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935 matches for " March":
In one line: Ignore the headline, Korean exports rebounded strongly in March, salvaging Q1
In one line: Caixin suggests March was as bad as February... that's bad
In one line: No qualms about easing again; look for another cut on March 26.
In one line: The advance goods deficit rose to $71.4B in April from $70.9B in March, better than the consensus, $73.0B.
In one line: Brace for a year-long slump in sales.
In one line: A pre-shutdown snapshot; unprecedented falls in sales lie ahead.
In one line: Nothing new, but not out of ammo either.
In one line: The import surge will unwind in Q2.
In one line: Trade deficit has stabilized, provided the China talks don't fall apart.
In one line: Probably understating the coronavirus hit.
In one line: Ignore the headline numbers; claimant count and vacancy data show the Covid-19 pain.
In one line: Understating the slump in production now underway.
In one line: Collapsing, despite no mandatory closures of construction sites.
In one line: Near-flat trend in prices unlikely to improve soon.
In one line: Record low level signals a very deep recession.
In one line: Small fall should not bring any comfort.
In one line: A substantial improvement, but it's temporary; a sharp jump is looming.
In one line: A big downside surprise.
In one line: Weak, but the full hit will come in April.
In one line: Manufacturing gain fails to offset weakness elsewhere.
In one line: Terrible, and more pain is coming.
In one line: Poor, but April will be much worse.
In one line: A poor first quarter for retailers.
In one line: Q1 net trade hit confirmed; a rebound in Q2?
In one line: Horrendous, and probably not reflecting the full devastation.
In one line: The labour market will deteriorate soon.
In one line: A soft Q1, and the outlook remain challenging.
In one line: Brexit preparations provide a temporary fillip to manufacturing.
In one line: More evidence of a strong pre-virus recovery.
In one line: Worse to come in housing; Philly Fed near the bottom.
In one line: Old news; April will be much worse.
Grim, but this is only the start.
In one line: Manufacturing is back in recession.
In one line: Very bad, but worse to come.
In one line: Covid-19 is shredding trade flows.
In one line: Horrendous.
In one line: Half the storm.
In one line: The biggest one-month drop in more than six years, but April will be much worse.
In one line: Awful, especially in services, with worse to come.
In one line: Could have been even worse; will be (much) worse.
In one line: Exports crushed.
In one line: Surveyors expect prices to plunge, though lasting damage isn't inevitable.
In one line: London prices had begun to outperform before the virus shock.
In one line: An ugly end to the first quarter, but output likely will stabilize in Q2.
In one line: A huge QE authorisation; markets are right to welcome the news.
In one word: Irrelevant.
In one line: Could have been worse. Will be worse
In one line: Lockdowns and colossal job losses aren't great for the housing market.
In one line: The first clear virus hit in the macro data.
In one line: The consensus beat doesn't matter; next month will be much worse.
In one line: Really, it's much worse than it looks.
In one line: Cash positions were built up rapidly heading into the crisis.
In one line: Non-mining activity collapses in April; Q2 is a write-off.
In one line: Trichet's ill-time rate hikes in 2011 are a clerical error compared with today's disaster.
In one line: Grim, but not nearly grim enough in terms of the pain that lies ahead.
In one line: Covid-19 finally hits EZ consumer sentiment; worse is to come.
In one line: Headline trade is resilient, but portfolio flows are collapsing.
In one line: Aggressive, but today's package also raises key questions about the ECB's policy assumptions.
In one line: Not much to cheer about; the trend is still falling.
In one line: Horrid, hideous, harrowing...you get the picture.
In one line: Ugly, but not nearly bad enough to tell the true story on the ground.
In one line: Worse than the initial estimate; Germany's economy is sliding into the abyss.
In one line: Grim, and worse is coming.
In one line: Core inflation will fall back this month; construction jumped in Q1, but a setback looms in Q2.
In one line: Grim; manufacturing enjoyed another "boost" from a tighter supply side.
In one line: Japan will be in deflation in a few months
In one line: Chinese banks send a message - no rate corridor cut, no LPR reduction
Efforts to contain the coronavirus outbreak severely dented industrial activity in Brazil.
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.
In one line: Consensus-beating print merely underscores how bad February was; the economy isn't out of the woods
In one line: The coronavirus finally arrives in the EZ macro data.
In one line: Terrible.
In one line: Covid-19 finally hits EZ consumer sentiment; worse is to come.
In one line: Hit by a slump in energy inflation; core rate unchanged.
In one line: Hit by energy inflation; the core rate is now a wildcard until the virus recedes.
In one line: Weak, and probably underestimating the incoming slowdown.
In one line: No virus here.
In one line: Underlying inflation pressures are falling, and we expect further declines across the year due to the recession.
In one line: Tame underlying inflation pressures; terrible real sales.
In one line: Germany is not the U.S.
In one line: Solid export headline, but net trade probably fell in Q1.
In one line: Sentiment remains resilient, but that won't last.
In one line: The economy did very badly in Q1, and risks are still tilted to the downside.
In one line: Another ugly report, and Mexico's prospects have deteriorated significantly.
In one line: Worse--an order of magnitude worse--to come.
In one line: The first signs of the coronavirus hit; more pain to come.
In one line: A tragic end to Q1, and worse is coming.
In one line: Hit by jump in imports.
In one line: Ugly.
In one line: Not pretty; construction will be revised lower.
In one line: Great, but it won't last.
In one line: Soft, and the outlook for Q2 isn't great.
In one line: Grim, but the numbers are already factored-in by the advance GDP data.
In one line: Ignore; the collection period was pre-Covid-19 lockdown.
In one line: Solid, but the devil is in the detail.
In one line: Falling energy inflation offset by rising goods inflation.
In one line: Grim, but probably not grim enough.
In one line: Just a dip; Q1 was excellent overall.
In one line: When consumers can't shop, sales don't do well.
In one line: Awful, and mostly pre-Covid.
In one line: Ugly, and worse is to come.
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%.
Core machine orders in Japan held up surprisingly well in March, slipping by just 0.4% month-on-month, erasing only part of the 2.3% increase in February.
The surge in the broad money supply in March, as the U.K.'s lockdown began, suggests that businesses are in relatively good shape to survive a multi-month period of greatly depressed demand.
China's two-tier post-lockdown economic revival continued in April. Industrial production beat expectations easily, rising by 3.9% year-over-year, after slipping by 1.1% in March.
This week's labour market report--primarily reflecting conditions in March, though some data refer to April--will lift the veil on the initial economic damage from Covid-19, though the full horror will emerge only later.
Data released on Friday confirmed an appalling end to the first quarter for the Brazilian and Colombian economies. In Brazil, the March IBC-Br, a monthly proxy for GDP, plunged 5.9% month-to-month, close to expectations.
The Chilean economy was emerging in early Q1 from the self-inflicted shock from the social unrest in October, but the upturn was interrupted in early- March by the restrictive measures introduced to contain Covid-19.
We agree with the majority of economists that the MPC will announce on Thursday another £100B of asset purchases, primarily of gilts, once it has completed the £200B of purchases it authorised on March 19.
The 0.1% dip in the core CPI in March was the first outright decline in three years, but we expect another-- and bigger--decline in today's April numbers.
A plunge in apparel prices attracted most of the attention after the release of the March CPI report, but it was not, in our view, the most important number.
Core machine orders in Japan collapsed in April, as expected, falling by 12.0% month-on-month, worse than the minor 0.4% slip in March.
Retail sales in Japan rose modestly in May, after collapsing in March and April, as the government tried to put a lid on the country's Covid-19 outbreak.
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.
Today's tentative reopening of schools in England marks the biggest step forward for the economy since the lockdown was imposed on March 23.
The recent March economic activity reports for Chile have been terrible, showing the first signs of the Covid-19 shock, and worse is to come.
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.
The collapse in global demand last month will have derailed China's trade recovery, causing exports to drop unpleasantly month-on-month after the bounce of around 45% in March; the January/February breakdown is not provided, so we can't be sure of the extent of the March rebound.
Early results suggest that Mr. Macron has comfortably beat Marine Le Pen to become French president, defying a leak of emails and other documents from his En Marche campaign over the weekend. The final results won't be published until Monday morning, but the initial estimate indicates that Mr. Macron will edge Ms. Le Pen by 65.1% to 34.9%.
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's export data for April unsurprisingly were abysmal, driving a massive deterioration in the trade balance, which flipped from a modest ¥5B surplus in March, to a ¥930B deficit.
Leading indicators for consumers' spending in France are sending conflicting signals. Survey data suggest that households are in a spendthrift mood. Data yesterday showed that the headline consumer sentiment index was unchanged in March at 100, the cycle high.
Signs that Easter trading was unusually poor lead us to anticipate a downside surprise from today's retail sales data for March. The BRC's Retail Sales Monitor, which surveys companies that account for 60% of total retail sales, was remarkably weak in March.
The good news in today's March durable goods report is that a rebound in orders for Boeing aircraft means February's 3.0% drop in headline orders won't be repeated. The company reported orders for 69 aircraft in March, compared to just one in February.
Economic data released yesterday underscored that Brazil emerged from recession in the first quarter, but further rate cuts are needed. Indeed, the monthly economic activity index--the IBC-Br--fell 0.4% monthto- month in March, though this followed a strong 1.4% gain in February.
Sterling soared yesterday following news that Britain and the EU have agreed the terms of the transition period from March 2019, which will ensure that goods, services, capital and people continue to move freely, until December 2020.
Economic sentiment data, which rebounded in March, continue to suggest slight downside risk to EZ GDP growth in Q1. The composite Eurozone PMI in March rose modestly to 53.7 from 53.0 in February, only partially erasing the weakness in recent months. The PMI dipped slightly over the quarter as a whole, although not enough to change the EZ GDP forecast in a statistically meaningful way.
Brazilian inflation has been well under control in the past few months, laying the ground for a final rate cut at the monetary policy meeting on March 21.
Korea's labour market took an overdue breather in March after an extremely volatile start to the year.
Yesterday's advance data from Germany and Spain suggest that today's Eurozone inflation report will undershoot the consensus. In Germany, headline inflation slipped to 1.6% in March from 2.2% in February, and in Spain the headline rate plunged to 2.3% from 3.0%.
The run of soft-looking headline retail sales numbers in recent months--the initial estimates for February, January and December were -0.6%, -0.8% and -0.9% respectively--will end today; the March number will look solid.
Both the E.U. and the U.K. government have been keen to emphasise, since the Withdrawal Agreement was provisionally signed off, that March 29 is a hard deadline for Brexit.
Our argument that rates could rise as soon as March has always been contingent on two factors, namely, robust labor market data and a degree of clarity on the extent of fiscal easing likely to emerge from Congress. On the first of these issues, the latest evidence is mixed.
Data yesterday revealed that headline inflation in Germany was unchanged in March at 1.5%, thanks mainly to higher energy inflation, which offset a dip in food inflation.
Business surveys coming out of the Eurozone have been remarkably strong recently. The composite PMI for the Eurozone jumped to 56.7 in March--its highest level since April 2011--from 56.1 in February. Germany's IFO business climate index leaped to a 67-month high in March.
The Prime Minister is threatening to bring back her Brexit deal to the Commons for a third time before March 20, in a final bid to win over the rebels within the Tory party who want a harder Brexit.
The second presidency of Chile's conservative Sebastián Piñera, a billionaire turned politician, began on Sunday, March 11, in favourable economic circumstances.
The CPIH--the controversial, modified version of the existing CPI that includes a measure of owner occupied housing, or OOH, costs--will become the headline measure of consumer price inflation when February's data are published on March 21.
Korea's business survey index rose for a second straight month in March, to 75 from 73 in February, on our adjustment.
In the wake of the uptick in the March ISM manufacturing survey, we think today's official production data for the same month are likely to disappoint. Our model of the month-to-month output numbers incorporates the ISM data, but it is substantially driven by manufacturing hours worked, which fell in both February and March.
The popular belief that economists rarely agree about anything is reinforced by the extremely wide dispersion of forecasts for March industrial production. The forecasts range from the wildly optimistic prediction of a 1.9% month-to-month rise, to a downright miserable 0.3% decline. We think production rose by about 0.5% month-to-month, and this likely will be interpreted as a decent result, following the recent run of bad news.
Industrial profits in China dropped 3.7% year-over- year in April, after surging 13.9% in March, according to the officially reported data.
Mr. Draghi's introductory statement before yesterday's hearing at the European Parliament repeated that the ECB will "review and possibly reconsider its monetary policy stance in March." But it didn't provide any conclusive smoking gun that further easing is a done deal.
March's consumer prices figures, released on Wednesday, are even more important than usual, as they are the last to be published before the MPC's next meeting on May 10.
The holiday effects are at it again. C hina's trade balance dropped to a deficit of $5.0B in March, from a surplus of $33.5B in February, confounding expectations for a surplus of $27.5B.
Our bullish view of the housing market is undimmed by yesterday's news that March existing home sales dropped to 5.21M, from 5.48M in February.
Robust demand in the ECB's final TLTRO auction was the main story in EZ financial markets yesterday. Euro area banks--474 in total-- took up €233.5B in the March TLTRO, well above the consensus forecast €110B. To us, this strong demand is a sign that EZ banks are taking advantage of the TLTROs' incredibly generous conditions.
Wednesday's Brazilian industrial production data were worse than we expected but the details were less alarming than the headline. Output slipped 1.8% month-to-month in March, the biggest fall since August 2015, setting a low starting point for Q2.
Yesterday's final EZ CPI data for March confirmed the message from the advance report that inflation pressures eased last month.
Speculation mounted yesterday that the MPC will follow the U.S. Fed and cut interest rates before its next meeting on March 26.
We can think of at least three reasons for the apparent softness of ADP's March private sector employment reading.
March's consumer price figures, released tomorrow, look set to show that inflation's ascent was kept in check by the later Easter this year compared to last. Nonetheless, CPI inflation will take big upward strides over the coming months, and it likely will exceed 3% by the summer.
Friday's advance Eurozone PMI reports capped a fine quarter for the survey. The composite PMI jumped to a 80-month high of 56.7 in March, from 56.1 in February, rising to a cyclical high over Q1 as a whole.
Everything but the weather points to a strong headline payroll number for March. Our composite leading payroll indicator has signalled robust job growth since last fall, and the message for March is very clear.
The Chancellor will struggle to make his Spring Statement heard on March 13 over the noise of next week's key Brexit votes in parliament, likely spanning from March 12 to 14.
The average month-to-month increase in the core CPI in the past three months is a solid 0.20, much firmer than the 0.05% average over the previous five months, stretching back to the first of the run of downside surprises, in March.
We're among a small minority of economists forecasting that GDP rose by 0.1% month-to-month in March.
March payrolls were constrained by both the impact of colder and snowier weather than usual in the survey week, and a correction in the construction and retail components, which were unsustainably strong in February.
The latest survey evidence strongly supports our view that momentum is building in the industrial economy, but the official production data continue to lag. Yesterday's March Philly Fed survey was remarkably strong, with the correction in the headline sentiment index -- inevitable, after February's 33-year high -- masking increases in all the subindexes.
The minutes of March's MPC meeting were more newsworthy than we--and the markets--expected. Kristin Forbes broke ranks and voted to raise Bank Rate to 0.50%, from 0.25%.
The official payroll numbers seem not to be consistently affected by seasonal adjustment problems when Easter falls in March, probably because the earliest possible date for the holiday, the 23rd, comes long after the payroll data are captured. The BLS data cover the week of the 12th.
The key data today, covering March durable goods orders and international trade in goods, should both beat consensus forecasts.
Brazil has made a convincing escape from high inflation in the past few months, laying the groundwork for a gradual economic recovery and faster cuts in interest rates. Mid-March CPI data, released this week, confirmed that inflation pressures eased substantially this month.
The odds of a hike this month have increased in recent days, though the chance probably is not as high as the 82% implied by the fed funds future. The arguments against a March hike are that GDP growth seems likely to be very sluggish in Q1, following a sub-2% Q4, and that a hike this month would be seen as a political act.
The FOMC statement did enough to keep alive the idea that rates could rise in March, but the ball is now mostly in Congress' court. If a clear plan for substantial fiscal easing has emerged by the time of the meeting on March 15, policymakers can incorporate its potential impact on growth, unemployment and inflation into their forecasts, then a rate hike will be much more likely.
The April CPI report today will be watched even more closely than usual, after the surprise 0.12% month-to-month fall in the March core index. The biggest single driver of the dip was a record 7.0% plunge in cellphone service plan prices, reflecting Verizon's decision to offer an unlimited data option.
Korea's partial trade data for March suggest that the first quarter may not be as grim as we expected, at least in terms of merchandise trade.
German retail and consumer sentiment data for March have been mixed this week, but broadly support our call that growth in consumption should pick up soon.
The headline March retail sales numbers probably will look horrible, thanks to the unexpected drop in auto sales reported by the manufacturers earlier this month. Their unit sales data don't always move exactly in line with the dollar value numbers in the retail sales report, as our first chart shows, but it's hard to imagine anything other than a clear decline today.
The run of better-than-expected public borrowing figures ended abruptly with the publication of March data yesterday.
The U.S. Economy: Navigating Through the Coronavirus Outbreak
Chief U.K. Economist Samuel Tombs on the U.K. Halifax House Price Index in December
Chief U.K. Economist Samuel Tombs on U.K. Inflation
How will the ECB respond to the Coronavirus, if at all?
Chief U.S. Economist Ian Shepherdson discussing U.S. Durable Goods Orders
Chief US Economist Ian Shepherdson comments on disappointing Homebuilder Confidence data
Chile's near-term economic outlook is still negative after a sharp resurgence of coronavirus cases.
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.
For now, the U.K. government still insists that the Brexit transition period will end in December, regardless of whether a new trade deal has been negotiated with the E.U. or not.
We were expecting the pandemic in the Andes to reach a plateau over the coming weeks, given the quick response of regional governments to fight the virus.
April's money and credit figures show that relatively few firms suffered from a lack of liquidity at the beginning of the Covid-19 crisis.
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.
We're expecting ADP today to report a 10M drop in private payrolls in May, but investors should be braced for surprises, in either direction, because ADP's methodology is not clear.
Data released last week confirm that Argentina's economy remains a mess.
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.
The single most surprising U.S. economic report ever published likely is explained very simply: We know a great deal about the numbers of people losing jobs, but not much about people finding jobs.
So far, the MPC has been more timid with unconventional stimulus than other central banks. At the end of May, central bank reserves equalled 29.7% of four-quarter rolling GDP in the U.K., compared to 32.7% in the U.S. and 46.7% in the Eurozone.
Economic conditions remain challenging in Mexico, despite a modest improvement in leading indicators. The usual surveys currently are not well-suited to capture the economy's upturn from the Covid-19 collapse.
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.
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.
Friday's industrial production report in Germany capped a miserable week for economic data in the Eurozone's largest economy.
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: Terrible, but this is possibly the bottom.
We remain convinced by other evidence that manufacturing output now is recovering, though pre-virus levels of production likely will not be realised for several years.
In one line: Easter distortions drove services inflation higher; the core goods CPI is still subdued
China's export data for April were a mixed bag, to say the least.
April's GDP report probably will be the worst any of us will see in our lifetime.
Last week we reported on the V-shaped recovery in German retail sales--see here--as lockdowns ended mid- way through Q2.
Markets were jolted yesterday by news that the U.S. Fed is mulling ending, or at least slowing, the reinvestment of Treasuries and mortgage-backed securities later this year. Such a move would reduce liquidity in global markets that has underpinned soaring equity prices in recent years.
The ECB will leave its key refinancing and deposit rates unchanged today, at 0.00% and 0.5%, respectively, but we are confident that the central bank will expand its existing stimulus efforts via a boost and extension of the Pandemic Emergency Purchase Program.
The ECB took another big step yesterday in assuring markets that it won't waver in the fight against Covid-19.
Covid-19 has taken a large and immediate toll on house prices, but bigger damage likely lies ahead.
India's consensus-beating GDP report for the first quarter wasn't much to write home about.
The unexpectedly small 2,760K drop in the ADP measure of May private payrolls is consistent, at least, with the idea that the partial reopening of several states in the early part of the month prompted an immediate wave of rehiring.
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.
We're very comfortable with the idea that the coronavirus is a broad deflationary shock to the U.S. economy.
Today's April ADP employment report likely will understate the scale of the net payroll losses which will be reported Friday by the BLS.
Emerging evidence suggests that the economy has passed the period of peak Covid-19 pain.
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.
Services will bear the brunt of the Covid-19 shock in the euro area, but manufacturing is not far behind.
Korea's manufacturing PMI fell for a fourth straight month in April, dropping to 41.6, which is the lowest reading since January 2009.
May's money and credit data show that Covid-19 has not pushed many businesses immediately over the edge.
April's RICS Residential Market survey confirmed that housing market activity collapsed to negligible levels during the lockdown, which prohibited property viewings, depleted the work forces of lenders and prompted many people to defer big financial decisions.
Many investors probably will be scratching their heads in the wake of next week's labour market report, which will reveal the Covid-19 hit to employment and wages in April, as well as showing how much further the claimant count soared in May.
The People's Bank of China likely will be more than content with the latest money and credit data, to the point where it probably won't see the need to cut interest rates further anytime soon.
Yesterday's sole economic report in the Eurozone closed the book on the initial Covid-19 shock in French manufacturing.
We would be surprised, but not astonished, if the Fed were to announce a shift to explicit yield curve control at today's meeting.
The government's decision to shelve plans to reopen primary schools fully later this month will ensure that GDP remains greatly below its precoronavirus level throughout the summer months.
The Fed announced no significant policy changes yesterday, but the FOMC reinforced its commitment to maintain "smooth market functioning", by promising to keep its Treasury and mortgage purchases "at least at the current pace".
Economic conditions in Brazil are deteriorating rapidly.
The Andean countries were quick to implement significant measures in response to the initial stage of the pandemic, adopting a broad range of economic and social policies to ease the effects.
We have drawn attention over the past couple of weeks in our daily Coronavirus Update to the rising trend in new cases in some states, mostly in the South.
The sluggishness of consumers' spending and business investment in the first quarter means that hopes of a headline GDP print close to 2% rely in part on the noisier components of the economy, namely, inventories and foreign trade.
Last week finished as it started, with more depressing economic numbers in the Eurozone, this time from manufacturing in the core economies.
Yesterday's trade data in Germany added to the evidence of a relatively slow rebound as the domestic and European economies emerged from lockdown.
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.
Economic activity in Chile in the first half of the year is now a write-off, due to Covid-19. The country is in a deep recession, and the impact of lockdowns on labour markets and businesses will cause long-lasting economic damage, which will hold back the recovery.
The FOMC kept policy unchanged at April's meeting-- rates stayed at zero, and all the market valves are wide open, as needed--but policymakers spent considerable time pondering what might happen over the next few months, and how policy could evolve.
We advise strongly against concluding from the above-consensus rebound in retail sales in May that the economy is embarking on a healthy, V-shaped recovery, from Covid-19.
Last week's enormous €1.3T take-up in the ECB's first post-virus TLTRO auction was hardly a blip for financial markets, consistent with the reactions to previous auctions.
It seems that yesterday's PMI data left investors and analysts more confused than enlightened.
We hope never to see another labour market report as bad as yesterday's, though the omens aren't good.
Hard data released in Argentina over the last month showed that the economy was struggling in early Q1, even before the Covid-19 hit.
Fed Chair Yellen today needs to strike a balance between addressing investors' concerns over the state of the stock market and the risks posed by slower growth in Asia, and the tightening domestic labor market.
Friday's economic data in the euro area provided the first piece of evidence of the slump in Q2 GDP, but added to the picture of a relatively resilient German economy.
Japan's main activity data for April were massively disappointing, presaging the sharper GDP contraction we expect in Q2, compared with Q1.
As painful as it is, the decision to lock down economies to curb the spread of Covid-19 was easy. The next step, however, is considerably more difficult.
The Q1 GDP figures, released on Wednesday, likely will show that the quarter-on-quarter decline in economic activity eclipsed the biggest decline in the 2008-to-09 recession--2.1% in Q4 2008--even though the U.K. went into lockdown towards the very end of the quarter.
India's shocking PMIs for April leave little doubt that the second quarter will be bad enough to result in a full-year contraction in 2020 GDP, even if economic activity recovers strongly in the second half.
Japan's trade deficit has bottomed out. The unadjusted shortfall narrowed to -¥833B in May,
The decision by seven MPs to abandon Labour and set up a new centrist grouping--the Independent Group--will not have a significant impact on the outcome of parliamentary Brexit votes.
At first glance, the latest labour market data appear to be contradictory.
The Bank of Japan yesterday kept its -0.10% policy balance rate and ten-year yield target of "around zero", as expected.
The Covid-19 crisis has turned the tables on the Spanish economy.
We keep hearing that the surge in Covid-19 infections in the South is not a big deal, because the number of cases and the subsequent hospitalizations are still very low when compared to the nightmare suffered in New York and other states, which had thousands of deaths.
Fed Chair Powell's comment on Sunday's "60 Minutes", that a recovery in the economy "may take a while... it could stretch through the end of next year" did not prevent a 3% jump in the S&P 500 yesterday.
The business cycle in the Eurozone tends to follow a fairly simply script, at least in broad terms.
Manufacturers in China continued to trudge along in May, with their post-lockdown recovery looking increasingly fragile.
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.
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.
The two marquee economic reports today, covering May retail sales and industrial production, will capture the initial rebound after the economy hit bottom sometime in mid-April.
We are not concerned by the slowdown in retail sales over the past few months.
More depressing economic numbers in LatAm have been released in recent days, and high frequency data continue to show a near-term bleak outlook.
China's money data continued to improve in April, bolstering the economy's recovery prospects.
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%.
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.
Yesterday's data provided further evidence of the damage wrought on the EZ at the end of Q1.
Korea's unemployment rate was unchanged in April, at 3.8%, beating even our below-consensus forecast for only a minor uptick, to 3.9%.
Japan's GDP likely dropped by 1.1% quarter- on-quarter in the first quarter, even from the favourable Q4 base, when it fell by 1.8%.
Our current base-case forecast for the second quarter is a 30% annualized drop in GDP, based on our assessment of the hit to discretionary spending by both businesses and consumers.
Mexican policymakers stuck to the script yesterday and voted unanimously to cut the main rate by 50bp to 5.50%, its lowest level in more than three years.
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 public finances continue to heal rapidly, suggesting that the Chancellor should have scope to soften his fiscal plans substantially in the Autumn Budget.
We're expecting to see the sixth straight drop in initial jobless claims this week, though we think the 2,500K consensus forecast is too ambitious.
Data released yesterday in Brazil support our base case that the IPCA inflation rate will remain relatively stable over the coming months, hovering around 2%.
The closer we look at the data, the less concerned we are at the painfully slow decline in the number of new daily confirmed Covid-19 cases.
A decade of public deficit reduction was fully reversed in April, as the coronavirus tore through the economy.
We've suspected that China's GDP targeting system was on its last legs for some time now.
The early damage in India from Covid-19 and the nationwide lockdown likely was significant enough to hammer the GDP report for the first quarter, due tomorrow.
Friday's money supply data in the euro area show that liquidity support for the economy remained firm mid-way through Q2. Headline M3 rose by 8.9% year-over-year in May, accelerating from a revised 8.2% increase in April, and extending its ascent from around 5% before the Covid-19 shock.
Hot on the heels of yesterday's grim-looking-- temporarily--existing home sales numbers for May, we see upside risk for today's new sales data.
As the dust settles from Wednesday's budget proposal by the EU Commission--see here--economists and investors are left with a myriad of questions.
We learned yesterday that the patchy but widespread reopening of the economy is triggering the first wavelet of rehiring.
The stock market did not like the renewed closure of bars in Texas and Florida, announced Friday morning.
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 in Mexico surprised to the upside in April, but the underlying picture has improved rapidly over recent months.
One way or another, the preliminary estimate of Q1 GDP--due Friday--will have a big market impact, following Mark Carney's warning last week that a May rate hike is not a done deal.
Sterling's rough first half of this year--cable has depreciated to $1.24, from $1.33 at the end of 2019--is hard to reconcile with its normal macroeconomic determinants.
The big talking point over the weekend was the report from Germany's Robert Koch Institute, RKI, that the Covid-19 reproductive rate jumped to 2.88 at the end of last week, driving the seven-day average up to 2.07.
Yesterday's June PMIs offered more of the same, insofar as the survey's key message goes in the past few months.
Chancellor Sunak looks set to announce more fiscal stimulus next month to reinforce the economic recovery, despite recent record levels of public borrowing.
Britain's Covid-19 data have continued to improve, despite the partial reopening of the economy.
Looking beyond the potential hit from the lockdown in North Rhine-Westphalia, German consumer sentiment is improving steadily.
Data to be released this Friday should show that Japan's labour market remains tight, though the unemployment rate likely ticked back up in February, to 2.6%, after the erratic drop to 2.4% in January.
The mortgage market still is defying gravity. U.K. Finance initially reported yesterday that house purchase mortgage approvals by the main high street banks collapsed to 35.3K in February, from 39.6K in January.
The COPOM meeting minutes, released yesterday, brought a balanced message aimed at curbing market pricing of further rate cuts, in our view.
The Fed wants price stability--currently defined as 2% inflation--and maximum sustainable employment.
Yesterday's figures from trade body U.K. Finance showed that January's pick-up in mortgage approvals was just a blip.
The main thing on investors' minds is how much more pain the global economy has to take as a result of China's slowdown.
Wage growth will be crucial in determining how quickly the MPC raises interest rates this year. So far, it hasn't recovered meaningfully.
Momentum in the euro area's money supply slowed last month. M3 growth dipped to 4.7% year-over-year in February, from a downwardly-revised 4.8% in January. The headline was mainly constrained by the broad money components. The stock of repurchase agreements slumped 24.3% year-over-year and growth in money market fund shares also slowed sharply.
Recent data have confirmed that Colombian economic activity is still fragile, and that downside risks increased in Q1 as oil prices hav e slipped. The ISE economic activity index rose just 1.0% year-over-year in January, down from a 1.6% average gain in Q4.
The failure of House Republicans to support Speaker Ryan's healthcare bill has laid bare the splits within the Republican party. The fissures weren't hard to see even before last week's debacle but the equity market has appeared determined since November to believe that all the earnings-friendly elements of Mr. Trump's and Mr. Ryan's agendas would be implemented with the minimum of fuss.
Yesterday's January EZ money supply data offered support for investors betting on a further dovish shift by the ECB at next month's meeting.
Markets often greet the monthly international trade numbers with a shrug.
Guo Shuqing, head of the newly formed China Banking and Insurance Regulatory Commission, has been named as Party Secretary for the PBoC.
When Fed Chair Powell said last week that the "surprise" weakness in the official retail sales numbers is "inconsistent with a significant amount of other data", we're guessing that he had in mind a couple of reports which will be updated today.
Speculation that another general election is imminent has intensified in recent weeks.
Data released in recent days are confirming the story of a struggling economy and falling inflation pressures in Mexico, strengthening our base case of interest rate cuts over the second half of the year.
Yesterday's IFO offered a rare upside surprise in the German survey data.
President Trump made official his plan to impose tariffs on up to $60B of annual imports from China, as well as limitations on Chinese investments in the U.S.
Data released last week confirm that the Argentinian economy ended 2017 strongly.
Meetings are a nice way to stress test our base case stories and gauge what questions are important for clients.
Recent upbeat economic reports have mitigated the downside risks we had been flagging to our growth forecast for Mexico for the current quarter.
The balance of risks to activity in Mexico this year is still tilted to the downside, even though recent data have been mixed. Key indicators show that the manufacturing sector is gathering strength on the back of lagged effect of the MXN's sell-off last year, and the improving U.S. economy.
A series of events have forced markets and analysts to re-evaluate their assumption that Bank Rate will remain on hold throughout 2017. First, the minutes of the MPC's meeting had a hawkish tilt.
It has been difficult to be an optimist about U.S. international trade performance in recent years. The year-over-year growth rate of real exports of goods and services hasn't breached 2% in a single quarter for two years.
Whichever way you choose to slice the numbers, consumers' spending is growing much more slowly than is implied by an array of confidence surveys.
The picture for Korean quarterly real GDP growth in Q4 was unchanged in the final reading, published yesterday, showing a contraction of 0.2%, after the 1.4% jump in Q3.
The 0.18% increase in the core PCE deflator in December was at the lower end of the range implied by the core CPI. It left the year-over-year rate at just 1.5%.
The unemployment rate hit its post-1970 low in April 2000, at the peak of the first internet boom, when it nudged down to just 3.8%. The low in the next cycle, first reached in October 2006, was rather higher, at 4.4%.
Speeches by Chair Yellen and Vice-Chair Fischer give the two most important Fed officials the perfect platform today to signal to markets whether rates will rise this month.
Inflation pressures in the Eurozone are building rapidly, setting up an "interesting" ECB meeting next week. Yesterday's advance CPI report showed that inflation edged up further in February to 2.0%, from 1.8% in January. The headline rate is now in line with the ECB's target, and up sharply from the average of 0.2% last year.
Banxico's Quarterly Inflation Report--QIR--for Q4 2016, published this week, confirmed that the monetary authority is concerned about the slowing pace of economic activity and rising inflation pressures. Banxico noted that signs of a recovery have emerged in external demand, but it also pointed out that the Trump administration might impose policies which would hit FDI flows into Mexico.
February's money and credit figures supported recent labour market and retail sales data suggesting that consumers are increasingly financially strained. Households' broad money holdings increased by just 0.2% month-to-month in February, half the average pace of the previous six months.
The retail sales data, released yesterday, underline the struggle that Japanese consumers are facing against rising inflation.
Colombia's GDP growth hit a relatively solid 2.8% year-over-year in Q4, up from 2.7% in Q3, helped by improving domestic fundamentals, which offset the drag from weaker terms of trade.
Investors focussed last week on Chair Powell's semi-annual Monetary Policy Testimony, but he said nothing much new.
The national accounts look set to show that GDP growth in the fourth quarter was even stronger than previously estimated. Earlier this month, quarter-on-quarter growth in construction output in Q4 was revised up to 1.2%, from 0.2%. As a result, construction's contribution to GDP growth will rise by 0.07 percentage points.
Downside risks to our growth forecast for Brazil and Mexico for this year have diminished this week. In Brazil, concerns over the potential impact of the meat scandal on the economy have diminished. Some key global customers, including Hong Kong, have in recent days eased restrictions on imports from Brazil, and other counties have ended their bans.
On the face of it, the February consumer spending data, due today, will contradict the upbeat signal from confidence surveys. The dramatic upturn in sentiment since the election is consistent with a rapid surge in real consumption, but we're expecting to see unchanged real spending in February, following a startling 0.3% decline in January.
The Prime Minister appears set to have one more go at getting the House of Commons to ratify the Withdrawal Agreement today.
Banxico yesterday left its policy rate unchanged at 3%, the highest level in a decade.
Yesterday's data don't significantly change our view that first quarter GDP growth will be reported at only about 1%, but the foreign trade and consumer confidence numbers support our contention that the underlying trend in growth is rather stronger than that.
The presumption in markets is that the French presidential election is the last hurdle to be overcome in the EZ economy. As long as Marine Le Pen is kept out of l'Élysée, animal spirits will be released in the economy and financial markets. We concede that a Le Pen victory would result in chaos, at least in the short run. Bond spreads would widen, equities would crash and the euro would plummet. But we also suspect that such volatility would be short-lived, similar to the convulsions after Brexit.
Gilt yields have tumbled, with the 10-year sliding to just 1.0%, from 1.2% a week ago.
Fourth quarter GDP growth is likely to be revised down today.
Bond yields in the Eurozone took another leg lower yesterday.
LatAm currencies have risen against the USD so far this year, easing the upward pressure on imported good prices and allowing most central banks to cut interest rates. The first direct effects of stronger currencies should be felt by firms which import high-turnover intermediate or final goods.
The Prime Minister will invoke Article 50 today, marking the end of the beginning of the U.K.'s departure from the EU. The move likely will not move markets, as it has been all but certain since MPs backed the Government's European Union Bill on February 1.
Our base case forecast has core PCE inflation at 1.9% from November 2018 through July this year.
If we're right with our forecast that real consumers' spending rose by just 0.1% month-to-month in February -- enough only to reverse January's decline -- then it would be reasonable to expect consumption across the first quarter as a whole to climb at a mere 1.2% annualized rate.
Everyone needs to take a deep breath: This is not 1930, and Smoot-Hawley all over again.
The national accounts, released today, likely will restate that quarter-on-quarter GDP growth held steady at 0.4% in Q4.
China's industrial profits tanked in January/ February, falling 14.0% year-to-date year-over-year, after a 1.9% drop year-over-year in December.
If you wanted to be charitable, you could argue that the downturn in the rate of growth of core durable goods orders in recent months has not been as bad as implied by the ISM manufacturing survey.
New home sales are much more susceptible to weather effects -- in both directions -- than existing home sales. We have lifted our forecast for today's February numbers above the 575K pace implied by the mortgage applications data in recognition of the likely boost from the much warmer-than-usual temperatures.
Now that the Fed has abandoned the idea of raising rates this year, despite 3.8% unemployment and accelerating wages, it is very exposed to the risk that the bad things it fears don't happen.
For countries with developed non-banking funding channels, narrow money isn't necessarily a good predictor of GDP growth.
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.
The remarkably strong existing home sales numbers in recent months, relative to the pending home sales index, are hard to explain. In January, total sales reached 5.69M, some 6% higher than the 5.35M implied by December's pending sales index. The gap between the series has widened in recent months, as our first chart shows, and we think the odds now favor a correction in today's February report.
January's money supply figures continued the nerve-jangling flow of data on the economy's momentum.
The perfect world for equities is one in which earnings and valuations are rising at the same time, but in the Eurozone it seems as if investors have to make do with one or the other.
February's consumer price figures give the MPC reason to doubt the case for raising interest rates again as soon as May.
Global current account imbalances are back on the agenda. In the U.S., economic policies threaten to blow out the twin deficit, while external surpluses in the euro area and Asia are rising.
We previewed the FOMC meeting in detail yesterday -- see here -- but to recap briefly, we expect a 25bp rate hike, with no significant changes in the statement, and a repeat of the median forecasts of three rate hikes this year.
The Brazilian BRL has remained relatively stable year-to-date, following a strong rebound in January. But downward pressures have re-emerged over the last two months, as shown in our first chart.
February's consumer price figures, released yesterday, put more pressure on the MPC to stick to its plans for an "ongoing" tightening of monetary policy, despite the uncertainty created by the Brexit chaos.
Growth in South America disappointed last year, but prospects are gradually improving on the back of rising commodity prices and the global manufacturing rebound. These factors will help to ease the region's external and fiscal vulnerabilities, particularly over the second half of the year. On the domestic front, though, the first quarter has proved challenging for some countries, hit by temporary supply factors such as a mine strikes, floods, and wildfires.
February's consumer price figures provided hard evidence that the import price shock, caused by sterling's depreciation last year, is filtering through faster than the MPC expected. We expect CPI inflation to continue to exceed the forecast set out in February's Inflation Report.
The Eurozone's total external surplus hit the skids at the start of the year. Yesterday's report showed that the seasonally adjusted current account surplus plunged to a two-year low of €24.1B in January, from a revised €30.8B in December.
Existing home sales peaked last February, and the news since then has been almost unremittingly gloomy.
Under normal circumstances, we would expect today's retail sales figures to reveal that volumes rebounded in February, following the 2.7% fall over the previous three months. But the continued weakness of spending surveys suggests that we should brace for another soft report.
The U.S. and Eurozone economies differ in many ways, but for economists, the biggest contrast is between the two regions' labour market data.
Unlike other central banks, the MPC has stuck to its message that "an ongoing tightening of monetary policy over the forecast period" likely will be required to keep inflation close to the 2% target, provided a no-deal Brexit is avoided.
At Wednesday's BCB monetary policy meeting, led for the first time by the new president, Roberto Campos Neto, the COPOM voted unanimously to maintain the Selic rate at 6.50%, the lowest on record.
China's growth can be decomposed into the structural story and the mini-cycle, which is policy- driven.
So much has changed in China over the last six months that we are taking the opportunity in this Monitor to step back and gain an overview of where the economy is going in the long term.
The most striking feature of the Fed's new forecasts is the projected overshoot in core PCE inflation at end-2019 and end-2020, which fits our definition of "persistent".
Today's economic calendar in the Eurozone is filled to the rafters.
Slack in the labour market no longer is being absorbed and wage growth still is struggling for momentum, placing little pressure on the MPC to rush the next rate rise.
Premier Li Keqiang rounded out the National People's Congress with his press conference yesterday.
Speculators who have sold sterling over the last six months have been frustrated. Investors have been overwhelmingly net short sterling, but the pound has hovered between $1.20 and $1.25, as our first chart shows. Undeterred, investors increased their net short positions last week to 107K contracts-- the most since records began in 1992--from 81K a week earlier.
Chair Yellen's Testimony sought clearly to tell markets that the Fed has upgraded its view on growth, and the state of the labor market. After reading the first few paragraphs, which focussed clearly on the good news, though peppered with the usual caveats, the door was open for the section on policy to signal unambiguously that the Fed is close to its first tightening.
Argentina's Q4 GDP report, released last week, underscored the severity of the recession, due to the currency crisis and the subsequent tighter fiscal and monetary policies.
The 1.4% month-to-month rise in retail sales volumes in February is not a game-changer for the economy's growth prospects in Q1. The increase reversed just under half of the 2.9% decline between October and January. The 1.5% fall in retail sales in the three months to February, compared to the previous three months, is the worst result in seven years.
Local policy drivers have remained in the spotlight in Brazil, against a background of important recent global events.
The nominal value of orders for non-defense capital equipment, excluding aircraft, fell by 3.4% last year. This was less terrible than 2015, when orders plunged by 8.4%, but both years were grim when compared to the average 7.5% increase over the previous five years.
The euro area's trade advantage with the rest of the world slipped at the start of the year.
On a headline level, the key message from the Eurozone PMIs was little changed on Friday.
China announced the appointment of key political and financial jobs yesterday.
In a week of important global events, local factors remained in the spotlight in Brazil, with a more benign data flow and the central bank statement reducing the likelihood of an imminent end to the easing cycle.
We expect MPs this week to take a big step towards a soft Brexit, which has been our base case since the referendum.
The commentariat was very excited Friday by the inversion of the curve, with three-year yields dipping to 2.24% while three-month bills yield 2.45%.
Japan's CPI inflation was unchanged, at 0.2% in February.
We expect the Fed today to shift its dotplot to forecast one rate hike this year, down from two in December and three in September.
Construction in the EZ stumbled at the start of the year.
Yesterday's barrage of economic data in the Eurozone added to the evidence that economic momentum is slowing.
Latin American markets have been relatively resilient this year, despite Fed tightening and high global political risks. The LACI index has risen more than 5% year-to-date, and the MSCI index has been trending higher since late last year.
One of the key characteristics of this euro area business cycle has been near-zero inflation due to structurally weak domestic demand and depressed prices for globally traded goods and commodities. This has supported real incomes, despite sluggish nominal wage growth.
The federal debt ceiling was re-imposed last week, with no fanfare, and no reaction in the markets. All eyes were focussed instead on the Fed's rate hike and Chair Yellen's press conference.
The COPOM meeting was the centre of attention in Brazil this week. The committee cut the main rate by 25 basis points to a new historical low of 6.50%, in line with market expectations.
The PBoC hiked its 7-day reverse repo rate by 5bp yesterday, stating that the move was a response to the latest Fed hike.
Yesterday's announcement that the administration plans to imposes tariffs worth about $60B per year -- thatìs 0.3% of GDP -- on an array of imports of consumer goods from China is a serious escalation.
This is the final Monitor before we head out for our spring break, so we have added a page in order to make room to preview the employment report due next Friday, April 4. We expect a solid but unspectacular 175K increase in payrolls, slowing from February's unsustainable 242K, but still robust.
The Monetary Policy Committee chose to keep its options open in the minutes of this week's meeting, rather than signal as clearly as it did last year that interest rates will rise very soon.
While financial markets remain obsessed with the Brexit saga, January's labour market data provided more evidence yesterday that the economy is coping well with the heightened uncertainty.
The national February inflation data are due this Friday, a couple of weeks after the Tokyo report, as usual.
The MPC held back last week from decisively signalling that interest rates would rise when it meets next, in May.
In his second confirmation hearing, Governor Kuroda continued his dance with markets, dialling down the exit talk.
In one line: Lockdowns hurt the economy, substantially!
In one line: No words for this.
In one line: PBoC gives RRR cut reward to banks that tow the line
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the possibility of 4 interest rate hikes in 2017
Echoes of the global financial crisis and the 2011 tsunami in Japan's manufacturing PMI
In one line: Previously unimaginable.
In one line: Another hefty cut as the economy is heading for a deep recession.
In one line: A bold rate cut, and the COPOM will act again if required.
In one line: Covid-19 outbreaks fading in China, Korea; Elsewhere, not.
In one line: Low inflation keeps the door open for further rate cuts.
We would be astonished if the FOMC meeting starting today does not end with a 25bp rate hike.
In one line: On hold; playing it safe due to the PEN sell-off, but rate cuts loom.
The ECB made no major policy changes yesterday, but tweaked its communication. The key refinancing and deposit rates were kept at 0.00% and -0.4%, respectively, and the pace of QE was maintained at €30B per month.
We'd be quite surprised if the headline payroll number today turned out to be far from the consensus, 205K, or our forecast, 225K.
Our below-consensus 125K forecast for today's February payroll number is predicated on two ideas.
Colombia and Chile faced similar broad trends through most of 2018.
The sharp 0.4% month-to-month fall in GDP in December and the slump in the Markit/CIPS PMIs towards 50 have created the impression the economy is on the cusp of recession.
India's prime minister, Narendra Modi, yesterday held his last cabinet meeting before the general election.
Chief U.K. Economist Samuel Tombs on U.K. Economic Sentiment
We expected a consensus-beating ADP employment number for February, but the 298K leap was much better than our forecast, 210K. The error now becomes an input into our payroll model, shifting our estimate for tomorrow's official number to 250K; our initial forecast was 210K.
The Chancellor lived up to his reputation for fiscal conservatism yesterday and is pressing ahead with a tough fiscal tightening. He hopes that this will create scope to loosen policy if the economy struggles after the U.K. leaves the EU in 2019, but we remain concerned his "fiscal headroom" will be much smaller than he currently anticipates.
It is still premature to make fundamental changes to our core views for the global or LatAm economy, following President Trump's plan to slap hefty tariffs on steel and aluminium imports, potentially escalating into a global trade war.
The industrial sector went from strength to strength in 2017. Year-over-year growth in production picked up to 2.1%--its highest rate since 2010--from 1.3% in 2016.
China's export growth surged to 44.5% year-over- year in February, from 11.2% in January. The timing of this news is unfortunate.
We predict no major policy changes at the ECB today. We think the central bank will leave its main refinancing and deposit rates unchanged at 0.00% and -0.4%, respectively. We also expect the ECB will leave the pace of QE unchanged at €60 per month until December 2017, at least.
In one line: Europe outside Italy is in trouble; more days like yesterday will result in broad lockdowns.
In one line: New global cases rising steadily, not exponentially, but Europe and U.S. outbreaks worsening.
Still Waiting for Results from Europe's Lockdowns; U.S. Cases Soaring
Possible Slowdowns in New Cases in NYC and Some European Countries
In one line: A slight slowing in the rate of increase outside China; Iran is the key exception.
New Asian Cases Ticking Higher; European Growth Steady, but Rapid
In one line: New cases outside the major four outbreaks are accelerating.
First Signs of a Turning Point in Europe as Case Growth Slows?
European Covid-19 Case Growth Appears to be Slowing
In one line: U.S. case growth is rapid but seems to be slowing, and beware the risk of explosive new hotspots.
In one line: No slowdown yet in U.S. case growth; risk of explosive outbreaks in NJ, FL, LA.
In one line: The U.S. Covid-19 Curve isn't bending yet.
Two Straight Days of Better News from Italy; U.S. Still Deteriorating
In one line: NYC making real progress, but rapid increases continue in several large states.
In one line: It's beatable: No new domestic China cases yesterday.
In one line: The rate of growth of new cases in Italy has levelled off; soon to decline?
In one line: Case growth is slowing in the U.S. and Europe, but Big Risks Remain
In one line: Global cases aren't accelerating, but Italy's nightmare deepens.
In one line: Better news across most of Europe and the U.S., but some states stil face uncontained case growth.
In one line: Outside the big four outbreaks, new cases are rising steadily; they aren't accelerating.
In one line: Fewer non-China cases overall than previous day, but the trend is still rising and the outbreak is accelerating outside the big four.
In one line: Drastic action is coming in Europe, soon.
Little Evidence that Italy's Lockdown is Working, Yet
In one line: Lockdowns ought to slow case growth by early April.
In one line: Italian data confirm that aggressive testing and distancing measures work.
In one line: Hoping for Seasonality.
In one line: Infection rate data no longer reliable; death rates don't lie, and they are accelerating as the virus spreads.
Chief Eurozone Economist Claus Vistesen discussing the German Zew in April
Mr. Draghi and his colleagues erred on the side of maximum dovishness yesterday.
Chile's IMACEC economic activity index rose 3.9% year-over-year in January, up from 2.6% in December, and 2.9% on average in Q4, thanks to strong mining output growth and solid commercial, manufacturing and services activity.
The results of Sunday's parliamentary elections in Italy carry two key messages.
LatAm assets have struggled in recent days as it has become clear that the Fed will hike next week. But we don't expect currencies to collapse, as domestic fundamentals are improving and the broader external outlook is relatively benign.
Fed Chair Yellen's speech Friday was remarkably blunt: "Indeed, at our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate."
Survey data continue to suggest that GDP growth will accelerate in Q1. The final PMI reports on Friday showed that the headline EZ composite index rose to 56.0 in February, from 54.4 in January, in line with the first estimate.
The case for the MPC to hold back from raising interest rates in May remains strong, despite the improvement in the Markit/CIPS services survey in February.
The wide spread in first quarter GDP growth "trackers"--which at this point are more model and assumption than actual data--is indicative of the uncertainty surrounding the international trade and inventory components.
The rebound in the ISM non-manufacturing index in February was in line with our forecast, but behind the strong headline, the employment index dropped to an eight-month low.
Yesterday's final PMI data for February confirmed the story from the advance reports.
The main story to emerge from China's Economic Work Report is the extent of tax cuts, which on our calculations will leave a large funding hole.
Chile's IMACEC economic activity index rose 2.4% year-over-year in January, down from 2.6% in December, and 3.3% on average in Q4, thanks mostly to weak mining production.
China's National People's Congress yesterday laid out its main goals for this year, on the first day of its annual meeting.
If 2017 really is the year of "reflation", somebody forgot to tell the gilt market. Among the G7 group, 10-year yields have fallen only in the U.K. during the last three months, as our first chart shows.
The economic slowdown in China is old news for Eurozone investors.
Friday's economic data in Germany suggest that households had a slow start to the year.
The Prime Minister told the public to "face up to some hard facts" about Brexit in her speech on Friday, but she still clung to an unachievable vision of what Britain can hope to achieve.
China's National People's Congress is set to convene its annual meeting next week.
We set out in detail yesterday, here, why we think the official payroll number today will be better than the 129K ADP reading; we look for 160K.
Last week's final barrage of data showed that EZ headline inflation rose slightly last month, by 0.1 percentage points to 1.5%, driven mainly by increases in the unprocessed food energy components.
The apparently imminent imposition of 25% tariffs on imported steel and 10% on aluminum does not per se constitute a serious macroeconomic shock.
Global economic conditions have been improving for LatAm over recent quarters.
The simultaneous weakening of the ISM manufacturing and non-manufacturing surveys in recent months is one of the more disconcerting shifts in the recent macro data.
February's Markit/CIPS construction survey brought further evidence that the economy is being weighed down by Brexit uncertainty.
Japan's monetary base growth slowed to just 4.6% year-over-year in February, from 4.7% in January, well below the 17% rate needed to keep the base expanding at a pace consistent with the BoJ's JGB quantity target.
The outlook for Argentina is gradually improving, after a long and painful recession.
The small rise in the Markit/CIPS services PMI to 51.3 in February, from 50.1 in January, came as a relief yesterday.
With the FOMC decision now just seven days away, the forcefulness of recent Fed speakers has led many analysts to argue that only a spectacularly bad payroll report, or an external shock, can prevent a rate hike next week. External shocks are unpredictable, by definition, and we think the chance of a startlingly terrible employment report is low, though substantial sampling error does occasionally throw the numbers off-track.
A setback in German manufacturing orders was coming after the jump at the end of 2016, but yesterday's headline was worse than we expected. Factory orders crashed 7.4% month-to-month in January, more than reversing the 5.4% jump in December. The year-over-year rate fell to -0.8% from a revised +8.0%. The decline was the biggest since 2009, but the huge volatility in domestic capital goods orders means that the headline has to be taken with a large pinch of salt.
Markets have been positively surprised by Brazil's rapid disinflation, the efforts at fiscal reform, and the prospect of growth in the economy this year. The Ibovespa index is now above its pre-crisis high and the real has approached the key level of three per USD in recent months. But the latest GDP report, released yesterday, showed that the economy struggled in Q4. Real GDP fell 0.9% quarter-on-quarter, worse than the revised 0.7% drop in Q3.
Chief UK Economist Samuel Tombs on the latest PMI data
The Chancellor's Budget today looks set to prioritise retaining scope to loosen policy if the economy struggles in future, rather than reducing the near-term fiscal tightening. In November, the OBR predicted that cyclically-adjusted borrowing would fall to 0.8% of GDP in 2019/20, comfortably below the 2% limit stipulated by the Chancellor's new fiscal rules.
ADP's report of a 235K increase in private payrolls in February is not definitive evidence of anything, but it is consistent with the idea that labor demand remains very strong.
Consumer sentiment in Mexico continues to improve, consistent with tailwinds from the relatively strong labour market and the president's rising approval ratings.
China's FX reserves fell to $3,134B in February, from $3,161B in January, after a year of gains.
The Treasury has tried to dampen expectations for Tuesday's Spring Statement, which has replaced the Autumn Statement since the Budget was moved last year to November.
The build-up to today's ECB meeting has drowned in the focus on Italy's new political situation and the rising risk of a global trade war.
In some sense, today's ECB meeting will be a sobering one for policymakers.
We're expecting to learn this morning that productivity rose by a respectable 1.7% in the year to the fourth quarter, the best performance in nearly four years.
If the Chancellor is true to his word, Wednesday's Budget will be a pedestrian affair with few major policy changes designed to prevent the economy from slowing this year. In an article in The Sunday Times, Philip Hammond asserted that "we cannot take our foot off the pedal" in the mission to eliminate the budget deficit by the end of the next parliament.
The delay in the processing of personal income tax refunds this year appears not to have had any adverse impact on retail sales, so far. Indeed, the Redbook chainstore sales survey suggests that sales have accelerated over the past few weeks.
Mexican asset prices and sentiment have been helped in recent weeks by less-harsh rhetoric from the Trump administration. The headline consumer confidence for February, reported yesterday, rose to 75.7 from 68.5 in January; all the sub-components improved. The data are not seasonally adjusted, so most local analysts look at the data in year-over-year terms.
The Italian economy slowed at the end 2017, and it continues to underperform other major EZ economies. Real GDP rose 0.2% quarter-on-quarter in Q4, a bit slower than the 0.3% gain in Q3, pushing full-year growth up to a modest 1.0%. This compares poorly, though, with growth of 1.6% in the euro area as a whole.
A trio of data releases yesterday provided no relief from the run of abysmal economic news.
All the signs are that ADP will today report a solid increase in February private payrolls; our forecast is 200K, but if you twist our arms we'd probably say the mild weather last month across most of the country points to a bit of upside risk.
Brazil's industrial sector was off to a soft-looking start in Q1, but the fall in January output was chiefly payback for an especially strong end to 2017.
Korea's final GDP report for Q4 was little changed, in the end.
Last week's heavy snowfall, which blighted the entire country, will depress GDP growth in Q1, making it harder for the MPC to read the economy.
We are surprised by the EU's reaction to Mr. Trump's announcement that the U.S. will impose tariffs on steel and aluminium.
In one line: Bending curves in NY, WA offset by rapid increases in other states; Italy continues to improve.
Japan's jobless rate inched up to 2.5% in January, from 2.4% in December.
China's real GDP growth was unchanged at 6.4% year-over-year in Q1, above the consensus for a slowdown to 6.3%.
It's hard to find anything to dislike in the February employment report.
The MPC went against the grain last month by forecasting that CPI inflation would overshoot the 2% target if it raised Bank Rate as slowly as markets anticipated.
The 20K increase in February payrolls is not remotely indicative of the underlying trend, and we see no reason to expect similar numbers over the next few months.
One critical point emerged from last week's otherwise uneventful BoJ meeting: Governor Kuroda said that the BoJ might "adjust" rates before hitting the 2% inflation target.
Last week's official data supported our forecast that GDP growth likely will slow further in Q1, suggesting that a May rate hike is not the sure bet that markets assume.
The reported rebound in January retail sales was welcome, but the overshoot to consensus was matched, more or less, by the unexpected downward revisions to the December numbers.
Mrs. May looks set to lose the second "meaningful vote" on the Withdrawal Agreement-- WA--today, whether she decides on a straightforward vote or one asking MPs to b ack it if some hypothetical concessions are achieved.
Friday's industrial production headlines in the Eurozone were weak, but the details tell a more nuanced story.
Inflation in the Andes remains in check and the near term will be benign, suggesting that central banks will remain on hold over the coming months.
Friday's manufacturing data in the Eurozone were mixed.
Investors in the gilt market would be wise not to take the new official projections for borrowing and debt issuance at face value. The forecast for the Government's gross financing requirement between 2017/18 and 2021/22 was lowered to £625B in the Budget, from £646B in the Autumn Statement.
The ECB made no major policy changes yesterday. The central bank kept its refinancing and deposit rates unchanged at 0.00% and -0.4% respectively, and the scheduled reduction in the pace of QE to €60B per month was confirmed. The core part of the central bank's language retained its dovish bias.
We're expecting a hefty increase in February payrolls today, but even a surprise weak number likely wouldn't prevent a rate hike next week. The trends in all the private sector employment surveys are strong and improving, and jobless claims have dropped to new lows too, though we think that's probably less important than it appears.
Brazil's industrial sector had a relatively good start to the year. Data on Wednesday showed that production fell 0.1% month-to-month in January, less than markets expected, and the year-over-year rate rose to 1.4%, after a 0.1% drop in December.
Data released yesterday reinforced our forecast of a further rate cut in Brazil next month.
China's unadjusted trade surplus collapsed in February, to just $4.1B, from $39.2B in January.
If Fed Chair Yellen's objective yesterday was to deliver studied ambiguity in her Testimony--and we believe it was--she succeeded. She offered plenty to both sides of the rate debate. For the hawks, she noted that unemployment is now "...in line with the median of FOMC participants' most recent estimates of its longer-run normal level", and that inflation is still expected to return to the 2% target, "...once oil and import prices stop falling".
Monetary policy loosening over the last year implies that China's M1 growth already should be picking up.
Yesterday's industrial production numbers in Germany were similar to Friday's confusing new orders data.
Data over the weekend revealed a further slowdown in China's CPI inflation, to 1.5% in February, from 1.7% in January.
As we go to press, Mrs. May's last-minute scramble to Strasbourg appears to have failed to persuade enough rebels to back the government.
Last week's detailed GDP data in the Eurozone confirmed that the economy is benefiting from an investment cycle for the first time since before the financial crisis.
Last week's decision by the ECB to keep rates unchanged until the beginning of 2020, at least, raises one overarching question for markets.
Our default position for core durable goods orders over the next few months is that they will fall, sharply.
Since January 2015, Core CPI inflation has risen to 2.3% from 1.6%, propelled by a combination of accelerating rents, a substantial rebound in the rate of increase of healthcare costs, and a modest-- though unexpected--upturn in core goods prices. It's always risky, though, simply to extrapolate recent trends and assume you now have a clear guide to the future.
Brazilian inflation has been well under control in the past few months, still laying the ground for rates to remain on hold for the foreseeable future.
Japan's Ministry of Finance yesterday admitted falsifying documents submitted to the country's parliament during a corruption probe last year.
Evidence that U.K. asset prices still are depressed by Brexit risk has become harder to find.
Germany's external surplus remained resilient at the start of the year. Data on Friday showed that the seasonally adjusted trade surplus rose marginally to €18.5B in January, from a revised €18.3B in December.
The measures to support the economy through the coronavirus crisis, unveiled by policymakers on Budget day, exceeded expectations.
Yesterday marked President AMLO's first 100 days in office, with skyrocketing approval ratings and improving consumer confidence.
The Fed rate hike on Wednesday is fully priced in to LatAm markets, so we expect no significant immediate reaction when the trigger is pulled. But as markets gradually come around to our view that future U.S. rate risk is to the upside, markets will come under renewed pressure.
The MPC's meeting on Thursday looks set to be a perfunctory affair. Signs that the economy has lost momentum this year, alongside downward surprises from CPI inflation in January and wage growth in December, mean the Committee won't give the idea of hiking rates a moment's thought.
Today's February CPI report is very unlikely to repeat January's surprise, when the core index was reported up 0.3%, a tenth more than expected.
With rates now certain to rise this week, the real importance of the employment picture is what it says about the timing of the next hike. To be clear, we think the Fed will raise rates again in June, and will at that meeting add another dot to the plot, making four hikes this year.
Our view that households will continue to spend more in the first half of this year, preventing the economy from slipping into a capex-led recession, was not seriously challenged yesterday by the BRC's Retail Sales Monitor.
Core CPI inflation has been 2.1-to-2.2% year-over- year for the past seven months, a remarkably stable run which likely will persist for a few more months.
Latam Struggles in Q4 And Early Q1...But Improving Global Conditions Will Help
Glimmers of Hope in the EZ Macro Data...But the Economy is not out of the Woods Yet
China Delivers Stimulus; No Trough Yet...Korea and Japan Pummelled by China's Slowdown...Time for a Boj Inflation Target Rethink?
Brexit risk currently is only depressing Capex....Rates need to rise to contain wage cost pressures
"Cross-Currents" Will Keep the Fed Safe For Now....But The Headwinds Already Are Starting To Ease
The Coronavirus Is A New Economic Threat....Bad News For Latam's External-Driven Economies
The EZ Economy Will Crumble Under Covid-19 In H1...The Rebound Should Begin By The End Of Q2, If We're Lucky
Activity Data Confirm China's Nightmare Q1...Japan In For A Full-Year Contraction...Korea Should Be Able To Avoid A Technical Recession....India's Policymakers Are Reasonably Quiet, For Now
Powell is a growth bull, not an inflation hawk...Interest rate risk is greater for 2019 than 2018
Markets think a May rate hike is almost certain...but activity and inflation data point to a delay
Economic Activity Remains Sub-Par... But Downside Risks are Gradually Easing
Dutch Pro-EU Centrists Carry The Day...But We Can't Assume The Same Will Happen In France
Brazil's recovery is consolidating, with recent data flow confirming that the economy had an encouraging start to the year.
Consumers are buckling under high inflation...but the MPC won't add to their woes by hiking rates
U.S. profligacy will extend Asia's cycle...but domestic demand to struggle this year and next
Domestic fundamentals are improving...despite rising political and protectionist threats
The Eurozone Economy is doing fine...but recent soft data provide a much needed reality check
A Two-Quarter Recession Now Is Unavoidable...Bolder Stimulus Is Needed To Secure A H2 Recovery
Covid-19 Will Force Further Fed And Fiscal Easing...Timing/Speed Of The Eventual Rebound Is Unknowable
Chinese data still are in the midst of Lunar New Year-related noise, so take February's PMIs with a pinch of salt, even though they ostensibly are adjusted for seasonal effects.
Sterling fell to $1.38, from $1.39, in the hour following the EU's publication of a draft Article 50 withdrawal treaty, which set out the practical consequences of the principles the U.K. agreed to in December.
House purchase mortgage approvals by the main street banks jumped to 40.1K in January, from 36.1K in December, fully reversing the 4K fall of the previous two months, according to trade body U.K. Finance.
Yesterday's advance CPI data for the major EZ economies suggest that today's report for the euro area as a whole will undershoot the consensus slightly.
A quick rebound in growth, after the slowdown to a reported 2.6% in the fourth quarter, is unlikely.
The latest official data show that net migration to the U.K. hasn't fallen much, despite all the uncertainty created by the Brexit vote.
Brazil's GDP growth slowed to just 0.1% quarter- on-quarter in Q4, from a downwardly-revised 0.5% in Q3.
All eyes today will be on the core PCE deflator for January, following the unexpectedly large 0.3% increase in the core CPI.
China's PMIs surprised the consensus forecasts to the downside for February. The manufacturing PMI dropped to 50.3 in February from 51.3 in January, while the non-manufacturing PMI fell to 54.4 from 55.3 in January.
Yesterday's FOMC statement was a bit more upbeat on growth than we expected, with Janet Yellen's final missive describing everything -- economic growth, employment, household spending, and business investment -- as "solid".
We're expecting the FOMC to vote unanimously not raise rates today, but we do expect a modestly hawkish tilt in the statement. Specifically, we're expecting an acknowledgment of the upturn in business investment reported in the Q4 GDP data, and of the increase in market-based measures of inflation expectations, given that 10-year TIPS breakevens are now above 2% for the first time since September 2014.
The Fed's decisions over the next few months hinge on the relative importance policymakers place on the apparent slowdown in payroll growth and the unambiguous acceleration in wages. We qualify our verdict on the payroll numbers because the January number was very close to our expectation, which in turn was based largely on an analysis of the seasonals, not the underlying economy.
The Eurozone's TARGET2 system is a clearing mechanism for the real-time settling of large payments between European financial intermediaries. It's an important piece of financial architecture, ensuring the smooth flow of transactions. But we struggle to see these flows containing much information for the economy.
At next Wednesday's Budget, the Chancellor will have the rare pleasure of announcing lower-than- anticipated near-term borrowing forecasts. But hopes that he will prevent the fiscal tightening from intensifying when the new financial year begins in April look set to be dashed, just as they were at the Autumn Statement in November.
Yesterday's wall of data told us a bit about where the economy likely is going, and a bit about how it started the first quarter. The January trade and inventory data were disappointing, but the February Chicago PMI and consumer confidence reports were positive.
Strong fundamentals have supported private consumption in Mexico recently, but we now expect a slowdown. Spending will not collapse, though, because consumer credit growth, formal employment, real wage income and remittances will continue to underpin consumption for the next three-to-six months.
November's consumer prices figures, released tomorrow, look set to show that the U.K.'s spell of negative inflation has ended. CPI inflation is set to pick-up decisively over the coming months, even if oil prices continue to drift down. In fact, fuel prices likely will contribute to the pick-up in inflation from October's -0.1% rate. November's 1.5% fall in prices at the pump was smaller than the 2.3% drop in the same month last year, so the year-over-year rate will rise. Fuel's contribution to CPI inflation therefore will pick up, albeit very marginally, to -0.47pp from -0.50pp in October.
The Fed Is On Course For Four Hikes This Year...And Another Four In 2018
Argentina's Recovery Continues, but the Rebound is Facing Setbacks
If we're right in our view that the strength of the dollar has been a major factor depressing the rate of growth of nominal retail sales, the weakening of the currency since January should soon be reflected in stronger-looking numbers. In real terms--which is what matters for GDP and, ultimately, the lab or market--nothing will change, but perceptions are important and markets have not looked kindly on the dollar-depressed sales data.
Hard data on Mexico's industrial sector for the last couple of months have highlighted major divergences across sectors.
China's National People's Congress this year was the most significant in years and followed 12 months of lightning-speed change in the country.
February's consumer price figures, released tomorrow, likely will show that CPI inflation fell to 2.8%--one tenth below the MPC's forecast--from 3.0% in January.
We need to take a closer look at the chance of a sustained rise in the labor participation rate, which is perhaps the single biggest risk to the idea that 2018 will be a good year for the stock market, with limited downside for Treasuries.
Friday's data confirmed that inflation in the Eurozone slipped to a 14-month low of 1.1%, from 1.3% in January, 0.1 percentage points below the first estimate.
The rate of growth of wages has been the single best guide to Fed policy for many years.
While Brexit news will dominate the headlines again--see here for why the odds remain against Mrs. May winning the third "meaningful vote"--February's consumer prices report is the highlight in this week's congested economic data calendar.
This week's labour market, inflation and retail sales data--the last before the MPC meets on May 10--will have a major bearing on the Committee's decision.
Over the past 18 months, the year-over-year rate of growth of manufacturing output has swung from minus 2.1% to plus 2.5%.
In order to support current market pricing, the MPC will have to be more specific about the timing of the next rate hike in the minutes of next Thursday's meeting.
The Fed's insistence this week that U.S. rates will rise only twice more this year helped to ease pressures on LatAm markets this week, particularly FX. The way is now clear for some LatAm central banks to cut interest rates rapidly over the coming months, even before U.S. fiscal and trade policy becomes clear. We expect the next Fed rate hike to come in June, as the labor market continues to tighten. If we're right, the free-risk window for LatAm rate cuts is relatively short.
Centrist politicians and markets breathed a sigh of relief yesterday as the results of the Dutch parliamentary elections rolled in. The incumbent conservatives, led by PM Mark Rutte, lost ground but emerged as parliament's biggest party with 33 seats out of the total 150.
Japan's inflation target came under heavy fire yesterday, as Finance Minister Taro Aso suggested that "things will go wrong if you focus too much on 2%."
Data on Friday confirmed that headline inflation in the Eurozone rose a bit last month, to 1.5% from 1.4% in January, but also that the core rate dipped by 0.1 percentage points, to 1.0%.
Chile's Q4 GDP report, released yesterday, confirmed that the economy accelerated at the end of last year, supported by rising capex and solid consumption.
Japan's adjusted trade balance flipped back to a modest surplus of ¥116B in February, after seven straight months of deficit.
Earlier this week the New York Times bleakly suggested--see here--that people in Italy are too depressed to care about this weekend's parliamentary elections.
January's money and credit data broadly support our view that the economy still lacks momentum.
Brazil's GDP growth slowed to just 0.1% quarter- on-quarter in Q4, from an upwardly-revised 0.2% in Q3. This pushed the year-over-year rate up to 2.1%, from 1.4%, but this was weaker than market expectations.
Chile's central bank cut the policy rate 25bp last week to 3.0%, in line with consensus, amid easing inflationary pressures. The timing of the rate cut was no surprise; in January, the BCCh cut rates for the first time in more than two years, and kept a dovish bias.
The Eurozone construction sector ground to a halt at the start of 2017. Data on Friday showed that output plunged 2.3% month-to-month in January, pushing the year-over-year rate down to -6.0%, from a revised +3.0% in December. The weakness was broad-based across the major economies, but it was concentrated in France and Spain where output fell by 3.5% and 3.8%, respectively.
February's consumer price report, released tomorrow, likely will show that CPI inflation has breached the MPC's 2% target for the first time since November 2013. Indeed, we think the headline rate jumped to 2.2%, from 1.8% in January, exceeding the 2.1% rate expected by the MPC and the consensus.
We're not expecting drama from Chair Yellen's semi-annual Monetary Policy Testimony in the Senate today. Dr. Yellen will want to keep alive the idea of a rate hike next month, but she will not signal that action is likely, given the continuing lack of clarity on the path of fiscal policy.
This week has seen a huge wave of data releases for both January and February, but the calendar today is empty save for the final Michigan consumer sentiment numbers; the preliminary index rose to a very strong 99.9 from 95.7, and we expect no significant change in the final reading.
China's manufacturing PMI posted a surprise, albeit trivial, increase in February, to 51.6 up from 51.5 in January.
Yesterday's sole economic report showed that the EZ trade surplus rebounded slightly at the start of the year, rising to €17.0B in January, from a revised €16.0B in February, lifted by a 0.8% increase in exports, which offset a 0.3% rise in imports.
We doubt that this week will see the MPC joining the list of other major central banks that have abandoned plans to raise interest rates this year.
Following our note yesterday about upside risks to wage growth and the question of how the Fed will respond, given their sensitivity to labor cost-push inflation risk in the past, we want to address a question raised by readers.
Sterling took another pounding last week. Resignations from the Cabinet, protests by the DUP, and the public submission of letters by 21 MPs calling for a confidence vote in Mrs. May's leadership, imply that parliament won't ratify the current versions of the Withdrawal Agreement and the Political Declaration on the future relationship with the E.U. next month.
The bulk of China's PMIs were published over the weekend and yesterday, leaving only the Caixin services PMI on Wednesday.
January's money and credit data provided another warning sign that the economy has started 2017 on a weak footing. For a start, the three-month annualised growth rate of M4, excluding intermediate other financial corporations--the Bank's preferred measure of the broad money supply-- declined to 1.8% in January, from 3.1% in December.
The French presidential election campaign remains chaotic. Republican candidate François Fillon had to defend himself again yesterday as investigations into his potential misuse of public funds deepened. Mr. Fillon and his wife have now been summoned to court to explain themselves. Markets expected Mr. Fillon to resign as the Republican front-runner. Instead, he used his unscheduled media address to defiantly declare that he is staying in the race.
Growth in new EZ car sales slipped last month, following a strong start to the year. New registrations rose 4.4% year-over-year in February, slowing from a 8.7% rise in January.
The White House Budget for fiscal 2018, released last week, has no chance of becoming law in anything like its current form, so we don't propose to spend much time dissecting it. But we do need to set out our view on what might actually happen to fiscal policy over the next few months, because it potentially could make a material difference to the pace, and ultimate extent, of Fed tightening.
As expected, the Chancellor kept his powder dry in the Spring Statement, preferring instead to wait for the Budget in the autumn to deploy the funds technically available to him to support the economy.
Governor Kuroda dropped further hints in speeches earlier this week that interest rates will be going up. He discussed methods of exit, in loose terms.
The January durable goods numbers, viewed in isolation, were not terrible.
Korea's unemployment rate tumbled to 3.7% in February, after the leap to 4.4% in January.
Today brings a wave of data which will help analysts narrow their estimates for first quarter GDP growth, and will offer some clues, albeit limited, about the early part of the second quarter.
The collapse in capital spending in the oil sector and poor construction spending have constrained aggregate Mexican industrial output in recent months, despite the strength of the manufacturing sector. Total production fell 0.1% year-over-year in January, though note this was a clear improvement after the 0.6% drop in December, and better than the average 0.4% contraction over the second half of 2016.
The German inflation rate soared at the start of 2017, but it likely will fall in the next few months. Final February data yesterday showed that inflation rose to 2.2% in February, from 1.9% in January, consistent with the initial estimate. Since December, headline inflation in Germany, and in the EZ as a whole, has been lifted by two factors. Base effects from the 2016 crash in oil prices have pushed energy inflation higher, and a supply shock in fresh produce--due to heavy snowfall in southern Europe--has lifted food inflation.
The combination of weather effects and the meltdown in the oil sector make it very hard to spot the underlying trend in manufacturing activity. The sudden collapse in oil-related capital spending likely is holding down production of equipment, but the data don't provide sufficient detail to identify the hit with any precision.
Unemployment in France remains high, but the trend is turning. The mainland rate of joblessness fell to a five-year low of 8.6% in Q4, and yesterday's employment report continued the good news.
A significant minority of investors were betting on a repeat of January's outsized 0.349% increase in the core, judging from the immediate market reaction to the release of the February CPI report.
Small businesses remain extremely positive about the economy, but some of the post-election gloss appears to be wearing off. To be clear, the headline composite index of small business sentiment and activity in February, due this morning, will be much higher than immediately before the election, but a modest correction seems likely after January's 12- year high.
Markets are becoming more sensitive to rumours about changes in ECB policy. The euro and yields jumped on Friday after a Bloomberg report that the central bank has discussed raising rates before QE ends.
With just days to go until the Government triggers Article 50, the consensus view remains that Britain is heading for a "hard" Brexit, which will leave it without unrestricted access to the single market and outside the customs union. We think this view overlooks how political pressures likely will change over the next two years.
The medium-term outlook in most LatAm economies is improving, though economic activity is likely to remain anaemic in the near term. The gradual recovery in commodity prices is supporting resource economies, while the post-election surge in global stock prices has boosted confidence. But country-specific domestic considerations are equally relevant; the growth stories differ across the region.
The Chancellor kept his word and made only trivial policy changes in the Spring Statement, but he hinted at higher spending plans in the Autumn Budget.
The consumer in Brazil was off to a strong start to the first quarter, and we expect household spending will continue to boost GDP growth in the near term.
The National People's Congress yesterday announced a sweeping restructuring of Party/State architecture.
The Fed will hike by 25 basis points today, citing the tightening labor market as the key reason to press ahead with the process of policy normalization. We think the case for adding an extra dot to the plot for both this year and next is powerful.
Yesterday's EZ industrial production data for January confirmed the string of positive advance numbers from most of the individual economies.
It might seem odd to describe a meeting at which the Fed raised rates for only the third time since 2006 as a holding operation, but that just about sums up yesterday's actions. The 25bp rate hike was fully anticipated; the forecasts for growth, inflation and interest rates were barely changed from December; and the Fed still expects a total of three hikes this year.
December's consumer price figures, released tomorrow, likely will reveal that CPI inflation rose to 1.4%--its highest rate since August 2014--from 1.2% in November. Inflation will take even bigger upward steps over the coming months as the anniversary of sharp falls in commodity prices is reached and retailers pass on hefty increases in import prices to consumers.
A sizeable drop in China's year-over-year GDP in Q1 is now the consensus view, after 6.0% growth in Q4.
Yesterday's labour market data significantly bolster the consensus view on the MPC that interest rates do not need to rise this year to counter the imminent burst of inflation. Granted, the headline, three-month average, unemployment rate fell to 4.7% in January--its lowest rate since August 1975--from 4.8% in December, defying the consensus forecast for no-change.
Inflation pressures in France eased in February, in contrast to the story in the rest of the EZ. Yesterday's report confirmed the initial estimate that inflation fell to 1.2% year-over-year in February, from 1.3% in January. The headline was hit by a crash in the core rate to a two-year low of 0.2%, from 0.7% in January.
Today brings yet another broad array of data, with new information on housing construction, industrial production, consumer sentiment, and job openings.
The slowdown in households' income growth since the referendum has not pushed up mortgage default rates, so far. Employment grew by just 0.2% quarter-on-quarter in Q3 and 0.1% in Q4, well below the 0.5% average rate seen in the three years before the referendum.
Brazil's industrial sector keeps losing momentum, despite interest rates at record lows and improving confidence.
Colombia's economy defied rising political uncertainty at the start of the year. Retail sales growth jumped to plus 6.2% year-over-year in January, up from -3.8% in December and -1.8% in Q4.
Industrial production bounced back in February. These data point to a reprieve for old-guard dirty industry, after stringent anti-pollution curbs were put in place in Q4.
The Mortgage Lenders and Administrators Return for Q4, published on Tuesday, suggests that the fall in households' real incomes last year has not led to a deterioration in lenders' mortgage books.
Inflation data in Germany remain up in the air following recent revisions and restatements of the underlying indices.
Don't worry about the weakness of the recent retail sales numbers. The three straight 0.1% month-to- month declines tell us nothing about the underlying state of the consumer.
Yesterday's final CPI estimate in Germany confirmed that inflation fell to a 15-month low of 1.4% year-over-year in February, down from 1.6% in January.
Manufacturing is not in recession, yet, despite the reams of gloomy analysis of the sector, including our own.
The headlines of China's main activity gauges paint a dreary picture of the start of the year, implying a slowdown.
Activity in Colombia cooled at the end of the first quarter, in the face of many domestic and external headwinds. Retail sales, for example, plunged 2.9% in March after a 4.6% leap in February. The headline likely was depressed by the early Easter, as March had one fewer trading day than February.
The April FOMC statement dropped the March assertion that "global economic and financial developments continue to pose risks" to the U.S. economy, even though growth "appears to have slowed". Instead policymakers pointed out that "labor conditions have improved further", perhaps suggesting they don't take the weak-looking March data at face value. We certainly don't.
Eurozone inflation pressures remained subdued in April. Today's final data likely will show that inflation fell to -0.2% year-over-year in April, from 0.0% in March. The main story in this report will be the reversal in services inflation from the March surge, which was due to the early Easter.
The stubbornly slow rate of decline of public borrowing casts doubt on whether the Chancellor will run a budget surplus before the end of this parliament, as his fiscal rule stipulates. But downward revisions to debt interest forecasts by the Office for Budget Responsibility are likely to absolve him again from intensifying the impending fiscal squeeze in the Budget on March 16.
Data today likely will show that the seasonally adjusted trade surplus in the Eurozone jumped to €23.0B in March, from €20.2B in February. The headline was boosted, though, by sharp month-to-month falls in German and French imports, partly due to the early Easter.
CPI inflation surprised to the downside in April, falling to 0.3% from 0.5% in March. Both the consensus and ourselves expected the rate to hold steady. Nearly all of the surprise, however, was in airfares and clothing inflation, which were depressed, to a greater extent than we anticipated, by the shift in the timing of Easter and bad weather, respectively.
Growth in Eurozone car sales slowed slightly at the end of the first quarter. New car registrations in the euro area rose 5.8% year-over-year in March, down from a 14.4% increase in February. But the 12-month average level of new registrations jumped to new cyclical highs of 440,000 and 252,000 in the core and periphery respectively.
The Eurozone construction sector took a step back at the end of Q1, but only temporarily. Construction output fell 1.1% month-to-month in March, after a revised 5.5% jump in February. The year-over-year rate slipped to +3.6%, from a two-year high of 5.5% in February.
The ECB won't make any major changes to its policy stance today. We think the central bank will keep its main refinancing rate unchanged at 0.00%, and that it will maintain its deposit and marginal lending facility rate at -0.4% and 0.25%, respectively. The central bank also will keep the pace of QE unchanged at €80B per month until March, and at €60B hereafter until December. This is the first ECB meeting for some time in which Mr. Draghi will be able to report significantly higher inflation in the euro area.
In the wake of last week's rate increase, the fed funds future puts the chance of another rise in September at just 16%. After hikes in December, March and June, we think the Fed is trying to tell us something about their intention to keep going; this is not 2015 or 2016, when the Fed happily accepted any excuse not to do what it had said it would do.
The construction sector in the Eurozone probably stumbled in March. Advance data for the major economies suggest that output fell 1.2% month-to-month, pushing the year-over-year rate down to 1.6% from 2.4% in February.
Evidence of slowing economic activity in Colombia continues to mount. Retail sales fell 2.0% year- over-rate in April, down from a revised plus 3.0% in March; and the underlying trend is falling. This year's consumption tax increase, low confidence, tight credit conditions, and rising unemployment continue to put private consumption under pressure.
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.
September's consumer price figures helped to curb expectations that the MPC might raise Bank Rate again before the March Brexit deadline.
To paraphrase recent correspondence: "How can you possibly believe, given the terrible run of economic data and the turmoil in the markets, that the Fed will raise rates in March/June/at all this year?" Well, to state the obvious, if markets are in anything like their current state at the time of the eight Fed meetings this year, they won't hike. That sort of sustained downward pressure and volatility would itself prevent action at the next couple of meetings, as did the turmoil last summer when the Fed met in September. And if markets were to remain in disarray for an extended period we'd expect significant feedback into the real economy, reducing--perhaps even removing--the need for further tightening.
CPI inflation held steady at -0.1% in October, matching its lowest rate since March 1960. We had expected the rate to tick down to -0.2%, but the rebound in clothing inflation in October, following a period of discounting in September, was larger than we had anticipated. Looking ahead, we can be fairly confident that CPI inflation will pic k up sharply over the coming months.
Brazil's retail sales improved at the start of the second quarter, increasing 0.5% month-to-month in April, partially reversing the 0.9% contraction in March. But the details were less upbeat than the headline.
Net exports should come roaring back as a driver of Eurozone GDP growth in the second quarter. The euro area trade surplus leapt to €24.3B in April, a new all-time high, up from a revised €19.9B in March. A 1.7% month-to-month fall in imports--mean-reversion from a 3.9% increase in March--was a big contributor to the higher surplus.
Chinese April retail sales growth slowed sharply in value terms, to 9.4% year-over-year, from 10.1% in March.
Official industrial production growth in China plunged to 5.4% year-over-year in April, from 8.5% in March.
We were surprised by the weakness of the April housing starts report; we expected a robust recovery after the March numbers were depressed by the severe snowstorms across a large swathe of the country. Instead, single-family permits rose only trivially and multi-family activity--which is always volatile--fell by 9% month-to-month.
April's consumer price figures, released on Tuesday, look set to reveal that CPI inflation jumped to 2.7%--its highest rate since September 2013--from 2.3% in March. Inflation likely will be driven up entirely by a jump in the cor e rate to 2.3%, from 1.8% in March.
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 failure of the core CPI to mean-revert in April, after the unexpected March drop, does not mean that the Fed can relax.
Back in September, after the Fed decided to hold fire in the wake of market turmoil, we expected rates to rise in December and again in March. We forecast 10-year yields would rise to 2.75% by the end of March. in the event, the Fed hiked only once, and 10-year yields ended the first quarter at just 1.77%. So, what went wrong with our forecasts?
The MPC predicted in last week's Inflation Report that CPI inflation eased to 0.3% in April, thereby fully reversing its increase in March to 0.5%. We think, however, the Committee is underestimating the strength of inflation pressures across the economy.
The jump in CPI inflation to 2.7% in April, from 2.3% in March, was only partly to a temporary boost from the later timing of Easter this year. Indeed, inflation likely will rise further over the coming months as food, energy and core goods prices all continue to pick up in response to last year's depreciation of sterling.
The final and detailed April CPI data confirmed that inflation pressures in the Eurozone eased last month. Headline inflation slipped to 1.2%, from 1.3% in March.
Consumption remains a serious weak spot in Brazil's economic cycle. High inflation, rising interest rates, surging unemployment, plunging confidence, and the government's belt tightening, have trashed Brazilians' purchasing power. Retail sales surprised to the downside in April, falling 0.4% month-to-month, equivalent to a huge 3.5% contraction year-over-year, down from a revised 0.3% gain in March. The underlying trend is awful, as our first chart shows.
China's property market looks to be turning the corner, going by the stronger-than-expected March report.
October's consumer price figures, to be released tomorrow, look set to show CPI inflation easing to -0.2%, from -0.1%, below the no-change consensus and the lowest rate since March 1960. No doubt this will spark more hyperbolic headlines about the U.K.'s descent into pernicious deflation; ignore them. October's print will almost certainly represent the nadir and we think it will take only a year for CPI inflation to return to the MPC's 2% target.
China's March money and credit data, published last Friday, showed that conditions continue to tighten, posing a threat to GDP growth this year.
The year-over-year rate of core CPI inflation rose steadily from a low of 1.6% in January 2015 to 2.3% in February this year. At that point, the three-month annualized rate had reached a startling 3.0%. You could be forgiven, therefore, for thinking that the dip in core inflation back to 2.2% in March was an inevitable correction after a period of unsustainably rapid gains, and that the underlying trend in core inflation isn't really heading towards 3%.
Brazil's recession carried over into the beginning of Q2, but with diminishing intensity. The IBC-BR economic activity index, a monthly proxy for GDP, fell 5.0% year-over-year in April, up from a revised 6.4% contraction in March. The index's underlying trend has improved in recent months, suggesting that the economy is turning around, slowly.
Yesterday's report on October private spending in Mexico was positive, suggesting that consumption remained relatively strong at the start of Q4. Retail sales jumped 1.6% month-to-month, following a modest 0.2% drop in September. October's rebound was the biggest gain since March this year, but note that wild swings are not unusual in these data. The headline year-over-year rate rose to 9.3%, from 8.1% in September, but survey data signal to a gradual slowdown in coming months to around 5%.
January's public finance data, released today, take on particular importance because they are the last to be published before the Chancellor delivers his first Budget on March 8. The public finances nearly always swing into surplus in January, primarily because the deadline for individuals to submit self-assessment--SA--tax returns for the previous fiscal year is at the end of the month. Firms also pay their third of four payments of corporation tax for their profits in the current fiscal year.
December's labour market report, released today, won't be a game-changer for the near-term outlook for interest rates; January data will be released before the MPC meets in March, and February data will be available at its key meeting in May.
We have been asked several times in recent days whether a pick-up in stockbuilding, as part of businesses' contingency planning for a no-deal Brexit, could cause the economy to gather some pace in the run-up to Britain's scheduled departure from the EU in March 2019.
Covid-19 has finally showed up in Japan's exports, which plunged 11.7% year-over-year in March, after falling a mere 1.0% in February.
The FOMC's statement on April 29 mentioned the winter--"...economic growth slowed during the winter months"--but did not explicitly blame any of the first quarter's weakness on the extended cold and snowy weather. That was a change from the March statement, which made no mention of the weather and gave the distinct impression that policymakers had no firm view on why growth had "moderated".
Markets have responded strongly to the ECB's announcement that it will be buying corporate bonds as part of QE. Net corporate debt issuance of non-financial firms jumped €16B in March, the biggest monthly increase since January 2014. The 12-month average, however, was stable at €3.6B, and a sustained increase in net debt supply partly depends on firms' appetite for financial engineering
As promised, Mr. Trump retaliated earlier this week against China's weekend retaliation, after his refusal to back down on the initial tariffs on $50B-worth of imports of Chinese goods, on top of the steel and aluminium tariffs first announced back in March.
Expectations for a March rate hike have dipped since Fed Vice-Chair Clarida's CNBC interview last Friday.
Markets don't believe the Fed's interest rate forecasts. For the fourth quarter of this year, that's probably right; the FOMC's median projection back in March was 0.63%; that will likely be revised down this week. For the next two years, though, things are different.
The Eurozone's current account surplus remained close to record highs at the end of Q1, despite dipping slightly to €34.1B in March, from a revised €37.8B in February. A further increase in the services surplus was the key story.
April's retail sales figures, due Thursday, likely will show that spending recovered from snow-induced weakness in March.
Yesterday's ECB meeting provided no immediate relief to nervous investors. The central bank kept its main interest rates unchanged, and maintained the pace of QE purchases at €60B per month. Mr. Draghi compensated for the lack of action, however, by hinting heavily at further easing at its next meeting. The president emphasized that the ECB's policies will be "reviewed and reconsidered" in light of the March update to the staff projections. Mr. Draghi also admitted that inflation has been "weaker than expected" since the last meeting, and that downside risks have increased further. The central bank does not pre-commit, but we think it is a good bet that the ECB will do more in March.
Brazil's economic performance has improved marginally in recent months, with inflation falling and economic activity and sentiment data stabilizing, or even increasing modestly. The latest regional economic activity report, for instance, showed that although overall output declined again on a sequential basis in March-to-May, three of the five regions expanded.
Advance April consumer survey data will likely confirm that households remain the standout driver of the cyclical recovery in the euro area. We think the headline EC consumer sentiment index rose to -1.0 in April from -3.7 in March.
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.
Final inflation in the Eurozone was confirmed at 0.0% year-over-year in April, up slightly from -0.1% in March. The recovery since the trough in January has been driven mostly by a reduced drag from lower energy prices, a trend which should continue in the second quarter.
We expect April's consumer price figures, due on Wednesday, to show that CPI inflation leapt to 2.3%, from 1.9% in March, exceeding the MPC's 2.2% forecast in the latest Inflation Report.
Holiday effects are tedious and you are going to hear us talking about them until the March data come through.
The ECB will not make any adjustments to its policy stance today. We think the central bank will keep its main refinancing and deposit rates unchanged at 0.0% and -0.4%, respectively, and also that will maintain the pace of QE purchases at €80B a month. The updated macroeconomic projections likely will include a modest upgrade of this year's GDP forecast to 1.5%, from its 1.4% estimate in March.
Eurozone inflation pressures snapped back in April. Friday's advance report showed that headline inflation rose to 1.9% year-over-year, from 1.5% in March, lifted by a jump in the cor e rate to 1.2% from 0.7% the month before.
The ECB moved ahead of the curve this month with its QE program of €60B per month, starting in March. But still-abysmal inflation data will prompt journalists to ask Mr. Draghi, at the next ECB meeting, about the conditions under which the central bank plans to do more.
We were happy to see the small increase in the March ISM manufacturing index yesterday, following better news from China's PMIs, but none of these reports constitute definitive evidence that the manufacturing slowdown is over.
It is very difficult to be positive about the Brazilian economy in the short term, with every indicator of confidence at historic lows. The industrial business confidence index fell 9.2% month-to-month in March alone. Capacity use dropped to 79.7% from 81.5% in February, the lowest level in six years, and inventories rose, presumably because businesses over-estimated the strength of sales.
On the face of it, British manufacturers are weathering the global slowdown well. The Markit/CIPS PMI jumped to 55.1 in March, from 52.1 in February, and now comfortably exceeds those for the Eurozone, U.S. and Japan.
March auto sales were much weaker than expected, falling by 5.5% month-to-month to a 25-month low, 16.5M. The average for the previous six months was 17.8M. The sudden drop in March likely was driven in large part by the huge snowstorm which tracked across the Northeast in the middle week of the month, so we think a decent rebound in April is a good bet.
The Fed will do nothing and say little that's new after its meeting today. The data on economic activity have been mixed since the March meeting, when rates were hiked and the economic forecasts were upgraded, largely as a result of the fiscal stimulus.
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.
We continue to see signs of a strengthening upturn in Eurozone construction. Output in construction rose 0.3% month-to-month in April, pushing the year-over-year rate down to 3.2%, from an upwardly revised 3.8% in March.
The Eurozone's current account surplus slipped at the start of Q2, falling to €28.4B in April from an upwardly-revised €32.8B in March.
The ECB conformed to expectations today. The main refi rate was left unchanged at 0.00%, and the deposit and marginal lending facility rates also were unchanged, at -0.4% and 0.25% respectively. Similarly, the ECB stuck with the changes to QE made in December. Purchases of €80B per month will continue until March, after which the pace will be reduced to €60B per month and continue until December.
CPI inflation fell to 2.3% in November--its lowest rate since March 2017--from 2.4% in October, and it remains on track to fall rapidly over the winter.
The March money and credit figures provide more evidence that the economy's weak start to the year won't be just a blip.
The 1.2% month-to-month fall in retail sales volumes in March undoubtedly was due mostly to the bad weather.
April's retail sales figures, released today, likely will show only a partial reversal of the sharp 1.3% month-to-month fall in sales volumes in March. This would reinforce the impression that the recovery in consumer spending has been becalmed by slower job growth, the intensification of the fiscal squeeze and heightened uncertainty about the economic and political outlook.
French manufacturing came roaring back at the end of Q1. Industrial production jumped 2.0% month-to- month in March, driving the year-over-year rate higher to +2.0%, from a revised -0.7% in February.
It's probably too soon to expect to see a meaningful reaction in the NFIB small business survey to the drop in stock prices, but it likely is coming, and a hit in today's March report can't be ruled out entirely.
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.
Germany's external balance was virtually stable at the beginning of the second quarter. The seasonally adjusted trade surplus rose marginally to €23.9B in April from a revised €23.7B in March, mainly due to weakness in imports. Demand for goods abroad fell 0.2% month-to-month, which pushed up the surplus despite amid unchanged exports. Imports fell 1.5% year-over-year in April, up slightly from a 2.5% decline in March.
Halifax's house price index rose by an eye catching 1.5% month-to-month in March, superficially suggesting that the housing market is reviving.
China's FX reserves were relatively stable in March, with the minimal increase driven by currency valuation effects.
The BLS offered no estimate of the impact on payrolls of the snowstorm which hit the Northeast during the March survey week, but it appears to have been substantial. All the leading indicators pointed to a solid 200K-plus reading, more than double the official initial estimate, 98K.
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.
Yesterday's economic data in Germany cemented the story of a strong start to the year, despite the disappointing headlines. Industrial production slipped 0.4% month-to-month in March, pushing the year-over-year rate down to +1.9% from a revised +2.0% in February.
China's money and credit numbers for April were a mixed bag. M2 growth merely inched down, to 8.5% year-over-year, from 8.6% in March, keeping its gradual uptrend intact.
Today's March CPI ought to provide further support for the idea that the trend rate of increase in the core index is running at about 0.2% per month, an annualized rate, if sustained, of about 2.5%.
China's trade surplus appears modestly to be rebuilding, edging up to $34.0B in November, on our adjustment, from $33.3B in October. The recent trough was $24.B, in March.
Swings in energy output continue to add volatility to French manufacturing data. Industrial production fell 0.9% month-to-month in April, equivalent to a 0.1% fall year-over-year. This was a weak report, even if we factor in the 0.3% upward revision to the March numbers,but it was also he avily tainted by a 10.8% month-to-month collapse in oil refining.
Inflation is falling quickly in Colombia, despite the VAT increase in Q1, so we expect more BanRep rate cuts over the next few months. Consumer prices rose 0.5% month-to-month unadjusted in March, pushing the inflation rate down to 4.7% year-over-year, from 5.2% in February. This is the lowest rate in almost two years, thanks to a favourable base effect and fading pressures from food prices.
Consumer price figures for March, released on Tuesday, likely will show that CPI inflation has taken another step up, probably to 0.4% from 0.3% in February. This should jettison lingering fears that the U.K. is mired in deflation and bolster the Monetary Policy Committee's conviction that inflation will hit the 2% target within the next two years.
New business in German manufacturing ended the first quarter on a strong note. Factory orders rose 1.9% month-to-month in March, above the consensus 0.6%, and net revisions to the February data were +0.4 percentage points. The rise in new orders was exclusively due to a 4.3% increase in export orders, which offset a 1.2% fall in domestic orders. These are strong numbers, but the details suggest that mean reversion will push the headline down next month.
Brazil's March report reinforced recent evidence indicating that inflation is decelerating. The headline CPI surprised to the downside again, slowing to a nine-month low of 9.4% year-over-year from 10.4% in February. The index rose 2.6% quarter-to-quarter in Q1, well below the 3.8% increase in the same period last year.
Last fall and winter, when the weather was warmer than usual--thanks largely to El Nino--construction employment rocketed. Between October and March, job gains averaged 36K, compared to an average of 20K per month over the previous year. When these strong numbers began to emerge, we expected to see a parallel acceleration in construction spending.
The drop in jobless claims to 3,839K in the week ended April 25, from 4,442K in the previous week, leaves the data still terrible, but markedly less terrible than at the 6,867K peak in late March.
Today's March retail sales report will likely disappoint, despite the already- downbeat consensus forecast of a 0.7% month-to-month fall. We think sales fell 1.2%, equivalent to a 1.3% increase year-over-year, due mostly to the bigger-than-expected 2.3% plunge in German sales, reported too late to be incorporated in the Bloomberg consensus.
The Budget on March 16 is set to mark the end of Chancellor George Osborne's lucky streak. Without corrective action, his self-imposed debt rule-- one of the two specified in the 'legally-binding' Charter for Budget Responsibility--looks set to be breached.
This week's hard data confirmed the bleak situation of Brazil's industrial sector, signalled over the last few months by key leading indicators such as the PMI manufacturing and the CNI business confidence surveys. March industrial production fell by 0.8% month-to-month and 3.5% year-over-year, following a downwardly-revised 9.4% contraction in February.
Distinguishing between the structural and cyclical story is crucial to understanding the inflation picture in the Eurozone. Nobel laureate Paul Krugman recently lamented--New York Times, March 1st--that the Eurozone economy appears to be stalling. We doubt the outlook for GDP growth this year is that dire.
Data this week clearly hint at a cyclical trough in Eurozone inflation in the first quarter. The advance estimate for April shows year-over-year inflation rising slightly to zero, up from -0.1% in March.
The 0.7% first quarter increase in the ECI measure of private sector wages and salaries raised the year-over-year rate to 2.8%, the highest since late 2008 and significantly stronger than the 2.1% increase in hourly earnings in the year to March.
Japan's trade surplus rebounded to ¥522B in April, on our adjustment, from ¥390B in March, around the same level as the official version, though from a higher base.
Today's March ADP employment report likely will catch the leading edge of the wave of job losses triggered by the coronavirus.
China's official PMIs for March surprised well to the upside, cheering markets across Asia.
Chief U.S. Economist Ian Shepherdson comments on the Fed Monetary Policy Meeting in March
Yesterday's ECB meeting was a much more assured affair, compared to the March calamity. The central bank left its key refinancing and deposit rates unchanged, at 0.00% and -0.5%, respectively, and also maintained the pace and guidance on its two asset purchase programs.
Chief US Economist Ian Shepherdson on Retail Sales figures, March
China's official manufacturing PMI edged down to 50.8 in April, from 52.0 in March. The output sub- index stayed relatively high, inching down only to 53.7 from 54.1, and chiming with our initial take on the industrial production data for March.
Money supply data in the euro area disappointed yesterday. Growth in M3 fell to 4.6% year-over-year in April, from 5.0% in March, due to an accelerated fall in the pace of narrow money growth. M1 rose 9.7% year-over-year, down from 10.1% in March. It was hit by lower growth in both overnight deposits and currency in circulation.
Yesterday's March labour market data in Germany were surprisingly strong
Chile's April retail sales data, released on Monday, show that private consumption started the second quarter on a solid footing. Sales rose 3.0% month-to-month, pushing the year-over-rate up to 7.9% from 1.4% in March and an average of 4.0% in Q1. The headline was boosted by a favourable calendar effect, as April this year had two more trading days than April 2015.
Chancellor George Osborne has invested considerable personal capital in attaining a budget surplus by the end of this parliament, and he has passed a 'law' to ensure he and his successors achieve this goal. But the current fiscal plans, which will be reviewed in the Budget on March 16, make a series of optimistic assumptions on future tax revenues and spending savings.
Mexico is the only major LatAm economy not struggling with inflation. The headline April CPI fell 0.3% month-to-month, with the year-over-year rate unchanged at 3.1%, in the middle o f Banxico's 2-to-4% target. Inflationary pressures have been broadly absent since the beginning of the year, with the annual core CPI rate slowing to 2.3% in April from 2.5% in March.
Quarter-on-quarter GDP growth last year was buffeted by the accumulation, and subsequent depletion, of inventories, around the two Brexit deadlines in March and October.
Activity in the Mexican industrial sector cooled marginally at the start of the second quarter, but the drop was not as dramatic as the headlines suggested. Output fell 4.4% year-over-year in April, after a 3.4% increase in March.
The NY Fed's announcement yesterday restarts QE. The $60B of bill purchases previously planned for the period from March 13 through April 13 will now consist of $60B purchases "across a range of maturities to roughly match the maturity composition of Treasury securities outstanding".
The pick-up in CPI inflation to 3.1% in November--its highest rate since March 2012-- from 3.0% in October, shouldn't alarm the MPC at this week's meeting.
Whatever happened to consumers' sentiment in March, the level of University of Michigan's index will be very high, relative to its long-term average.
CPI inflation picked up to 0.5% in March, from 0.3% in February. The jump was entirely attributable to core inflation, which leapt to 1.5%--its highest rate since October 2014--from 1.2%. With core inflation on track to rise further over the next year, we continue to think that markets will be caught out by interest rate rises later this year.
Today's producer price report for March likely will show a further increase in core goods inflation, which already has risen to 2.0% in February, from 0.2% in the same month last year. The acceleration in the U.S. PPI follows the even more dramatic surge in China's PPI for manufactured goods, which jumped to 6.6% year-over-year in February, from minus 4.9% a year ago. China's PPI is much more sensitive to commodity prices than the U.S. series, so there's very little chance that core U.S. PPI goods inflation will rise to anything like this rate.
Monthly manufacturing and retail sales data point to upside risk to the consensus expectation of 0.4% quarter-on-quarter in Q1 Eurozone real GDP growth. Advance country data indicate that industrial production was unchanged month-to-month in March, equivalent to a 0.9% increase quarter-on-quarter.
The recession in Brazilian consumers' spending continues, but the severity of the pain is easing. Retail sales plunged 0.9% month-to-month in March, pushing the year-over-rate down to -5.7%, from a revised -4.2% in February. The March headline likely was depressed by the early Easter.
Data today likely will show that manufacturing in the Eurozone was off to a strong start to the second quarter. Advance country data suggest that industrial production jumped 1.1% month-to-month in April, pushing the year-over-year rate up to 1.9% from 0.1% in March. The rise in output was driven mainly by Germany and France, but decent month-to-month gains in Ireland, Portugal and Greece also helped.
So, what should we make of the fourth straight disappointment in the retail sales numbers? First, we should note that all is probably not how it seems. The 0.2% upward revision to March sales was exactly equal to the difference between the consensus forecast and the initial estimate, neatly illustrating the danger of over-interpreting the first estimates of the data.
China's unadjusted March trade balance rebounded to a surplus of $20B, from a combined deficit of -$7B in the first two months of the year.
Evidence of a modest upturn in Brazilian consumers' spending continues to mount. Retail sales rose 1.0% month-to-month in April, pushing the year-over-rate up to +1.9%, from an upwardly-revised -3.2% in March.
Legislative and presidential elections in Colombia will be held on March 11 and May 27, respectively, with a run-off presidential election on June 17 if no candidate secures more than half the votes.
Activity in the Eurozone industrial sector cooled at the end of the first quarter. Manufacturing production declined 0.8% month-to-month in March, pushing the year-over-year rate down to 0.2% from a revised 1.0% in February. Over Q1 as a whole, though, the story was positive.
At today's MPC meeting, the centre of gravity of the policy debate is likely to shift towards the merits of raising interest rates, rather than cutting them. CPI inflation rose from 0.3% in February to 0.5% in March, one tenth above the MPC's forecast in February's Inflation Report.
The "timing of Easter" will feature prominently in our reports over the coming weeks, starting with yesterday's German inflation data. Inflation rose to 0.3% year-over-year in March, from 0.0% in February, in line with the initial estimate.
Treasury yields closed Friday a few basis points higher across the curve than the day before the surprisingly soft March payroll report. A combination of slightly less dovish-than-expected FOMC minutes, a hawkish speech from Richmond president Jeff Lacker, rising oil prices, and robust--albeit second-tier--data last week seem to have done the work.
Friday's weekly report on the assets and liabilities of U.S. commercial banks will complete the picture or March and, hence, the first quarter. It won't be pretty. With most of the March data already released, a month-to-month decline in lending to commercial and industrial companies of about 0.7% is a done deal. That would be the biggest drop since May 2010, and it would complete a 1% annualized fall for the first quarter, the worst performance since Q3 2010. The year-over-year rate of growth slowed to just 5.0% in Q1, from 8.0% in the fourth quarter and 10.3% in the first quarter of last year.
CPI inflation held steady at 2.3% in March, as we and the consensus had expected. Nonetheless, the consumer price figures boosted sterling and bond yields, as the details of the report made it clear that inflation is on a very steep upward path.
The month-to-month core CPI numbers in March were consistent, in aggregate, with the underlying trend.
We fully expect to learn today that import prices rose in March for the first time since June last year. Our forecast for a 1% increase is in line with the consensus, but the margin of error is probably about plus or minus half a percent, and an increase of more than 1.2% would be the biggest in a single month in four years. Most, if not all, of the jump will be due to the rebound in oil prices.
Mexican inflation pressures eased towards the start of Q2. Inflation fell to 2.5% year-over-year in April from 2.6% in March, due to a sharp fall in energy inflation--as a result of the introduction of new electricity tariffs in the warm season--and a fall in the rate of increase of fresh food prices. Depressed energy prices will continue to constrain inflation in coming months, but base effects will reduce the drag later this year.
March data for retail sales and manufacturing have tempered our optimism for the advance Q1 GDP estimate in Germany next week. Industrial production fell 0.5% month-to-month in March, equivalent to a mere 0.1% increase year-over-year, mainly as a result of weakness in core manufacturing activities.
Yesterday's industrial production data in Germany were downbeat. Output fell 1.3% month-to-month in March, pushing the year-over-over rate down to 0.3%, from 2.0% in February. Production was held back by weakness in manufacturing and a plunge in construction, Meanwhile, energy output rebounded slightly following last month's fall. Over Q1 as a whole, though, the industrial sector performed strongly.
Chinese PPI inflation dropped again in March to 3.1%, from February's 3.7%. Commodities were the driver, but base effects should mean the headline rate won't fall further in coming months; it is more likely to rise in Q2.
CPI inflation in China surged to a five-month high of 2.3% in March, from 1.5% in February.
The Fed paved the way with a 50bp emergency rate cut on March 3, with more to come.
On the face of it, small business have taken quite a hit over the past few months. The headline index from the NFIB survey of small businesses has dropped to a nine-month low of 95.2 in March from 100.4 in December. As a result, the gap between the NFIB and the ISM manufacturing indexes, which had been narrowing, has widened again.
Consumers' spending in the second quarter is still set to be less than great, thanks in part to unfavorable base effects from the first quarter, but a respectable showing of about 2¾% now seems likely. The core May retail sales numbers were a bit stronger than we expected, with gains in most sectors, and the upward revisions to April and March were substantial.
In March, CPI rents--the weighted average of primary and owners' equivalents rents--rose by 0.35% month- to-month.
The sudden downshift in core inflation at the consumer level since March, clearly visible in the CPI and the PCE, and shown in our first chart, has been accompanied by a steady increase in core producer price inflation.
Germany continues to draw fire for its ballooning trade surplus, but momentum in net exports is easing. The seasonally adjusted trade surplus dipped marginally to a three-month low of €19.7B in April, from €19.8B in March, as stronger imports offset a modest rise in exports. The German trade surplus averaged €19.9B in the first four months of 2017, about 10% lower than the cyclical peak, in the middle of 2016.
In the last two months, we have suggested that monetary conditions have turned the corner, but have cautioned that Lunar New Year distortions make the March data critically important.
Brazil's current account deficit rose to USD6.9B in April, from USD5.8B in March. The deficit totaled USD100.2B, or 4.5% of GDP on a 12-month rolling basis, marginally better than 4.6% in March; the underlying trend is flat. The services and income accounts improved slightly compared to April last year.
On all accounts, the ECB announced a significant addition to its stimulus program yesterday. The central bank cut the deposit rate by 0.1%, to -0.3%, and extended the duration of QE until March 2017. The ECB also increased the scope of eligible assets to include regional and local government debt; decided to re-invest principal bond payments; and affirmed its commitment to long-term refinancing operations in the financial sector for as long as necessary. The measures were not agreed upon unanimously, but the majority was, according to Mr. Draghi, "very large".
Mr. Draghi struck a dovish tone yesterday, despite the new ECB staff projections upgrading the inflation forecast this year to an average of 0.3%, up from the zero predicted in March. The president reiterated that the central bank's expectation of a gradual improvement in inflation and real GDP growth is conditional on the full implementation of QE.
This week's March economic activity reports in Chile have been relatively strong, with the industrial sector expanding briskly and retail sales solid.
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.
Japan's services PMI edged down to 52.0 in March, from 52.3 in February, taking the Q1 average to 52.0, minimally up from Q4's 51.9.
The latest Markit/CIPS manufacturing survey has dashed hopes that sterling's depreciation and the pickup in global trade will facilitate strong growth in U.K. production this year. The PMI dropped to 54.2 in March, from 54.6 in February.
Economic data in the Eurozone continue to come in soft. Yesterday's final manufacturing PMIs confirmed that the euro area index slipped to an eight-month low of 56.6 in March, from 58.6 in February.
We recommend that investors take yesterday's inflation data in the Eurozone with a pinch of salt. The headline rate slipped to 1.2% in April, from 1.4% in March, hit by a slide in core inflation to 0.7%, from 1.0%.
The failure of the Markit/CIPS services PMI to rebound fully in April, following its fall in March, provides more evidence that the economy is in the midst of an underlying slowdown.
Corporate bonds will not be included in the ECB's monthly QE purchases until the end of Q2, but markets are already preparing. The sale of non-financial corporate debt jumped to €49.4B in March, from about €25B in February, within touching distance of the record set in Q1 last year.
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.
The relative strength of the investor and consumer confidence reports for March, released this week, signal a better outlook for the Mexican economy.
The advance trade data for February make it very likely that today's full report will show the headline deficit rose by about $½B compared to March, thanks to rising net imports of both capital and consumer goods, which were only partly offset by improvements in the oil and auto accounts.
Eurozone manufacturing selling prices remain under pressure from deflationary headwinds. The PPI index, ex-construction, in the euro area fell 4.2% year-over-year in March, matching February's drop. Weakness in oil prices continues to drive the headline.
The MPC won't stand idly by on Thursday, despite having moved decisively to support the economy in March.
In Friday's Monitor--see here--we argued that the official labour market data were less than accurate at the moment, and we'd make the same point about the CPI. The April report showed that EZ headline inflation fell to 0.4% year-over-year, from 0.7% in March, while the core rate dipped by 0.1pp, to 1.0%.
The March employment report didn't tell us what we really want to know. The underlying trend in wage growth remains obscured by the calendar quirk which depresses reported hourly earnings when the 15th of the month--pay day for people paid semi-monthly -- falls after the payroll survey week.
Today's Sentix survey of Eurozone investor sentiment likely will remain downbeat. We think the headline index rose only trivially, to 6.0 in April from 5.5 in March, and that the expectations index was unchanged at 2.8. Weakness in equities due to global growth fears and negative earnings revisions likely is the key driver of below-par investor sentiment.
The startling 5.5% drop in auto sales in March left sales at just 16.5M, well below the 17.4M average for the previous three months and the lowest level since February last year. A combination of the early Easter, which causes serious problems for the seasonal adjustments, and the lagged effect of the plunge in stock prices in January and February, likely explains much of the decline.
Policymakers in Colombia last Friday took aim at inflation by hiking interest rates by 50 basis points to 7.0%. The consensus expectation was for a 25bp increase. BanRep's bold move, which came on the heels of six consecutive 25bp increases since November, took Colombia's main interest rate to its highest level since March 2009.
The FOMC delivered no big surprises yesterday, but seemed keen to make it clear that policymakers are sticking to their core views, despite the slowdown in growth in the first quarter. Unlike the March statement, yesterday's note pointed out that the slowdown came in the winter months, though it did not directly blame the weather for the sluggishness in growth.
Fed policymakers surprised no one with their May 1 statement, which acknowledged the surprisingly "solid " Q1 economic growth--at the time of the March 19-to-20 meeting, the Atlanta Fed's GDPNow model suggested Q1 growth would be just 0.6%--but stuck to its view that low inflation means the FOMC can be "patient".
The Markit/CIPS manufacturing PMI shot up to a three-year high of 57.3 in April, from 54.2 in March, bringing an end to the run of downbeat news on the economy. The performance of the U.K. manufacturing sector, however, remains underwhelming, given the magnitude of sterling's depreciation.
We were a bit surprised to see our forecast for the April trade deficit is in line with the consensus, $44B, down from $51.4B in March, because the uncertainty is so great. The March deficit was boosted by a huge surge in non-oil imports following the resolution of the West Coast port dispute, while exports rose only slightly. As far as we can tell, ports unloaded ships waiting in harbours and at the docks, lifting the import numbers before reloading those ships.
Brazil industrial production continues to edge lower, falling 1.2% month-to-month in April, a 7.6% year-over-year drop. In March, output was down only 3.4% year-over-year, but the data are volatile in the short-term. The trend is about -7%, down from -3.8% in the second half of last year.
Survey and money supply data remain consistent with an improving Eurozone economy. Yesterday's EC sentiment index fell to 103.7 in April, from 103.9 in March, due to weakness in France and Germany, but it is consistent with GDP growth of about 0.4% quarter-on-quarter in Q2.
We already have a pretty good idea of what happened to consumers' spending in March, following Friday's GDP release, so the single most important number in today's monthly personal income and spending report, in our view, is the hospital services component of the deflator.
We now have consumption data for two-thirds of the first quarter, making it is easy to see that a near-herculean spending effort is required to lift the quarter as a whole into anything like respectable territory. After February's 0.1% dip, real spending has to rise by at least 0.4% in March just to generate a 2.0% annualized gain for the quarter, and a 2.5% increase requires a 0.7% jump.
The outlook for Argentina is improving. We expect economic growth to remain quite strong over the next year, despite a relatively soft start to 2017 and increasing external threats in recent weeks. The INDEC index of economic activity--a monthly proxy for GDP--is volatile, rising 1.9% month-to-month in March after a 2.6% drop in February, but the underlying trend is improving.
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.
December's money data likely will bring further signs that the U.K. economy's growth spurt late last year was paid for with unsecured borrowing. Retail sales fell by 1.9% month-to-month in December, so we doubt that unsecured borrowing will match November's £1.7B increase, which was the biggest since March 2005.
Six developments over the summer have increased the likelihood that the government will make concessions required to preserve unfettered access to the single market after formally leaving the EU in March 2019.
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 Budget on March 11 will be the first time that the new government's ambition and bluster collide with reality.
November's money and credit figures showed that households increasingly turned to unsecured debt last year in order to maintain rapid growth in consumption. Unsecured borrowing, excluding student loans, rose by £1.7B in November alone, the most since March 2005. This pushed up the year- over-year growth rate of unsecured borrowing to 10.8%--again, the highest rate since 2005--from 10.6% in October.
The Tankan survey reinforces our conviction in a c.2% y/y Q1 contraction in Japanese GDP. Caixin suggests March was as bad as February... that's bad. Ignore the headline, Korean exports rebounded strongly in March, salvaging Q1. Korean business sentiment is sinking to GFC territory.
Our caution over China's March industrial production spike was justified. Chinese retail sales growth hits lows. Chinese FAI growth suggests private sector policy loosening isn't working. Japan's M2 growth upturn is a welcome break, but needs to be sustained. Korean unemployment jumps in April, showing the limits of the government's hiring spree.
March was painful, but Japan's all-industry index likely was hit much harder in April.
China's trade surplus collapsed unexpectedly in April, to $13.8B, from a trivially-revised $32.4B in March.
March economic activity in Chile expanded by a solid 4.6% year-over-year, pointing to Q1 real GDP growth of 4.0%, the fastest pace since Q3 2013, up from 3.3% in Q4.
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.
China's trade data looked more normal in April. The trade balance rebounded to a surplus of $28.8B in April, from a deficit of $5.0B in March. Exports also bounced back, rising 12.9% year-over-year in April, after a 2.7% decline in March.
Japan most exposed workers felt the early Covid-19 hit in March.
Consensus-beating March PMI merely underscores how bad February was... the economy isn't out of the woods. The non-manufacturing bounce was broad-based, but construction led the way. Japan's job openings plunge shows the direction of travel for unemployment. Japan's retail sales suggest Q1 pain to be concentrated in March. Japan inc granted a last month of reprieve before the Covid-19 storm hits. Korean carmakers' sourcing woes largely to blame for February hit.
In one line: Solid, but advance data suggest that exports crashed in March.
In one line: Great, but March and April, at least, will be grim.
Harvey and Irma will shred late q3/q4 data... ...if the fed doesn't hike in December, they will in march
In one line: Solid, which is a pity; the Q1 headline will be ruined by the March data.
In one line: The lockdowns in March ruined Q1; domestic demand hit a brick wall.
China's manufacturing PMI was poised for major disappointment... the trade war impact is clear. Don't be fooled by the relative stability of China's non-manufacturing PMI. Japan's March unemployment uptick was early; April was payback. Japan's CPI inflation has peaked. Japan's industrial production ticks up after extreme weakness; don't hold your breath for the recovery. Japan's consumers in poor shape, but maybe it's not that bad. The upswing in Korean industrial production likely to take a breather this month. The BoK holds firm, despite rising calls for a rate cut.
China's trade surplus falls unexpectedly in April, thanks partly to a bump in imports. Japan's services PMI falls despite holiday boost. The BoJ remains in a holding pattern. Korea's current account surplus rose in March, but its overall downtrend remains intact.
We had hoped that the breathtaking doubling of initial jobless claims to 6.65M, in the week ended March 28, would be followed by a steep drop in the week ended April 4; the data will be released today.
Total job losses between the March and April payroll survey weeks, as captured by the weekly jobless claims numbers, soared to 26.7M.
The rise in Markit/CIPS services PMI to 55.0 in March, from 53.3 in February, brings some relief that GDP growth has not stalled in Q1, following manufacturing and construction surveys that signalled near-stagnation.
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.
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%.
The final Eurozone PMIs indicate that the cyclical recovery continued in Q1, but downside risks are rising. The composite index rose marginally to 53.0 in March, from 53.1 in February, below the initial estimate 53.7. Over the quarter as a whole, though, the index fell to 53.2 from 54.1 in Q4, indicating that economic momentum moderated in the first quarter.
Friday's final PMI data for March were even more terrifying than the advance numbers. The composite index in the euro area collapsed to 29.7, from 51.6 in February, lower than the consensus 31.4. A downward revision was coming.
The violence of recent bond market weakness likely has been driven mainly by reduced liquidity, and a squeeze in crowded positions. But we also think that it can be partly explained by an adjustment to higher inflation expectations. The latest ECB staff projections assume the average HICP inflation will be 0.3% this year, up from the zero predicted in March. Allowing for a smooth increase over the remainder of the year, this implies a year-end inflation rate of 0.8%.
Evidence of slowing growth in Eurozone consumers' spending continues to mount. Retail sales in the euro area fell 0.5% month-to-month in March, pushing the year-over-rate down to 2.1% from a revised 2.7% in February. The headline likely was depressed by the early Easter. March had one trading day less than February, which was not picked up the seasonals.
Eurozone consumers had a slow start to the second quarter. Retail sales increased a modest 0.1% month- to-month in April, but the March headline was revised up by 0.3 percentage points, and the year-over-year rate increased by 0.2pp to 1.7% due to base effects.
Economic growth in Chile picked up in Q1, but the recovery remains disappointingly weak, due to both global and domestic headwinds. The latest Imacec index, a proxy for GDP, rose just 2.1% year-over-year in March, slowing from a 2.8% gain in February. Assuming no revisions next month, economic activity rose 1.2% quarter-on-quarter in Q1, better than the 0.9% increase in Q4. These data points to a modest pick-up in GDP growth in Q1, to 1.8% year-over-year, from 1.3% in Q4.
At their March meeting FOMC members' range of forecasts for the unemployment rate in the fourth quarter of this year ranged from 4.4% to 4.7%, with a median of 4.5%. But Friday's report showed that the unemployment rate hit the bottom of the forecast range in April.
Brazil's March industrial production report, released on Thursday last week, was weaker than we and the markets were expecting, while the recent deterioration in sentiment surveys highlights the downside risks to the rather fragile economic recovery.
New orders data indicate that German manufacturing enjoyed a strong start to the second quarter. Factory orders rose 1.4% month-to-month in April, equivalent to a modest 0.4% gain yearover- year, down from a revised 2.0% in March. The numbers put new orders on track for a solid 1.8% quarter-on-quarter gain in Q2--assuming no change in May and June--but these data are volatile, making this estimate highly uncertain.
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.
Barring some sort of out-of-the-blue shock, we are much more interested in the hourly earnings data today than the headline payroll number. The key question is the extent to which wages rebound after being depressed by a persistent calendar quirk in both February and March.
The return to normal in the March payroll numbers, with a 196K headline increase, is another nail in the coffin of the "imminent recession" theory.
Even Charles Dickens could not have written a more dramatic prologue to today's ECB meeting. Elevated expectations ahead of major policy events always leave room for major disappointment, but we think the central bank will deliver. Advance data yesterday indicated inflation was unchanged at 0.1% year-over-year in November, below the consensus 0.2%, and providing all the ammunition the doves need to push ahead. We expect the central bank to cut the deposit rate by 20bp to -0.4%, to increase the pace of bond purchases by €10B to €70B a month, and to extend QE to March 2017.
The forward-looking indices of China's Caixin manufacturing PMI for April attracted more attention than the headline, which was a bit of a non-event; it rose trivially 51.1, from 51.0 in March.
Speculation that the U.K. will end up leaving the E.U. in March without a deal has dominated the headlines over the last month. Politicians on both sides of the Channel have warned that the probability of a no-deal Brexit is at least as high as 50%, even though more than 80% of the withdrawal deal already has been agreed.
Mexico's private spending stumbled at the start of the second quarter. Retail sales fell 0.3% month-to-month in April after three consecutive increases, hit by an unexpected 1.6% drop in both supermarket and apparel sales, and a surprising 1.2% fall in food sales. In year-over-year terms, total sales rose 4.6% in April, down from 5.6% in March.
Mexico's CPI rose just 0.1% in the first half of March, due to higher core prices. The increase was broadbased within this component, with goods prices increasing by 0.2% and core services 0.4%. Core services prices were driven by temporary factors, including vacation packages and higher airfare tickets. Non-core prices, meanwhile, fell 0.5%, due mainly to falling fresh food prices.
CPI inflation was steadfast at 1.9% in March, undershooting the consensus and our forecast for it to rise to 2.0%.
Eurozone investors will be drawing a sigh of relief after yesterday's PMI data. The alarming plunge in February and March made way for stabilisation, with the composite PMI in the euro area unchanged at 55.2 in April.
The gap between the hard and soft data from the industrial economy appeared to widen still further last week. But we are disinclined to take the data--the official industrial production report for March, and the first survey evidence for April--at face value.
Japan's manufacturing PMI rose to 53.3 in April, from 53.1 in March. The index weakened earlier this year, but remained at levels unjustified by the hard data.
CPI inflation dropped to 2.4% in April, from 2.5% in March, undershooting the no-change consensus and prompting many commentators to argue that the chances of an August rate hike have declined further.
Last week's advance PMI data suggest that economic activity in the Eurozone was stable at the beginning of Q2. The composite EZ PMI fell trivially to 53.0 in April, from 53.1 in March, because a dip in manufacturing offset a small rise in the services index.
Yesterday's March PMIs confirmed that governments' actions to contain the Covid-19 outbreak dealt a hammer blow to the economy at the end of Q1.
The huge drop in the March Markit services PMI, reported yesterday, and the modest dip in the manufacturing index, are the first national business survey data to capture the impact of the Covid-19 outbreak.
If Japan's flash PMIs for March are a sign of things to come, then the government really should get moving on fiscal stimulus.
We'd be very surprised to see a material weakening in today's March ISM manufacturing survey. The regional reports released in recent weeks point to another reading in the high 50s, with a further advance from February's 57.7 a real possibility.
December's public finance figures suggest that borrowing is on track to come in a bit below the forecasts set out in the Autumn Statement in November. But we caution against expecting the Chancellor to unveil a material reduction in the scale of the fiscal consolidation set to hit the economy in his Budget on 8th March.
In Brazil, last week's formal payroll employment report for March was decent, with employment increasing by 56K, well above the consensus expectation for a 48K gain.
Sterling weakened further yesterday in response to the perception that the odds of the U.K. leaving the E.U. in the June referendum are rising. Cable fell to $1.39, its lowest level since March 2009. It is now $0.12 below the level one would anticipate from markets' expectations for short rates, as our chart of the week on page three shows.
The preliminary April PMIs point to a continuation of the cyclical bounce, despite falling slightly from last month. The composite PMI in the Eurozone fell to 53.5 in April, down from 54.0 in March.
Orders for core capital goods began to fall outright in September last year; we can't blame the severe winter for the 11.1% annualized decline in the fourth quarter of last year. Indeed, the drop in orders in the first quarter will be rather smaller than in the fourth, unless today's March report reveals a catastrophic collapse.
It's going to be very hard for Fed Chair Powell's Jackson Hole speech today to satisfy markets, which now expect three further rate cuts by March next year.
The White House budget proposals, which Roll Call says will be released in limited form on March 14, will include forecasts of sustained real GDP growth in a 3-to-3.5% range, according to an array of recent press reports.
The ECB sent a strong signal yesterday that it is ready to fight deflation with a full range of unconventional monetary policy tools. Asset purchases, including sovereigns, to the tune of €60B per month will begin in March, and will run until end-September 2016, but Mr. Draghi noted that purchases could continue if the ECB is not satisfied with the trajectory of inflation.
India's trade data for March highlight the immediate severity of the country's sudden nationwide lockdown.
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.
Core inflation has risen, albeit modestly, in the past two months. The uptick, to 1.8% in March from 1.6% in January, has come as something of a surprise. The narrative in the media and markets remains, as far as we can tell, one of downward pressure on inflation and, still, fear of possible deflation.
Public sector borrowing still is on course to greatly undershoot the March Budget forecasts this year, despite October's poor figures.
The drop in the flash composite PMI in March will be one for the record books, unfortunately. We look for an unprecedented drop to 43.0, from 53.3 in February, which would undershoot the 45.0 consensus and signal clearly that a deep recession is underway.
The bad news just keeps coming for Brazil's economy. The mid-month CPI, the IPCA-15 index, rose 1.2% month-to-month in March. Soaring energy prices remain the key contributor to the inflation story in Brazil, pushing up the housing component by 2.8% in March, after a 2.2% increase in February.
The 810K drop in jobless claims in the week ended April 18 was a bit less than we expected, but the downward trend is clear; claims have fallen by some 2.4M from their peak, in the final week of March.
Yesterday's PMI data in the euro area were a horror show. The composite EZ index cratered to 13.5 in April, from 29.7 in March, dragged down by a collapse in the services index to 11.7, from 26.4 last month.
At the halfway mark of the fiscal year, public borrowing has been significantly lower than the OBR forecast in the March Budget.
Margins for German manufacturing firms remained depressed at the start of the second quarter. The headline PPI rose 0.1% month-to-month in April, pushing the year-over-year rate down marginally to -3.1% from a revised -3.0% in March. Falling energy prices are the key driver of the overall decline in the PPI.
Yesterday's March retail sales report for Mexico is in line with other recently released hard and survey data, painting an upbeat picture of the economy.
CPI inflation rose only to 2.1% in April, from 1.9% in March, undershooting the 2.2% consensus and MPC forecasts, as well as our own 2.3% estimate.
Evidence is mounting that the cyclical recovery in the Eurozone accelerated further in the first quarter. The Composite PMI in the euro area rose to 54.1 in March, up from 53.3 in February, taking the quarterly average to 53.3, its highest level since the second quarter of 2011. Combined with latest available retail sales and industrial production data, this is consistent with real GDP growth in the euro area accelerating to about 0.4-to-0.5% quarter-on quarter in the first quarter, from 0.3% in Q4.
MPs look set to take a decisive step next Tuesday towards removing the risk of a calamitous no-deal Brexit at the end of March.
We have no choice but to revise down our forecast for GDP growth in Q2, now that the threat of a no-deal Brexit likely will hang over the economy beyond March, probably for three more months.
CPI inflation last Friday gave Japanese policymakers a break from the run of bad data, jumping to 0.9% in April, from 0.5% in March.
The two-year budget deal agreed between the administration and the Republican leadership in Congress will avert a federal debt default and appears to constitute a modest near-term easing of fiscal policy. The debt ceiling will not be raised, but the law imposing the limit will be suspended through March 2017, leaving the Treasury free to borrow as much as necessary to cover the deficit. As a result, the presidential election next year will not be fought against a backdrop of fiscal crisis.
It seems pretty clear from press reports that the White House budget, which reportedly will be released March 14, will propose substantial increases in defense spending, deep cuts to discretionary non- defense spending, and no substantive changes to entitlement programs. None of this will come as a surprise.
The FOMC minutes confirmed that most FOMC members were not swayed by the weak-looking first quarter GDP numbers or the soft March core CPI. Both are considered likely to prove "transitory", and the underlying economic outlook is little changed from March.
Japan's all-industry activity index dropped by 3.8% month-on-month in March, worse than the 0.7% slip in February.
This week's data will offer the first clear hard evidence of the Covid-19 shock to the EZ economy. Thursday's calendar is the main event, with advance Q1 GDP data, March EZ unemployment numbers, and the April CPI report.
Japan's unemployment rate merely edged up to 2.5% in March, from February's 2.4% rate. It probably will end the year around one percentage point higher, though, with the pain extending through the second half.
Yesterday's French INSEE consumer confidence data provided a fascinating glimpse into the reality for households during these strange times. The headline index fell by "just" eight points in April, to 95 from 103 in March, comfortably beating the consensus for a crash to 80.
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.
Money supply data today should provide further confirmation of a moderate upturn in the Eurozone credit cycle. We think broad money growth, M3, accelerated to 5.0% year-over-year in April, up from 4.6% in March.
Today's payroll number is completely irrelevant, because 97% of the 10.2M increase--so far--in initial jobless claims from their pre-coronavirus level came after the employment survey was conducted, between Sunday March 8 and Saturday March 14.
German labour market data continue to break records on a monthly basis. The unemployment rate was unchanged at 6.2% in A pril, with jobless claims falling 16,000, following a revised 2,000 fall in March. March employment rose 1.2% year-over-year, down slightly from 1.3% in February, but the total number of people in jobs rose to a new high of 43.4 million.
Brazil's macroeconomic scenario is becoming easier to navigate for the central bank. Both actual inflation and expectations are slowing rapidly, as shown in our first chart. And since the March BCB monetary policy meeting, the BRL has appreciated about 10% against the USD, while commodity prices and EM sentiment have also improved markedly.
Sterling's shaky performance so far this year-- the trade-weighted index currently is 3% below its end-2019 level and was down 8% at the peak of the mid-March market frenzy--raises the question of whether a renewed depreciation would have a better chance of boosting GDP growth than last time.
Household sentiment in France continues to improve, consistent with tailwinds from low energy prices and accommodative monetary policy. INSEE's measure of consumer confidence rose to 94 in April, up from 93 in March, the highest since November 2010.
India's government imposed a three-week nationwide lockdown on March 25 to combat the increasingly rapid spread of Covid-19.
Monetary dynamics in the Eurozone were virtually unchanged last month. M3 growth rose trivially to 5.0% year-over-year in March from a revised 4.9% in February. It was lifted by stronger growth in medium-term deposits and issuance of short-term debt.
March's public sector borrowing figures brought more signs that the economy has lost considerable momentum this year. Borrowing, on the PSNB excluding public sector banks measure, came in at £5.1B in March, up slightly from £4.3B in March 2016.
French manufacturing confidence soared at the start of Q2. The headline INSEE index jumped to a six-year high of 108 in April, from an upwardly revised 105 in March. The headline was flattered by a big increase in the "past activity" index, but the survey's leading indicators also improved.French manufacturing confidence soared at the start of Q2. The headline INSEE index jumped to a six-year high of 108 in April, from an upwardly revised 105 in March. The headline was flattered by a big increase in the "past activity" index, but the survey's leading indicators also improved.
Yesterday's German IFO survey suggests that economic momentum in the Eurozone's largest country remained modest at the start of Q2. The headline business climate index fell trivially to 106.6 in April, from 106.7 in March, lower than the consensus expectation of an increase to 107.2.
The contribution of energy prices to CPI inflation is set to increase over the coming months, following the pick-up in Brent oil prices to $74 per barrel, from $65 at the beginning of March.
The Prime Minister's announcement on Sunday that the meaningful vote in parliament on her Brexit deal will be delayed from this week, until March 12, came as no surprise after a series of prior postponements.
The underlying state of the Mexican economy is still positive, despite recent signs of a modest slowdown. The IGAE economic activity index--a monthly proxy for GDP--rose 2.1% year-over-year in April, a relatively solid pace, but down from 2.8% in March, and 2.6% in Q1.
the past few observations make clear. Real spending jumped by 0.5% in March, rebounding after its weather-induced softness in February, before stalling again in April. Then, in May, the s urge in new auto sales to a nine-year high lifted total spending again, driving a 0.6% real increase.
A trade deal with China is in sight. President Trump tweeted Sunday that the planned increase in tariffs on $200B of Chinese imports to 25% from 10%, due March 1, has been deferred--no date was specified-- in light of the "substantial progress" in the talks.
The IFO survey released yesterday provides further evidence that the cyclical recovery in Germany's economy continued in the current quarter. The headline business climate index rose to 107.9 in March from 106.8 in February, lifted by increases in both the current assessments and expectations index.
The squeeze on real wages has just ended and GfK's consumer confidence index hit a 11-month high in March.
Eurozone investors continue to look to the ECB as the main reason to justify a constructive stance on the equity market. Last week, the central bank all but promised additional easing in March, but the soothing words by Mr. Draghi have, so far, given only a limited lift to equities. Easy monetary policy has partly been offset by external risks, in the form of fears over slow growth in China, and the risk of low oil prices sparking a wave of corporate defaults. But uncertainty over earnings is another story we frequently hear from disappointed equity investors. We continue to think that QE and ZIRP offer powerful support for equity valuations in the Eurozone, but weak earnings are a key missing link in the story.
Retail sales jumped by 1.6% month-to-month in April, more than reversing the 1.2% March decline. Even so, the level of sales merely matched their November peak and the underlying trend still looks flat, as our first chart shows.
Another day, another couple of April reports likely to reverse March "weakness", triggered by the early Easter. We look for robust core durable goods and pending home sales reports, with the odds favoring consensus-beating numbers. In both cases, though, the noise-to-signal ratio is quite high, and we can't be certain the Easter seasonal unwind will be the dominant force in the April data.
Short-term interest rates in the Eurozone continue to imply that the ECB will lower rates further this year. Two-year yields have been stuck in a very tight range around -0.5% since March, indicating that investors expect the central bank again to reduce its deposit rate from its current level of -0.4%. This is not our base case, though, and we think that investors focused on deflation and a dovish ECB will be caught out by higher inflation.
Improving consumer fundamentals continue to underpin growth in private spending in Mexico, according to retail sales and inflation reports published this week. March retail sales were much stronger than expected, jumping 3.0% month-to-month, after averaging gains of 0.8% in the preceding three months. And sales for the three months through February were revised up marginally.
Consumers' spending in Mexico was relatively resilient at the end of Q1, but we think it will slow in the second quarter. Data released this week showed that retail sales rose a strong-looking 6.1% year-over-year in March, well above market expectations, and up from 3.6% in February.
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