflated without much ado elsewhere, and can probably deflate in isolation too. But the accelerating economic slowdown in EM is becoming an issue for policy makers in the Eurozone.
Yesterday's German trade data showed that the external surplus recovered in August, following its poor start to Q3. The seasonally-adjusted trade surplus rose to €22.2B, from €19.4B in July.
Volatile commodity prices make this week's inflation data in Germany and the Eurozone a wild card. Crude oil in euro terms is down about 20% month-to-month in July, which will weigh on energy prices. In Germany, though, we think higher core inflation offset the hit from oil, pushing inflation slightly higher to 0.4% year-over-year in July from 0.3% in June.
The June employment report pretty much killed the idea that the Fed will cut rates by 50bp on July 31.
Brazilian industrial production data released last week were upbeat. Output rose 8.0% month-to-month in July, much better than the consensus forecast for a 5.9% increase.
Renewed weakness in food and energy prices weighed on Eurozone inflation in July, but core inflation probably rose slightly. German inflation fell to 0.2% year-over-year in July, down from 0.3% in June. The hit came entirely from falling energy and food inflation, though, with the jump in services inflation suggesting rising core inflation.
Our base case forecast for today's July core CPI is that the remarkable and unexpected run of weak numbers, shown in our first chart, is set to come to an end, with a reversion to the prior 0.2% trend.
We think that the higher inflation outlook means that the MPC will dash hopes of unconventional stimulus on August 4 and instead will opt only to cut Bank Rate to 0.25%, from 0.50% currently. The minutes of July's MPC meeting show, however, that the MPC is mulling all the options. As a result, it is worth reviewing how a QE programme might be designed and what impact it might have on bond yields.
It's tempting to conclude that the pick-up in year over-year growth in average weekly wages, excluding bonuses, to a three-year high of 3.1% in July, from 2.8% in June, signals that employees' bargaining power has strengthened and that a sustained wage recovery now is under way.
The July Eurozone PMI survey echoed the message from consumer sentiment earlier of a mild dip in momentum going into Q3. The composite PMI in the euro area fell to 53.7, from 54.2 in June due mainly to a fall in the services index. Companies' own expectations for future business fell in the core, but the survey was conducted soon after the Greek referendum. Markit claims this didn't depress the data, but we are on alert for revisions to the headline and expectations next week, or a rebound next month.
Korea's economic data for June largely were poor, and are likely to make more BoK board members anxious ,ahead of their meeting on July 18.
The sell-off in bonds and equities continued yesterday, but the reaction bears no resemblance, so far, to the sovereign debt crises in 2012 and 2010. The first evidence from sentiment data in July also points to surprising stability. The headline Sentix index rose to 18.5, up slightly from 17.1 in June, but the expectations index fell marginally, to 22.3 from 22.5.
After 29 straight weekly declines, the number of oil rigs in operation in the U.S. rose to 640 in the week ended July 2, from 628 the previous week, according to oil services firm Baker Hughes, Inc. If today's report for the week ended July 9 shows the rig count steady or up again, it will b e much easier to argue that the plunge in activity since the peak--1,601 rigs, in mid-September--is now over.
Chief U.S. Economist Ian Shepherdson on U.S. Consumer Sentiment
How Long Will The MPC Keep Its Foot On The Gas?
Why is the EZ current account surplus rising and net exports falling at the same time?
Chief Eurozone Economist Claus Vistesen on German Industrial Production
Mexican policymakers yesterday voted unanimously to cut the policy rate by 25bp to 4.25%, slowing the pace from 50bp at the previous five meetings.
The headline INSEE consumer confidence data in France have become unmoored from reality.
Britain's Covid-19 data have continued to improve, despite the partial reopening of the economy.
Mexican policymakers yesterday voted unanimously to cut the policy rate by 50bp to 5.00%, the lowest level since late 2016.
It looks as though business and consumer confidence in Korea has brushed off the economic threat of the second Covid-19 wave.
After two hefty month-to-month increases, durable goods orders ex-transportation now stand only 3.9% below their January pre-Covid peak.
We are sticking to our call for a weak first half in Japan, despite likely upgrades to Q1 GDP on Monday.
The extent to which the Covid wave in the South and West--plus a few states in other regions--will constrain the recovery is unknowable at this point.
Inflation pressures in Brazil are well under control, with the August mid-month reading falling more than expected, allowing the BCB to cut interest rates in the near term if needed.
Japan's economic recovery got back on track this month--just--according to yesterday's flash PMI numbers.
We triggered a bit of pushback on social media yesterday when we suggested that Larry Kudlow's familiarity with the alphabet is questionable.
While we were out, new U.S. Covid-19 cases and hospitalizations continued to fall steadily, and deaths have now peaked.
We are currently operating with a very simply rule-of- thumb for interpreting the PMIs.
We expect the Monetary Policy Board of the Bank of Korea to keep its benchmark base rate unchanged on Thursday, at 0.50%.
The Chancellor claims he can eliminate public borrowing without raising taxes. But the latest borrowing overshoot and the continual optimistic bias of the OBR's forecasts cast doubt on whether his approach will be sufficient to meet his self-imposed surplus target.
We sympathize greatly with investors' frustration over endless postponements and new "deadlines" in the negotiations between Greece and its creditors. Syriza delivered a proposal for reforms to the EU and the IMF on Monday morning, welcome d as a "positive step in the right direction" by Eurogroup president Dijsselbloem and Economic and Financial Affairs commissioner Moscovici.
We remain bullish on the near-term outlook for the housing market, but momentum in the mortgage applications numbers has faded a bit in recent weeks.
We don't take much reassurance from the upward revision to the business activity index of Markit's services PMI to 56.1, from the flash estimate, 55.1.
Our long-standing forecast for GDP to be about 5% below its pre-Covid level at the end of this year assumes that the government will not need to impose new nationwide restrictions on businesses.
The Brazilian Central Bank's policy board-- COPOM--met expectations on Wednesday, voting unanimously to cut the Selic rate by 25bp to 2.00%.
Chainstores are continuing to struggle, even as the reopening of the economy continues.
Japan's advance PMI numbers for August suggest that the economy dodged most of the bullets fired by the second wave of Covid-19.
New Covid-19 cases in Mexico have continued to fall steadily over this month, with deaths peaking two weeks ago, as shown in our first chart.
Manufacturing in Germany maintained momentum at the end of Q3.
Our working assumption now is that Congress will not pass a substantial Covid relief bill until next year, probably in February.
We're not rushing to revise our assessment of the scale of the economic damage wrought by the second lockdown, following the above-consensus reading of Markit's flash composite PMI in November.
Demand in German manufacturing rebounded powerfully at the end of the second quarter, accelerating from an initially modest rebound when lockdowns were lifted.
Both business surveys and unconventional activity indicators suggest that the recovery from the Covid-19 shock has sped up in June, after a shaky start in May.
The surge in U.S. median home prices has morphed from merely startling to truly remarkable.
We have been bullish about the housing market for some time now--since Google searches for "new homes" and mortgage demand began to pick up, in late April--but we might not have been bullish enough.
Our judgement that April was the low point for economic activity was challenged yesterday by the publication of results of the fifth wave of the Business Impact of COVID-19 Survey, conducted by the ONS between May 4 and 17.
The final Monitor before our summer break is characterized by great uncertainty.
Growth momentum in Mexico has improved marginally over the last few months after the soft patch during the first quarter, with business and households gaining confidence in the economic recovery. But the upswing has been rather modest, due to the volatility in global financial markets and the challenging external environment. The outlook for the global economy has deteriorated over recent months due to China's problems, and commodity prices remain under pressure. All these factors are now weighing on investors' confidence and hurting EM across asset classes.
On the face of it, yesterday's German consumption data were disappointingly weak.
Data released last week confirm that Argentina's economy remains a mess.
The wild gyrations in the core inflation numbers in recent months have made it hard to keep track of the underlying story.
Mexico's first estimate of third quarter GDP, released last week, confirmed that the economy is still struggling in the face of Covid-related domestic and external headwinds, despite recording the biggest-ever quarterly increase.
In order fully to reverse the fall in GDP in the first and second quarters, the third quarter needs to grow at a 45.7% annualized rate.
The economy will endure a sluggish recovery from Covid-19 this year, even if a second wave of the virus is avoided, partly because monetary stimulus is not filtering through powerfully to households.
Recent economic data in LatAm have alleviated concerns following weakness in the first half of the year, inflicted by Covid, and have even added some upside risks to our current-quarter growth calls for most economies.
May's money and credit data show that Covid-19 has not pushed many businesses immediately over the edge.
China's services sector continues to do most of the heavy lifting for the economy's recovery this quarter, judging by the survey data.
CPI data in Colombia released on Saturday confirmed that inflation is well under control, due to plunging domestic demand on the back of Covid, and despite the lagged effect of the COP depreciation earlier this year.
The Bank of Japan yesterday left its -0.10% policy balance rate and ten-year yield target of "around zero" unchanged, as widely expected.
Data continue to show that the housing market ran hot over the summer, as buyers eager to change their lifestyles in response to Covid-19 rushed through purchases.
Chinese exporters ostensibly enjoyed another strong month in August, with shipments rising by 9.5% year-over-year, marking the biggest gain in about 18 months.
Before the Covid pandemic struck, the mix-adjusted measure of wages and salaries in the employment costs index was trending up by about 3.0% year-over-year.
The continued gradual rise in new confirmed cases of Covid-19 lends more weight to the idea that the economy already has reopened as much as possible while containing the virus.
April's GDP report probably will be the worst any of us will see in our lifetime.
The improvement in Mexico's trade surplus since mid last year consolidated in Q2, albeit not for any welcome reason, as imports fell more sharply than exports on the back of pandemic-induced crash.
Data released on Friday in Mexico strengthened the case for further interest rate cuts in Q3. The monthly IGAE economic indicator for April, a proxy for GDP, plunged 19.9% year-over-year, a record drop since the series started in 1993, and down from -2.3% in March.
Yesterday's data provided further evidence of the rising costs of supporting the EZ economy through the Covid-19 shock.
In one line: Energy inflation is now rebounding; core rate only marginally weaker.
The remarkable surge in both new and existing home sales in recent months already has pushed inventory down and prices up.
Data released yesterday confirmed that investment in Mexico has been on the mend since June, but activity still remains depressed.
Friday's manufacturing data in Germany weren't pretty, but fortunately, the report is old news. Factory orders crashed by 25.8% month-to-month in April, extending the slide from a revised 15.4% fall in March.
Japan and Korea dealt with their second waves of Covid-19 in the third quarter in completely different ways.
Brazil's Q3 hard data have confirmed that the economy is recovering from the Corona shock, as economic activity resumes. But some indicators are losing momentum, and the labour market is still struggling, suggesting a long and bumpy road to full recovery.
We're assuming that Chair Powell will offer at least some comment on the current state of the economy and the outlook in his virtual Jackson Hole speech at 09:10 Eastern time this morning, though the main focus of the presentation will be the results of the Fed's Monetary Policy Framework Review.
We're expecting to learn today that shipments of core capital goods jumped at a 33% annualized rate in the third quarter, a record increase, and more than reversing the 19.7% second quarter plunge.
Our comments on the inflation outlook over the last few months have focused mostly on the risk of continued mean-reversion in some of the components crushed by Covid, and the surge in used car prices, both of which remain real threats.
Data released during our summer break have strengthened the case for expecting the economic recovery to decelerate sharply in the autumn, well before GDP has returned to pre-Covid levels.
First, apologies for a much more dense report than usual; there's a lot of ground to cover here. The most likely outcome of the November 3 election right now is a Democrat sweep.
Recent estimates of public borrowing have undershot the OBR's expectations, superficially suggesting the Chancellor has greater-than- expected capacity to borrow even more in the winter, if Covid-19 wreaks havoc.
Investors active in the government bond market will be awaiting today, at 07:30 BST, the publication by the Debt Management Office of its updated Financing Remit for the upcoming three months. The new Remit will show that gilt sales, net of redemptions, will be lower in Q3 than in Q2.
Resistance is futile.
Unconventional indicators of economic activity suggest that the recovery from the Covid-19 shock is gathering momentum.
The coronavirus outbreak has pushed inflation lower in the Andean economies as the shock drives them into the deepest recession on record.
The recovery in Korean exports--a key leading indicator for global trade--appears to have stalled in August.
Beyond the immediate wild swings in prices for food, clothing, hotel rooms and airline fares, the medium-term impact of the Covid outbreak on U.S. inflation will depend substantially on the impact on the pace of wage growth.
Judging solely by yesterday's PMI and retail sales data, the EZ economy has shaken off the virus and is going from strength to strength.
The Fed has given itself and markets clear guidance on the minimum requirements for a rate hike-- maximum employment, and inflation at 2% and on track "moderately" to exceed that pace "for some time"--but has offered no clues at all on the drivers of its other key policy tool, namely, the pace of asset purchases.
Economic activity remains under severe strain in the Andes.
Data released yesterday from Brazil support our view that the economic recovery continues, but progress is slowing, following the initial post-lockdown rebound.
Monday's economic data in Colombia provided further evidence of a gradual rebound in manufacturing output and retail sales as the economy slowly reopened.
Core machine orders in Japan surprised to the upside in August, when the country's second wave of Covid-19 peaked.
August's consumer prices report, due on Wednesday, is harder to forecast than usual, given high uncertainty regarding the impact of the cut in VAT for the hospitality sector, as well as the consequences of the ONS' decision to resume collecting data from physical stores.
Economic news last week in Mexico was net positive, as industrial production rose by a solid 6.9% month-to-month, following a 17.9% rebound in June, but the bigger picture is less encouraging.
Yesterday's data provided further evidence of the EZ economy's response to the Covid-19 shock, though we recommend that investors take the numbers with a pinch of salt. In Germany, the final CPI report for April showed that headline inflation slipped to 0.9% year-over-year, from 1.4% in March, trivially above the first estimate, 0.8%.
It's not clear if the first FOMC meeting since the release of the Fed's new Monetary Policy Strategy will bring any real shift in policy, though we think it unlikely that policymakers will seek immediately to add weight to their forward interest rate guidance.
The latest official data continue to understate the collapse in labour demand since Covid-19.
Korea's unemployment rate rose to 4.2% in October, from 3.9% in September, exactly in line with our out-of-consensus call for a further increase.
Yesterday's EZ industrial production report conformed to expectations.
Retailers made hay while the sun shone in August, but clouds now are looming overhead. The 0.8% month-to-month rise in retail sales volumes took them 3.3% above last year's average.
All major EZ governments are now in the process of lifting lockdowns, but investors should expect less a grand opening, more of a careful tip-toeing.
We take little comfort from the fact that the 2.0% quarter-on-quarter drop in Q1 GDP was a bit smaller than the consensus forecast, 2.5%, and the 3.0% fall pencilled-in by the MPC in its Monetary Policy Report.
China's economic recovery over the next twelve months remains secure, barring another major outbreak of Covid-19 domestically, or another synchronised lockdown globally.
On balance, yesterday's labour market statistics were better than we had expected.
Advance country data suggest that EZ inflation fell less than we expected last month, though we are still looking for a significant undershoot in the August core rate.
The surge in Covid-19 case and hospitalizations-- and, in due course, deaths--in some southern states since they began to reopen probably is not a sign of what is likely to happen as the populous states in the Northeast and Midwest reopen too.
The data calendar is so congested next week that it makes sense to preview Tuesday's labour market report early.
The pressure on Chinese industrial profits continued to ease in August, looking at the further moderation in PPI deflation.
This week's labour market data likely will show that the Coronavirus Job Retention Scheme did not prevent a rising tide of redundancies in response to Covid-19.
The MPC's pause for breath last week disappointed a majority of investors, who thought that it would at least tweak aspects of the support programmes put in place in March.
The balance of risks is finely poised ahead of today's ECB meeting.
Markets tend to look to Italy as the canary in the coalmine for signs of stress in the EZ economy and financial markets, but we recommend keeping a close eye on Spain too.
We expect June's GDP data, released on Wednesday, to show that the economic recovery gathered momentum in June, having got off to a faltering start in May.
Hideous though the official April payroll numbers were, the chances are that they'll be revised down.
Mexico's industrial recession deepened in April, though some leading indicators suggest that the worst is over as the economy gradually reopens. But downside risks have increased dramatically in recent weeks, as the pandemic seems to be gathering renewed strength.
The 0.4% August core CPI print was close to our expectations, and it likely will look much the same in September and October, driven by the same forces.
We expect May's consumer prices report, released on Wednesday, to show that the headline rate of CPI inflation fell to a four-year low of 0.4% in May, from 0.8% in April.
Friday's manufacturing and trade data added to the evidence of a solid rebound in the EZ economy at the end of Q2, as lockdowns were lifted.
Nobody has a monopoly on "the truth".
Yesterday's ZEW investor sentiment report in Germany provided an upside surprise.
Today brings an astonishing eight economic reports, so by the end of the wave of numbers we'll have a pretty good idea of how the economy performed in the first month of the third quarter.
We continue to take little comfort from the small decline in the Labour Force Survey measure of employment in the first half of this year.
The worst of the pandemic seems to be over in many countries in LatAm, allowing a gradual reopening of their economies.
The U.K. economy underperformed its peers to an extraordinary degree in Q2.
Colombian policymakers on Friday cut the reference rate by 50bp, for a third straight month, to 2.75%.
We look for a 950K increase in September private payrolls, more than the 700K or so implied by the Homebase daily employment data but consistent with ADP, assuming it has undershot the official numbers for a sixth straight month.
Judging by the PMIs, the euro area's industrial sector is now stretching its legs.
The past two days have seen a slew of data that should keep the hawks in the Bank of Korea at bay during the Board's meeting at the end of this month.
Korea's labour market ran out of luck in September, with the unemployment rate rebounding back up to 3.9%, after the surprise one-percentage point drop to 3.2% in August.
The record 0.4% drop in the core CPI in April would have looked even worse had it not been for favorable rounding; it was just 0.002% away from printing at -0.5%.
Evidence of weakening momentum in the economic recovery in Colombia was seen last week, alongside its regional peers and some DM economies. Low inflation, low interest rates, and the ongoing boost from a decent fiscal stimulus, all have supported the upturn since mid-Q2.
Higher core goods inflation is one of the main reasons why the headline rate of CPI inflation has exceeded economists' forecasts over the last few months.
Peru has been one of the most badly-hit LatAm countries, with Covid crushing economic activity.
The recovery in China's property market is petering out.
Friday's sole economic report revealed that the Eurozone's current account surplus fell slightly at the start of Q3, despite robust trade numbers.
A spell of outright CPI deflation in Japan is just around the corner. Headline inflation slipped to 0.2% in August, from 0.3% in the previous month, as the drag from the discounts backed by the government's "Go To Travel" subsidies more than outweighed the upward pressure from non-core goods.
Sterling has recovered virtually all of the ground it lost against the U.S. dollar in the spring, rising to $1.31 in recent days, from just $1.26 a month ago and a low of $1.15 in March.
The sound of silence in Chinese interest rates continued to reverberate this month.
If you were to return home to find your home ablaze, heaven forbid, and the fire department hard at work to douse the flames, would you be more concerned about your impending homelessness or the risk of water damage to your soft furnishings?
The euro's ascent in the past few months raises two main questions for investors.
The gradual reopening of the major EZ economies continues, a process which is now accompanied by the inevitable concern that the virus is regaining a foothold.
The pick-up in CPI inflation to 0.7% in October, from 0.5% in September, does not mark the start of a sustained uptrend.
Japan's economy shrank by an historic 7.8% quarter-on-quarter in Q2, much worse than the 0.6% slip in the first quarter.
We're happy that ADP beat our forecast yesterday-- an extra 250K jobs doesn't change the world, but it's better than the opposite--and we're lifting our forecast for tomorrow's payroll numbers in response.
China's economy got off to an uneasy start in the third quarter.
The Fed yesterday formally adopted outcome-based forward guidance, setting out the conditions under which rates will rise: "The Committee... expects it will be appropriate to maintain this target range [0-to- 0.25%] until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time."
Here's something we didn't expect to write: The control measure of retail sales in May was slightly higher than in February.
As we reach our deadline Monday afternoon, the Columbus Day long weekend has brought no progress on the fiscal front.
Today brings a raft of data which mostly will look quite positive but will do nothing to assuage our fears over a sharp slowdown in growth in the fourth quarter.
While we were away, the Monetary Policy Committee of the Reserve Bank of India voted unanimously to keep its benchmark repo rate unchanged, at 4.00%, defying expectations for a 25-basis point cut.
This week's EZ construction report--data released on Wednesday at 11.00 CET--will close the book on the second quarter in the euro area economy, providing further evidence that private sector activity rebounded as lockdowns were lifted.
Today's tentative reopening of schools in England marks the biggest step forward for the economy since the lockdown was imposed on March 23.
In recent client "meetings" we have been emphasizing the idea that a sustained recovery in the economy over the summer depends on the solidity of a three-legged stool.
Recent economic activity, labour market and inflation data all have surprised Brazilian policymakers' expectations, to the upside.
The near-real-time economic data have been hard to read recently, because of distortions caused by the Labor Day holiday.
Yesterday's detailed EZ inflation data for August kick ed-off a period in which the numbers will be scrutinised more closely than usual.
Yesterday's final CPI data for May confirmed that the EZ economy is within touching distance of headline deflation.
The drop in CPI inflation to 0.5% in May, from 0.8% in April, brought it another big step closer to the near-zero rate we foresee in the second half of this year.
Just how weak would the manufacturing sector have to be in order to persuade the Fed to hold fire this fall, assuming the labor market numbers continue to improve steadily? The question is germane in the wake of the startlingly terrible August Empire State manufacturing survey, which suggested that conditions for manufacturers in New York are deteriorating at the fastest rate since June 2009.
The further depreciation of sterling yesterday, to its lowest level against the dollar and euro since March 2017 and September 2017, respectively, signified deepening pessimism among investors about the chances of a no-deal Brexit.
Yesterday's BoJ statement, outlook and press conference raised our conviction on two key aspects of the policy outlook.
Yesterday's first estimate of Q2 GDP in Mexico confirmed that the economy has been under severe stress in recent months.
We're maintaining our estimate of Mexico's Q2 GDP growth, due today, namely a 0.2% year- over-year contraction, in line with a recent array of extremely poor data.
Brazil's external position continue to improve, but we are sticking to our view that further significant gains are unlikely in the second half, given the stronger BRL. For now, though, we still see some momentum, with the unadjusted trade surplus increasing to USD7.2B in June, up from USD4.0B a year earlier. Exports surged 24% year-over-year but imports rose only 3%.
Currency markets often make a mockery of consensus forecasts, and this year has been no exception. Monetary policy divergence between the U.S. and the Eurozone has widened this year; the spread between the Fed funds rate and the ECB's refi rate rose to a 10-year high after the Fed's last hike.
The slowdown in quarter-on-quarter growth in households' real spending to 0.4% in Q1--just half 2016's average rate--was driven entirely by a 0.1% fall in purchases of goods. Households' spending on services, by contrast, continued to grow briskly. Indeed, the 0.8% quarter-on-quarter rise in households' real spending on services exceeded 2016's average 0.5% rate.
The June ISM manufacturing index signalled clearly that the industrial recovery continues, with the headline number rising to its highest level since August 2014, propelled by rising orders and production. But the industrial economy is not booming and the upturn likely will lose a bit of momentum in the second half as the rebound in oil sector capex slows.
Mr Abe's Liberal Democratic Party took a drubbing at the polls in Tokyo's Assembly election over the weekend. The consequences for fiscal spending probably are minimal but the vote strengthens the case for increased emphasis on the structural reform "arrow" and less focus on monetary policy.
Payroll growth rebounded to 223K in May, after two sub-200K readings, and we're expecting today's June ADP report to signal that labor demand remains strong.
The pick-up in the Markit/CIPS services PMI to an eight-month high of 55.1 in June, from 54.0 in May, has provided another boost to expectations that the MPC will raise Bank Rate at its next meeting on August 2.
Yesterday's EZ consumers' spending data were mixed. Retail sales in the euro area fell by 0.3% month-to-month in May, extending the slide from a revised 0.1% dip in April.
Just how low would sterling go in the event of a no-deal Brexit? When Reuters last surveyed economists at the start of June, the consensus was that sterling would settle between $1.15 and $1.20 and fall to parity against the euro within one month after an acrimonious separation on October 31.
The economic recovery disappointed in Chile during most of the first half of the year, despite relatively healthy fundamentals, including low interest rates, low inflation and stable financial metrics.
Headline Eurozone PMI data have declined steadily since the beginning of the year, but the June numbers stopped the rot.
We have tweaked our estimate for today's initial estimate of second quarter GDP growth, in the wake of yesterday's advance data on June foreign trade and inventories.
Friday's Brazilian industrial production data were relatively positive. Output was unchanged month-to-month in May, and April's marginal gain was revised slightly higher. The flat monthly reading pushed year-over-year growth in output up marginally to -8.9% from -9.1%. May production rose month-to-month in two of the four major categories.
Consumption remains an important source of economic growth in LatAm.
The Tankan survey powered ahead in Q2, pulling away from Q1 and mostly beating consensus. This confirms our impression of the strength of the recovery ,just as Prime Minister Abe's Liberal Democratic Party is trounced at the polls in Tokyo. The drubbing is understandable as the main benefits of Abenomics have gone to the business sector, at the expense of the household sector.
British firms have adopted a cautious mindset since the Brexit vote and are saving a huge share of their earnings, even though high profit margins make a strong case for investing more. Firms likely will run down their cash stockpiles when they become more confident about the medium-term economic outlook, potentially boosting GDP growth powerfully.
Yesterday's PMI data confirmed that the EZ manufacturing sector is in rude health. The manufacturing PMI in the euro area rose to a cyclical high of 57.4 in June, from 57.0 in May, slightly above the first estimate. New orders and output growth are robust, pushing work backlogs higher and helping to sustain employment growth.
Data yesterday showed that Momentum in the EZ retail sector stumbled through middle of Q2.
The economy would have ground to a halt last year had households not reduced their saving rate sharply.
For some economists and political analysts the surprising result of the U.K.'s EU referendum symbolises one of the biggest threats to the structure of the post-war social-liberal market economy. To this school of thought, the vote proved that the discontent of a pressured and disenfranchised working/middle class is rising, threatening to topple economies and political institutions.
Investors have concluded from June's Markit/CIPS PMIs and Governor Carney's speech on Tuesday that the chance of the MPC cutting Bank Rate before the end of this year now is about 50%, rising to 55% by the time of Mr. Carney's final meeting at the end of January.
Europe's political leaders finally made a breakthrough this week in nominating candidates for the top jobs in the EU.
We were surprised to see Japan's services PMI edging up to 51.9 in June, from 51.7 in May. We attributed apparent service sector resilience in April and May to the abnormally long holiday this year.
BanRep accelerated the pace of easing last Friday, cutting Colombia's key interest rate by a bold 50 basis points, to 5.75%. Economic activity has been under severe pressure in recent months. The economy expanded by only 1.1% year-over-year in Q1, following an already weak 1.6% in Q4.
Economic data in Mexico continue to come in strong.
Don't write off the outlook for the construction sector purely on the basis of June's grim Markit/CIPS survey.
Data released over the last few weeks have confirmed that Colombia's economic performance in Q2 was grim, adding weight to our below-consensus GDP forecast.
German retail sales always have to be taken with a pinch of salt, given their monthly volatility and often substantial revisions, but the preliminary Q2 data don't look pretty.
Japan's Q2 Tankan survey wasn't all bad news, but the positives won't last long. The large manufacturers index dropped to 7 in Q2, after the decline to 12 in Q1.
Data released this week in Brazil underscored the effect of weaker external conditions. This adds to the poor domestic demand picture, which has been hit by high, albeit easing, political uncertainty.
Brazil's external accounts remain relatively solid, making it easier for the country to withstand any potential external or domestic threat.
The MPC won't seek to make waves on Thursday.
Taken at face value, the preliminary estimate of Q2 GDP suggests that the economic recovery weathered Brexit risk well. But growth received support from some unsustainable sources, and also probably was boosted by a calendar quirk. Meanwhile, with few firms or consumers expecting a vote for Brexit prior to the referendum, Q2's brisk growth tells us little about how well the economy will cope in the current climate of heightened uncertainty.
The headline in yesterday's EZ money supply report gave the illusion that monetary conditions are stable, but the details tell a different story. M3 growth accelerated marginally to 5.0% year-over-year in June, from 4.9%, but momentum in narrow money fell further. M1 growth slowed to 8.5% year-over-year, from 9.0% in May due to a fall in overnight deposits and currency in circulation.
China's Q2 real GDP growth officially slowed to 6.2% year-over-year, from 6.4% in Q1, which already matched the trough in the financial crisis.
Brazil's external accounts remain solid, despite the recent modest deterioration, making it easier for the country to withstand external and domestic risks.
Last week's EU summit was an exercise in political pragmatism rather than the bold step forward on reforms that investors had been hoping for.
The startling jump in supplier delivery times in the June ISM manufacturing survey, to a 14-year high, was due--according to the ISM press release--to disruptions to steel and aluminum supplies, transportation problems and "supplier labor issues".
• U.S. - Congressional face-off could delay the next relief bill until September • EUROZONE - The Eurozone economics team is on vacation • U.K. - Surging retail sales are a poor guide to overall consumption • ASIA - Korea's grim Q2 likely was the low, but the recovery is fragile • LATAM - The deep recession will suppress inflation in Mexico
We expect China's quarterly real GDP growth in the second quarter to edge down from Q1, but only because Q1 growth was unsustainable. The official data shows real GDP growth at 1.3% quarter-onquarter in Q1.
The third estimate of first quarter GDP growth, due today, will not be the final word on the subject. Indeed, there never will be a final word, because the numbers are revised indefinitely into the future.
Households' saving decisions will play a key role in determining whether the economy slips into recession over the next year. Indeed, all of the last three recessions coincided with sharp rises in the household saving rate, as our first chart shows. Will households save more in response to greater economic uncertainty?
Today's Eurozone data schedule is very hectic, but attention likely will focus on advance Q2 GDP data. France, Austria and Spain will report advance data separately ahead of the EZ aggregate estimate, which is released 11.00 CET. This report will include a confidential number from Germany.
Friday's euro area inflation reported capped a difficult week for EZ bondholders, although most of the damage was done beforehand by the advance German data.
Last week's national accounts confirmed that the economy lost momentum abruptly in Q1, with net trade and investment failing to offset weaker growth in households' spending.
Early results project that Andrés Manuel López Obrador--AMLO--will become the new Mexican president with 53.4% of the votes, against Ricardo Anaya's 22.6%, and José Antonio Meade's 15.7%. AMLO has declared victory and thanked his opponents, who recognized his triumph.
Last week's balance of payments showed that the U.K. has made significant progress in reducing its reliance on overseas finance.
Argentina's economic data released last week confirm that the economy is improving. Our core view, for now, is that the economy will continue to defy rising political uncertainty, both domestic and external.
The next nine weeks bring three jobs reports, which will determine whether the Fed hikes again in September, as we expect, and will also help shape market expectations for December and beyond.
Money supply data continue to send a bullish message on the euro area economy. Broad money growth was unchanged at 5.0% year-over-year in June, but M1 growth surged to 11.8%, from 11.2% in May. Combined with low inflation, real M1--the best leading indicator in the Eurozone--indicates a surge in GDP growth on par with previous record business cycle upturns in 1999, 2005-06 and 2009-10.
Chief UK Economist Samuel Tombs on the latest PMI data
Argentina's Recession Has Ended, Supporting Mr. Macri's Odds
Japan returned the ruling LDP coalition to power in an upper house election over the weekend.
The MPC will take a step forward on Thursday when it publishes an estimate of the medium term equilibrium interest rate--the rate which would anchor real GDP growth at its trend and keep inflation stable--in the Inflation Report.
The MPC looks set to raise Bank Rate to 0.75% on Thursday, from 0.50%, despite below-trend GDP growth in the first half of this year and rapidly falling core CPI inflation.
The alarming pace at which the Government is marching towards the Brexit cliff edge still shows no sign of instilling panic among households or firms.
The jobless rate fell back to 2.8% in June after the surprise rise to 3.1% in May. This drop takes us back to where we were in April before voluntary unemployment jumped in May.
The most important number, potentially, in today's wave of economic reports is the Employment Costs Index for second quarter.
Brazil's external accounts remain solid, despite the recent modest deterioration.
June's money and credit figures showed that the economy still doesn't have much zing, even though lending has picked up since Q1.
The pullback in CPI inflation in June and continued slow GDP growth in Q2 mean that the MPC almost certainly will keep Bank Rate at 0.25% on Thursday.
Global economic growth continues to fall short of expectations, and the call for aggressive fiscal stimulus is growing in many countries. This is partly a function of the realisation that monetary policy has been stretched to a breaking point. But it is also because of record low interest rates, which offer governments a golden and cheap opportunity to kickstart the economy. One of the main arguments for stronger fiscal stimulus is based on classic Keynesian macroeconomic theory.
This is the final report before your scribe disappears into the Scottish Highlands for a few weeks, and we are leaving you with a Eurozone economy in fine form. The calendar will be relatively light in our absence and will tell us what we already know; namely that the euro area economy maintained its strong momentum in Q2.
Data released yesterday in Mexico highlighted the volatility in international trade resulting from the pandemic.
Rumours of Greece stepping back from the brink and accepting its creditors' demands, have taunted markets this week. But the response from the EU, so far, is that talks will not resume before this weekend's referendum. Our base case is a "yes" to the question of whether Greece should accept the proposal from the EU and IMF.
The second quarter is over but it is too early to give a reliable forecast of the pace of Brazilian GDP growth. However, an array of leading and coincident indicators points to a steep contraction in Q2 and a bleak second half of the year. Unemployment is leaping higher, along with inflation and household debt, and the ongoing monetary and fiscal tightening will further hurt the real economy ahead.
The biggest single surprise in the second quarter GDP report was the unexpected $28B real-terms drop in inventories.
Equity prices for companies dependent on the U.K.'s residential property market tumbled yesterday as several companies reported poor results for the first half of 2017. Most companies blamed a decline in housing transactions for falling profits.
The preliminary estimate of Q2 GDP, published today, likely will show that growth was immaterially different from Q1's 0.4% quarter-on-quarter rate. But this should not be interpreted as a sign that the economy will be able to shrug off the impact of last month's vote to leave the E.U.
Why is the EZ current account surplus rising and net exports falling at the same time?
Net foreign trade made a positive contribution of 0.2 percentage points to GDP growth in the second quarter, matching the Q1 performance.
Korean real GDP growth slumped in Q2 to 0.6% quarter-on-quarter, from 1.1% in Q1, as both the main drivers--construction and exports--ran out of steam simultaneously. Construction investment grew by 1.0%, sharply slower than the 6.8% in Q1 and contributing just 0.2% to GDP growth in Q2, a turnaround from the 1.1 percentage point contribution in the first quarter.
Japan's June retail sales data add to the run of numbers suggesting a strong rebound in real GDP growth in Q2, after the 0.2% contraction in activity in Q1.
China's consensus-beating Q2 GDP signals that it is done easing. Chinese industry drove the Q2 rebound... now comes the hard part. The recovery in manufacturing capex in China continues to disappoint. The upward momentum in China's property market is unlikely to last. The BoK held, but Governor Lee's rhetoric suggests it should've cut.
Punchy output gains from China's manufacturers will soon give way. A mixed bag for China's non-manufacturing sectors at the start of Q3. Don't be fooled by the June slip in Japan's unemployment rate. Expect only a mild recovery in Japanese industrial production, for now. Korean production ended Q2 on a strong note.
Korea's current account balance returns to the black in May
An impressive release of pent-up demand in June... but now comes the hard part.
BoJ snubs the doves. Japan's unemployment rate downtick was minimal. The weak external backdrop dominates Japan's pre-tax front-loading industrial activity.
Encouraging momentum from China's private sector in the lead-up to Q3.
Rapidly falling wages in Japan rule out a V-shaped spending bounce. May confirms that Korea's current account deficit in April was just a one-off.
Valuation effects boost China's June FX reserves. Japan's currency account surplus unlikely to fall further. Japan's core machine orders should shake policymakers' conviction in Capex resilience.
Political Reform and change in the Eurozone...How much should investors care?
In one line: Treading water.
June moderation confirms May nadir in Chinese PPI deflation. Food price disinflation in China stalls in June. No signs of Japan's M2 growth spike tapering anytime soon. The surprise bounce in Japanese core machine orders was fairly narrow. Machine tool orders in Japan end Q2 on an encouraging note.
Japan's money growth reverts back after a brief uptick. Japan's wage headline improves, details deteriorate. Japan's machine tool orders should turn stomachs.
The rebound of Japan's current account surplus has further to run
Minimal front-loading ahead of Japan's October tax hike so far.
Surge in Chinese profits suggests industry no longer needs additional life support, Japan's all-industry gauge likely returned to the black in June
April revision means little to the overall damage done by Japan's state of emergency
The moderation of China's trade surplus has only just begun.
Japan's tertiary index still has further to fall
This will be as good as it gets for Japanese PPI
Expect Chinese PPI deflation in the second half. China's CPI inflation faces non-core cross currents; services inflation still slowing. Unemployment in Korea held steady in June; the BoK will be chuffed about improving job growth. PPI deflation in Japan will persist until the end of the year.
The BoJ holds steady... Expect more of the same for the rest of 2020.
BoJ does what it can to avoid more deeply negative yields. Korean inflation should peak this month
Korea's modest consumption rebound in Q2 barely cushioned the trade blow
Korea's modest consumption rebound in Q2 barely cushioned the trade blow
A slow start to Q3 for Japan's economy.
China's LPRs will be frozen in the remainder of 2020, A disappointing bounce in Japanese exports in June kept the trade balance in the red
Still no benchmark rate cuts, as the PBoC lowers the cost of its re-lending and re-discount loans. The lagged oil drag on Korean CPI is now receding. No signs, yet, of the BoJ taking its foot off the pedal on JGB purchases.
In one line: The Board held, but Governor Lee's comments suggest it should've cut.
In one line: Another hefty cut as the economy struggles, and the door is open to further stimulus.
In one line: The U.S. second wave has crested, but the picture is varied across states.
In one line: New U.S. cases are now falling; deaths will peak by mid-August
In one line: Flattening U.S. hospitalization curve validates the signal from the new case data
In one line: State-by-state picture still very mixed even as U.S. national cases flatten.
In one line: The second U.S. wave is cresting, but some states still seeing sharp increases in cases.
In one line: Hospitalizations peaking, but new cases are still rising in many states.
In one line: U.S. new cases falling slowly; deaths will rise until mid-August
In one line: Light at the End of the U.S. Tunnel; and Why are Swedish Cases Plunging?
In one line: Still understating the manufacturing sector's recovery.
In one line: The post-holiday jump doesn't change the big picture; less bad, at the margin.
In one line: U.S. data distorted by the holiday weekend, but some glimmers of hope.
In one line: U.S. hospitalizations are now falling, but progress is very uneven.
In one line: Better weekend U.S. data were no fluke; cases are peaking
In one line: The U.S. second wave curve is bending; hospitalizations falling.
Korean GDP data for Q2, released yesterday, were largely in line with our expectations, in that net exports cushioned softer domestic demand.
In one line: U.S. deaths are starting to rise, but new cases in Arizona have peaked.
In one line: The solid industrial upturn continues, but from a depressed level, and risks remain.
In one line: Capex has likely turned up, but still faces a tough ride ahead
In one line: Low interest rates for the foreseeable future.
In one line: U.S. Deaths Rising Steadily but Daily Hospitalizations have Stabilized
In one line: The peaking in new cases in Arizona should be followed elsewhere, soon.
In one line: Disappointing U.S. data yesterday, but the rate of spread of Covid has peaked.
In one line: Cases are now flat or falling in the first states to respond to the second wave; others to follow.
In one line: Have U.S. second-wave deaths peaked already?
In one line: U.S. cases are still rising, but aren't accelerating; hospitalizations steady.
Tankan suggests downside risks to our -6% y/y Q2 GDP forecast. Private manufacturers in China continue to play catch-up. Expect a bumpy recovery for Korean exports in Q3. Korean business sentiment is finally recovering.
Tankan reinforces our impression of a nasty Q2. China's manufacturing PMIs show why the authorities are eager for a trade deal. China's non-manufacturing sector holds steady for now. Korean exports disappointed in June, but this probably is as bad as it will get. Ignore Korea's volatile PMI readings... sentiment is improving gradually.
The shock of the weak May payroll report means that the June numbers this week will come under even greater scrutiny than usual. We are not optimistic that a substantial rebound is coming immediately. The headline number will be better than in May, because the 35K May drag from the Verizon strike will reverse.
Yesterday's economic data point to a sea of calm in the Eurozone economy. The composite PMI was unchanged at 53.1 in June, a slight upward revision from the initial estimate, 52.8. The index suggests real GDP growth was stable at 1.5%-to-1.6% year-overyear in Q2, though the quarter-on-quarter rate likely slowed markedly, following the jump in Q1.
Economic activity is slowing in Colombia. The ISE activity index--a monthly proxy for GDP--rose only 0.6% year-over-year in April, down from 2.3% in March, and we expect it to rise at this pace over the coming months. During the first quarter, the index rose at an average year-over-year rate of 3.0%.
First, a deep breath: June payrolls, with a margin of error of +/-107K, missed the consensus by 10K. Adding in the -60K revisions and the miss is still statistically insignificant. The story, therefore, is that there is no story. Even relative to our more bullish forecast, the miss was just 37K. Nothing bad happened in June. But we hav e to acknowledge that payroll growth has now undershot the pace implied by the NFIB's hiring intentions number--lagged by five months--in each of the past four months. In June, the survey pointed to a 320K jump in private employment, overshooting the actual print by nearly 100K.
The Greek polls released Sunday evening indicate a comfortable victory for "no," rejecting the latest EU proposal. This is not a good outcome for the market, and volatility will likely increase substantially today. The result--not confirmed as we go to press but very clearly indicated by the count so far--gives an air of legitimacy to Syriza's brinkmanship, but the creditors' reaction to a "no" vote, which they likely did not expect, is uncertain.
The Imacec data released on Wednesday provided further evidence that the Chilean economy grew at a decent pace in the second quarter, following a very sluggish first quarter.
All regulators face the challenge that when you regulate one part of the economy, problems appear somewhere else. For China, the game is particularly intense because liquidity created by previous debt binges continues to slosh around the financial system, with no outlet to the real economy.
Recent economic indicators in Mexico have been terrible. The worst of the recession seems to be over, but recent hard data have underscored the severity of the shock and made it clear that the recovery has a long way to go.
Markets often pay little attention to the monthly foreign trade numbers, but today's May data are important because they could easily make a big difference to expectations for second quarter GDP growth. The key question is the extent to which exports have recovered since the port dispute on the West Coast, which severely distorted trade flows in the early part of the year.
ADP's reported 158K increase in private payrolls was very close to our model-based estimate, so it doesn't change our 220K forecast for todays official payroll number, well above the 177K consensus.
The hard numbers in Eurozone manufacturing continue to lag the sharp rise in the main surveys. Data yesterday showed that German factory orders rose 1.0% month-to-month in May, only partially rebounding from a downwardly revised 2.2% plunge in April.
Markets likely will be particularly sensitive to May's industrial production and construction output figures, released today, as they will provide a guide to the strength of the preliminary estimate of Q2 GDP, released shortly before the MPC's key meeting on August 3.
Colombia started the second quarter strongly, with the ISE economic activity indicator--a monthly proxy for GDP--expanding a solid and surprising 3.6% year-over-year in April, up from 2.9% in March. The rate of growth is well above the 2.8% gain in Q1, con firming the country's resiliency in the face of lower oil prices. Still, growth has slowed sharply since the 4.4% increase in activity in 2014, as our first chart shows.
Brazil's industrial sector is still suffering, but the pain is easing as the economy gradually reopens. That said, full recovery is a long way off, and the pandemic is still far from over, adding downside risks to the recent upbeat picture.
China's service sector slowed again in June, with the Caixin PMI falling to 51.6 from 52.8 in May. The Q2 average of 52.0 was only minimally lower than the 52.6 in Q1.
Today's June ADP employment report likely will undershoot the 183K consensus, but we then expect the official payroll number tomorrow to surprise to the upside.
It will take months, and perhaps years, before markets have any clarity on the U.K.'s new relationship with the EU. In the U.K., the main parties remain shell-shocked. Both leading candidates for the Tory leadership, and, hence, the post of Prime Minister, have said that they would wait before triggering Article 50.
We have argued consistently for some time that the next year will bring a clear acceleration in U.S. wage growth, because the unemployment rate has fallen below the Nairu and a host of business survey indicators point to clear upward wage pressures. Nominal wage growth has been constrained, in our view, by the unexpected decline in core inflation from 2012 through early 2015, which boosted real wage growth and, hence, eased the pressure from employees for bigger nominal raises.
Argentina's overdue policy tightening, aimed at dealing with the country's severe inflation and fiscal problems, is underway. Printing of ARS at the central bank, the BCRA, to finance the budget, deficit has slowed and will be curbed further. Welfare spending, which accounts for nearly half of government spending, has been put on the chopping block.
It's probably happening a decade too late, but the EU is now moving in leaps and bounds to restructure the continent's weakest banks. Yesterday, the Monte dei Paschi saga reached an interim conclusion when the Commission agreed to allow the Italian government to take a 70% stake in the ailing lender.
Investors have stuck to their view that interest rates are just as likely to rise this year as not, despite the soft round of PMIs released this week.
The U.K.'s dysfunctional cabinet will meet at the Prime Minister's country retreat today to agree--finally--on a set of proposals for how Britain will trade outside of the E .U.'s customs union and single market.
The ADP private sector employment number was a bit weaker than we expected in May, and the undershoot relative to our forecast has pulled down our model's estimate for today's official number
Industrial activity in LatAm, at least in the largest economies, is taking different paths.
Demand in German manufacturing rebounded strongly midway through the second quarter.
German factory orders struggled in the second quarter. New orders were unchanged month-to-month in May, a poor headline following the revised 1.9% plunge in April. The year-over-year rate rose to -0.2%, from a revised -0.4% in April. The month-to-month rate was depressed by a big fall in domestic orders, which offset a rise in export orders.
We have argued frequently that the ADP employment report is not a reliable advance payroll indicator--see our Monitor of May 4, for example-- so for now we'll just note that it is generated by a regression model which includes a host of nonpayroll data and the official jobs numbers from the previous month. It is not based solely on reports from employers who use ADP for payroll processing, despite ADP's best efforts to insinuate that it is.
The Banxico minutes from the June 20 meeting, released last Thursday, offered more detail about the outlook for policy in the near term.
Mark Carney revealed last week that recent data had given him "greater confidence" that the weakness of Q1 GDP was almost entirely due to severe weather.
The recent softening in the ISM employment indexes failed to make itself felt in the June payroll numbers, which sailed on serenely even as tariff-induced chaos intensified at the industry and company level.
Friday's industrial production data in Germany added to the manufacturing optimism following the sharp rise in new orders--see here--reported earlier in the week.
China's official manufacturing PMI slipped in June, but the overall picture for Q2 is sound despite the uncertainty posed by rising trade tensions with the U.S.
Andean inflation remains under control, due to subpar growth, modest pressures on prices for nontradeables, and broadly stable currencies.
Small business sentiment and activity, as reported by the NFIB survey, has recovered exactly half the drop triggered by the rollover in stock prices in the fourth quarter. This matters, because most people work at small firms, which are responsible for the vast bulk of net job growth.
Bond market volatility and political turmoil in Greece have been the key drivers of an abysmal second quarter for Eurozone equities. Recent panic in Chinese markets has further increased the pressure, adding to the wall of worry for investors. A correction in stocks is not alarming, though, following the surge in Q1 from the lows in October. The total return-- year-to-date in euros--for the benchmark MSCI EU ex-UK index remains a respectable 11.4%.
In one line: Still no benchmark rate cuts on the horizon.
Yesterday's headline economic data in Germany were decent enough. Industrial output edged higher by 0.3% month-to-month in May, lifted primarily by rising production of capital and consumer goods.
The 7.8% month-on-month plunge in Japan's core machine orders in May re-emphasises the underlying weakness that we have been worrying about, after the 5.2% jump in April.
The sharp fall in markets' expectations for Bank Rate over the last month has partly reflected the perceived increase in the chance of a no-deal Brexit. Betting markets are pricing-in around a 30% chance of a no-deal departure before the end of this year, up from 10% shortly after the first Brexit deadline was missed.
Favourable inflation conditions in Mexico remain in place with June consumer prices increasing just 0.1% month-to-month, unadjusted, better than expected. A modest gain in core prices was largely offset by falling non-core prices, so year-over-year inflation edged down to 2.5% from 2.6% in May.
We have had a modest rethink of our June payroll forecast and have nudged up our number to 150K, still below the 180K consensus. Our forecast has changed because we have re-estimated some of our models, not because of the 172K increase in the ADP measure of private payrolls. ADP is a model-based estimate, not a reliable survey indicator.
The German manufacturing data remain terrible. Friday's factory orders report showed that new orders plunged 2.2% month-to-month in May, convincingly cancelling out the 1.1% cumulative increase in March and April.
Data released last week confirmed that Mexico's economy stumbled in the first half of the year, hurt by a temporary shocks in both the industrial and services sectors, and heightened political uncertainty, due to policy mistakes at the outset of AMLO's presidency.
One of the main reasons we expect the Reserve Bank of India to roll back at least one of this year's rate cuts before the end of the year is the likely further rise in food inflation.
Odds-on, the consensus forecast for May's GDP report, released on Wednesday, will miss the mark.
The run-up to the release of the official retail sales figures has become so congested with other indicators, following alterations by the ONS to its publication schedule, that we now have to preview the data earlier than usual.
• U.S. - The Q3 GDP data are under threat • EUROZONE - What does rising PMIs in the EZ mean? • U.K. - The BOE won't shrink its balance sheet anytime soon • ASIA - The Q2 GDP headline in Japan will be nasty • LATAM - A tepid rebound is now underway in Brazilian manufacturing
The rate of increase of Covid-19 new cases in the Andes is still rapid, but it seems to have peaked in recent days in most countries.
German GDP growth jumped in the first quarter, but monthly economic data suggest the economy all but stalled in Q2. Yesterday's industrial production data are a case in point. Output slid 1.3% month-tomonth in May, pushing the year-over-year rate down to -0.4% from a revised 0.8% gain in April. Adding insult to injury, the month-to-month number for April was revised down by 0.3 percentage points
In the wake of the May international trade numbers, our hopes that net foreign trade would contribute more than a full percentage point to second quarter GDP growth have taken something of a knock. We're now looking for a 0.7pp contribution.
Household sentiment in Mexico continues to improve, consistent with tailwinds from low inflation, accommodative monetary policy, and the improving labor market. The consumers confidence index rose to 94.7 in June from 92.0 in May, with four of the five components improving, especially big-ticket purchasing expectations and expectations for the economy.
German GDP growth likely accelerated in the second quarter, following a disappointing 0.3% quarter-on-quarter expansion in Q1. Growth in the manufacturing sector remains modest, and the trend in consumers' spending remains solid. Industrial production was unchanged in May, pushing year-over-year growth to 2.1% from a revised 1.1% in April.
We expect to see a 160K increase in June payrolls today, though uncertainty over the extent of the rebound after June's modest 75K increase means that all payroll forecasts should be viewed with even more skepticism than usual.
Friday's inflation data in Brazil confirmed that the ripples from the truckers' strike in May were still being felt at the start of the third quarter.
We expect Greece to do what it needs to do by Wednesday to secure its third bailout, and, judging by her speech in Cleveland last Friday, so does the Fed Chair. It's always risky to assume blithely that European politicians will do the right thing in the end, and they seem absolutely determined to humiliate Greece before writing the checks, but a completed deal is the most likely outcome.
Mexico's latest industrial production figures, released on Friday, showed that the recovery is stuttering. May output fell 0.9% year-over-year, down from the 1.2% gain in April. Total production was depressed by a 1.5% month-to-month drop in construction output, after two consecutive increases.
The final June inflation report from Germany yesterday confirmed that pressures are rising. Inflation rose to 0.3% year-over-year in June, up from 0.1% in May, mainly due to higher energy prices. Household energy prices--utilities--fell 4.9% year-over-year, up from a 5.7% decline in May, while deflation in petrol prices eased to -9.4%, up from -12.1% in May.
The draft Eurogroup document circulated Sunday evening indicates that European leaders seemingly are willing to offer Greece a new bailout. But it is conditional on passing required legislation reforming pensions and taxes on Wednesday. A "time-out" from the Eurozone, was discussed as a bizarre alternative, but this would be the equivalent of Grexit and default.
Friday's June inflation data in Brazil confirmed that the ripples from the worst of the Covid shock were still being felt at the end of the quarter.
Yesterday's economic data in Brazil suggest that retailers suffered in the second quarter, hit by the effect of the truckers' strike, but private consumption remains somewhat resilient.
Manufacturing in the Eurozone rebounded midway through the second quarter.
Core inflation probably will remain close to June's 2.3% rate for the next few months.
Evidence that Brazil's consumption recession has hit bottom seemed to vanish yesterday with the May retail sales report. Sales plunged 1.0% month-to-month, pushing the year-over-rate down to a terrible-looking -9.0%, from a revised -6.9% in April. Adding insult to injury, the month-to-month number for April was revised down by 0.2 percentage points.
In recent years we have argued consistently that investors and the commentariat overstate the importance of the dollar as a driver of U.S. inflation. Only about 15% of the core CPI is meaningfully affected by shifts in the value of the dollar, because the index is dominated by domestic non-tradable services.
In an interview with The Times yesterday, MPC member Ian McCafferty--who voted to raise interest rates in June--suggested he also might favour starting to run down the Bank's £435B s tock of gilt purchases soon.
We are a bit uneasy about today's data on economic activity. The NFIB index of activity in the small business sector is likely to undershoot consensus expectations, while retail sales are something of a black hole, at least at the core level, where we have no reliable month-to-month advance indicators. Our bullish view on the underlying state of the economy, and its likely second-half performance, hasn't changed, but perceptions count in the short-term and these reports will help set the market mood just ahead of Chair Yellen's Testimony tomorrow.
The EU and Greece finally managed to agree on the framework for a third bailout yesterday, conditional on ratification in the Greek and EU parliaments this week. Mr. Tsipras' capitulation to EU demands will increase tensions within Syriza, but we expect the opposition comfortably to offset any government dissenters in this week's vote.
China's headline trade numbers appear to paint a picture of an economy in rude health but scratch the surface and the story is quite different. The trade surplus rose to$42.8B in June from $40.8B in May, hitting consensus.
Bond investors in the Eurozone are licking their wounds following a 40 basis point backup in 10-year yields since the end of last month. Nothing goes up in a straight line, but we doubt that inflation data will provide much comfort for bond markets in the short term.
Brazil's economic situation has improved this year, and we still expect the recovery to continue over the second half, despite recent political volatility and soft Q2 data.
Today brings a huge wave of data, but most market attention will be on the June CPI, following the run of unexpectedly soft core readings over the past three months.
Official, real GDP growth was low in Q1, at 1.4% quarter-on-quarter, down from 1.6% in Q4.
A dearth of properties for sale has helped to ensure that house prices have continued to rise since the Brexit vote, despite weaker demand. But now, signs are emerging that demand and supply are coming closer to balance
Yesterday's accounts from the June ECB meeting broadly confirmed markets' expectations of further easing between now and the end of the year.
Brazil's political situation is steadily improving, with the latest events proving a step in the right direction.
June's RICS Residential Market Survey brings hope that the housing market already is over the worst.
The announcement, late Tuesday, that the administration plans to impose 10% tariffs on some $200B-worth of imports from China raises the prospect of a substantial hit to the CPI.
It would take nothing short of a catastrophe in coming months for the ECB to alter its plan to end QE via a three-month taper between September and December.
Hopes that GDP growth might be boosted soon by a pick-up in net exports continue to be undermined by the latest data.
The U.S. Commerce Department on Tuesday released a list of Chinese imports, with an annual value of $200B, on which it is threatening to impose a 10% tariff, after a two-month consultation period.
Monthly core CPI prints of 0.3% are unusual; June's was the first since January 2018, so it requires investigation.
China's Q2 official GDP growth, to be released on Monday, likely slowed to 6.2% year-over-year, from 6.4% in Q1.
Japan's producer price inflation levelled off in June and, for now, both commodity prices and currency moves in the first half imply that inflation should fall in the second half.
Yesterday's data showed that industrial production in the Eurozone accelerated at the end of spring. Output, ex-construction, jumped 1.3% month-to-month in May, much better than the downwardly-revised 0.3% rise in April; the rise pushed the year-over-year rate up to a six-year high of 4.0%.
Chair Yellen broke no new ground in her Testimony yesterday, repeating her long-standing view that the tightening labor market requires the Fed to continue normalizing policy at a gradual pace.
Yesterday's labour market data gave sterling a shot in the arm on t wo counts. First, the headline, three-month average, unemployment rate fell to just 4.5% in May, from 4.6% in April.
Eurozone capital markets have been split across the main asset classes this year. Equity investors have had a nightmare. The MSCI EU ex-UK index is down 10.6% year-to-date, a remarkably poor performance given additional QE from the ECB and stable GDP growth. Corporate bonds, on the other hand, are sizzling.
Brazil and Argentina, South America's biggest economies are going through a metamorphosis. Brazil is emerging from its recession and a modest recovery is on the horizon. Exports have rebounded, thanks to the lagged effect of the BRL's sharp sell-off last year, and confidence has improved significantly in recent months. The likelihood that interim President Michel Temer will stay on as head of Brazil's government has also helped to boost sentiment.
Judging from our inbox, economy bulls are pinning a great deal of hope on the idea that the collapse in the Help Wanted Online index is misleading, because the index is subject to distortions caused by shifts in pricing behavior in the online job advertising business. These distortions were analyzed in a recent Fed paper--click here to read on the Fed's website-- which makes a convincing case that at least some of the decline in the HWOL over the past half-year represents a change in recruiters' behavior rather than slowing in labor demand.
Data yesterday showed that industrial production in the Eurozone stumbled in May. Production fell 1.2% month-to-month, driven by weakness in all major economies and falling output in all sub-industries. The poor headline follows an upwardly revised 1.4% jump in April, which means that production rose marginally in the first two months of the second quarter.
The details of the substantial pay raises being offered to some 18K JP Morgan employees over the next three years are much less important than the signal sent by the company's response to the tightening labor market. In an economy with 144M people on payrolls, hefty raises for JP Morgan employees won't move the needle in the hourly earnings data.
Today's brings the June retail sales and industrial production reports, after which we'll update our second quarter GDP forecast.
The ECB will keep its main interest rates and the pace of QE purchases unchanged today. Mr. Draghi will also reiterate the commitment to continuing QE until September next year, at least. But the press conference likely will focus on Greece, and the central bank's role in the chaos. Greek financial institutions are on the verge of collapse, partly because the ECB has been forced to cap emergency liquidity assistance--ELA--at €89B, and raise collateral haircut requirements following the announcement of the referendum.
Fed Chair Yellen said nothing very new in the core of her Monetary Policy Testimony yesterday, repeating her view that rates likely will have to rise this year but policy will remain accommodative, and that the labor market is less tight than the headline unemployment rate suggests. The upturn in wage growth remains "tentative", in her view, making the next two payroll reports before the September FOMC meeting key to whether the Fed moves then.
Financial markets and economic data don't always go hand-in-hand, but it is rare to find the divergence presently on display in Italy.
We expect June's consumer prices report, due on Wednesday, to show that CPI inflation fell to 1.9%, from 2.0% in May.
Last week's packed political agenda in Europe confirmed that political relations between the U.S. and the major Eurozone economies remain difficult.
The ramifications of continued disappointing Asian growth, particularly in China, and its impact on global manufacturing, are especially hard-felt in LatAm.
Equity prices for U.K. retailers have performed woefully since the E.U. referendum. The FTSE All-Share Index for general retailers has underperformed the overall All-Share Index by nearly 30% since the Brexit vote.
China's money data, out last week, bode ill for real GDP growth in the second half. June M2 growth dipped to 9.4% year-over-year from 9.6% in May and 10.5% in April.
External conditions are becoming more demanding for LatAm economies, with global trade tensions intensifying in recent weeks.
Chinese real GDP growth reportedly edged down to 6.7% year-over-year in Q2, from 6.8% in Q1.
Former Chancellor George Osborne famously quipped after last year's general election that Theresa May was "a dead woman walking and the only question is how long she remains on death row".
After four straight sub-consensus core CPI readings, we think the odds now favor reversion to the prior trend, 0.2%, over the next few months.
Upbeat survey data and relatively resilient consumer spending numbers indicate that the Mexican economy is in good shape, despite a marginal slowdown in most of Q2.
Economists are divided evenly on whether Tuesday's consumer price figures will show that CPI inflation held steady at 2.9% or edged down to 2.8% in June.
Consumers' demand for cars slowed in the Eurozone at the end of the second quarter. New car registrations in the euro area rose 3.0% year-over-year in June, slowing dramatically from a 10.3% rise in May.
We expect June's consumer prices report, released on Wednesday, to show that CPI inflation increased to 2.7%, from 2.4% in May, above the consensus, 2.6%, and the Bank of England's forecast, 2.5%.
We can see no hard evidence, yet, that the expanding trade war with China and other U.S. trading partners is hitting business investment.
Downbeat sectoral data and weakening consumer spending numbers indicate that the Mexican economy remains in bad shape.
We are pushing back our forecast for the next rise in Bank Rate to May 2020, from the tail-end of this year.
Brazil's recession carried over into the middle of Q2, but with diminishing intensity in some economic sectors.
Manufacturers in the Eurozone stood tall mid-way through Q2, despite still-subdued leading indicators.
Treasury Secretary Mnuchin's five-line letter to House Speaker Pelosi on last Friday--copied to other Congressional leaders--which said that "there is a scenario in which we run out of cash in early September, before Congress reconvenes", introduces a new element of uncertainty to the debt ceiling story.
The Brazilian consumer will continue to suffer from high interest rates and a deteriorating labour market this year. But sentiment data imply that the fundamentals are stabilising, at least at the margin. The headline consumer sentiment gauge, published by the FGV, has improved significantly in the past five months, and we expect another modest increase later this month
The first wave of domestic third quarter data crashes ashore this morning.
• U.S. - The second Covid-19 wave is still biting, but the data are improving • EUROZONE - The stimulus money is still flowing in the EZ • U.K. - Hopes of a V-shaped rebound are evaporating • ASIA - China rebounded in Q2, but less so than the consensus expects • LATAM - Still-low inflation in Brazil; Mexico's manufacturing malaise persists
Retail sales data released yesterday for Brazil confirmed that weakness in private consumption remains a key challenge for the economy. Retail sales plunged 0.9% month-on-month in May, equivalent to a 4.5% fall year-over-year, the lowest rate since late 2003. On a quarterly basis, sales are headed for a 2% contraction in Q2, pointing to a -0.5% GDP contribution from consumer spending.
Industrial data released this week showed that the Mexican economy stumbled during the second quarter. Private consumption, however, continues to rise, albeit at a more modest pace than in recent months. The ANTAD same store sales survey rose 5.3% year-over-year in June, up from 2.8% in May, but this is misleading.
China's money and credit data released last Friday reaffirm our impression that the tightening has gone too far.
Last week's hard data in Colombia were upbeat, confirming that economic growth accelerated in the first half. Retail sales rose 5.9% year-over-year in May, overshooting consensus.
This weeks' IMF's staff report on the Italian economy has increased the urgency for a compromise between the EU and Italy over the country's suffering banks. The report highlighted that financial sector reform is "critical" to the economy, and that the treatment of the significant portion of retail investors in banks' debt structure should be dealt with "appropriately."
When the dust settles after today's wave of data, we expect to have learned that core retail sales continued to rise in June, core inflation nudged back up to its cycle high, and manufacturing output rebounded after an auto-led drop in May. None of these reports will be enough to push the Fed into early action, but they will add to the picture of a reasonably solid domestic economy ahead of the U.K. Brexit referendum.
Yesterday's industrial production report was grim reading, with volatility in Greece and the Netherlands, as well as revisions, throwing off our own, and the market's, forecasts. Output fell 0.4% month-to-month in May, well below the consensus and our expectation for a 0.2% rise, pushing the year-over-year rate higher to 1.6%, from a revised 0.9% in April.
Whichever way you choose to slice the numbers, retail sales growth has slowed this year. Ex-gasoline, ex-autos, core, whatever, sales growth in year-over-year terms is notably weaker now than at the end of last year. It is equally, true, however, that after-tax incomes have risen at a robust pace--up 3.8% in the year to May, exactly the same pace as in the year to May 2014--so consumers in aggregate have plenty of cash to spend. So, what's holding people back at the mall? Why aren't they spending more?
Chair Yellen has become quite good at not giving much away at her semi-annual Monetary Policy Testimony.
Mark Carney emphasised in his Mansion House speech last month that he wants wage growth to "begin to firm" from recent "anaemic" rates before voting to raise interest rates.
Data released yesterday showed that the labour market in Brazil looks relatively resilient to the collapse in economic activity.
• U.S. - Downside risks loom for growth in Q3 • EUROZONE - Solid M1 data points to a strengthening EZ recovery • U.K. - No major breakout in sight for Cable • ASIA - India is reopening, but risks remain high • LATAM - Mexico's economy is on the ropes; further rate cuts are coming
A mix of political and economic events have triggered outflows of capital from emerging markets this year. Tensions in Europe, due to the "Grexit" saga, together with China's slowdown and concerns about Fed lift-off have weighed on EM flows. In recent months, though, some of the pressure on EM currencies has eased as the markets have come to expect fewer U.S. rate hikes in the near term.
It's probably safe to assume that Q1's 0.5% quarter-on-quarter increase in GDP will be as good as it gets this year.
The outcome of the Trump-Xi meeting at the G20 summit was as good as we expected.
Japan's industrial production data for May carried more evidence that the economy is getting a lift--at least temporarily--from the front-loading of activity ahead of the scheduled sales tax increase in October.
Friday's inflation data in the Eurozone were a mixed bag.
The ECB conformed to our expectations yesterday. The central bank left its main interest rate unchanged, and reiterated its expectation that QE will be wound down via a three-month taper in Q4.
Eurozone inflation eased slightly to 0.2% year-over- year in June, down from 0.3% in May, according to the advance data but we continue to think that the trend has turned up. A 5.1% fall in energy prices, accelerating from a 4.8% in May, was partly to blame for the fall in June. But the key driver was the sharp drop in services inflation to 1.0% from 1.3% in May, likely due to volatility in package holiday prices.
Mexico's underlying inflation pressures and financial conditions are gradually stabilizing. Eventually, this will open the door for rate cuts in order to ease the stress on the domestic economy, particularly capex.
The gratifyingly strong 222K headline June payroll gain, if repeated through the second half of the year, will put unemployment below 4% by December.
The two major central banks of Asia have chosen hugely divergent policies. The BoJ has chosen to fix interest rates, while the PBoC appears set on preventing a meaningful depreciation of the currency.
Mark Carney's assertion that "...some monetary policy easing will likely be required over the summer" is a clear signal that an interest rate cut is in the pipeline. But easing likely will be modest, due to the much higher outlook for inflation following sterling's precipitous decline.
The manufacturing sector is much more exposed to external forces--the dollar, and global growth--than the rest of the economy. But much of the slowdown in the sector over the past year-and-a-half, we think, can be traced back to the impact of plunging oil prices on capital spending in the sector.
Mexico's central bank, Banxico, capitulated to the sharp MXN depreciation yesterday and increased interest rates by 50bp, for the second time this year, in a bid to support the currency. Raising rates to 4.25% was a brave step, as the economic recovery remains sluggish, thanks mostly to external headwinds. The hike demonstrates that policymakers are extremely worried about the decline in the MXN and its lagged effect on inflation.
The Eurozone escaped deflation last month, and we doubt it will return in this business cycle. Inflation rose to 0.1% year-over-year in June, up from -0.1% in May; it was lifted chiefly by the gradual recovery in oil and other global commodity prices. Energy prices fell 6.5% in June, up from a 8.4% fall in May, and we think the recovery will accelerate in coming months.
Recent economic weakness in Brazil, particularly in domestic demand, and the ongoing deterioration of confidence indicators, have strengthened the case for interest rate cuts.
The Southern Covid Wave Will Subside In August...But Real Damage Has Been Done To The Recovery
EZ GDP growth is slowing, gently, to 2%...with political uncertainty looming, as ever
Latam's recovery continues...but external threats have increased lately
Growth won't accelerate until next year...but the MPC is set to hike rates in August anyway
China shifts to easing but scope is limited...While the Boj is set to tweak its yield curve targets
The Fed plans to keep on hiking...falling unemployment is the key, not the softer CPI
The Eurozone economy is in fine form...but this is likely as good as it gets
Growth is too slow to warrant a rate hike...domestically-generated inflation remain weak
Fed hawks are in the ascendancy,..but they won't be fully in charge until next year
Eurozone GDP growth likely slowed in Q2...teeing up a deposit rate cut in September
The EZ Is Winning The Fight Against Covid-19 But The Economic Recovery Will Remain Slow And Uneven
Latam Is Recovering From The Covid Shock...But Reversing The Hit Will Be Long And Painful
The Recovery Has Gathered Momentum Since Early June...But Falling Employment And Capex Rule Out A V-Shape
China's Recovery Will Lose Steam In H2...Tokyo's Second Wave Is Unlike The First, Good...A Capex Correction In Korea Is Imminent...India Is Making Life Harder For Itself
No further easing needed, if a trade deal is done...but this is a dovish fed, on a hair-trigger
The economy is still under strain...but downside risks are gradually easing
Households' Spending Will Retain Momentum in H2...Another Brexit Extension Remains Likely in October
Last week's industrial production and construction output figures for May were surprisingly weak. They have compelled us to revise down our expectation for the preliminary estimate of Q2 GDP to 0.2% quarter-on-quarter, from 0.3% previously.
Friday's industrial production reports in the Eurozone were sizzling. In Germany, headline output rose 1.2% month-to-month in May--after a downwardly-revised 0.7% rise in April--which pushed the year-over-year rate up to a six-year high of 4.9%.
Recent economic indicators in Mexico have been relatively positive.
PPI inflation in Asia looks set to go from bad to worse, following June's poor numbers, which showed that the weakness in commodity prices is feeding through quicker than expected.
The economy looks to be in better shape following May's GDP report than widely feared.
Yesterday's manufacturing data in France were in stark contrast to last week's upbeat German numbers.
The upturn in the new monthly measure of GDP in May, released yesterday, was strong enough--just--to suggest that the MPC likely will raise Bank Rate at its next meeting on August 2.
China's PPI inflation rose again in June, to 4.7%, from 4.1% in May.
Core PPI inflation has risen relentlessly, though not rapidly, over the past two-and-a-half years.
France is solidifying its position as one of the Eurozone's best-performing economies.
At least some investors clearly were expecting Fed Chair Powell yesterday to offer a degree of resistance to the idea that a rate cut at the end o f this month is a done deal.
Markets are looking for the BCCh to remain on hold and the BCRP to ease on Thursday; we think they will be right. In Chile, the BCCh will hold rates because inflation pressures are absent and economic activity is stabilizing following temporary hits in Q1 and early Q2.
Japanese M2 growth increased trivially in June to 3.9% year-on-year from 3.8% in May, significantly higher than the 3.2% rate in August, before the BoJ began targeting the yield curve.
The debate about the ECB's policy trajectory is bifurcated at the moment. Markets are increasingly convinced that a rapidly strengthening economy will force the central bank to make a hawkish adjustment in its stance.
Markets rightly interpreted yesterday's above consensus GDP report as having little impact on the outlook for monetary policy.
The German trade data on Friday completed a poor week for economic reports in the Eurozone's largest economy. The seasonally adjusted trade surplus fell to €22.1B in May, from €24.1B in April, mainly due to a 1.8% month-to-month fall in exports. Imports, on the other hand, were little changed.
Whatever you might think about the state of the U.S. economy, it is not as volatile as implied by the past few months' payroll numbers. Assuming steady productivity growth in line with the recent trend, the payroll data suggest the economy swung from bust to boom in one month, with not even a pause for breath.
The latest IPCA inflation data in Brazil show the year-over-year rate fell to 8.8% in June from 9.3% in May. This is the slowest pace since May 2015, with inflation pulled lower by declines across all major components, except food. Indeed, food prices were the main driver of the modest 0.4% unadjusted monthto-month increase, rising by 0.7%, following a 0.8% jump in May. The year-over-year rate rose to 12.8% in June from 12.4%.
May's labour market figures, released on Wednesday, likely will have something for both the doves and the hawks on the MPC , who have been wrangling over whether to reverse last year's rate cut.
The German trade surplus increased slightly in May, following weakness in the beginning of spring. The seasonally adjusted surplus rose to €20.3B in May, from €19.7B in April; it was lifted by a 1.4% month-to-month jump in exports, which offset a 1.2% rise imports.
It has been mostly doom and gloom for euro area investors in equities and credit this year.
Inflation pressures are gradually easing in Mexico, opening the door for rate cuts as early as next month. The June CPI report, released yesterday, showed that prices rose 0.1% month-to-month unadjusted in June, in line with market expectations.
We'd be surprised to see any serious shift in the tone of Fed Chair Powell's semi-annual Monetary Policy Testimony today compared to the FOMC statement and press conference just three weeks ago.
Inflation in Mexico edged higher in the second half, but we expect both the headline and core rates to continue falling, allowing Banxico to keep interest rates on hold.
China's FX reserves were little changed in June, at $3,112B.
Business investment has held up better than most economists--ourselves included--expected after the Brexit vote.
For some time now, we have puzzled over the softness of small firms' capital spending intentions, as measured by the monthly NFIB survey.
We think Japanese monetary policy easing essentially is tapped out, both theoretically and by political constraints.
Our base case remains a 10bp cut in the deposit rate, to -0.5%, in September.
Another weekend, another summit, but the sense of urgency is acute this time. Greece, and the rest of the world, will likely have to prepare for Grexit if Mr. Tsipras' final proposal is rebuffed by the EU. We expect a deal, with Greece to remain in the Eurozone, but visibility is limited and uncertainty is high.
Political risks in Brazil recently have simmered alongside the modest cyclical recovery, but they are now increasing. President Michel Temer's future remains hard to predict as circumstances change by the day.
Before last November's election, movements in the headline NFIB index of activity and sentiment among small businesses could be predicted quite reliably from shifts in the key labor market components, which are released in advance of the main survey.
Brazil's central bank has ignored, so far, the severe economic downturn and has continued its aggressive monetary tightening in order to regain credibility and curb stubbornly high inflation. In contrast, Mexico's central bank is in an enviable position, with inflation below target and under control. Its monetary policy is mainly dependent on the Fed's rate normalization.
We don't know how Europe will look on Monday. If European officials are to be believed, Greece will either have agreed to bail-out terms to keep it inside the Eurozone, or it will be on its way out. "Deadlines" have come and gone for Greece, but this time really is different, because the banks are bust without further support from the ECB, and that will not be forthcoming without a bail-out deal.
The pound can't get a break. Sterling fell to just $1.24 yesterday, its lowest level against the dollar since March 2017, bar the momentary "flash crash" in January.
This week real data in Brazil supported the idea that the worst of the recession is likely over, but a V-shaped rebound is not in the cards.
Fed Chair Powell's semi-annual Monetary Policy Testimony today will likely re-affirm that policymakers still think "gradual" rate hikes are appropriate and that the risks to the economy remain "roughly balanced".
We will have a much better idea of the pace of domestic demand growth after today's wave of economic data, though the report which will likely generate the most attention in the markets--ADP employment--tells us nothing of value. The headline employment number in the report is generated by a regression which is heavily influenced by the previous month's official data.
As widely expected, the ECB held fire yesterday. The central bank left its main refi rate unchanged at zero, and also kept the pace of QE unchanged at €80B a month. The deposit and marginal lending facility rates were also left unchanged at -0.4% and 0.25% respectively. The formal end-date of QE is still Q1 2017, but the press release repeated the message that QE can continue "beyond [Q1 2017], if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim."
The public finances continue to heal rapidly, suggesting that the Chancellor should have scope to soften his fiscal plans substantially in the Autumn Budget.
Back on May 14, we argued--see here--that the stars were aligned to generate very strong second quarter GDP growth, perhaps even reaching 5%.
This is the final Monitor before we hit the beach for two weeks, so want to highlight some of the key data and event risks while we're out. First, we're expecting little more from the FOMC statement than an acknowledgment that the labor market data improved in June. After the May jobs report, the FOMC remarked that "...the pace of improvement in the labor market has slowed".
Brazil's central bank kept the SELIC rate on hold on Wednesday at 14.25% for the eight consecutive meeting. The decision, which was widely expected, was unanimous, but the post-meeting statement was more detailed and informative than the central bank's June communiqué. We think the shift was intentional; the central bank's new board, headed by Mr. Ilan Goldfajn, is eager to strengthen the institution's credibility and transparency.
Recent economic weakness in Brazil, particularly in the labor market, has strengthened our view that the central bank is close to the end of its painful, but necessary, tightening cycle. We expect the BCB to increase its policy rate by 50bp to 14.25% at next week's monetary policy meeting, and then leave the rate on hold for the foreseeable future.
The downshift in the rate of growth of retail sales, which has caused a degree of consternation among investors, likely has further to run. The Redbook chain store sales survey clearly warned at the turn of the year that a slowdown was coming, but forecasters didn't want hear the warning: Five of the seven non-auto retail sales numbers released this year have undershot consensus.
We have to pinch ourselves when looking at economic data in Spain at the moment. Real GDP rose a dizzying 0.9% quarter-on-quarter in Q1, driven by solid gains of 0.7% and 1.1% in consumer's spending and investment respectively. Retail sales and industrial production data indicate GDP growth remained strong in Q2, even if survey data lost some momentum towards the end of the quarter. We will be looking for signs of further moderation in Q3, but surging private deposit growth indicate the cyclical recovery will continue.
Japan's CPI inflation was unchanged in June, at 0.7%, despite strong upward pressure from energy inflation.
The Eurozone's current account surplus extended its decline in May, falling to a nine-month low of €22.4B, from €29.6B in April.
If the recovery in existing homes hadn't been interrupted by the taper tantrum, in the spring of 2013, sales by now would likely be running at an annualized rate in excess of 6M. The rising trend in sales from late 2010 through early 2013 was strong and stable, as our first chart shows, but the decline was steep after the Fed signalled it would soon slow the pace of QE, and it was made temporarily worse by the severe late fall and early winter weather.
Korean exports are often a useful gauge of Asian and global trade; the country sits near the beginning of the global supply chain. It also happens to publish early in the data cycle and provides a measure of exports in the first 20 days of the month.
After pricing-in the consequences of sterling's depreciation for inflation last year only slowly, markets are at risk of costly inertia again.
We're breaking protocol this week by delivering our preview for Thursday's ECB meeting in today's Monitor.
As we reach our deadline--4pm eastern time--media reports indicate that a debt ceiling agreement is close.
The MXN remains the best performer in LatAm year-to-date, despite some ugly periods of high volatility driven by external and domestic threats.
The spectre of a general election relentlessly will haunt the new Prime Minister--due to be announced as Tory party leader today before moving into Downing Street tomorrow--but our base case remains that a poll won't happen this year.
• U.S. - The surge in retail sales is not all that it seems, and it might not last • EUROZONE - The Eurozone economics team is on vacation • U.K. - Not all near-real-time economic indicators are created equal • ASIA - China's Q2 GDP bounce was good, but not that good • LATAM - What would a Biden victory mean for LatAm?
Economic activity is rebounding in LatAm, but the recovery will be slow and uneven.
On the face of it, June's retail sales figures suggest that households have splurged in Q2, re-energising GDP growth after its slowdown in Q1. Sales volumes rose by 0.6% month-to-month in June, completing a 1.5% quarter-on-quarter jump in Q2.
The risk of political change in Venezuela is coming to a boil, following President Maduro's plans for a new constituent assembly that has the power to rewrite the constitution and scrap the existing National Assembly.
Chair Yellen remains as committed as ever to the idea that the tightening labor market will eventually push up inflation, but the unexpectedly weak core CPI readings for the past four months have complicated the picture in the near-term.
The ECB pressed the repeat button yesterday. The central bank maintained its refinancing rate at 0.00%, and also kept the deposit and marginal lending facility rate at -0.4% and 0.25 respectively. The pace of QE was held at €60B per month, scheduled to run until the end of December, "or beyond, if necessary."
Governor Kuroda commented yesterday that he doesn't think Japan needs more easing at this stage. If he means that the BoJ does not have to change policy to provide more easing then we think he is right, on two and a half counts. First, Japan is likely to receive a boost under its current framework as external rate rises exceed expectations, driving down the yen.
Venezuela is on the brink o f economic and social collapse. Looting, food scarcity, power rationing, and other problems have become rampant. This week, Venezuela's government allowed citizens to flock across the Colombian border to shop for food and medicine, for the second time this month. Last year, Venezuela's President Maduro shut the border in a bid to crack down on smuggling of subsidized products.
The tone of Fed Chair Powell's opening comments at the press conference yesterday was much more dovish than the statement, which did little more than most analysts expected.
The coronavirus ordeal continues in LatAm as a whole.
If the only things that mattered for the housing markets were the obvious factors--the strength of the labor market, and low mortgage rates--the sector would be booming. Activity is picking up, with new and existing home sales up by 23% and 9% year-over-year respectively in the three months to May, but the level of transactions volumes remains hugely depressed. At the peak, new home sales were sustained at an annualized rate of about 1½M, but May sales stood at only 546K. Adjusting for population growth, the long-run data suggests sales ought to be running at close to 1M.
On the face of it, the latest public finance data suggest that the economy has lost momentum.
With Fed officials now in pre-FOMC meeting blackout mode, this week will not bring a repeat of Friday's confusion, when the New York Fed felt obligated to issue a clarification following president William's speech on monetary policy close to the zero bound.
Speculation that the ECB is considering a rethink of its inflation target has intensified in the past few weeks.
Chile's central bank kept rates unchanged last Thursday at 2.50% with a dovish bias, following an unexpected 50bp rate cut at the June meeting.
A very light week for U.S. data concludes today with four economic reports, which likely will be mixed, relative to the consensus forecasts. The recent run of clear upside surprises and robust-looking headline numbers is likely over, for the most part.
Political uncertainty has surged since the ECB last met, but the central bank likely will refrain from action today. We think the ECB will keep its refi and deposit rates unchanged at 0.05% and -0.4%, respectively, and leave the monthly pace of QE unchanged at €80B.
Household spending has been the sole source of growth in the economy so far this year, amid worsening investment and net trade. Today's official retail sales figures, however, look set to show that consumers suffered the Brexit blues in June.
The tailwinds that have propelled Eurozone equities higher since the middle of last year remain place, in principle. In the economy, political uncertainty in the euro area has turned into an opportunity for further integration and reforms, and cyclical momentum in has picked up. And closer to the ground, fundamentals also have improved.
Eurozone consumer confidence remained at its low for the year at the start of Q3.
Last month, the ECB set the scene for the majority of its key policy decisions over the next 12 months.
In our view, the chances of a no-deal Brexit on October 31 have not surged just because Boris Johnson has become Prime Minister and is gesticulating wildly at the Despatch Box.
We remain negative about the medium-term growth prospects of the Mexican economy.
House purchase mortgage approvals by the main high street banks continued to recover in June, rising to a nine-month high of 40.5K, from 39.5K in May. June approvals, however, merely matched their postreferendum average, and the chances of a more substantial recovery are slim.
We're braced for a hefty downside surprise in today's durable goods orders numbers, thanks to a technicality.
Yesterday's national business surveys provided an optimistic counterbalance to the underwhelming PMIs on Monday, although they all suggest that the euro area economy is in good form.
Today's preliminary estimate of GDP likely will show that the economy continued to struggle in response to high inflation, further fiscal austerity and Brexit uncertainty.
Markets were all over the place yesterday in response to the messages from the ECB.
We're nudging down our estimate of Q2 GDP growth, due today, by 0.3 percentage points to 1.8%, in the wake of yesterday's array of data.
The strengthening EZ economy increasingly looks like the tide that lifts all boats. The Greek economy is still a laggard, but recent news hints at a brightening outlook. Last week, S&P affirmed the country's debt rating, but revised the outlook to "positive" from "stable."
Data released this week confirmed that economic activity deteriorated sharply in Argentina in Q2.
The euro area's trade surplus slipped further mid- way through the second quarter; falling to a 15-month low of €16.9B in May, from a downwardly-revised €18.0B in April, and extending its descent from last year's peak of nearly €24.0B.
GDP rose by 0.3% quarter-on-quarter in Q2, according to the ONS' preliminary estimate, confirming that the economy has fundamentally slowed since the Brexit vote. The modest growth has reduced further the already-small risk that the MPC will raise interest rates at its next meeting on August 3.
In yesterday's Monitor, we outlined how the government's plans to allow more migrants to register in cities could help counterbalance the effects of aging and put a floor under medium-term property prices.
The German statistical office will supply a confidential estimate to Eurostat for this week's advance euro area Q2 GDP data. Our analysis suggests this number will be grim, and weigh on the aggregate EZ estimate. Our GDP model, which includes data for retail sales, industrial production and net exports, forecasts that real GDP in Germany contracted 0.1% quarter-on-quarter in the second quarter, after a 0.7% jump in Q1.
Mexican consumers started the third quarter strongly, supporting our relatively upbeat view for the economy in the near term. Private consumption represents about 70% of Mexico's GDP, one of the consumption shares in the EM world, so the strength of spending is hugely important.
Over the next 18 months we expect to see interest rates break out further on the upside. Initially, we expect developed market growth to be resilient to that.
The June durable goods, trade and inventory reports today, could make a material difference to forecasts for the first estimate of second quarter GDP growth, due tomorrow.
Data released yesterday in Brazil helped to lay the ground for interest rate cuts over the coming months.
The headline in yesterday's ECB Q2 bank lending survey seemed almost tailor-made for the central bank to deliver a dovish message to markets this week.
The sluggishness of existing home sales in recent months, as exemplified by yesterday's report of a small dip in June, is due entirely to a sharp drop in the number of cash buyers.
Our base case remains that the slowdown in quarter-on-quarter GDP growth to about zero in Q2 is just a blip, and that the economy will regain momentum in Q3 and sustain it well into 2020.
Sterling depreciated further last week as the Prime Minister's Brexit plans were tweaked by Brexiteers and given a lukewarm reception by the European Commission.
Of all the regional Fed and PMI business surveys, the Richmond Fed index appears to be the most sensitive to U.S. trade policy.
Economic activity in Mexico during the past few months has been resilient, as external and domestic threats, particularly domestic political risks, appear to have diminished.
Inflation in Mexico surprised to the upside in early Q3, but we still believe it will fall gradually in Q4.
This is the last Monitor before we head to the beach, so we want to offer a few thoughts on the upcoming data and the FOMC meeting while we're out. First, a warning about the second quarter GDP number. We think that the data released so far are consistent with growth at about 3%.
New home sales surprised to the upside in May, rising 6.7% to 689K, a six-month high.
Yesterday's first batch of Q3 survey data in the Eurozone suggest that economic growth eased further, albeit it slightly, at the start of the quarter.
The recent pick-up in mortgage approvals is another sign that households are unperturbed by the risk of a no-deal Brexit.
Inflation in Mexico surprised to the upside in early Q3, but we still believe it will gradually fall over the coming months.
The PBoC and Ministry of Finance have been locked in a relatively public debate recently over which body should shoulder the burden of stimulating the economy as growth slows and trade tensions take their toll.
After strong real GDP growth in Q1, China commentators called the peak, claiming that growth would slow for the rest of 2017.
The participation rate--the proportion of people either in or looking for work--has held steady over the last decade, despite the ageing of the population and the rise in student numbers.
Today's labour market data look set to show that the headline, three-month average, unemployment rate held steady at just 5% in May, unchanged from April's reading.
Broadly speaking, yesterday's headline EZ survey data recounted the same story they've told all year; namely that manufacturing is suffering amid resilience in services.
Trouble is brewing in the core inflation data, despite the benign-looking 0.17% increase in the June report, released Friday. If you annualize that rate indefinitely, core inflation will reach a steady state of 2.1%, so the Fed never needs to raise rates. Alas this only makes sense if you think that single monthly CPI numbers tell the whole truth, and that the fundamental forces acting on inflation are stable. Neither of these propositions is remotely true.
Growth in new EZ car registrations slowed last month, but the data continue to tell a story of strong consumer demand for new cars. New registrations in the euro area rose 6.9% y/y in June, down from a 16.9% jump in May, mainly due to slowing growth in France. New registrations in the euro area's second largest economy rose a mere 0.8% year-over-year, after a 22% surge in May.
With plenty of evidence emerging that consumer spending and business investment are set to suffer from a collapse in confidence, attention is turning to whether other sectors of the economy are ready to step up and support growth. But the fruits from reduced fiscal contraction and stronger net trade will be small and will take a long time to emerge.
Central banks in Chile and Peru kept their reference rates unchanged last week, as expected, as inflation pressures in both countries are starting to ease. But different economic outlooks are emerging. Chile's economy continues to disappoint, while Peru's is picking up. Indeed, Peru is the only country in the region with clear positive momentum.
The declines in headline housing starts and building permits in June don't matter; both were depressed by declines in the wildly volatile multi-family components.
The headline rate of CPI inflation held steady at the 2% target in June, in line with the consensus and the MPC's Inflation Report forecast.
Yesterday's economic data provided further evidence that GDP growth in the EZ economy slowed in Q2.
China is a collection of hugely disparate provinces and cities. Managing all these cities with one interest rate is always difficult but in this cycle it is proving to be nearly impossible.
The fall in CPI inflation to 2.6% in June, from 2.9% in May, greatly undershot expectations for an unchanged rate and it has made a vote by the MPC to keep interest rates at 0.25% in August a near certainty.
Inflation pressures in the Eurozone have been building in recent months, but we think the headline is close to a peak for the year.
We can't finalize our forecast for residential investment in the second quarter until we see the June home sales reports, due next week, but in the wake of yesterday's housing starts numbers we can be pretty sure that our estimate will be a bit below zero.
June's consumer price figures threw a last minute curve-ball at the MPC ahead of its key meeting on August 2.
China's official GDP data, published on Monday, showed year-over-year growth edging down to 6.7% in Q2, from 6.8% in Q1.
Following a challenging start to this year, Andean economic prospects are improving gradually, thanks to falling interest rates, lower inflation, relatively stable currencies and--in some cases--increased infrastructure spending.
Yesterday's ECB bank lending survey suggests that credit conditions remain favourable for the EZ economy. Credit standards eased slightly for business and mortgage lending and were unchanged for consumer credit.
The closer we look at the data, the more convinced we become that the rollover in CPI physicians' services prices, which has subtracted nearly 0.1% from core CPI inflation since January, is a response to sharply higher Medicare part B premiums, especially for new enrollees.
Chinese residential property prices appear to be staging a comeback, with new home prices rising 1.1% month-on-month in June, faster than the 0.8% increase in May.
The long-awaited decisive upturn in wage growth still hasn't emerged. Year-over-year growth in average weekly wages, excluding bonuses, held steady at 2.6% in May.
Labour costs are rising so quickly that the MPC cannot justify an "insurance" cut in Bank Rate to counteract the impending damage from Brexit uncertainty in the run-up to the October deadline.
May's activity data in the Andes underline the severe hit from the pandemic on economic activity.
Yesterday's ECB press conference confirmed our view that Mr. Draghi is the periphery's friend, not enemy. Crucially, the central bank agreed to increase emergency liquidity assistance--ELA--to Greek banks by €900M. This is consistent tent with the agreement by the Eurogroup to give Greece €7B bridge financing, and shows the ECB is ready to act on the back of only a temporary truce between Greece and the EU. The increase in ELA is modest, and we doubt a painful restructuring of the banking system can be avoided. But with Greek bond yields falling, the available pool of collateral will go up, allowing the central bank to provide further relief in coming weeks.
The outlook for growth in the EZ economy is currently both stable and relatively uncomplicated, at least based on the most widely-watched leading indicators.
We have revised up our second quarter consumption forecast to a startling 4.0% in the wake of yesterday's strong June retail sales numbers, which were accompanied by upward revisions to prior data.
May's activity data underline the gradual recovery in Colombia's economic growth, following signs of weakness at the start of the year.
We have been arguing for some time that the drag on growth from falling capital spending in the oil sector would fade to nothing in the third quarter, and would then likely be followed by a small increase in the fourth quarter. But we seem to have been too cautious. It now seems much more likely that oil capex will rebound strongly as soon as the third quarter, following the clear upturn in the rig count data produced by Baker Hughes, Inc.
Colombia is one of the fastest growing economies in LatAm but over the last few quarters the country has been adjusting to the collapse in oil prices, the depreciating currency and rising inflation. But the slowdown, especially on the domestic side of the economy, has been less dramatic than expected, so far. Our main scenario is that the adjustment process to challenging external conditions will continue over the coming quarters.
June's headline CPI, due this morning, will be boosted by the rebound in gasoline prices, but market focus will be on the core, in the wake of the startling, broad-based jump in the core PPI, reported Wednesday. Core PPI consumer goods prices jumped by 0.7% in June, with big incr eases in the pharmaceuticals, trucks and cigarette components, among others. The year-over-year rate of increase rose to 3.0%, up from 2.1% at the turn of the year and the biggest gain since August 2012. Then, the trend was downwards.
Momentum in the EZ auto sector rebounded at the end of the second quarter.
Data released over the weekend confirm that the Peruvian economy enjoyed a strong second quarter. The economic activity index rose 6.4% year-over-year in May, well above market expectations, and up from 3.2% in Q1.
Fed Chair Powell delivered no great surprises in his semi-annual Monetary Policy Testimony yesterday, but he did hint, at least, at the idea that interest rates might at some point have to rise more quickly than shown in the current dot plot: "... the FOMC believes that - for now - the best way forward is to keep gradually raising the federal funds rate [our italics]."
Markets usually ignore the monthly import price data, presumably because they are far removed, especially at the headline level, from the consumer price numbers the Fed targets.
No subject in the EZ economy is a source of more dispute than Germany's ballooning current account surplus. The Economist recently identified he German surplus as a problem for the world economy.
Chinese official headline data paint a picture of a strengthening economy in Q2. Our analysis shows a sharply contrasting picture. China's nominal GDP, real GDP and deflators are often internally inconsistent.
The slowdown in households' real incomes has taken a swift toll on the housing market this year. Measures of house prices from Nationwide, Halifax, LSL and Rightmove essentially have flatlined since the end of 2016, following four years of rapid growth, as our first chart shows.
June's retail sales figures provided a timely reminder that consumers aren't being haunted by the warnings of the damage that a no -deal Brexit would entail.
May's activity data underline the weakness of Colombia's economic growth. Domestic demand still is under pressure due to the lagged effect of the deterioration in the terms of trade and other temporary shocks in 2016, and the VAT increase in January this year.
Mexican president-elect Andrés Manuel López Obrador, known as AMLO, has set out the first points of his austerity plan, two weeks after his overwhelming victory at the polls.
Japan's trade surplus has whipsawed recently. Sharp changes are to be expected in January and February, due to the shifting timing of Chinese New Year.
The average FICO credit score for successful mortgage applicants has risen in each of the past four months.
EURUSD has been battered in recent months, falling just over 6% since the end of April, but almost all indicators we look at suggest that the it will weake further towards 1.10, in the second half of the year.
Surveys suggest that today's retail sales figures will show that sales volumes increased by around 1% month-to-month in June, significantly exceeding the consensus, 0.4%. But the pickup in June likely will be just a blip; the further intensification of the squeeze on real wages and a tightening of unsecured lending standards will keep retail sales on a flat path in the second half of 2017.
Stories of Chinese ghost cities are plentiful and alarming. The aggregate data present a startling picture. Between 2012 and 2015, China started around six billion square meters of residential floorspace but sold only around five billion.
We would like to be able to argue with conviction that the surge in June housing starts and building permits represents the beginning of a renewed strong upward trend, but we think that's unlikely.
The ECB is unlikely to make any changes to its policy stance today. We think the central bank will keep its refinancing and deposit rates at 0.00% and -0.4%, respectively, and maintain the pace of QE at €60 per month until the end of the year. We also don't expect any substantial change in the language on forward guidance and QE.
June's 0.5% month-to-month fall in retail sales volumes does little to change the picture of recent strength.
The Monetary Policy Board of the Bank of Korea voted unanimously last week to keep the benchmark base rate unchanged, at 0.50%.
Yesterday's EZ construction data confirmed that capex in the building sector plunged in the second quarter. Construction output fell 0.5% month-to-month in May, pushing the year-over-year rate up trivially to -0.8%, from a revised -1.0% in April. Our forecast for construction investment in Q2 is not pretty, even after including our assumption that production rebounded by 0.5% month-to-month in June.
Mexico's economic and financial outlook is deteriorating rapidly and hopes of a gradual recovery over the next three-to-six months are fading away after AMLO's missteps in recent months.
The cyclical recovery in Italy likely strengthened in the second quarter. Real GDP rose 0.3% quarter-on-quarter in Q1, and we think the e conomy repeated, or even slightly, beat this number in Q2. This would mark the strongest performance in four years, but it will take more than a business cycle upturn to solve the Italian economy's structural challenges. Government and non-financial corporate debt has risen to 220% of GDP since 2008, and non-performing loans--NPLs--have sky rocketed.
When FOMC members sit down to begin their two-day meeting on September 16, the August CPI numbers will have just been released. We expect the data will show core inflation at 2.0% or a bit higher, up from a low this year of just 1.6%. Shorter-term measures of inflation will, we think, be 2¼-to-½%. These numbers are not outlandish; they just require the monthly gains in the core CPI to match June's pace, which was in line with the average for the previous six months.
Brazil's April economic activity index--a monthly proxy for GDP--surprised to the downside, again. The IBC-BR index was unchanged month-to-month but contracted a dreadful 4.8% year-over-year, down from a revised 3.2% contraction in March. These results imply Q2 GDP of about -1.9% quarter-on-quarter, much worse than the 0.2% contraction in Q1. The release offers no details, but the report signals a continued steep, steady deterioration.
Just over four weeks after Mike Pence's spectacularly badly-timed Wall Street Journal Op-ed, entitled "There Isn't a Coronavirus Second Wave", the U.S. recorded 465K new cases in the week ended Saturday, easily the worst week of the pandemic to date.
In about 100 days, the LatAm economy and financial markets will face a defining moment in the face of uncertainty, namely, the outcome of the U.S. presidential election.
Inflation in the Eurozone eased at the start of Q3.
High frequency data are all the rage, given the speed and severity of the Covid-19 shock. GDP data are published with a lag of about six weeks, too long for investors to wait.
The sustained upturn in mortgage applications since last fall ought to have driven up the pace of new home construction quite sharply. But our first chart shows that single-family building permit issuance--we use permits rather than starts, as they are much less volatile--rose only 8.3% year-over-year in the three months to May, while applications for new mortgages to finance house purchase jumped by 18.8% over the same period.
Mexico's election results are not available as we go to press, but we're expecting a comfortable win for the left-wing populist candidate, AMLO.
Perhaps the single strongest U.S. economic data series in recent months has been construction spending, which has risen by more than 1%, month-to-month, in four of the past five months.
CPI inflation has been extremely stable this year, only breaking away from 0.3% in March due to the shift in the timing of Easter. June, however, should mark the beginning of a sustained upward trend in inflation, fuelled by rising prices for imports, raw materials and labour. Indeed, we think CPI inflation is on course to hit 3% in 2017, ensuring that the MPC provides additional stimulus only cautiously.
Markets are reacting to Colombia's disappointing activity figures, released Friday, by pulling forward expectations for the country's first rate cut to December. The data certainly looked weak--especially upon close examination--and we expect growth to slow further. But we think that inflation is still too high to expect rate cuts this year.
The spike in the May core CPI, and its likely echo in the core PCE, won't stop the Fed easing at the end of this month.
The Spanish economy remains the star performer among the majors in the Eurozone.
Inflation in the Eurozone increased slightly last month, and probably will rise a bit more in coming months.
In the wake of last week's national accounts release, markets judge that the probability of a Bank Rate hike at the August 2 MPC meeting has increased to about 65%, from 60% beforehand.
We anticipated that the G20 meeting at Osaka over last weekend would be a potentially important mark of thawing relations between China and the U.S., with the hotly awaited meeting between Messrs. Xi and Trump.
We keep hearing that the auto market is struggling, but that idea is not supported by the recent sales numbers.
The PMI survey points to a slow, but steady improvement, in Eurozone manufacturing. The gauge rose marginally to 52.5 in June, up from 52.2 in May. This pushed the quarterly average in Q2 to 52.2, up from 51.1 in Q1. The survey is also telling a story of broad-based manufacturing strength in the two major peripheral economies, despite declines in June.
The truce in trade relations between the U.S. and China, agreed at the G20, is good news for LatAm, at least for now.
Yesterday's economic data in the Eurozone were soft.
Most of the indicators we follow point to another very strong payroll report today; we look for a 260K gain, matching May's performance. The best single leading indicator, the NFIB small business hiring intentions number, points to a massive 320K leap in private payrolls, as our first chart shows.
May's money and credit data indicate, reassuringly, that the economy still is growing at a steady, albeit unspectacular, rate, despite the endless uncertainty created by Brexit.
China's economic recovery resumed in August, following an uneven start to the third quarter in July.
We aren't going to pretend for a minute that the manufacturing sector is anything other than weak, but the 0.5% drop in output in August--the worst month since January 2014--hugely overstates the extent of industry's struggles. All the decline was due to a 6.4% plunge in auto output, but a glance at the recent path of production in this sector makes it very clear that its short-term swings aren't to be taken seriously. Auto production fell by 4.5% in June, rocketed by 10.6% in July, and then dropped sharply in August.
The back-to-back 0.3% increases in the core PPI in June and July represent the biggest two-month gain since mid-2013, so we now have to be on the alert for the August report, which will be released September 11, a week before the FOMC meeting. A third straight outsized gain--the trend before June's jump was only about 0.05% per month, and the year-over-year rate is still only 0.6%--would suggest something real is stirring in the numbers, rather than just noise.
Today's labour market figures will provide the first "hard data" showing how the economy has fared since the referendum. The headline employment and unemployment numbers will refer to the three months ending June, but data for July will be published on the number of people claiming unemployment benefit and the level of job vacancies.
The Eurozone's trade surplus rebounded slightly over the summer, rising to €16.6B in August from €12.6B in July, helped mainly by a 2.0% month-to- month jump in exports.
Colombia's July activity numbers, released on Friday, portrayed still-strong retail sales and a reviving manufacturing sector, with both indicators stronger than expected.
Final data for Eurozone inflation yesterday revealed that inflation fell slightly to 0.1% year-over-year in August, from 0.2% in July, a tiny downward revision from the original estimate of 0.2%. Depressed energy prices will continue to constrain inflation in coming months, but base effects will reduce this drag, and core inflation is rising. Nominal GDP growth accelerated to 2.9% year-over-year in Q2, up from 2.4% in Q1, sending a convincing signal of higher core inflation.
Japan's tertiary index edged up 0.1% month-on-month in July, after the 0.1% decrease in June.
We expect August's consumer prices report, released on Wednesday, to reveal that CPI inflation dropped to 1.8% in August, from 2.1% in July, thereby undershooting the consensus, 1.9%.
The most important number released yesterday was hidden well behind the headline inflation, production and housing construction data. We have been waiting to see how quickly the upturn in the number of rigs in operation would translate into rising oil and gas well-drilling, and now we know: In July, well-drilling jumped by 4.7%
The stand-out news from August's labour market report was the pick-up in the headline three-month average rate of year-over-year growth in average weekly wages, excluding bonuses, to 3.1%--its highest rate since January 2009--from 2.9% in July.
The Mexican labor market has remained relatively healthy in recent months, despite many external and domestic headwinds. Formal employment has increased by 2.1% year-to-date and by 3½% in the year to July, according to the Mexican Social Security Institute.
China's July activity data pretty categorically wiped out any false hopes of a V-shaped recovery, after the June spike.
Industrial production data yesterday indicate manufacturers in the Eurozone enjoyed a decent start to Q3, thanks to strength in Germany, Italy and Spain, which offset weakness in France. Production ex-construction rose 0.6% month-to-month in July, boosted in part by a 3% jump in energy output. If production is unchanged in August and September, output will rise 0.3% quarter-on-quarter in Q3, but this estimate is uncertain, and we look for an increase of about 0.4%-to-0.5%.
Brazil's July economic activity index, released yesterday, showed that the economy started the second half of the year strongly. The IBC-Br index, a monthly proxy for GDP, rose 0.4% month-to-month, pushing the year-over-year rate up to 1.4%, from -0.4% in June.
Yesterday's industrial production report was poor, but the headline was better than we, and the market, feared. Output fell 0.5% month-to-month in August, but the July data were revised up 0.2%, pushing the year over-year rate--using the seasonally- and working day-adjusted index--higher to 1.9% from 1.4% in July. Bloomberg reported the year-over-year rate fell to 0.9% from 1.7% in July, but they used an index which is only working day-adjusted.
We expect August's consumer price figures, released on Wednesday, to show that CPI inflation declined to 2.4%, from 2.5% in July, matching the consensus and the Bank of England's forecast.
The unexpected rise in CPI inflation to 2.1% in July--well above the Bank of England's 1.8% forecast and the 1.9% consensus--from 2.0% in June undermines the case for expecting the MPC to cut Bank Rate, in the event that a no-deal Brexit is avoided.
Momentum in new EZ car sales improved slightly in the middle of Q3. New registrations in the euro area rose 6.8% year-over-year in August, accelerating marginally from a 5.3% increase in July.
We were right about the below-consensus inflation numbers for June, but wrong about the explanation. We thought the core would be constrained by a drop in used car prices, while apparel and medical costs would rebound after their July declines.
It has been clear for some months now that China's housing market is refusing to quit, and July's data showed the phoenix rising strongly from the ashes.
The account of BanRep's July meeting revealed a significant tug-of-war between the doves and hawks. The majority argued strongly that Colombia's central bank should hike the main interest rate again, by 25bp. Others judged that the benefits of further tightening did not outweigh the costs.
Chinese M1 growth has slowed sharply in the past year from the 25% rates prevailing in the first half of last year. Growth appeared to rebound in July to 15.3% year-over-year, from 15.0% in June. But the rebound looks erratic. Instead, growth has probably slowed slightly less sharply in 2017 than the official data suggest, but the downtrend continues.
The surge in July core retail sales was flattered by the impact of the Amazon Prime Event, which helped drive a 2.8% leap in sales at nonstore retailers.
July's retail sales figures--the first official data for Q3--provided a reassuring signal that consumers can be counted on to drive the economy as the Brexit deadline nears.
Brazil's retail sales plunged in August, falling 0.9% month-to-month--the seventh consecutive contraction -- and with a net revision of -0.6%. The broad retail index, which includes vehicles and construction materials, dropped 2.0% month-to-month, the biggest fall this year, due mainly to a 5.2% collapse in auto sales, reversing July's unexpected increase. In annual terms, headline sales fell by an eye-popping 6.9% in August, after the downwardly-revised 3.9% drop in July. In short, the sales data show that consumers are suffering. They will struggle for some time yet.
The pronounced weakness of activity surveys conducted since the referendum and the Governor's guidance in June, reinforced by the minutes of July's MPC meeting, indicate that a rate cut on Thursday is virtually guaranteed.
Chile's activity numbers at the beginning of Q3 were mediocre, suggesting that the economy remains sluggish. The industrial production index--comprising mining, manufacturing, and utility output--fell by 1.7% year-over-year in July, reversing a 1.6% expansion in June. A disappointing 4.5% year-over-year contraction in mining activity depressed the July headline index, following a 1.4% increase in June. The moderation in output growth was due to maintenance-related shutdowns at key processing plants, and disruptions from labor strikes, especially a three-week strike by contract workers at Codelco--the state-owned mining firm--which badly hit production.
Yesterday's surprising decline in the Eurozone unemployment rate adds further evidence to the story of a slowly healing economy. The rate of joblessness fell to 10.9% in July from 11.1% in June, the lowest since the beginning of 2012, mainly driven by a 0.5 percentage point fall in Italy, and improvement in Spain, where unemployment fell 0.2 pp to 22.2%.
Japanese CPI inflation jumped to 0.7% in August from 0.4% in July. The ris e in prices over the last year, however, was mainly driven by food and energy.
Chile's economic indicators for July were unreservedly weak, confirming that the economic recovery remains sluggish. The industrial production index--comprising mining, manufacturing, and utility output--fell by 5.2% year-over-year in August, after a 1.7% contraction in July. Mining production suffered a sharp 9.3% year-over-year contraction, due mainly to an 8.3% fall in copper production, as strikes and maintenance works badly hit the industry.
The Caixin manufacturing PMI rebounded to 51.1 in July from 50.4 in June, soundly beating the consensus for no change. The PMIs are seasonally adjusted but the data are much less volatile on our adjustment model. On our adjustment, the headline has averaged 50.9 so far this year, modestly higher than in the second half of last year.
Yesterday's final EZ PMIs imply that growth in manufacturing slowed marginally in August. The PMI fell to 51.7, from 52.0 in July, trivially below the initial estimate, 51.8. Output and new orders growth declined, pushing down the pace of new job growth. But we think the hard data for industrial production in Q3 as a whole will be decent.
On the face of it, the rebound in the manufacturing PMI, to 53.3 in August from 48.3 in July, directly challenges our view that the economy is set to slow sharply over the coming quarters. A close look at the survey, however, suggests that the manufacturing PMI exaggerates the extent of the sector's recovery in August.
Manufacturing in the Eurozone had a slow start to the third quarter. Industrial production rose only 0.1% month-to-month in July, though the year-over-year rate was pushed up to 3.2% from a revised 2.8% in June.
Construction in the Eurozone had a decent start in the third quarter. Output rose 0.5% month-to- month in July, pushing the year-over-year rate down to 1.9% from 2.8% in June.
The external surplus in the EZ economy slipped in July. The seasonally-adjusted current account surplus dropped to €21.0B, from a revised €29.5B in June, hit by an increase in the current transfers deficit, and a falling trade surplus. The recent increase in the transfers deficit partly is due to the migrant deal with Turkey, and we expect it to remain elevated.
The Chancellor must feel a sense of foreboding before his pre-Autumn Statement meetings with the Office for Budget Responsibility. Even minor revisions to the independent body's economic forecasts could shred into tatters his plans for a budget surplus by the end of the parliament, given the lack of wiggle room in the July Budget borrowing projections. The OBR won't present the Chancellor with disastrous news ahead of next Wednesday's Autumn Statement, but the already slim margin for error he has in meeting his surplus goal likely will be reduced.
Friday's final EZ CPI data for July confirm the advance report.
The Bank of Korea yesterday laid out its conditions for following July's rate cut with another.
Recent data have added to the evidence that the Colombian economy stumbled in July. Retail sales plunged 3.3% year-over-year, from an already poor and downwardly revised 0.9% decline in June. The underlying trend is negative, following two consecutive declines, and July's data were the weakest since September 2009.
Colombia's economy remained resilient in July, thanks to strong domestic demand and relatively good external conditions for the country's top exports.
China's residential property market surprised again in August, with prices popping by 1.5% month- on-month, faster than the 1.2% rise in July, and the biggest increase since the 2016 boomlet.
We'd be very surprised to see anything other than a 25bp rate cut from the Fed today, alongside a repeat of the key language from July, namely, that the Committee "... will act as appropriate to sustain the expansion".
It's easy to claim from yesterday's labour market data that the economy is weathering the uncertainty caused by the E.U. referendum. Employment rose by 172K, or 0.5%, between Q1 and Q2, and the claimant count fell by 7K month-to-month in July. These numbers, however, flatter to deceive.
Economic data in Brazil over the second quarter were relatively positive, and June reports released in recent weeks, coupled with leading indicators for July, are encouraging.
It would be a serious mistake to conclude from July's retail sales figures that consumers' spending will be immune to the fallout of the Brexit vote. Households have yet to endure the hiring freeze and pay squeeze indicated by surveys of employers, or the price surge signalled by sterling's sharp depreciation. The real test for consumers' spending lies ahead.
The upturn in the Eurozone construction sector likely paused in Q3. Yesterday's August report showed that output fell 0.2% month-to-month, pushing the year-over-year rate down to +1.6%, from a revised +2.8% in July.
Construction data in the Eurozone usually don't attract much attention, but today's July report will provide encouraging news, compared with recent poor manufacturing data. We think construction output leapt 2.1% month-to-month, pushing the year-over-year rate up to 2.3%, from 0.7% in June. This strong start to the third quarter was due mainly to a jump in non-residential building activity in France and Germany.
China's property market continued to slow in August, with prices rising by just 0.2% month-on- month seasonally adjusted, half the July pace.
The decline in CPI inflation to 1.7% in August, from 2.1% in July, has not materially boosted the chances of the MPC cutting interest rates within the next six months.
Today's labour market figures likely will cast doubt over the sustainability of strong growth in household spending. Growth in the three-month average level of employment likely weakened in August, from July's impressive 1.9% year-over-year rate.
We think the EZ construction industry stuttered in August, following a strong start to Q3. Advance data from Germany, France and Spain suggest that output fell 1.4% month-to-month, pushing the year-over- year rate down to 1.8%, from a revised 3.1% in July.
Japan's July adjusted trade surplus rebounded to ¥337.4B from ¥87.3B in June, far above consensus. On our seasonal adjustment, the rebound is slightly smaller but only because we saw less of a drop in June.
The first of this week's two July inflation reports, the PPI, will be released today. With energy prices dipping slightly between the June and July survey dates, the headline should undercut the 0.2% increase we expect for the core by a tenth or so.
Brazilian inflation hit its lowest rate in almost seven years in March, while Mexico's rate is the highest since July 2009. Yet we expect Mexico to tighten policy only modestly in the near term, while Brazil will ease rapidly.
Chinese PPI inflation was unchanged at 5.5% in July; it had been expected to rise modestly. Officially, inflation peaked at 7.8% in February, but we think this peak was artificially high, thanks to seasonal effects. The slowing in PPI inflation since the peak appears to suggest that monthly price gains have slowed sharply. We find little evidence to support this.
The Markit/CIPS PMIs for August, slated for release over the next three business days, will be closely watched. They have provided the most resounding indication, so far, that Britain is heading for a recession. In July, the composite PMI--comprised of the manufacturing and services indices--fell to 47.5, from 52.4 in June, its biggest month-to-month fall since records began in 1998.
Yesterday's aggregate economic data for the euro area showed that inflation rose slightly in August. The headline rate rose to a four-month high of 1.5% in August from 1.3% in July. The rate was lifted mainly by energy inflation, rising to 4.6% from 2.2% in July, but we think the rebound will be short-lived.
Yesterday's EZ CPI report points to a dovish backdrop for next week's ECB meeting. Advance data show that inflation was unchanged at 0.2% year-overyear in August, lower than the consensus, 0.3%. The headline was held back by a dip in the core rate to 0.8%, from 0.9% in July; this offset a lower deflationary drag from energy prices.
China's CPI inflation rose to 2.1% in July, from 1.9% in June.
While we were out, Brazil's Monetary Policy Committee--Copom-- increased the Selic rate by 50bp to 14.25% on July 29th. The short statement indicated that the decision was unanimous and without bias. But it also signaled that the Copom is ready to end the tightening cycle if the data and, especially, the BRL, permit.
We expected a modest correction in the number of job openings in July, following the surge over the previous few months, but instead yesterday's JOLTS report revealed that openings jumped by a mind-boggling 8.1% to a new record high. In the three months to July, the number of openings soared at a 35% annualized rate. As a result, the Beveridge Curve, which compares the number of openings to the unemployment rate, is now further than ever from normalizing after shifting out decisively in 2010.
Workers in the euro area remain scarred by the zone's repeated crises, but the strengthening cyclical recovery is slowly starting to spread to the labour market. The unemployment rate fell to a three-year low of 10.9% in July, and employment has edged higher after hitting a low in the middle of 2013. Germany's outperformance is a key story, with employment increasing uninterruptedly since 2009, and the unemployment rate declining to an all-time low of 6.4%. Among the other major economies, the unemployment rate in Spain and Italy remains higher than in France. But employment in Spain has outperformed in the cyclical recovery since 2013.
China's August foreign trade data were nasty, on the face of it, with exports falling 1.0% year-over- year, after the 3.3% increase in July.
Japan's August balance of payments data, released yesterday, offer the first overview of financial flows since the BoJ "tweaks" at the end of July.
German manufacturing snapped back at the end of summer. Industrial production jumped 2.6% month-to-month in August, pushing the year-over- year rate up to 4.7% from a revised 4.2% in July.
Collapsing oil prices continue to weigh on inflation pressures in Eurozone. Inflation was unchanged at a minimal 0.2% year-over-year in August, largely due to an accelerated fall in energy prices, which plunged 7.1%, down from a 5.6% drop in July. Base effects will offer support for year-over-year changes in energy prices starting in Q4, but our fir st chart show downside risks loom in the short run.
The momentum in Chinese manufacturing waned in August, with the official manufacturing PMI slipping marginally to 51.0, from 51.1 in July,
Yesterday's EZ producer price data showed that deflationary pressures in the manufacturing sector are fading. The headline PPI index fell 0.2% month- to-month in August, pushing the year-over-year up to -2.1%, from a revised -2.6% July.
This is the final report before your Eurozone correspondent dials down for the summer, and heads for the beach. Advance Q2 GDP data next week is the key release while we are away, with the latest Bloomberg consensus--published July 20th--looking for a 0.4% increase quarter-on-quarter. Everything we look at suggests the consensus is right on this one, with risks tilted to the upside due to strong net exports in Germany.
Eurozone manufacturing is showing signs of stabilisation. Final PMI data showed the headline gauge falling trivially to 52.4 in July from 52.5 in June, slightly above the initial estimate of 52.2. New orders slowed, though, with companies reporting weakness in export business amid firm domestic demand.
Inflation data in the Eurozone came in broadly as we expected. Weakness in food and energy prices dampened the headline, but core inflation rose. Inflation was unchanged at 0.2% year-over-year in July, with core inflation rising to 1.0% year-over-year, a 15-month high, up from 0.8% in June.
August's consumer price figures caught everyone by surprise. CPI inflation increased to 2.7%, from 2.4% in July, greatly exceeding the consensus and the MPC's forecast, 2.4%.
Yesterday's German factory orders report showed that manufacturing activity accelerated in August. New orders rose 1.0% month-to-month, after a 0.3% increase in July, pushing the year-over-year rate up to +2.1% from a revised -0.6%.
The Chancellor announced to great fanfare last July that a new National Living Wage-- NLW--would be introduced in April 2016 at 7.5% above the existing legal minimum for most workers. Companies can and will take a variety of actions to mitigate the impact on their costs.
The collapse in business activity and consumer confidence since the referendum has sealed the deal on policy easing from the MPC on Thursday. The Committee has cut Bank Rate by 50 basis points when the composite PMI has been near July's level in the past, as our first chart shows.
On the face of it, the timing of the drop in the E.C.'s measure of consumers' confidence, to its lowest level since July 2016 in April, is peculiar.
With the Mexican Elections on July 1st, our Chief Latam Economist Andres Abadia has received many questions about the possible outcomes and how this will affect the Mexican economy going forward.
We're inclined to place little weight on July's E.C. Economic Sentiment Survey, which showed that consumers' confidence has picked up to its highest level since October 2016; see our first chart.
China's official manufacturing PMI, published on Monday, implies the industrial complex has maintained momentum going into Q3. The official manufacturing PMI moderated slightly to 51.4 in July from 51.7 in June. The July reading was unchanged from the average in Q2 and only modestly down from the 51.6 in Q1.
Japan's labour cash earnings rose by 1.5% year-over- year in July, a strong result in the Japanese context, if it hadn't been preceded by the 3.6% leap in June.
Inflation pressures in Brazil are now well- contained, with the headline rate falling to a decade low in July. We think inflation is now close to bottoming out, but the current benign rate strengthens our base case forecast for a 100bp rate cut at the next policy meeting, in September.
The US employment data last week reduced further the likelihood of a June Fed rate increase. In turn, this changes the likely timing of the normalization process in some LatAm economies. Our Chief Economist, Ian Shepherdson, expects the Fed to start its normalization process in July or September; the strength of the employment data will prevent any postponement beyond the third quarter.
The manufacturing sector likely was the primary driver of Q3 GDP growth in the Eurozone. Data yesterday showed that industrial production rose 1.4% month-to-month in August, pushing the year-over-year rate up to 3.8%, from a revised 3.6% in July.
Friday's economic data added to the evidence that the German economy stumbled in July. The seasonally adjusted trade surplus slipped to €19.4B, from a revised €21.4B in June.
Industrial activity in Mexico had a very poor start to the third quarter. Output plunged 1.0% month-to- month in July, the biggest drop since May 2015, pushing the year-over-year rate down to -1.5%, from -0.2% in June.
Chinese PPI inflation surprised analysts with a sharp rebound to 6.3% in August, from 5.5% in July, above the consensus, 5.7%.
Yesterday EZ industrial production report confirmed the message from advance country data that manufacturing rebounded towards the end of summer. Output, ex-construction, jumped 1.6% month-to-month in August, and the July data were revised up by 0.4 percentage points.
Korea's jobs report for August was a stonker, with unemployment plunging to 3.1%, from 4.0% in July, marking the lowest rate in more than five years.
The robust July retail sales numbers, coupled with the substantial upward revisions to prior data, should finally put to bed the idea that consumers have chosen spontaneously to raise their saving rate, accelerating the pace of deleveraging seven years after the financial crash. People just don't behave like that unless interest rates are soaring and the economy is rolling over, and that's not happening.
Yesterday's final CPI report in Germany confirmed the initial estimate that inflation was unchanged at 0.4% year-over-year in August. Deflation in energy prices eased further, but the headline was pegged back by a small fall in the core rate to 1.2% year-over- year, from 1.3% in July.
China's M2 growth surprised on the upside in July, rising to 8.5% year-over-year, from 8.0% in June.
China's M2 growth slowed to 8.2% year-over-year in August, from 8.5% in July
August's consumer price figures, released today, likely will show that households' spending power is being increasingly eroded by rising inflation. We think CPI inflation picked up to 0.8%, from 0.6% in July, exceeding the consensus, 0.7%, for the third consecutive month.
China's money and credit numbers were once again unspectacular in August. M2 growth edged up to 8.2% year-over-year, from 8.1% in July.
French industrial production data offered a bit of relief last week following a string of woeful German data, and news of monthly falls in Italian and Spanish manufacturing output. Industrial production jumped 1.6% month-to-month in August, but the headline was flattered by a 0.3% downward revision of the July data. The monthly jump pushed the year-over-year rate higher to 1.6%, from a revised 0.9% fall in July. All sectors performed strongly in August, but the key story was a hefty increase in transport equipment manufacturing, due to a 11.9% surge in vehicle production.
Germany's nominal external surplus rebounded smartly over the summer, but real net trade looks set to be a drag on Q3 GDP growth, again. The seasonally adjusted trade surplus increased to €21.6B in August from a revised €19.3B in July.
China's PPI deflation deepened in August, with prices dropping 0.8% year-over-year, after a 0.3% decline in July.
Japan's official seasonally adjusted current account surplus rose to ¥2.27T in August from ¥2.03T in July. But we don't trust the seasonals, and our adjustment model shows the surplus fell slightly, to ¥1.91T in August. A further small decline likely is coming in Q4.
Recent retail surveys have indicated that consumers are not suffering yet from Brexit blues. The BRC reported that year-over-year growth in total sales values picked up to 1.9% in July, from 0.2% in June. After adjusting for falling prices, this measure suggests that year-over-year growth in official retail sales volumes held steady at about 4% last month.
Japanese PPI inflation rose sharply to 2.6% in July from 2.2% in June, well above the consensus for a modest rise.
A cursory glance at July's labour market report gives no cause for alarm. The headline, three-month average, unemployment rate returned to 3.8% in July, after edging up to 3.9% in June.
The seasonally adjusted trade surplus in Germany slipped to €19.6B in July, from €21.2B in June, its lowest since April, and we are confident that it has peaked for this cycle.
Japan is the only major advanced economy to have recently experienced an exchange rate depreciation as large as Britain's. Between July 2012 and May 2013, the yen f ell by 24%, matching sterling's depreciation since its peak in August 2015.
Brazil's benchmark inflation index, the IPCA, rose 0.5% unadjusted month-to-month in July, pushing the year-over-year rate down marginally to 8.7%, from 8.8% in June. Overall inflation pressures in Brazil are easing, especially in regulated prices, which have been the main driver of the disinflation trend this year. But market-set prices are still causing problems.
• U.S. - Robust July payrolls, but the data will be worse in August and September • EUROZONE - What can investor sentiment tell us about the economy? • U.K. - The data will force the MPC to pivot towards more QE in Q4 • ASIA - The Asian economics team is on vacation • LATAM - Brazilian rates are on hold, for a long time
Chinese exports grew by just 5.5% in dollar terms year-over-year in August, down from 7.2% in July. Export growth continues to trend down, with a rise of just 0.2% in RMB terms in the three months to August compared to the previous three months, significantly slower than the 4.8% jump at the p eak in January.
Today's figures likely will bring the first real signs that the Brexit vote has had an adverse impact on the labour market. The employment balances of the key private-sector surveys weakened sharply in July, and recovered only partially in August. In addition, the three-month average level of job vacancies fell by 7K between April and July.
Sterling recovered to $1.23 yesterday, its highest level since late July, in response to the sharp decline in the risk of a no -deal Brexit at the end of October, triggered by MPs' actions.
Today's ECB meeting will follow the same script as in July. No-one expects the central bank to make any formal changes to its policy settings. The ECB will keep its main refinancing and deposit rates at zero and -0.4%, respectively.
The external environment was relatively benign for China in July. The euro and yen appreciated as markets began to question how long policy can remain on their current emergency settings.
Japanese labour cash earnings data threw analysts another curveball in July, falling 0.3% year-over-year. At the same time, June earnings are now said to have risen by 0.4%, compared with a fall of 0.4% in the initial print.
The disappointing German factory orders ended the run of strong economic data last week. New orders fell 1.4% month-to-month in July, pushing the year-over-year rate down to a 0.6% fall from a 7.0% increase in June. This is a poor headline, but it partly reflects mean-reversion from last month's revised 1.8% jump. We expect a rebound next month, and the details also offer a useful reminder that these data are extremely volatile on a month-to-month basis.
Data on Friday showed that manufacturing in Germany improved further at the start of Q3. Factory orders increased by 2.8% month-to-month in July, lifting the year-over-year rate to -7.3% from a revised -10.6% in June.
The NFIB survey of small businesses today will show that July hiring intentions jumped by four points to +19, the highest level since November 2006. The NFIB survey has been running since 1973, and the hiring intentions index has never been sustained above 20.
The release yesterday of the weekly Redbook chainstore sales report for the week ended Saturday August 4 means that we now have a complete picture of July sales.
Japan's average monthly labour earnings growth tumbled to 0.9% year-over-year in August, from 1.6% in July. This is not a disaster.
Yesterday's German manufacturing data were a damp squib. Industrial production, including construction, rose by 1.2% month-to-month in July, lifting the year- over-year rate by 1.4pp, to -10.0%, undershooting the consensus and our own expectation of a rise of 5%.
Yesterdays' industrial production report capped a poor week for German manufacturing. Output fell 1.2% month-to-month in August, well below the consensus, +0.2%, though note that a 0.5% upward revision to the July data made the August headline look worse. Similar to the factory orders report earlier this week--see our October 6th Monitor--base effects also mean that production accelerated to 2.5% year-over-year, from a revised 0.8% gain in July.
We were happy to see the 255K gain in July payrolls, but we remain nervous about the sustainability of such strong numbers. The jump in employment was very large relative to some of the key survey-based indicators of the pace of hiring, even after allowing for the 29K favorable swing in the birth/ death model, compared to a year ago, and the 27K jump in state and local government education jobs, likely due to seasonal adjustment problems
While we were out, Brazil's economic and political position continued to improve. The recession eased in the second quarter and into July. Industrial production, for example, increased in June for the fourth consecutive month, rising by 1.1% month-to-month.
Yesterday's factory orders report in German was grim reading. New orders fell 1.8% month-to-month in August, following a downwardly revised 2.2% plunge in July. Weakness in export demand and mean reversion in domestic orders were the key culprits. Domestic orders fell 2.6% month-to-month; nothing to worry about after a near-4% jump in July.
It would be a mistake to conclude from July's car registrations data that the market finally has turned a corner.
The slump in the Markit/CIPS services PMI in November to its lowest level since July 2016 provides the clearest indication yet that uncertainty about Brexit has driven the economy virtually to a stand-still.
Yesterday's news that the business activity index of the Markit/CIPS services survey fell again in January, to just 50.1--its lowest level since July 2016--has created a downbeat backdrop to the MPC meeting; the minutes and Q1 Inflation Report will be published on Thursday.
China's PMIs point to softening activity in Q3. The Caixin services PMI fell to 52.8 in July, from 53.9 in June.
The rise in the Markit/CIPS services PMI to a nine-month high of 51.4 in July, from 50.2 in June, isn't a game-changer, though it does provide some reassurance that the economy isn't on a downward spiral.
Friday's Brazil industrial production data were surprisingly upbeat. Output rose 0.1% month-to-month in July, slightly better than the consensus forecast for no change. July's modest gain was the fifth consecutive increase, confirming that industrial output in Brazil is stabilizing, and it paints a less grim picture of GDP growth at the start of Q3.
The latest drop in crude oil prices me ans that sub-zero headline CPI inflation in the spring is now more likely than not. We expect a lurch down from November's 1.3% to 0.7% in December, then 0.3% in January. The rate will remain close to that level for the next few months before hitting zero in May and slipping into negative territory--just--in June and July.
Chile's growth dynamics were robust in August, according to the latest data. Production rose and consumption remained strong during most of Q3. Indeed, industrial output increased 5.1% year-over- year, up from an already strong 3.1% increase in July, and contrasting sharply with the 2% fall in Q2.
The improvement in the August services PMI has generated hyperbolic headlines suggesting the U.K. is on a tear despite the Brexit vote. Taken literally, however, the PMIs suggest that the revival in business activity in August only partially reversed July's decline. Meanwhile, the impact of sterling's sharp depreciation on the purchasing power of firms and consumers has only just begun to be felt.
While we were out, Brazil's economic and political situation continued to improve, allowing the BCB to cut the Selic rate by 100bp to 9.25% at its July 26th meeting, matching expectations.
Yesterday's EZ PMI data surprised to the downside. The composite PMI in the euro area dipped to 52.9 in August, from 53.2 in July, below the initial estimate 53.3. The headline was marred by weakness in the German services PMI, which crashed to a 40-month low of 51.7, from 54.4 in July.
Brazil's industrial sector came roaring back at the start of Q3, following a poor end to Q2. Industrial production jumped 0.8% month-to-month in July, driving the year-over-year rate higher to 2.5%, from 0.5% in June and just 0.1% on average in Q2.
We're expecting to learn today that existing home sales rose quite sharply in July, perhaps reaching the highest level since early 2018.
Industrial production in Germany had a decent start to the third quarter. Output rose 0.7% month-to-month in July, less than we and the consensus expected, but the 0.5% upward revision to the June data brings the net headline almost in line with forecasts. Rebounds of 2.8% and 3.2% month-to-month in the capital goods and construction sectors respectively were the key drivers of the gain, following similar falls in June. A 3.2% fall in consumer goods production, however, was a notable drag.
China's trade numbers for July surprised to the upside, with both exports and imports faring better than consensus forecasts in year-over-year terms.
BoJ signals a package is coming in October. Waning construction tarnishes July's all-industry activity report. No PBoC move, for now, but it's coming.
Japan: Monetary base growth slowed to 2.8% y/y in August, from 3.7% in July. Bloomberg reports no consensus, Korea: Q2 GDP growth was revised down to 1.0% q/q, from 1.1% in the preliminary report, below the no-change consensus. • Korea: CPI inflation fell to 0.0% in August, from 0.6% in July, below the consensus, 0.2%.
Exports to the U.S. drove Japan's tentative return to a trade surplus in July, A capex collapse in Japan is probably already underway
Mr. Trump's partial U-turn on September tariffs shows some semblance of an understanding of reality...that's a good thing. China's industrial production crushes June hopes of a swift recovery. Chinese consumers struggle. Chinese FAI: the infrastructure industry growth slowdown is especially worrying. Japan's strong core machine orders rebound in June probably faded in recent weeks. Korea's jobless rate will soon creep back up after remaining steady in July.
July's punchy orders suggest Japan's capex slump could soon stabilise.
China's manufacturing PMIs suggest the private sector is recovering ahead of SoEs. China's non-manufacturing PMI again masks construction/services cross currents. Japan's industrial production continues to languish. OK so now Japanese households are front-loading spending. Korean IP corrects from the bumper July; the momentum from the Q2 recovery is waning.
Korea's current account surplus rebounded on a smaller services deficit in July
In one line: No pushback on the July ease, but it's still a bad idea.
In one line: Sentiment supported by the July/August surge in stock prices.
In one line: Lift from currency valuation effects moderates sharply from strong July boost.
Japan's Q2 GDP growth was not all it's cracked up to be. M2 growth in Japan inched up in July, but trends at the margin have rolled over. China's July inflation uptick shows that the swine flu outbreak is nowhere near under control. China officially enters PPI deflation... but it shouldn't last beyond Q3.
Inventories save Japan's final Q2 GDP from a sharp downgrade. No real second wave hit--just yet--to Japanese wages. Dark clouds continue to hover over Japan's current account surplus, despite the July bounce.
PBoC holding still in the wake of Fed rate cut. China's Caixin manufacturing PMI was due a bounce. Inflation in Korea will soon take another nosedive, due largely to unfavourable non-core base effects. Korea's export slump turned less bad in July. Korea's two main manufacturing surveys aren't talking to each other.
Yesterday's ECB policy decision was a carbon copy of the announcement in July. The central bank maintained its key refinancing rate at 0.00%, and also kept its deposit and marginal lending facility rates unchanged at -0.4% and 0.25% respectively. The ECB also kept the pace of QE unchanged at €80B per month. Finally, the central bank refrained from formally extending QE.
We look for August's GDP report, released on Thursday, to show that output held steady, following July's 0.3% month-to-month jump.
Japan's current account surplus jumped to its highest level in six months in August, rising to ¥2,103B from ¥1,468B in July.
Economic reports released yesterday indicate that the German economy was off to a solid start early in the second quarter. Industrial production rose 0.9% month-to-month in April, equivalent to a 1.4% increase year-over-year, up from a revised tiny 0.2% gain in March. This is the biggest annual jump in production since July last year, but the underlying trend is turning up only slowly, in line with the moderate improvement in survey data this year.
The headline NFIB index of small business activity and sentiment in July likely will be little changed from June--we expect a half-point dip, while the consensus forecast is for a repeat of June's 94.5--but what we really care about is the capex intentions componen
Inflation pressures in Colombia cooled considerably last month. Saturday's CPI report showed that inflation fell to 3.4% year-over-year in July, its lowest level since 2014, from 4.0% in June.
Trade data yesterday added to the downbeat impression of the German economy, following poor manufacturing data earlier in the week. Exports plunged 5.2% month-to-month in August--the second biggest monthly fall ever--pushing the year-over-year rate down to 4.4%, from a revised 6.3% in July. Surging growth in the past six months, and base effects pointed to a big fall in August, but we didn't expect a collapse.
Japanese average regular wages increased at an annualised rate of 0.6% in the three months to August compared with the previous three months, matching the rate in July.
Colombia's August inflation rate exceeded BanRep's 2-to-4% target range yet again, rising to a six-year high of 4.7%, from 4.5% in July. The signs of stabilization over the previous couple of months proved to be temporary. Core inflation has jumped above the upper bound of the inflation target too, climbing to 4.2%--the highest rate since 2009--in August from 4.0% in July, suggesting that the pass-through from the depreciating currency into consumer prices is starting to hurt. Inflation in tradables jumped in August to 5.2% from 4.7%, underscoring the hit from the COP's drop.
We expect August's GDP figures, released on Wednesday, to show that month-to-month growth slowed to 0.1%, from 0.3% in July.
Yesterday's industrial production data in Germany were better than we feared. Output slipped 0.3% month-to-month in August, depressing the year- over-rate to -0.4% from 1.6% in July, a minor fall given evidence of a big hit from weakness in the auto sector ahead of the EU emissions tests.
Friday's German new orders data were sizzling. Factory orders jumped 3.6% month-to-month in August, pushing the year-over-year rate up to a nine-month high of 7.8%, from an upwardly-revised 5.4% in July.
August's Markit/CIPS services survey, released today, likely will show that the economy's biggest sector is continuing to slow. We think that the PMI fell to just 53.0--its lowest level since it plunged immediately after the Brexit vote--from 53.8 in July, below the consensus, 53.5.
EZ consumers' spending slowed at the start of Q3. Retail sales slipped 0.3% month-to-month in July, pushing the year-over-year rate down to 2.6% from an upwardly revised 3.3% in June.
When the BoJ tweaked policy back in July, we think the increase in flexibility in part was to lay groundwork for the BoJ to respond to the Fed's ongoing hiking cycle.
The Reserve Bank of India was hit by another shock resignation yesterday, with Deputy Governor Viral Acharya confirming his early departure in late July, before the next meeting in August, and well before his term was scheduled to end at the close of this year.
Japan's CPI inflation jumped to 1.3% in August, from 0.9% in July.
The third estimate of first quarter GDP growth, due today, will not be the final word. The BEA will revise the data again on July 30, when it will also release its first estimate for the second quarter and the results of its annual revision exercise. Quarterly estimates back to 2012 will be revised. The revisions are of greater interest than usual this year because the new data will incorporate the first results of the BEA's review of the seasonal problems.
We are a bit troubled by the persistent weakness of the Redbook chain store sales numbers. We aren't ready to sound an alarm, but we are puzzled at the recent declines in the rate of growth of same-store sales to new post-crash lows. On the face of it, the recent performance of the Redbook, shown in our first chart, is terrible. Sales rose only 0.5% in the year to July, during which time we estimate nominal personal incomes rose nearly 3%.
The chaos in Greece was identified as the main culprit for yesterday's soft IFO report. The headline business climate index fell to 107.4 in July, down from 108.1 in May, driven by declines in respondents' views on the current economy and their expectations for the future. We expected a dip in the he adline IFO, but we were surprised by the fall in the manufacturing sub-index, given the firmer PMI earlier this week.
The state of the Mexican economy is still favorable, despite the slowdown over the last few quarters. This week, the IGAE economic activity index--a monthly proxy for GDP--rose 2.0% year-over-year in July, a relatively solid pace, but down from 3.2% in June, and 2.6% in the first half. All these data suggest that economic activity failed to gather momentum at the beginning of Q3 after a disappointing first half of the year.
The PBoC cut the reserve requirement ratio by 0.5pp for almost all banks on Sunday, effective from July 5th.
Today's September international trade report will be the third to be distorted by hugely elevated soybean exports. The surge began in July, when soybean exports jumped by $3.6B--that's a 220% month-to-month increase--to $5.2B.
Yesterday's IFO survey in Germany was a nasty downside surprise for markets. The business climate index slipped to 106.2 in August, from 108.3 in July, well below the consensus forecast for a modest rise. In addition, the expectations index slid ominously to 100.1, from a revised 102.1 in July.
The IFO did its part to alleviate the stock market gloom yesterday, with the business climate index rising slightly to 108.3 in August from 108.0 in July. The August reading doesn't reflect the panic in equities, though, and we need to wait until next month to gauge the real hit to business sentiment. The increase in the headline index was driven by businesses assessment of current output, with the key expectations index falling trivially to 102.2 from a revised 102.3 in July. This survey currently points to a stable trend in real GDP growth of about 0.4% quarter-on-quarter, consistent with our expectation of full year growth of about 1.5%.
• U.S. - The second wave is easing, but it isn't over yet • EUROZONE - August EZ PMIs were poor, but not terrible • U.K. - Inflation will fall further, despite the jump in July • ASIA - A narrow recovery for China's economy in Q3 • LATAM - Weak growth and low inflation as far as the eye can in LatAm
Yesterday's advance EZ PMI data were virtually unchanged from previous months, yet again. The composite PMI rose trivially to 53.3 in August from 53.2 in July; this means that the index has been almost stable since February. The headline was lifted by a small increase in services, which offset a slight decline in manufacturing.
Sterling rallied to $1.25 last week--its highest level against the dollar since Boris Johnson became PM in mid-July--amid growing speculation that a Brexit deal still was possible in the next couple of weeks, enabling the U.K. to leave the E.U. on October 31.
German producer price inflation rebounded last month. The headline PPI index rose 2.6% year-over-year in August, up from a 2.3% increase in July, driven almost exclusively by a jump in energy inflation.
Brazil's recession stretched into the start of the third quarter, but its intensity has eased. The IBC-Br economic activity index--a monthly proxy for GDP--fell 0.1% month-to-month seasonally adjusted in July, following a 0.4% gain in June. The unadjusted year-over-year rate fell to -5.2%, from an upwardly revised -2.9%.
The Eurozone's external surplus remains solid, despite hitting a wall in August. The seasonally adjusted current account surplus fell to €17.7B in August from €25.6B in July, due to a €7B fall in the goods component. A 5.2% month-to-month collapse in German exports -- the biggest fall since 2009 -- was the key driver, but we expect a rebound next month. The 12-month trend in the Eurozone's external surplus continues to edge higher, rising to 3% of GDP up from 2.1% in August last year.
Colombia's industrial and retail sectors surprised to the upside in August, suggesting that the domestic economy has been resilient during most of the third quarter, despite the hit from an array of external headwinds. Industrial production increased by a solid 2.6% year-over-year in August, up from an upwardly revised 0.6% expansion in July, and above its recent trend. In the first half of the year, industrial activity fell on average by 1.1%, the worst performance since 2013, due mainly to the oil hit and ex tended works at Reficar, the country's second biggest oil refinery. But Colombia's manufacturers appear to have shrugged off part of the oil pain in recent months.
After soaring in the Spring, inflation has slipped back in the Summer. July's consumer prices report, released while we were away last week, showed that CPI inflation held steady at 2.6% in July, one -tenth below the consensus and three tenths below May's year-to-date peak.
Brazil's mid-April inflation report delivered more evidence that inflation is decelerating; it fell to 9.3% from 10.0% in March, reaching the slowest pace since July 2015. The unadjusted month-to-month increase surprised marginally to the upside, but the key story is of a declining year-over-year trend. Core inflation, which is a lagging indicator of the business cycle, slowed again, in line with the decline in services and market prices inflation.
Yesterday's partial trade data for Korea showed that the downturn in exports softened to -13.3% year-over-year in August from -13.8% in July, based on the 20-day gauge.
The level of new home sales is likely to hit new cycle highs over the next few months, with a decent chance that today's July report will show sales at their highest level since late 2007.
This week brings home sales data for July, which we expect will be mixed. New home sales likely rose a bit, but we are pretty confident that existing home sales will be reported down, following four straight gains. We're still expecting a clear positive contribution to GDP growth from housing construction in the third quarter, but from the Fed's perspective the more immediate threat comes from the rate of increase of housing rents, rather than the pace of home sales.
Next July, Mexico will hold presidential elections, an event that will gradually take centre stage as the date approaches. The pre-campaign will start on December 14, but the official campaign opening will take place in late March, when the three main candidates will begin to lay out their platforms.
Another deadline has come and gone in the negotiations between Greece and its creditors. This week's meeting between EU finance ministers revealed that the creditors have not seen enough commitments unlock the €7B Greece needs to repay in July. Mr. Tsipras has agreed to energy sector privatizations, and to increase the threshold for income tax exemption.
In recent weeks Brazilian central bank officials have reinforced their message that they will continue fighting inflation with "determination and perseverance". CPI inflation is failing to subside, at least at the headline level, where the latest readings are very disappointing, and expectations have remained stubbornly high. And the BRL has fallen 13% year-to-date, posing further inflation threats ahead. All these factors mean that the BCB will increase its main interest rate yet again in July.
Industrial profits in China continues to go from strength to strength, with growth accelerating to 19.6% year-over-year in July, from 11.5% in July.
July's mortgage approvals data from the BBA brought clear evidence that households have held off making major financial commitments as a result of the Brexit vote. Following a 5% month-to-month fall in June, approvals fell a further 5.3% in July, leaving them at their lowest level since January 2015 and down 19% year-over-year.
In the wake of the robust July data and the upward revisions to June, real personal consumption--which accounts for 69% of GDP--appears set to rise by at least 3% in the third quarter, and 3.5% is within reach. To reach 4%, though, spending would have to rise by 0.3% in both August and September, and that will be a real struggle given July's already-elevated auto sales and, especially, overstretched spending on utility energy.
Survey data in EZ manufacturing remain soft. Yesterday's final PMI report for August confirmed that the index dipped to 54.6 in August, from 55.1 in July, reaching its lowest point since the end of 2016.
Evidence that the U.K. economy has slowed significantly this year is starting to come in thick and fast. Following the Markit/CIPS manufacturing PMI on Monday --which signalled that growth in production declined in March to its lowest rate since July--the construction PMI dropped to 52.2 in March, from 52.5 in February.
Chile's unadjusted unemployment rate fell to 7.1% in July-to-September, from 7.3% in June-to-August, but it was up from 6.7% in September last year.
Over the sleepy August holidays, a view has gained traction in the media that the U.K. economy is showing little damage from the Brexit vote. Optimists argue that the size and composition of the 0.6% quarter-on-quarter rise in Q2 GDP, the 1.4% month-to-month jump in retail sales volumes in July, and the slight dip in the unemployment claimant count demonstrate that the recovery is in good shape.
The MPC likely will raise interest rates on Thursday, for the first time since July 2007, in response to the uptick in GDP growth and the upside inflation surprise in Q3.
Yesterday's money supply report provided further relief for investors doubtful over the cyclical recovery following the market turmoil. Broad money growth, M3, accelerated to 5.3% year-over-year in July, up from 4.9% in June, and within touching distance of a new post-crisis high. Narrow money continued to surge too, rising 12.1% year-over-year, up from 11.1% in June, sending a bullish message on the Eurozone economy.
The final July PMIs indicate that the post-referendum slump in activity has been even worse than the flash estimates originally implied. The manufacturing PMI was revised down to 48.2, from the 49.1 flash reading, while the services PMI was unrevised at 47.4, its lowest level since March 2009.
Today's wave of economic reports are all likely to be strong. The most important single number is the increase in real consumers' spending in July, the first month of the third quarter.
This Monitor provides a summary of the main points of interest over the two weeks we were out. The Chinese Caixin manufacturing PMI, published last Friday, confounded expectations for a modest fall, rising to 51.6 in August from 51.1 in July.
The summer usually is a quiet time for business, but seemingly not for CFOs this year. Yesterday's money and credit figures from the Bank of England showed that borrowing by private non-financial corporations has rocketed. Net finance raised by PNFC's from all sources increased by £8.9B in July, compared to an average increase of just £2.5B in the previous 12 months.
China's Caixin manufacturing PMI edged down to 50.6 in August, from July's 50.8. This clashed with the increase in the official PMI, though the moves in both indexes were modest.
July's money and credit figures provided more evidence that firms have become reluctant to invest following the Brexit vote. Lending by U.K. banks to private non-financial companies--PNFCs--rose by just 0.2% month-to-month in July, below the average 0.5% increase of the previous six months.
Money supply data in the euro point to a cyclical peak in GDP growth this year. Headline M3 growth fell to 4.8% year-over-year in July, from 5.0% in June, chiefly due to a slowdown in narrow money. M1 growth declined to 8.4%, from 8.7%, as a result of weaker momentum in overnight deposits and currency in circulation.
We are going to print two days before the July 1 presidential election in Mexico.
The Eurozone is on the brink of its first exit this week after the ECB refused to offer incremental emergency liquidity to Greek banks, forcing the start of bank holiday through July 7--two days after next weekend's referendum--and beginning today. We have no doubt that if the banks were to open, they would soon be bust; bank runs have a habit of accelerating beyond the point of no return very quickly.
We expect to learn today that the economy barely grew at all in the fourth quarter. At least, that's what we think the first estimate of growth, due today, will show. This number will then be revised twice over the next couple of months, then again when revisions for the past three years are released in July. Thereafter, the numbers are subject to further annual revisions indefinitely.
Money supply growth in the Eurozone firmed last month. Broad money--M3--rose 5.0% year-overyear in August, after a tepid 4.5% rise in July.
The Mexican economy is recovering gradually, despite many external headwinds. This week, the IGAE economic activity index--a monthly proxy for GDP--rose a solid 2.6% year-over-year in August, up from 2.0% in July. In the first half the economy grew on average 2.4%. The report showed increases in all three sectors, most notably agriculture, up 8.2% year-over-year, followed by services, 3.3%, and industrial activities, with a 1.0% gain.
Yesterday's money supply data in the Eurozone were solid across the board. Growth in headline M3 rose to 5.1% year-over-year in August, up from a 4.9% increase in July. A rebound in narrow money growth was the key driver of the gain, with seasonally- and calendar-adjusted M1 rising 8.9% year-over-year, up from July's 8.4%.
Our base case forecast has core PCE inflation at 1.9% from November 2018 through July this year.
Today is all about beans. Specifically, soybeans, and more specifically, just how many of them were exported in August. This really matters, because if soybean exports in August and September remained close to their hugely elevated July level, the surge in exports relative to the second quarter will contribute about one percentage point to headline GDP growth.
While we were out, the economic news in LatAm was mostly positive. The main upside surprise came from Mexico, with the IGAE activity index--a monthly proxy for GDP--rising 2.9% year-over-year in August, up from 1.2% in July, and an average of 2.4% in Q2. A modest rebound was anticipated, but the headline was much better than we and the markets expected.
While we were enjoying a rare sunny bank holiday in the U.K., data showed that Eurozone money supply growth slowed at the start of Q3. Broad money growth--M3--fell to a 10-month low of 4.5% year-over- year in July, from 5.0% in August.
China's official PMIs were little changed in August, with the manufacturing gauge up trivially to 51.3, from 51.2 in July and the non-manufacturing gauge up to 54.2, from 54.0.
The fall in the Markit/CIPS manufacturing PMI to 47.4 in August--its lowest level since July 2012--from 48.0 in July suggests that pre-Brexit stockpiling isn't countering the hit to demand from Brexit uncertainty and the global industrial slowdown.
Chief U.S. Economist Ian Shepherdson named Market Watch forecaster of the month for July
Chief U.K Economist Samuel Tombs on UK Halifax House Prices in July
Are there any signs that the U.S. tax cuts and/or regulatory relaxation are stimulating increased non-residential fixed investment?
Ian Shepherdson comments on strong construction data
What are Near-Real-Time data Telling us about the State of the U.K. Economy's Recovery?
Chief U.S. Economist Ian Shepherdson on U.S. Consumer Confidence
Chief Eurozone Economist Claus Vistesen on Eurozone Industrial Production
Chief U.K. Economist Samuel Tombs on the latest GDP figures
Chief U.K. Economist Samuel Tombs on U.K. PMI data in November
Samuel Tombs on U.K. Manufacturing
Is the monetary easing cycle in Brazil over?
Would CPI Inflation be above the 2% target, if the government had not cut VAT?
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