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1455 matches for " May":
The 253K increase in May private payrolls reported by ADP yesterday was some a bit stronger than our 225K forecast. Plugging the difference between these numbers into our payroll model generates our 210K forecast for today's official number.
The costs of the government's failure to lock down quickly in response to the Covid-19 pandemic, ultimately necessitating long-lasting restrictions, were visible in May's GDP figures.
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.
Our judgement that April was the low point for economic activity was challenged yesterday by the publication of results of the fifth wave of the Business Impact of COVID-19 Survey, conducted by the ONS between May 4 and 17.
The pressure on Theresa May from Brexiteers within her own party intensified yesterday, when 60 Conservative MPs signed a letter arguing that they could not back a proposal for a "customs partnership".
In one line: Yet more evidence that the economy was less-bad in May than in April.
In one line: Don't take the sub-50 reading literally; output likely is recovering in May, albeit sluggishly.
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.
We expect May's GDP report, released on Tuesday, to provide an early blow to hopes that the economy will embark on a V-shaped recovery this year.
In one line: May's drop simply reflects usual volatility; the underlying trend remains strong.
The headline May durable goods orders numbers today probably will look very strong, with the odds favoring a much bigger increase than the 10.1% consensus; we'll come back to that.
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.
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.
We expect May's consumer prices report, released on Wednesday, to show that the headline rate of CPI inflation fell to a four-year low of 0.4% in May, from 0.8% in April.
Here's something we didn't expect to write: The control measure of retail sales in May was slightly higher than in February.
In one line: Don't take the sub-50 reading literally; output likely is recovering in May, albeit sluggishly.
The risk of a snap general election has jumped following Theresa May's resignation and the widespread opposition within the Conservative party to the compromises she proposed last week, which might have paved the way to a soft Brexit.
Sterling has appreciated sharply over the last two weeks and yesterday briefly touched its highest level against the euro since May 2017.
Don't be alarmed by the second straight jump in consumers' inflation expectations, captured by the Conference Board's May survey, reported yesterday.
The MPC signalled yesterday that it is actively considering a May rate hike, stating that rates likely will "...need to be tightened somewhat earlier and by a somewhat greater degree over the forecast period than anticipated at the time of the November Report".
Ian Shepherdson in U.S. Employment for May
Chief U.K. Economist Samuel Tombs on U.K Manufacturing in May
Samuel Tombs on Halifax House Price Index in May
Chief U.K. Economist Samuel Tombs on U.K Retail Sales in May
Analysts have fiercely debated the consequences of the U.S. Treasury's plan to break the bank in Q2 with a whopping €3T issuance of new debt to cover the initial costs of Covid-19.
The uncertainty over the strength and speed of the economic rebound is still a concern for investors in terms of putting money to work.
Japan's economy contracted by 0.9% quarter-on- quarter in Q1, following a downwardly-revised 1.9% plunge in the previous quarter.
In one line: No changes for now, but more QE likely is coming in June.
In one line: Consumption rocketing; core PCE deflator returning to target on a quarterly annualized basis.
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%.
April's consumer prices report, released on Wednesday, likely will show that CPI inflation plunged and is heading quickly to a near-zero rate by the summer.
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.
In one line: Tame underlying inflation pressures; terrible real sales.
In one line: Inflation tame on the back of the Covid-19 shock.
In one line: Inflation pressures are finally easing, but the MXN--that is, President Trump's actions--is the key variable now for policymakers.
In one line: Small business owners responding to the Jan-Apr stock market rally with the usual lag.
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.
Friday's second Q1 GDP estimate confirmed that lockdowns to halt the spread of Covid-19 hurt the EZ economy in Q1. Real GDP plunged by 3.8% quarter-on- quarter, following a 0.1% rise in Q4, in line with the first estimate.
In one line: Surging employment index means payroll weakness likely will be temporary
n one line: A Covid-19-related rebound, but we expect declines in Q3 due to the recession.
In one line: Inflation pressures are starting to ease.
Analysis of the economy's potential to recover later this year from extreme weakness in Q2 has focussed largely on the extent to which virus-related restrictions will be lifted.
In one line: Rather startling.
China's money data continued to improve in April, bolstering the economy's recovery prospects.
More depressing economic numbers in LatAm have been released in recent days, and high frequency data continue to show a near-term bleak outlook.
In one line: Still on track for a near-zero rate in Q3.
In one line: Could have been worse; expect better ahead.
In one line: Goods inflation falling; some signs of upward pressure in services.
In one line: Not pretty; sales fell over Q2 as a whole.
In one line: Blame Germany; the data were decent elsewhere.
In one line: A hefty rebound, with a further recovery to come in June.
In one line: Back to trend?
In one line: Still committed to rate hikes, but not willing to pull the trigger just yet.
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.
In one line: Sticky, but does it reflect reality?
In one line: On course for a 15-to-20% shortfall in car sales in H2.
In one line: Dreadful, but also still suffering from the data-collection difficulties.
In one line: Not bad at all.
Investors have been treated to good news in the past week, at least if they've managed to side-step the barrage of terrible economic data.
In one line: Still on track for a near-zero rate in Q3.
Hard data released in Argentina over the last month showed that the economy was struggling in early Q1, even before the Covid-19 hit.
In one line: Only a marginal improvement; June will be the real test of consumer demand.
In one line: Survey's poor construction means it is always too gloomy at the start of recoveries.
In one line: Très bien; boosted by exports of transport goods and pharmaceuticals.
In one line: Excellent, but clouds are gathering in some countries.
In one line: Another cut, and more to come.
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.
In one line: A bold rate cut, and more to come thanks to Covid-19.
In one line: On hold at the technical low; the recession is ongoing.
Sterling continued to recover last week, hitting its highest level against the dollar since October, despite a series of data releases indicating that the economy is losing momentum. Indeed, sterling was unscathed by the news on Friday that quarter-on-quarter GDP growth slowed to just 0.3% in Q1, from 0.7% in Q4.
In one line: A slow rebound has begun.
In one line: The consumer is firmly back on track; Q1's softness was misleading.
In one line: Expect one more cut, as the BoK mulls implicit forms of QE and YCC
In one line: Energy inflation is now rebounding; core rate only marginally weaker.
In one line: Yikes! Jump in claims is partly a statistical quirk, but the trend is turning for the worse.
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.
In one line: A slow rebound is underway.
In one line: A rebound, and from a better level than elsewhere in the EZ.
In one line: Still grim, but the second derivative is turning.
In one line: A bolder-than-expected rate cut, and more action is coming.
In one line: More evidence that the manufacturing downshift is stabilizing.
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.
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%.
Yesterday's data provided further evidence of the damage wrought on the EZ at the end of Q1.
In one line: Likely to be just an isolated bad month.
In one line: Don't buy the extremely gloomy message.
In one line: Payback for the Brexit-related surge in Q1.
In one line: Boeing's woes and trade are hurting.
In one line: Patience persists.
In one line: A solid rebound, but the overall consumer picture remains grim.
In one line: A solid rebound, but downside risks remain.
In one line: Robust, but downside risks remain.
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%.
In one line: A collapsing participation rate prevents a sharper deterioration in unemployment.
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.
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.
In one line: Wage growth is too strong for the MPC to mull renewed stimulus.
In one line: Still misleadingly upbeat.
In one line: Lending set to remain resilient in the second half of this year.
In one line: Reassuringly steady growth in broad money and borrowing.
In one line: On course to reverse the Q1 boost.
In one line: Brexit uncertainty is still hurting, but a boost from lower borrowing costs is coming.
In one line: Still flat, but the trend should improve modestly later this year.
In one line: No cause for alarm.
In one line: Rising "underlying" services inflation points to the MPC retaining its tightening bias.
In one line: Slumping as firms run down inventories.
In one line: Business and consumer confidence is diverging.
In one line: Growth isn't slow enough to warrant a rate cut.
In one line: The inventory-related slump in export demand nearly is over; industrial production will bounce back in the summer.
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%.
In one line: Disconnected from the rebound in China's surveys by the trade war.
In one line: Stabilising, but a long and painful road to full recovery.
In one line: A decent improvement, and we expect further good news ahead.
Sterling held on to its recent gains yesterday despite mounting speculation that Eurosceptic Conservative MPs are plotting a leadership challenge.
In one line: A modest improvement; the road to full recovery will be long and painful.
In one line: Used car prices a drag yet again, but they'll stop falling soon.
In one line: Grim, but probably overstates payroll weakness.
In one line: A modest rebound, but the trend is improving.
In one line: Capex orders and trade are net neutral for Q2 GDP estimates.
Fed Chair Powell broke no new ground in his Senate Testimony alongside--virtually--Treasury Secretary Mnuchin yesterday, maintaining the cautious tone of his recent public statements.
In one line: Homebuilders still wary, but construction activity will rise over the summer.
In one line: Trade will be a small drag on Q2 GDP growth.
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.
In one line: Terrible, but a gradual upturn likely will emerge in late Q2.
In one line: Could have been worse; expect better ahead.
In one line: Recovery continues; further gains ahead.
In one line: Terrible numbers, but likely marking the floor.
In one line: Horrible, but likely the floor.
In one line: Low energy prices, and plunging domestic demand, push inflation to cyclical lows.
In one line: Underlying pressures are modest, and food prices are starting to stabilise.
In one line: Underlying pressures under control due to Covid-19.
In one line: Undershoot compared to mortgage demand; expect a rebound.
In one line: The consumer is just fine; recent softness in spending is temporary.
In one line: The clouds over housing are lifting.
In one line: Low inflation due to the Covid-19 shock.
In one line: Disinflation resumes as the economy falters.
In one line: Terrible, but the pain is easing.
In one line: More evidence that China's PMI upturn is filtering into U.S. manufacturing.
In one line: A marginal improvement in manufacturing, offset by poor mining activity.
In one line: Still terrible, but a slow upturn is emerging.
In one line: A modest upturn is underway, but the overall picture remains bleak.
In one line: Terrible, but a modest upturn in key sectors is emerging.
In recent client "meetings" we have been emphasizing the idea that a sustained recovery in the economy over the summer depends on the solidity of a three-legged stool.
In one line: Outstanding.
In one line: The last Covid-driven monthly drop in the core?
This week's detailed Q1 GDP data confirmed that the German economy is in dire straits, alongside its euro area peers, but there's a silver lining.
Japan's all-industry activity index dropped by 3.8% month-on-month in March, worse than the 0.7% slip in February.
In one line: Better, but still bad.
The Bank of England will be dragged into the political arena on Thursday, when it sends the Treasury Committee its analysis of the economic impact of the Withdrawal Agreement and the Political Declaration, as well as a no-deal, no- transition outcome.
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.
The official data lag developments in the real economy even at the best of times, but on this occasion the gap has turned into a chasm.
Speculation that the MPC will abandon its aversion to negative rates has increased, following recent comments by Committee members.
In one line: Manufacturing starting to rebound, but full recovery is a long way off.
Unconventional indicators of economic activity suggest that the recovery from the Covid-19 shock is gathering momentum.
In one line: Rather startling.
Yesterday's big news in the Eurozone was the EU Commission's proposed recovery fund.
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.
The last few years have thrown up surprise after surprise for establishment parties. Mr. Abe's Liberal Democrat Party is about as establishment as they come.
Beyond the immediate wild swings in prices for food, clothing, hotel rooms and airline fares, the medium-term impact of the Covid outbreak on U.S. inflation will depend substantially on the impact on the pace of wage growth.
Inflation in Mexico surprised to the upside in April, but the underlying picture has improved rapidly over recent months.
In one line: The last hit from the Covid shutdowns; expect a full rebound over the summer.
In one line: Confidence to borrow is lacking, but M1 growth pick-up is a welcome sign.
In one line: The bounce in buyer interest will fade soon.
In one line: Still skating on thin ice
The chances of our Brexit base case--a soft departure just before the current October 31 deadline--playing out have declined sharply over the last two weeks.
The annual National People's Congress meeting of China's legislature will get underway at the end of this week, after delay due to the Covid outbreak.
Economic conditions in Brazil are deteriorating rapidly.
In one line: Solid, but the road to a full recovery is long.
In one line: Grim, but could have be much more grim.
In one line: Some improvement in retails sales, which now face renewed headwinds; infrastructure growth driver sputters.
China's export data for April were a mixed bag, to say the least.
A decade of public deficit reduction was fully reversed in April, as the coronavirus tore through the economy.
In one line: No sign of recovery, but other regional surveys are less bad.
In one line: Deflation is just around the corner
In one line: Better, but Q2 still looks like a lost cause
In one line: No need for additional PBoC rate cuts, for now
In one line: Don't worry about the undershoot; housing is strengthening rapidly.
We learned yesterday that the patchy but widespread reopening of the economy is triggering the first wavelet of rehiring.
In one line: Claims still heading down, but possible trouble ahead.
This week's data have offered further clear hard evidence of the Covid-19 shock to the Mexican economy, supporting our base case of further interest rate cuts in the coming monetary policy meetings.
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.
In one line: Could have been a great deal worse.
In one line: Headed for sub-1M by mid-June
In one line: Recovery underway, but a long and uncertain way to go.
In one line: Startling, in a good way.
The government last week fired the starting gun for the contest to replace Mark Carney as Governor of the Bank of England.
Today's April ADP employment report likely will understate the scale of the net payroll losses which will be reported Friday by the BLS.
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 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.
We're very comfortable with the idea that the coronavirus is a broad deflationary shock to the U.S. economy.
Korea's manufacturing PMI fell for a fourth straight month in April, dropping to 41.6, which is the lowest reading since January 2009.
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.
Services will bear the brunt of the Covid-19 shock in the euro area, but manufacturing is not far behind.
In one line: Well on the way to full recovery, unlike the rest of the economy.
Unsurprisingly, cross-party Brexit talks are not going well.
Korea's economy is shaping up largely in line with our expectations for the second quarter, with private consumption recovering, but exports and investment tanking.
Emerging evidence suggests that the economy has passed the period of peak Covid-19 pain.
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.
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.
The Monetary Policy Board of the Bank of Korea yesterday voted unanimously to lower its base rate by 25 basis points to a record low of 0.50%.
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.
Many analysts were alarmed earlier this week by news from across the pond that the U.S. treasury is planning to break the bank in the fight against Covid-19.
In one line: Manufacturing beginning to recover, but a long way to go.
In one line: Further gains ahead as the housing market reopens.
In one line: Bottoming-out.
In one line: This week's drop is quite modest, most of the action is in the revision to last week.
In one line: Less terrible, but still terrible nonetheless.
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.
Efforts to contain the coronavirus outbreak severely dented industrial activity in Brazil.
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.
April's public finances indicate that the economy has remained weak in Q2, casting doubt on the suggestion from recent business surveys that the slowdown in Q1 was just a blip.
In one line: Hold the press; we have an increase in the EC sentiment index.
In one line: Are capital flows pointing to a stronger euro?
In one line: In suspended animation due to the CJRS; the true damage from COVID-19 will emerge in the autumn.
In one line: A tepid rebound.
In one line: Dreadful.
In one line: Very soft, but services inflation should rebound soon.
In one line: No V-shape here.
In one line: A brutal period of layoffs is only starting.
The chances of the first phase of the Brexit saga concluding soon declined sharply last week.
In one line: The recovery is underway, but it's a very slow start.
CPI inflation took a big step in April towards the near-zero rate we anticipate by the summer.
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.
Yesterday's final CPI report for April confirmed that the Eurozone is edging towards deflation.
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.
In one line: Starting to recover, but facing a long uphill journey.
In one line: Paying the price for the slow decline in Covid-19 infections from April's peak.
In one line: Evidence of a relatively stick core rate is rising.
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.
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.
In one line: So-so, but downside risks to the Q2 GDP headline linger.
In one line: Great, but probably not enough to salvage the Q2 number.
We hope never to see another labour market report as bad as yesterday's, though the omens aren't good.
In one line: Tentatively moving in the right direction.
In one line: Terrible.
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.
In one line: A slow rebound has begun.
In one line: Not pretty; downside risks remain for industrial production in Q2.
In one line: Still at rock bottom, but other indicators suggest a gradual recovery is under way.
In one line: Stability; thanks to solid services.
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.
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.
In one line: Surging borrowing has held back corporate collapses, for now.
In one line: A long way from normal, but moving in the right direction.
Hideous though the official April payroll numbers were, the chances are that they'll be revised down.
We are hearing a great deal about the threat of a second wave of Covid-19 infections, caused either by the reopening of the economy, or the arrival of cooler weather in the fall, or both.
In one line: A solid increase in imports as lockdowns were lifted.
In one line: The rebound has begun, but it is slow.
In one line: The first glimmer of light in the official data; more is coming.
In one line: Great headline, great details.
The coronavirus pandemic is wreaking havoc in Brazil.
It seems that yesterday's PMI data left investors and analysts more confused than enlightened.
In one line: There's your V-shaped rebound.
In one line: Still rising.
In one line: Solid, but Q2 as a whole was a disaster for net exports.
Last week finished as it started, with more depressing economic numbers in the Eurozone, this time from manufacturing in the core economies.
We're placing less weight than usual on conventional business surveys at the moment, as they are ill-suited to charting the economy's turnaround from the Covid-19 slump.
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.
In one line: Stabilisation at best; details remain depressing reading.
In one line: Still all noise, no signal.
In one line: A slow rebound is underway.
In one line: Core inflation rebounded as lockdowns eased; sustainable?
In one line: Probably a low for energy inflation; the core is un-moved, for now.
In one line: A rebound, and from a better level than elsewhere in the EZ.
In one line: Still grim, but the second derivative is turning.
In one line: Huge demand for cash will ease over the coming months.
In one line: Starting to shift down; weak confidence points to further falls.
In one line: No changes for now, but more QE likely is coming in June.
In one line: Benefiting from a reallocation of services spending; the overall consumer picture remains bleak.
In one line: Solid numbers in Germany, but grim elsewhere.
In one line: Hit by the unwinding of Easter-distortions, but still a big dip.
In one line: A very slow recovery is now underway.
Friday's Brazilian industrial production data were relatively positive. Output was unchanged month-to-month in May, and April's marginal gain was revised slightly higher. The flat monthly reading pushed year-over-year growth in output up marginally to -8.9% from -9.1%. May production rose month-to-month in two of the four major categories.
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.
China's official non-manufacturing PMI rose further in May, hitting a four-month high of 53.6.
The 6.4-point rebound in the May ISM non-manufacturing employment index, to a very high 57.8, supports our view that summer payroll growth will be strong. On the face of it, the survey is consistent with job gains in excess of 300K, as our first chart shows, but that's very unlikely to happen.
In theory, June should be a crunch month for Theresa May's Brexit plans. The Prime Minister will meet EU leaders on June 28 and hopes to have found a consensus in cabinet by then for how the U.K. will trade with the EU outside of the customs union.
In one line: Core inflation was stable--maybe nudging up a bit--before the virus. Expect it to slow over the next few months.
Our core view on the May payroll number remains that the single most likely cause of the unexpectedly modest increase is a seasonal adjustment error, triggered when the survey is conducted early in the month.
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.
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.
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.
China's trade surplus jumped to a record high in May, defying expectations for a fall by spiking to $69.2B.
The Jibun Bank services PMI for Japan saw a heftier increase in June, to 42.3, from 26.5 in May, signalling a substantial easing of the industry's downturn.
We're bracing for another ugly set of labour market data on Thursday, showing that both employment and earnings fell sharply in May and June.
Prime Minister Theresa May's announcement that Parliament will vote today on holding a general election on June 8 shocked markets and even her own party's MPs. Betting markets were pricing in only a 20% chance of a 2017 election before yesterday's news.
Japan's trade deficit has bottomed out. The unadjusted shortfall narrowed to -¥833B in May,
China's trade surplus plunged to $46.4B in June, from $62.9B in May, largely in line with our below- consensus forecast.
The year-over-year collapse of industrial production in India eased substantially in May, to -35%, from -58% in April, close to our -32% forecast.
Manufacturers in China continued to trudge along in May, with their post-lockdown recovery looking increasingly fragile.
The Prime Minister's refusal last week to reaffirm her party's 2015 election pledge not to raise income tax, National Insurance or VAT has fuelled speculation that taxes will rise if the Conservatives are re-elected on June 8. Admittedly, Mrs. May asserted that her party "believes in lower taxes", and the tax pledge s till might appear in the Conservatives' manifesto, which won't be published for a few weeks.
Theresa May doubled down on her Brexit stance last week, despite European Council President Donald Tusk stating clearly that her proposed framework for economic cooperation "will not work" because it risks undermining the single market.
EU negotiations tend to go down to the wire; and last week's summit in Salzburg, and Theresa May's statement on Friday, suggest that the Brexit negotiations will do just that.
The May auto sales numbers probably will be released just after our deadline at 4pm eastern time today, but all the signs are that a hefty rebound will be reported after April's plunge to just 8.6M, not much more than half the pre-Covid level.
Yesterday's final CPI data for May confirmed that the EZ economy is within touching distance of headline deflation.
Both business surveys and unconventional activity indicators suggest that the recovery from the Covid-19 shock has sped up in June, after a shaky start in May.
Former Chancellor George Osborne famously quipped after last year's general election that Theresa May was "a dead woman walking and the only question is how long she remains on death row".
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.
May's activity data in the Andes underline the severe hit from the pandemic on economic activity.
Reforms to Stamp Duty Land Tax paid by first-time buyers likely will take centre stage in the Budget. At the Conservatives' party conference, Theresa May pledged another £10B to expand the Help to Buy Scheme, which helps first-time buyers obtain a mortgage which just a 5% deposit.
Sterling weakened further yesterday as anxiety grew that PM Theresa May will indicate she is seeking a "clean and hard Brexit" in a speech today. This could mean the U.K. leaves the EU's single market and customs union, in order to control immigration, shake off the jurisdiction of the European Court and have a free hand in trade negotiations with other countries.
The Governor's comments late last week successfully recalibrated markets, which had concluded that a May rate hike was virtually certain, despite the MPC's deliberately vague guidance.
Korea's unemployment rate rose faster than expected in May, jumping to 4.5%, from 3.8% in April. We've been arguing for some time that the delayed impact of the economic growth slowdown from late- 2017 to early-2019 would eventually push the jobless rate to the mid-4% level this year; the sudden stop caused by Covid-19 merely sped up this process.
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.
Japan's trade balance remained in the red in June, though the deficit narrowed sharply, to -¥269B from -¥838B in May.
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.
Today brings only the May existing home sales report, previewed below, so we have an opportunity to look over the latest near-real-time data on economic activity. The picture is mixed.
New home sales surprised to the upside in May, rising 6.7% to 689K, a six-month high.
May's money and credit data show that Covid-19 has not pushed many businesses immediately over the edge.
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.
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 recovery in the industrial sector from Covid-19 finally commenced in earnest in June, after May's stalled start.
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.
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.
Yesterday's EZ data showed that French households came out swinging as the economy reopened. Consumers' spending, ex-services, jumped by 36.6% month-to-month in May, driving the year-over-year rate up to -8.3%, from -32.7% in April.
We expect June's GDP data, released on Wednesday, to show that the economic recovery gathered momentum in June, having got off to a faltering start in May.
Economic news in Europe continues to take a back-seat to volatility in politics. Yesterday's announcement by U.K. Prime Minister Theresa May that she is seeking a snap general election on June 8th cast further doubt over what exactly Brexit will look like.
A no-deal Brexit is a remote possibility. The U.K. government and EU are closing in on a deal and Brexiteers within the Conservative party have failed, so far, to trigger a confidence vote on Mrs. May's leadership.
After seemingly endless speculation, the confidence vote in Theresa May's leadership of the Conservative party finally has been triggered following the submission of at least 48 letters by disgruntled MPs to the Chairman of the 1922 Committee.
CPI inflation held steady at 3.0% in January, above the consensus by one tenth and thus pushing up the market-implied probability of a May rate hike to 65%, from 62% earlier this week.
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.
The downturn in Japan's all-industry activity index slowed in May to -3.5% month-on-month, from April's significantly revised 7.6% plunge.
June's consumer price figures, released on Wednesday, probably will be overshadowed this week by data for May for GDP--see our detailed preview here--and the labour market.
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.
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.
Our base-case forecast for the May core PCE deflator, due today, is a 0.17% increase, lifting the year-over-year rate by a tenth to 1.9%.
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.
ADP's measure of May private payrolls undershot the official estimate by 5.6 million, surprising everyone after it nailed the April catastrophe.
We expect May's consumer prices report, released on Wednesday, to show that CPI inflation fell to 2.0% in May, from 2.1% in April.
Housing market activity has weakened sharply over the last two months. Indeed, figures this week likely will reveal that mortgage approvals plunged in April and that house price growth slowed in May. The increase in stamp duty for buy-to-let purchases at the start of April and Brexit risk, however, entirely explain the slowdown.
The Mexican inflation rate soared at the start of 2017, but this is yesterday's story; the headline will stabilize soon and will decline slowly towards the year-end. May data yesterday showed that inflation rose to 6.2%, from 5.8% in April. Prices fell 0.1% month-to-month unadjusted in May, driven mainly by lower non-core prices, which dropped by 1.3%, as a result of lower seasonal electricity tariffs.
The wave of May data due for release today likely will go some way to countering the market narrative of a seriously slowing economy, a story which gained further momentum last week after the release of the May employment report.
Yesterday's labour market data gave sterling a shot in the arm on t wo counts. First, the headline, three-month average, unemployment rate fell to just 4.5% in May, from 4.6% in April.
Mexico's latest industrial production figures, released on Friday, showed that the recovery is stuttering. May output fell 0.9% year-over-year, down from the 1.2% gain in April. Total production was depressed by a 1.5% month-to-month drop in construction output, after two consecutive increases.
May's consumer price figures, released today, will provide the first clean inflation read for three months, following the distortions created by this year's late Easter. Consensus forecasts and the MPC have underestimated CPI inflation regularly since the middle of last year, when the impact of sterling's depreciation began to push into the data.
You may have seen the chart below, which shows what appears to be an alarming divergence between the official jobless claims numbers and the Challenger survey's measure of job cut announcements. We should say at the outset that the chart makes the fundamental mistake of comparing the unadjusted Challenger data with the seasonally adjusted claims data.
May's consumer price figures, released on Wednesday, likely will show that CPI inflation held steady at 2.4%--matching the consensus and the MPC's forecast--though the risks lie to the upside.
May's labour market figures, released on Wednesday, likely will have something for both the doves and the hawks on the MPC , who have been wrangling over whether to reverse last year's rate cut.
We can be reasonably sure that the headline May retail sales number will look quite strong, thanks to the surge in auto sales reported by the manufacturers last week. Sales of cars and light trucks soared past industry analysts' expectations to a nine-year high, rising 7.5% from their April level.
We are still annoyed, for want of a better word, by the May payroll numbers. Specifically, we're annoyed that we got it wrong, and we want to know why. Our initial thoughts centered on the idea that the plunge in the stock market in the first six weeks of the year hit business confidence and triggered a pause in hiring decisions, later reflected in the payroll numbers.
In one line: Germany is headed for near-zero new cases by the end of May.
We are not worried about the reported drop in April manufacturing output, which probably will reverse in May.
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.
The trend in retail sales no longer looks quite so flat, following yesterday's May report. The level of sales volumes in April was revised up by 0.3%.
April's impressive-looking retail sales numbers--the headline jumped 1.3%, with non-auto sales up 0.8%--were boosted by two entirely separate factors, one of which will play no p art in May and one which will offer very modest support. The key lift in April came from the very early Easter, which confounded the seasonal adjustments, as it usually does.
In one line: U.S. data likely distorted by holiday lags, but a second wave may be emerging in parts of the South.
In one line: U.S. Deaths set to reach 100K by late May, even as case numbers fall.
China's activity data for May were a mixed bag, but they broadly paint a consistent picture of a slowdown in economic growth from the first quarter.
When the advance estimate of first quarter GDP growth is revised, on May 29, we expect the new data to show that net foreign trade subtracted an enormous 1.9 percentage points from growth. With GDP likely to be revised down to -0.7% from +0.2%, that means domestic demand likely will be reported up 1.2%.
• U.S. - An increase in testing overstates reopening risks • EUROZONE - Where is the EZ economy right now? • U.K. - GDP is recovering, the poor May surveys notwithstanding • ASIA - China scraps its GDP target, finally • LATAM - The misery continues in Mexico's economy
Data today will likely show that consumer sentiment in the Eurozone remains firm. In Germany, we expect a slight dip in the advance headline GFK confidence index to 9.8 in June, from an all-time high of 10.1 in May.
We think today's consumer sentiment survey in France will show that the headline index was unchanged at 94 in May. The survey's forward looking components have weakened modestly in recent months, due to declines in households' outlook for their financial situation and standard of living in the coming 12 months.
The upturn in Mexico's trade balance in recent months stalled in May, but the underlying trend is still improving. Data yesterday showed that the seasonally adjusted deficit rose to USD700M in May, after a USD15M gap in April. Imports rose 2.9% month-to-month, offsetting a mere 0.7% increase in exports.
Markets cheered soaring business surveys in the Eurozone earlier this week, and recent consumer sentiment data also have been cause for celebration. The advance GfK consumer confidence index in Germany rose to a record high of 10.4 in June, from 10.2 in May.
The fall in the services PMI to 53.8 in May, from 55.8 in April, is a setback for hopes that the slowdown in GDP growth in Q1 will be fleeting. Both business activity and orders rose at their slowest rates since February.
Korea's 20-day export growth came in weaker than we anticipated earlier this week. Granted, year-over- year growth rebounded to 14.8% in May, from 8.3% in April.
Yesterday's barrage of survey data were a mixed bag. The composite EZ PMI edged higher in May to 51.6, from 51.5 in April, but the details were less upbeat, and also slightly confusing.
Eurozone PMI data yesterday presented investors with a confusing message. The composite index fell marginally to 52.9 in May, from 53.0 in April, despite separate data that showed that the composite PMIs rose in both Germany and France. Markit said that weakness outside the core was the key driver, but we have to wait for the final data to see the full story.
We will be paying special attention today to the EC sentiment survey for Italy, where the headline index has climbed steadily so far this year. It was unchanged at an eight-year high of 106.1 in April, and even if it fell slightly in May--we expect a dip to 105.0--it still points to an upturn in economic growth.
Tokyo CPI inflation edged down to 0.4% in May, from 0.5% in April.
The models which generate the ADP measure of private payrolls will benefit in May from the strength of the headline industrial production, business sales and jobless claims numbers.
China's official manufacturing PMI for May, out tomorrow, will give the first indication of the coming hit from the resumption of its tariff war with the U.S.
Today's advance EZ CPI report likely will show that inflation pressures eased in May. We think inflation slipped to 1.5% year-over-year, from 1.9% in April, as the boost to the core rate from the late Easter faded.
Advance CPI data yesterday continue to indicate that inflation pressures remain depressed in the Eurozone's largest economy, for now. Inflation in Germany rose slightly in May, but only to 0.1% year-over-year, from -0.1% in April. The downward pressure on the headline from the crash in oil prices remains significant. Energy prices fell 7.9% year-over-year, slowing slightly from the 8.5% drop in the year to April.
The Conservatives' opinion poll rating has fallen dramatically over the last 10 days or so, pushing sterling down and forcing investors to confront the possibility that Theresa May might not increase her majority much from the current paltry 17 MPs.
The downside surprise in April payrolls reflected weakness in just three components--retail, construction, and government--compared to their prior trends. Of these, we think only the construction numbers are likely to remain soft in May. Had it not been for the Verizon strike, then, we would have expected payrolls to rise by just over 200K in May, but the 35K strike hit means our forecast is 170K.
We don't believe that payrolls rose only 138K in May. History strongly suggests that when the May payroll survey is conducted relatively early in the month, payroll growth falls short of the prior trend.
May's E.C. Economic Sentiment survey was a blow to hopes that the six-month stay of execution on Brexit would facilitate a recovery in confidence.
The probability of a rate hike on June 14, as implied by the fed funds future, has dropped to 90%, from a peak of 99% on May 5.
The minutes of the May 2/3 FOMC meeting today should add some color to policymakers' blunt assertion that "The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term."
Last week's May CPI data in the major EZ economies all but confirmed the story for this week's advance estimate for the euro area as a whole.
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.
In our Monitor May 15 we described the initial government program in Italy, drafted by the leadership of the Five-Star Movement and the League parties, as a "macroeconomic fairytale."
Jobless claims likely dropped for a fifth straight week in the week ended May 2.
Today brings more housing data, in the form of the May existing home sales numbers.
The winter hit to payrolls is now ancient history. Private employment rose by an average of 273K per month in the second half of last year, so May's 262K has restored normal service, more or less. History strongly suggests the number will be revised up, so we are happy to argue that the data convincingly support our view that the weakness in late winter and early spring was temporary, substantially due to the severe weather.
It would be astonishing if the May and June payroll numbers looked much like April's strong data, at least in the private sector.
Most investors remain convinced that the MPC will raise Bank Rate when it meets next, on May 10.
This week sees the release of most of the key May surveys. The prospect of mean reversion following a very strong start to the year, coupled with the impact of recent market volatility, points to a modest loss of momentum, especially for surveys of investors.
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".
Odds-on, the consensus forecast for May's GDP report, released on Wednesday, will miss the mark.
The composite PMI in the Eurozone continues to edge slightly lower, falling to 53.4 in May from 53.9 in April. A fall in the services index to 53.3, from 54.1 last month offset a modest increase in manufacturing to 52.3 from 52.0 in April.
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.
Markets likely will be particularly sensitive to May's industrial production and construction output figures, released today, as they will provide a guide to the strength of the preliminary estimate of Q2 GDP, released shortly before the MPC's key meeting on August 3.
Inflation pressures in Brazil are still easing rapidly. The mid-May unadjusted IPCA- 15 index rose just 0.2% month-to-month, much less than the 0.6% historical average for the month. Base effects pushed the year-over-year rate down to 3.8% from 4.1% in April. Food prices, healthcare and personal costs were the main drivers of the modest month-to-month increase.
It's hard to read the minutes of the April 30/May 1 FOMC meeting as anything other than a statement of the Fed's intent to do nothing for some time yet.
Markets often pay little attention to the monthly foreign trade numbers, but today's May data are important because they could easily make a big difference to expectations for second quarter GDP growth. The key question is the extent to which exports have recovered since the port dispute on the West Coast, which severely distorted trade flows in the early part of the year.
We have argued frequently that the ADP employment report is not a reliable advance payroll indicator--see our Monitor of May 4, for example-- so for now we'll just note that it is generated by a regression model which includes a host of nonpayroll data and the official jobs numbers from the previous month. It is not based solely on reports from employers who use ADP for payroll processing, despite ADP's best efforts to insinuate that it is.
In one line: The Brexit extension brings some relief.
In one line: Leisure services are throwing the core rate around.
In one line: Sluggish recovery in activity and falling inflation point to more QE this month.
Chief US economist Ian Shepherdson on the latest Jobs report
Miguel Chanco on India Inflation
Chief US economist Ian Shepherdson on the latest Jobs report
Where will EURUSD go in Q2? How about nowhere
Chief US economist Ian Shepherdson on the latest Jobs report
Chief US economist Ian Shepherdson on the latest ISM nonmanufacturing data
Chief U.K. Economist Samuel Tombs ok U.K. Retail Sales
Samuel Tombs on U.K. House Prices
Chief U.K. Economist Samuel Tombs discussing sterling in 2018
Chief Eurozone Economist Claus Vistesen on Latvia
Chief U.K. Economist Samuel Tombs on the chances of a second Brexit Referendum
The MPC's new inflation forecasts usually take centre stage on "Super Thursday" and provide a numerical indication of how close the Committee is to raising interest rates again.
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.
We're happy that ADP beat our forecast yesterday-- an extra 250K jobs doesn't change the world, but it's better than the opposite--and we're lifting our forecast for tomorrow's payroll numbers in response.
Today brings a raft of data which mostly will look quite positive but will do nothing to assuage our fears over a sharp slowdown in growth in the fourth quarter.
This week's labour market data likely will show that the Coronavirus Job Retention Scheme did not prevent a rising tide of redundancies in response to Covid-19.
Friday's manufacturing and trade data added to the evidence of a solid rebound in the EZ economy at the end of Q2, as lockdowns were lifted.
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.
The momentum in Chinese manufacturing waned in August, with the official manufacturing PMI slipping marginally to 51.0, from 51.1 in July,
Japan's main activity data for April were massively disappointing, presaging the sharper GDP contraction we expect in Q2, compared with Q1.
Data released yesterday showed that the labour market in Brazil looks relatively resilient to the collapse in economic activity.
Today brings a raft of data with the potential to move markets, but we're far from convinced that the two most closely-watched reports--ADP employment and the ISM manufacturing survey--will tell us much about the future.
The Prime Minister is in a position on Brexit all chess players dread: zugzwang.
China's economy looks to have shrugged off the supposed "second wave" of Covid-19, sparked by a cluster in Beijing's largest wholesale market for fruit and veg, looking at June's PMIs.
Yesterday's national accounts showed that the downturn in the economy on the eve of the Covid-19 outbreak was sharper than first estimated.
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.
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 entire 10.5% increase in personal income in April, reported on Friday, was due to the direct stimulus payments made to households under the CARES Act.
In the wake of the surprise 0.6% July surge in the core CPI, the biggest increase since January 1991--most forecasters look for mean reversion to 0.2% in today's August report.
Once again, MPs failed to coalesce around any way forward for Brexit in the indicative votes process on Monday.
Our latest round-up of the key near-real-time data is not encouraging.
Sterling yesterday clawed back some of the ground it lost earlier this month, when the government put forward the controversial Internal Markets Bill.
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.
The release today of the final reading of the composite PMI for June will provoke further debate over its usefulness in charting the economy's recovery from the Covid-19 shock.
This week's economic reports have provided clear, and uplifting, evidence that EZ consumers came out swinging as lockdowns were lifted.
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.
Later today, the Chancellor likely will take the first step towards abandoning plans for further fiscal tightening. In
Sterling found its feet yesterday, rising to $1.33 from Monday's 31-year low of 1.32, but it would be the height of folly to rule out a further short-term decline. By the end of this year, however, we think that sterling likely will have appreciated to around $1.38.
We argued in the Monitor on Friday--see here--that the Fed likely will increase the pace of its Treasury purchases, in order to ensure that the wave of supply needed to finance the next Covid relief bill does not drive up yields.
The 2008-to-09 recession was a mild experience for most households which remained employed and benefited from a huge decline in mortgage rates.
Brazil's external accounts remain relatively solid, making it easier for the country to withstand any potential external or domestic threat.
Korea's government is mulling a further tightening of borrowing rules to mitigate the risks of an overheated property market.
Investors active in the government bond market will be awaiting today, at 07:30 BST, the publication by the Debt Management Office of its updated Financing Remit for the upcoming three months. The new Remit will show that gilt sales, net of redemptions, will be lower in Q3 than in Q2.
The stock market did not like the renewed closure of bars in Texas and Florida, announced Friday morning.
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.
Survey data have been signalling a stronger German economy in the last few months, and hard data are beginning to confirm this story. Data yesterday showed that industrial production rose 0.4% month-to-month in November, pushing the year-over-year rate up to 2.2%, from an upwardly-revised 1.6% in October. The headline was boosted mainly by a 1.5% month-to-month jump in construction and a 0.9% rise in intermediate goods production.
Chile's near-term economic outlook is still negative after a sharp resurgence of coronavirus cases.
We have revised up our third quarter GDP forecast to 25% from 15%, in the wake of last week's data. Consumers' spending is on course to rise by 36.6% if July's level of spending is maintained, though we're assuming a smaller 33% increase, on the grounds that the expiration of the enhanced unemployment benefits on July 31 will trigger a dip in spending for a time.
Korea's main activity data for August showed that the economy clearly wobbled in the wake of the country's second wave of Covid-19, and the social distancing measures imposed in response to it.
August's money and credit report creates a reassuring first impression, though the details are more troubling.
The Prime Minister achieved a rare victory yesterday, when the Commons passed the government-backed Brady amendment.
The release of pent-up Japanese consumer demand in June was emphatic, with retail sales values jumping by 13.1% month-on-month.
Data released in recent days confirmed the intensity of the Covid-related shock to the Chilean economy in Q2.
The only significant surprise in the terrible second quarter GDP numbers was the 2.7% increase in government spending, led by near-40% leap in the federal nondefense component.
ADP's measure of private payrolls has undershot the initial official estimate in each of the past five months.
It's possible that first hints of better news ahead in the Covid surge in the South and West are beginning to emerge in the data.
Sterling has begun this year on the front foot, rising last week to its highest level against the U.S. dollar since June 2016.
On the face of it, yesterday's German consumption data were disappointingly weak.
The wild gyrations in the core inflation numbers in recent months have made it hard to keep track of the underlying story.
The recovery of consumer confidence in Korea remains undeterred by the lingering risk of a second wave.
The Fed made no changes to policy yesterday, as was almost universally expected.
Data released last week confirm that Argentina's economy remains a mess.
June's money and credit data show that firms have accumulated a large cash pile since the start of the Covid-19 outbreak, despite sales falling through the floor.
Recent estimates of public borrowing have undershot the OBR's expectations, superficially suggesting the Chancellor has greater-than- expected capacity to borrow even more in the winter, if Covid-19 wreaks havoc.
Tracking the consumer services sector has become more important since Covid-19, as it was flattened by the lockdown in Q2 and it might prove to be an incubator of new infections, if it becomes too busy.
Japan's advance PMI numbers for August suggest that the economy dodged most of the bullets fired by the second wave of Covid-19.
Our working assumption now is that Congress will not pass a substantial Covid relief bill until next year, probably in February.
Yesterday's advance EZ PMI data for September conformed to our expectations.
New Covid-19 cases in Mexico have continued to fall steadily over this month, with deaths peaking two weeks ago, as shown in our first chart.
Some normality has returned in India, more than three weeks from the end of the nationwide lockdown and the start of "Unlock 1.0" on June 1.
We expect MPs this week to take a big step towards a soft Brexit, which has been our base case since the referendum.
Britain's Covid-19 data have continued to improve, despite the partial reopening of the economy.
Business surveys released this week suggest the economic recovery decelerated in early September.
Mexican policymakers likely will stick to the script tomorrow and vote by a majority to cut the main rate by 50bp to 5.00%, which would be its lowest level since late 2016.
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.
While we were on holiday, the data confirmed that economies have been badly hit by the pandemic in Q2, and that the upturn will be gradual.
We are currently operating with a very simply rule-of- thumb for interpreting the PMIs.
Sterling depreciated further last week as the Prime Minister's Brexit plans were tweaked by Brexiteers and given a lukewarm reception by the European Commission.
Inflation in Mexico surprised to the upside in early Q3, but we still believe it will fall gradually in Q4.
Chainstores are continuing to struggle, even as the reopening of the economy continues.
If Congress passes another Covid relief bill early next month, as we fully expect, it will have to be financed quickly via increased debt issuance.
Initial jobless claims have stopped falling.
We doubt that the new Job Support Scheme, announced by the Chancellor yesterday, will hold back the tide of redundancies over the coming months.
With just five days of July remaining, it seems likely that the trends in most of the key near-real-time indicators will end the month close to the levels seen at the end of June.
We're assuming that Chair Powell will offer at least some comment on the current state of the economy and the outlook in his virtual Jackson Hole speech at 09:10 Eastern time this morning, though the main focus of the presentation will be the results of the Fed's Monetary Policy Framework Review.
The headline EZ data added to the evidence of a weakening recovery while we were away.
Data released on Friday in Brazil and recent political events helped to open the door further to a final rate cut in August. The IPCA-15--which previews the full CPI-- rose 0.3% month-to-month in July, well below market expectations, 0.5%.
Net trade in India likely contributed positively to headline GDP growth in the lockdown-plagued second quarter, but for all the wrong reasons.
House Democrats and Senate Republicans are so far apart on both the structure and the size of the next Coronavirus relief package that it's hard to see a bill passing Congress in less than a couple weeks or so, and it could easily take longer.
June's surge in retail sales is not a sign that households' total spending is zipping back to pre- downturn levels.
Speculation that another general election is imminent has intensified in recent weeks.
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.
India's GDP report for the second quarter, due on Monday, will be a bloodbath.
The speed of sterling's rally this month has caught us by surprise.
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 final numbers for China's balance of payments in the first quarter showed that the current account descended to a $34B deficit, from a surplus of $30B a year earlier.
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.
Mexican policymakers yesterday voted unanimously to cut the policy rate by 50bp to 5.00%, the lowest level since late 2016.
Yesterday's final EZ manufacturing PMIs for July extended the run of gains since the nadir during lockdown.
Under normal circumstances, sustained ISM manufacturing readings around the July level, 54.2, would be consistent with GDP growth of about 2% year-over-year.
China's post-Covid-19 economic recovery is becoming increasingly undeniable. But the more relevant questions now are the speed of its revival, and whether there are still any low-hanging fruit to pick.
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.
It is becoming increasingly safe to say that any bounce in private consumption following the end of Japan's state of emergency will be muted and difficult to sustain.
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 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.
Data continue to show that the housing market ran hot over the summer, as buyers eager to change their lifestyles in response to Covid-19 rushed through purchases.
Yesterday's data seemed to pour cold water on the idea of a sustained recovery in German manufacturing. Industrial production, including construction, fell by 0.2% in August driving the year-over-year rate down by 0.4pp, to -10.0%.
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.
Brazilian industrial production data released last week were upbeat. Output rose 8.0% month-to-month in July, much better than the consensus forecast for a 5.9% increase.
Recent economic indicators in Mexico have been terrible. The worst of the recession seems to be over, but recent hard data have underscored the severity of the shock and made it clear that the recovery has a long way to go.
India's services PMI for June underscores the half-hearted nature of Unlock 1.0, with the daily number of new cases of Covid-19 still rocketing.
The short answer to the question posed by our title is: We don't know. But that's the point, because we shouldn't be needing to ask the question at all.
The next couple of months likely will see some activity data rebound to close to pre-Covid levels, fuelling hopes of a V-shaped recovery.
Predicting which way markets would move in response to potential general election outcomes has been relatively straightforward in the past. But the usual rules of thumb will not apply when the election results filter through after polling stations close on Thursday evening.
The daily number of confirmed new U.S. Covid-19 cases has leveled-off over the past couple weeks, and the rate of increase of hospitalizations has slowed appreciably.
Speculation that another general election is imminent is rarely out of the news. At present, betting markets see about a 35% chance of another election in 2019, broadly the same chance as one in 2022, when it is currently scheduled to be held.
China's foreign exchange reserves have been extremely volatile over the past few months, yet uneventful at the same time.
We expect July's GDP report, released on Friday, to show that overall output rose by about 7.0% month-to-month, bringing it to 11.5% below its pre-Covid peak.
In one line: Stabilisation in the m/m data, but trend still points to slower output growth.
In one line: The market speaks, and the ECB listens.
In one line: Solid, but risks loom for the Q2 numbers.
In one line: Boosted by sharp rebound in services inflation.
In one line: The HICP core rate appears to be returning to its trend of about 1.5%
In one line: A modest m/m fall, but the trend likely will stabilise soon.
In one line: Hit by energy inflation; the core rate is now a wildcard until the virus recedes.
In one line: A solid start to Q2 for French consumers.
Before we cover yesterday's economic news, we regret to inform our readers that the Brexit negotiations remain bizarre as ever.
April's GDP report probably will be the worst any of us will see in our lifetime.
China's GDP report for the second quarter is due a week from today, and the prevailing wisdom is that the bounce-back was strong enough for headline growth to return to the black.
The tiny headline consensus beat in the August payrolls numbers is nothing to get excited about, and neither is the unexpected drop in the headline unemployment rate.
Traders looking for a sustained move in the euro have been left disappointed in the past six-to-12 months, but it is now teasing investors with a break to the upside against the dollar.
The coronavirus outbreak has pushed inflation lower in the Andean economies as the shock drives them into the deepest recession on record.
Britain's productivity problem has been building under the surface for years, but it is set to be more pertinent now that the economy is close to full employment.
Our comments on the inflation outlook over the last few months have focused mostly on the risk of continued mean-reversion in some of the components crushed by Covid, and the surge in used car prices, both of which remain real threats.
Last week we reported on the V-shaped recovery in German retail sales--see here--as lockdowns ended mid- way through Q2.
Brexit talks have hit an impasse over the Irish border. The Republic of Ireland will veto any deal that creates a hard border with Northern Ireland. This means that Northern Ireland must remain in the EU's customs union.
With less than a week to go until MPs' meaningful vote on Brexit legislation, on December 11, the Prime Minister still looks set to lose.
The advance indicators of July payrolls are wildly contradictory, so you should be prepared for anything from a consensus-busting jump to a renewed outright drop, in both Friday's official numbers and today's ADP report.
Yesterday's data provided further evidence of the rising costs of supporting the EZ economy through the Covid-19 shock.
The Conservatives' opinion poll lead continued to decline over the last week, suggesting that a landslide victory on Thursday no longer is likely. Indeed, the Tories' average lead over Labour in the 10 most recent opinion polls has fallen to just 6%, down from a peak of nearly 20% a month ago.
Wednesday's industrial production report in Brazil was terrible, despite overshooting market expectations.
News last week increased our conviction that the economy will struggle over the coming months, but then will have a spring in its step next year.
We set out the reasoning behind the big upward revision to our payroll forecast yesterday, in the wake of the much better-than-expected ADP report.
The economy will endure a sluggish recovery from Covid-19 this year, even if a second wave of the virus is avoided, partly because monetary stimulus is not filtering through powerfully to households.
Data released this week in Brazil underscored that the Covid-related shock on the industrial sector is finally easing, as the economy gradually reopens.
India's consensus-beating GDP report for the first quarter wasn't much to write home about.
In trade-weighted terms, sterling finished 2017 just 1% higher than at the start of the year, reversing little of 2016's 14% drop.
The continued gradual rise in new confirmed cases of Covid-19 lends more weight to the idea that the economy already has reopened as much as possible while containing the virus.
Covid-19 has taken a large and immediate toll on house prices, but bigger damage likely lies ahead.
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.
Two approaches to forecasting payrolls have been the most useful in recent months, and both point to August payrolls rising by less than the 1,350K consensus; our forecast is 750K.
September's Markit/CIPS PMIs indicate that the economy still is stuck in a low gear.
August's GDP report, released on Friday, looks set to reinforce the downward pressure on gilt yields by making it even more likely that the MPC will extend its QE programme later this year.
Our hopes of another solid increase in payrolls in July were severely dented by yesterday's ADP report, showing that private payrolls rose only 167K in July.
The September PMI surveys in Mexico continue to bolster our argument for a subpar recovery in the second half of the year.
The steep rise in the number of people unemployed for more than six months attracted a good deal of media attention after the release of Friday's August jobs report, as well it might.
We don't take much reassurance from the upward revision to the business activity index of Markit's services PMI to 56.1, from the flash estimate, 55.1.
Political risks have been making an unwelcome comeback in the Eurozone in the past month. In Germany, last month's parliamentary elections--see here--has left Mrs. Merkel with a tricky coalition- building exercise.
The final Monitor before our summer break is characterized by great uncertainty.
The MPC struck a less dovish tone than markets had anticipated yesterday.
The Brazilian Central Bank's policy board-- COPOM--met expectations on Wednesday, voting unanimously to cut the Selic rate by 25bp to 2.00%.
October's Markit/CIPS services survey added to evidence that the economy has started Q4 on a very weak footing.
The private sector in China has finally joined the party, boosting the durability of the economic recovery.
The slump in the Markit/CIPS services PMI in November to its lowest level since July 2016 provides the clearest indication yet that uncertainty about Brexit has driven the economy virtually to a stand-still.
A range of indicators show that the pace of the economic recovery shifted up a gear in July, when all shops were open for the entire month, and most consumer services providers finally were permitted to reopen.
The U.K.'s dysfunctional cabinet will meet at the Prime Minister's country retreat today to agree--finally--on a set of proposals for how Britain will trade outside of the E .U.'s customs union and single market.
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.
Let's get straight to the point: It's very unlikely that July's payroll numbers will be as good as June's. Too many direct and indirect indicators of employment and broader economic activity are now moving in the wrong direction.
Governor Bailey signalled a potential shift in the Bank of England's approach to withdrawing monetary stimulus--whenever the time comes--last month in an article for Bloomberg Opinion.
While we were out, new U.S. Covid-19 cases and hospitalizations continued to fall steadily, and deaths have now peaked.
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.
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.
China's post-lockdown recovery broadly has surprised this quarter, particularly in the industrial sector.
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.
Economic activity remains under severe strain in the Andes.
Even if the Prime Minister fends off an emerging leadership challenge--as we write, the rebels still are short of the 48 signatures required to trigger a confidence vote--her chances of getting parliament to back the Withdrawal Agreement in its current form are slim.
Many indicators continue to suggest that the economic recovery has stalled.
Data released yesterday from Brazil support our view that the economic recovery continues, but progress is slowing, following the initial post-lockdown rebound.
The weekly initial jobless claims numbers have been a useful proxy for the real-time performance of the economy since Covid-19 struck.
Financial markets and economic data don't always go hand-in-hand, but it is rare to find the divergence presently on display in Italy.
Financial markets have barely reacted to economic data surprises since the Covid-19 crisis commenced in March.
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 economy will be a shadow of its former self over the remainder of this year, following the heavy pummelling from Covid-19.
Most of the states being hit hardest by the latest wave of Covid infections, in terms of new cases and hospitalizations per capita, have relatively small populations.
Japan's prime minister in-all-but-name, Yoshihide Suga, will be inheriting an economy struggling to maintain any momentum from the release of pent-up demand.
The return of the virus in the Eurozone isn't what the economy needed, but we continue to think it differs from the first shock, for three key reasons.
August's consumer prices report, due on Wednesday, is harder to forecast than usual, given high uncertainty regarding the impact of the cut in VAT for the hospitality sector, as well as the consequences of the ONS' decision to resume collecting data from physical stores.
Monday's economic data in Colombia provided further evidence of a gradual rebound in manufacturing output and retail sales as the economy slowly reopened.
Yesterday's ECB meeting was a snoozer, just as we predicted.
The MPC surprised yesterday both with its bullish take on the economy's current health, and with the news that it will begin, in Q4, "structured engagement on the operational considerations" regarding negative rates.
The near-real-time economic data have been hard to read recently, because of distortions caused by the Labor Day holiday.
Recent economic activity, labour market and inflation data all have surprised Brazilian policymakers' expectations, to the upside.
The Covid-19 downturn has been more severe in the U.K. than in most other advanced economies this year.
The consensus for retail sales volumes to rise by a mere 0.3% month-to-month in November, after falling by 0.4% in September and 0.5% in Oc tober, looks too downbeat.
Policymakers in Brazil and Chile took another big step this week in assuring markets that they won't hesitate to act in the fight against the virus.
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.
We're braced for disappointing jobless claims numbers today.
The chainstore sales numbers have been hard to read over the past year.
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.
Headline retail sales in June were just 1% below their January peak, and about 3% below the level they would have reached if the pre-Covid trend had continued.
Incoming data continue to highlight the severe hit from the pandemic on the real economies of the region, but some surveys and leading indicators are already pointing to a gradual upturn from June onwards.
CPI inflation fell to 0.2% in August, from 1.0% in July, but exceeded our forecast and the consensus, both zero.
July's retail sales report, released on Friday, looks set to be the third in a row to surprise the consensus to the upside.
Japan's economy shrank by an historic 7.8% quarter-on-quarter in Q2, much worse than the 0.6% slip in the first quarter.
Mexico's industrial recession deepened in April, though some leading indicators suggest that the worst is over as the economy gradually reopens. But downside risks have increased dramatically in recent weeks, as the pandemic seems to be gathering renewed strength.
We aren't much bothered by the one-tenth overshoot in the June core CPI, reported yesterday.
Japan's second wave of Covid-19 is in its early phase, though the virus appears to be spreading rapidly.
The second Covid wave has not yet crested, but it won't be long. That might sound preposterous, given the endless headlines about record numbers of new cases and deaths in southern and western states.
Friday's June inflation data in Brazil confirmed that the ripples from the worst of the Covid shock were still being felt at the end of the quarter.
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".
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.
We have no argument with the FOMC's view that the Covid crisis is a disinflationary event, but the run of three straight outright month-to-month declines in the core CPI likely came to an end in June.
After the drama of the last few days, Brexit developments now are set to proceed at a slower pace.
The U.K. economy underperformed its peers to an extraordinary degree in Q2.
Data released in recent days have confirmed that private spending is on the mend in the biggest LatAm economies.
Brazilian political risk remains high, due mainly to President Bolsonaro's gross mismanagement of the Covid-19 crisis, but, as we have argued in previous Monitors, it is unlikely to deter policymakers from further near-term monetary easing.
Yesterday's ZEW investor sentiment report in Germany provided an upside surprise.
The E.U.'s decision to grant the U.K. a Brexit extension until October 31 does not extinguish the possibility that the MPC will raise Bank Rate before the end of the year.
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.
The MPC likely will steer clear of providing strong signals on the outlook for monetary policy at next week's meeting.
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.
Korea's unemployment rate plunged unexpectedly in August, to 3.2%--the lowest in a year--from 4.2% in July, defying expectations for no change and the renewed pressure on the economy from the second wave of Covid-19.
The Johns Hopkins database shows a mixed coronavirus picture in the Andes, with the trend in new cases still rising in Argentina and Colombia, but relatively flat for about the past two weeks in Peru.
Yesterday's sole economic report in the Eurozone closed the book on the initial Covid-19 shock in French manufacturing.
Yesterday's trade data in Germany added to the evidence of a relatively slow rebound as the domestic and European economies emerged from lockdown.
We were happy to see initial jobless claims fall to a 15-week low of 1,314K yesterday, but the labor market is still in a terrible state.
The downward pressure from factory-gate prices on Chinese industrial profits will continue to ease in the coming months.
Business investment has held up better than most economists--ourselves included--expected after the Brexit vote.
The 0.4% August core CPI print was close to our expectations, and it likely will look much the same in September and October, driven by the same forces.
Yesterday's EZ manufacturing data were slightly underwhelming, at least compared to expectations.
The EU's decision to grant the U.K. an extension under Article 50, until October 31, reveals two key aspects of continental Europe's position on Brexit.
We triggered a bit of pushback on social media yesterday when we suggested that Larry Kudlow's familiarity with the alphabet is questionable.
On balance, yesterday's labour market statistics were better than we had expected.
China's trade surplus plunged unexpectedly in September, to $37B, marking the lowest level since March.
Sterling weakened yesterday, to $1.31 from $1.32, following news that 40 Conservative MPs have agreed to sign a letter of no-confidence in the Prime Minister.
After the first round of voting by Tory MPs, Boris Johnson remains the clear favourite to be the next Prime Minister.
We're expecting to see another dip in initial claims for regular state unemployment benefits today, to about 850K, but that's only part of the story.
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 overarching theme in the September CPI numbers is that there is no overarching theme.
The first real glimpse of India's economic performance early this quarter is grim, adding weight to our below-consensus GDP forecast.
The Labour Force Survey continues to understate massively the damage caused by Covid-19.
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 EU has had a better start to the Brexit negotiations than its counterpart across the Channel. The risk of disagreement within the EU on the details with of the U.K.'s exit is high, but the Continent has presented a united front so far, mainly because Mr. Macron and Mrs. Merkel agree on the broad objectives. They have no interest in punishing the U.K., but they are also keen to show that exiting the EU has costs for a country which leaves.
The newest cluster of Covid-19 in China has reignited concerns over a second wave. On June 11, Beijing confirmed its first infection in nearly 60 days, originating reportedly from Xinfadi market, a wholesaler which supplies about 80% of the capital's produce.
The continued upward trend in airline passenger numbers has drawn attention as a potential sign that the latest surge in Covid cases is not as big a threat to the economy as some commentators, ourselves included, have argued.
CPI inflation picked up to 0.5% in September, from 0.2% in August, when the Eat Out to Help Out Scheme was running.
We remain very bullish on the housing market, given sustained 11-year highs in applications for new mortgages to finance house purchase.
Complacency and wishful thinking seem to be creeping back into the government's approach to containing Covid-19.
The Fed has given itself and markets clear guidance on the minimum requirements for a rate hike-- maximum employment, and inflation at 2% and on track "moderately" to exceed that pace "for some time"--but has offered no clues at all on the drivers of its other key policy tool, namely, the pace of asset purchases.
The stakes in the Brexit saga have been raised significantly over the summer.
Economic activity is rebounding in LatAm, but the recovery will be slow and uneven.
Korea's fledgling export recovery seemingly hit a roadblock this month.
Our forecast for LatAm envisions a gradual pickup in growth, following a terrible first half.
Our long-standing forecast for GDP to be about 5% below its pre-Covid level at the end of this year assumes that the government will not need to impose new nationwide restrictions on businesses.
Chancellor Sunak looks set to announce more fiscal stimulus next month to reinforce the economic recovery, despite recent record levels of public borrowing.
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.
When we're thinking about the prospects for the holiday shopping season, we usually focus on two questions.
Mexico's unemployment report, released on Wednesday, confirmed that the labour market is finally on the mend, though the details highlighted that there is a long way to recover the 4.6M jobs lost since February.
Sterling rallied to $1.25 last week--its highest level against the dollar since Boris Johnson became PM in mid-July--amid growing speculation that a Brexit deal still was possible in the next couple of weeks, enabling the U.K. to leave the E.U. on October 31.
Recent data in Colombia have confirmed that virus containment measures caused much bigger declines in activity in early Q2 than initially expected.
We need to start today with a word of warning about today's initial jobless claims, where the risk to the consensus seems mostly to be to the upside.
November's labour market data were the last before the MPC's February meeting, when it will conduct its annual assessment of the supply side of the 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.
The spectre of a general election relentlessly will haunt the new Prime Minister--due to be announced as Tory party leader today before moving into Downing Street tomorrow--but our base case remains that a poll won't happen this year.
We look for a 12.5% month-to-month jump in the official measure of retail sales in June, released on Friday. This easily would top the consensus, 8.3%, for a second consecutive month.
Retailers made hay while the sun shone in August, but clouds now are looming overhead. The 0.8% month-to-month rise in retail sales volumes took them 3.3% above last year's average.
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.
Financial markets are pricing in a 20% chance that the Monetary Policy Committee will cut official interest rates during the next six months, broadly the same odds they ascribe to a rate increase. We think the probability of further easing is much slimmer than the market believes.
India's GDP shrank by 23.9% year-over-year in the second quarter, following growth of 3.1% in Q1.
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.
Korea's labour market ran out of luck in September, with the unemployment rate rebounding back up to 3.9%, after the surprise one-percentage point drop to 3.2% in August.
We still think it is a question of when--not if-- MPs will be successful in taking a no -deal Brexit off the table.
We're expecting the first look at August employment, in the form of today's ADP report, to fall short of the 1,000K consensus forecast; we look for 500K.
We have been puzzled in recent weeks to see clear indications of softening economic activity--falling restaurant diner numbers, fewer small firms open for business and falling employment, and reduced footfall at businesses--while data from the travel business continued to improve.
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.
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.
We look for a 950K increase in September private payrolls, more than the 700K or so implied by the Homebase daily employment data but consistent with ADP, assuming it has undershot the official numbers for a sixth straight month.
Higher core goods inflation is one of the main reasons why the headline rate of CPI inflation has exceeded economists' forecasts over the last few months.
Japan in July recorded its first trade surplus in three months, as exports continued to show more signs of life.
The third quarter ended with a bit of a bang for retailers, with sales rising strongly, even in the woebegone department store sector. The apparent loss of momentum in July and August reversed, with the sector reporting a 9.7% jump in sales.
As we write, 25 Conservative MPs have confirmed publicly that they have submitted no-confidence letters to the Chairman of the 1922 Committee. That's 23 short of the 48 required to trigger a leadership contest, though some MPs might have submitted letters without making it public.
The possibility of a Corbyn-led Labour Government has been highlighted by some analysts as a major economic risk. Mr. Corbyn, however, has little practical chance of being elected soon.
U.K. equities have been unable to catch a break this year.
Sterling has recovered virtually all of the ground it lost against the U.S. dollar in the spring, rising to $1.31 in recent days, from just $1.26 a month ago and a low of $1.15 in March.
The U.K.'s property obsession has been immune to Covid-19, so far.
The coronavirus ordeal continues in LatAm as a whole.
The BoE has lived up to its reputation again as one of the most unpredictable central banks.
Investors have become more concerned about a no-deal Brexit.
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.
The recovery of some key commodity prices, policy action in China, and stronger expectations that the U.S. Fed will start hiking rates later during the year, have helped reduce volatility in LatAm financial markets. Oil prices have rise by around 20% year-to-date, iron ore prices are up about 60% and copper has risen by 7%.
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.
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%.
We have had a modest rethink of our June payroll forecast and have nudged up our number to 150K, still below the 180K consensus. Our forecast has changed because we have re-estimated some of our models, not because of the 172K increase in the ADP measure of private payrolls. ADP is a model-based estimate, not a reliable survey indicator.
Yesterday's manufacturing data in Germany followed the lead from Monday's relatively underwhelming new orders report; see here.
The nosedive in the Markit/CIPS manufacturing PMI in April provides an early sign that GDP growth is likely to slow even further in the second quarter. The MPC, however, looks set to keep its powder dry. We continue to think that the next move in interest rates will be up, towards the end of this year.
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%.
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.
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.
We doubt that the MPC will provide a strong signal on Thursday that interest rates need to rise again before the summer.
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 10.3% year-over-year decline in private new car registrations in April likely is not a sign that the trend in either vehic le sales or consumers' overall spending is taking a turn f or the worse.
With little reason to doubt that interest rates will remain at 0.50% on Thursday, focus has turned to what signal the MPC will give about future policy, via its economic forecasts and commentary.
We've argued for some time that China faces a massive legacy of bad debt that will either have to be dealt with, or will result in the Japanning of its economy.
Economic growth in Chile slowed in Q1, despite a relatively strong end to the quarter, and the chances of an accelerating recovery remains disappointingly low, due to both global and domestic headwinds.
Calling the ECB has suddenly become a lot more complicated.
We're looking forward to today's April NFIB survey of activity and sentiment in the small business sector with some trepidation.
April payroll growth likely will be reported at close to 200K. Overall, the survey evidence points to a stronger performance, but they don't take account of weather effects, and April was a bit colder and snowier than usual. We're not expecting a big weather hit, but some impact seems a reasonable bet.
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.
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.
China's current account dropped sharply in Q1, to a deficit of $28.2B, from a surplus of $62.3B in Q4.
LatAm assets have done well in recent weeks on the back of upbeat investor risk sentiment, low volatility in developed markets and a relatively benign USD. A less confrontational approach from the U.S. administration to trade policy has helped too.
We're hearing a lot about permanent changes to the economy in the wake of Covid-19, but that might not be the right description. Not much is permanent, and assuming permanence in just about anything, therefore, is risky.
The MPC won't stand idly by on Thursday, despite having moved decisively to support the economy in March.
Korean exports hit a brick wall in April, unsurprisingly, as lockdowns across the non- China world dealt a body blow to demand.
LatAm data in recent days have confirmed that efforts to contain the coronavirus, plunging global trade, and the collapse in oil prices, are dealing a severe economic and financial blow.
This week's MPC meeting and Inflation Report likely will support the dominant view in markets that the chances of a 2017 rate hike are remote, even though inflation will rise further above the 2% target over the coming months. Overnight index swap markets currently are pricing-in only a 20% chance of an increase in Bank Rate this year.
Political risks in the periphery have simmered constantly during this cyclical recovery, but they have increased recently. In Italy, the government is scrambling to find a solution to rid its ailing banking sector of bad loans. But recapitalisation via a bad bank is not possible under new EU rules.
Ian Shepherdson, founder at Pantheon Macroeconomics Ltd., discusses the Federal Reserve's rate hike pattern and how it can provide a summer surprise to markets. He speaks with Bloomberg's Mark Barton on "Bloomberg Surveillance."
Friday's CPI data in the euro area confirmed our expectation that inflation jumped last month.
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.
• U.S. - Can Powell push Congress to act again? • EUROZONE - Has the ECB revived the carry trade in EZ government bonds? • U.K. - What are the options for the MPC this week? • ASIA - Don't be fooled by the relatively solid Chinese manufacturing PMI • LATAM - The LatAm economies are feeling the pain of Covid-19
Barclays hit the headlines yesterday with an announcement that it is bringing back no-deposit mortgages for first-time buyers and raising its maximum loan-to-income ratio for borrowers with an income of more than £50K to 5.5, from 4.4. With other lenders likely to follow suit and the supply of homes for sale still extremely low, house price inflation likely will remain brisk this year.
Markets and the commentariat seemed not to like the April ADP employment report yesterday but we are completely indifferent. We set out in detail in yesterday's Monitor the case for expecting a below consensus ADP reading--in short, the model used to generate the number includes lagging official data, some of which were hugely depressed by the early Easter--so it does not change our 200K forecast for tomorrow's official number.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the impact of improving wage growth and inflation on the Federal Reserve ahead of today's February jobs report. He speaks on "Bloomberg Surveillance."
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.
A steep drop in prices for financial services in January was a key factor behind the sharp slowdown in the rate of increase of the core PCE deflator in the first quarter, relative to the core CPI.
Samuel Tombs discussing U.K. Inflation
Chief Eurozone Economist Claus Vistesen on the latest data from the Eurozone
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 latest U.K. PMIs were unambiguously dreadful. The manufacturing, construction and services PMIs all fell in April, and their weighted average points to quarter-on-quarter growth in GDP slowing to zero in Q2, from 0.4% in Q1. The U .K.'s composite PMI also undershot the Eurozone's for the second month this year.
Yesterday's data in the euro area were true to recent form; in short, terrible.
As of last month, Chinese officials were touting RMB 1.6T in savings for companies as a result of a slew of measures announced in response to the Covid crisis.
Britain has continued to make steady progress towards containing the Covid-19 outbreak.
Activity surveys picked up across the board in April, offering hope that the slowdown in GDP growth--to just 0.3% quarter-on-quarter in Q1-- will be just a blip. The headline indicators of surveys from the CBI, European Commission, Lloyds Bank and Markit all improved in April and all exceeded their 2004-to-2016 averages.
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.
If the underlying trend in payroll growth is about 200K, then a weather-depressed 98K reading needs to be followed by a rebound of about 300K in order fully to reverse the hit. But the consensus for today's April number is only 190K, and our forecast is 225K.
All the main business surveys released last week continued to paint a picture of a listless economy.
We have long argued that the U.S. and China will reach a trade deal this spring, because it is in the interests of both sides, economically and politically, to do so.
It's entirely possible--though impossible to prove--that the weather is responsible for the below-consensus April payroll number.
In the wake of Wednesday's ADP report, showing a mere 27K increase in private payrolls, we cut our payroll forecast to 100K.
Over the weekend, Mr. Trump showed his ability to upend things, once again, tweeting that China was trying to renegotiate trade talks, which he says are progressing too slowly.
EZ investors hoping for a quiet session yesterday due to the U.K. bank holiday were left disappointed.
In our recent Monitors, we stressed that some leading indicators in Brazil, particularly business and consumer confidence, are still pointing to a gradual economic recovery.
This weekend will bring closure to an extraordinary presidential election campaign in France. The polls correctly predicted the first result, and assuming they are right in the second round too, Mr. Macron will comfortably beat Ms. Le Pen.
The PBoC is standing firm for now, but adjustments will be needed; Japan's machinery orders are defying gravity; gravity always wins in the end
In one line: The EZ economy is slowly rebounding; has the rate of increase in German jobless claims peaked?
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.
Not giving up on China's stimulus yet. China's PPI inflation will head higher this month. China's CPI inflation will peak soon.
In one line: The recovery from the Q4 stock market hit continues apace.
In one line: A further jump in expectations; can it be trusted?
In one line: A bold rate cut, and more to come thanks to Covid-19.
In one line: Another cut, and more to come.
In one line: The last Covid-driven monthly drop in the core?
China's exporters fulfil old orders; new orders have plunged; Caixin survey underlines that smaller firms are still sputtering; An unsurprisingly modest start for "unlimited QE" in Japan; Expect much more trade damage to Korea's current account surplus in April
The hit from oil prices has just started; CPI deflation is imminent in Korea. Korea's PMI descends further, but April could mark the low
China dumped growth targeting, sending a signal through the deficit instead. The BoJ is doing all it can to support the economy. Japanese inflation quashed by oil price tumble.
Japan's adjusted trade balance will remain in the red for now
Japan's trade balance should recover as domestic weakness sets in; Japan's manufacturing PMI undermines H2 recovery hopes; Japan's services PMI paints a damning picture of Q2; Korea's export recovery from the April low will be more gradual than the descent; A lot more downside left for PPI deflation in Korea before Q3 trough
Trade tensions weigh on Japan's PMI
Japan's inflationary upturn will be limited. Japan's activity index reinforces case for Q1 GDP downgrades.
Expecting one more cut from the BoK, as it mulls implicit forms QE and YCC
March was painful, but Japan's all-industry index likely was hit much harder in April.
In one line: Most U.S. states seeing slower case growth, despite increased testing.
In one line: Falling U.S. deaths are a good sign as increased testing reveals more cases.
In one line: Favorable trends across DM; no sign of rebounds after reopenings.
In one line: Disappointing U.S. numbers yesterday no cause for alarm; Germany has almost beaten Covid-19.
In one line: The downward trend in U.S. cases continues, but at a slower pace.
In one line: U.S. Cases are falling, and it's not just a New York story.
In one line: Positive U.S. tests dip below 5% as new case numbers start to tumble.
In one line: U.S. cases are falling, outside the meat-packing hotspots.
In one line: U.S. Case growth is slow and slowing; what will reopening bring?
In one line: Disappointing U.S. data yesterday, but not disastrous; Florida's uptick is disconcerting.
In one line: Better news from Florida, but daily new cases still rising in some states.
In one line: The overall U.S. picture is improving slowly, but hotspots are worrying.
In one line: U.S. case growth now well below the pace at the time Germany announced lockdown easing.
In one line: If it bleeds, it leads: Alarmist media are missing the continued slowdown in U.S. case growth.
In one line: Test data anomalies make it hard to see case trends; deaths are falling.
In one line: U.S. testing hits new highs, but cases still falling, just.
In one line: If the uptick in U.S. new cases is real, deaths will follow; don't bet on it.
In one line: More testing = more cases; evidence of a second wave is scant.
The renewed trade war is unfortunate timing, as Korea exports are stabilising at the margins. Revised index shows that Korean PPI inflation hasn't been missing this year.
Japan's Q1 GDP number leaves sales tax delay on the table
Britain's housing market appears to be going from bad to worse.
Yesterday's economic reports showed that the German economy firmed at the end of Q1, but this doesn't change the story for a poor quarter overall.
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.
Industrial production data in Germany continued to defy the signal of doom and gloom from leading indicators.
China's trade surplus collapsed unexpectedly in April, to $13.8B, from a trivially-revised $32.4B in March.
We're among a small minority of economists forecasting that GDP rose by 0.1% month-to-month in March.
Core producer price inflation is falling, and it probably has not yet hit bottom.
We just can't get away from the deeply vexed question of wages; specifically, why the rate of growth of nominal hourly earnings has risen only to just over 2.5%, even though the historical relationship between wage gains and the tightness of the labor market points to increases of 4%-plus.
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.
Mark Carney revealed last week that recent data had given him "greater confidence" that the weakness of Q1 GDP was almost entirely due to severe weather.
Total job losses between the March and April payroll survey weeks, as captured by the weekly jobless claims numbers, soared to 26.7M.
In our Friday Monitor, we came to the conclusion that prescriptions arising from Modern Money Theory have been designed primarily with the U.S. in mind.
If the Redbook chain store sales survey moved consistently in line with the official core retail sales numbers, it would attract a good deal more attention in the markets. We appreciate that brick-and-mortar retailers are losing market share to online sellers, but the rate at which sales are moving to the web is quite steady and easy to accommodate when comparing the Redbook with the official data.
Colombia's disinflation since mid-2016 has been driven by easing pressures on food prices, weak demand, and the better performance of the COP. But higher regulated prices at the start of the second quarter have triggered a pause in the downward trend.
Mr. Macron's victory in France answers two questions for markets, at least in the short run. Firstly, France will stay in the Eurozone, and Mr. Macron will not call a referendum on EU membership. Mr. Macron has come to power with a mandate to strengthen economic integration and co-operation between Eurozone economies.
The Prime Minister has argued repeatedly during the general election campaign that Britain will prosper under a "strong and stable" Conservative government with a large majority. "Division in Westminster," she argued when calling the election last month, "...will risk our ability to make a success of Brexit and it will cause damaging uncertainty and instability to the country."
Banxico left Mexico's benchmark interest rate at 3.75% on Thursday, maintaining its neutral tone and indicating that the balance of risks is unchanged for both inflation and growth. Policymakers remain confident that inflation will remain under control over the coming months, below 3%, but noted that they expect a brief increase above the target during Q4.
The trade-off between the timeliness and accuracy of the data is fundamental to macroeconomic analysis. Coincident data such as GDP, industrial production and retail sales are the most direct measures of economic activity, but their first estimates don't always tell the full story.
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.
BoJ programmes are propping up M2 growth; Japan's machine tool orders tumble will get worse before better
Japan's trade surplus deterioration not as bad as official stats suggest, but more to come
Chinese production surprises in April, as catch-up growth and inventory build continue; Disappointing sales headline in China masks respectable short-term trends; Recovery in secondary investment in China still lagged behind tertiary capex; PPI deflation has largely bottomed out, but don't expect a quick exit
PPI inflation in Japan likely has peaked... expect steeper drops in coming months. China's property recovery is spreading to more cities.
Korean inflation surprises to the upside in April. Manufacturing surveys in Korea are turning up.
Japan's tertiary index underlines that Q4 was catch-up growth...Q1 is payback
Surprise stability in Korea's unemployment rate won't last. Risks to Japan's current account surplus are weighted to the downside
Commodity prices continued to pummel Chinese PPI. Normalisation in pork prices will continue to drag CPI inflation down in China;
In one line: Expect one more cut, as the BoK mulls implicit forms of QE and YCC
This week's Inflation Report--now released alongside the MPC's decision and minutes of its meeting in a deluge of releases now known as "Super Thursday"--is likely to be a damp squib.
The undershoot in April payrolls, relative to the consensus, is a story of a fluke number in just one sector. Retail payrolls reportedly shrank by 3K, after rising by an average of 52K over the previous six months. Our first chart shows clearly that the retail payrolls are quite volatile over short periods, with sudden and often inexplicable swings in both directions quite common.
In one line: A smaller drop than we hoped for but next week should be better.
April wasn't so bad for Korean exports, which are starting to bottom out in real terms
Japan's wage picture has turned ugly for workers, even accounting for sampling distortions. China's current account surplus increase is hard to fathom.
Sharper energy and education deflation offset a jump in food prices in Tokyo. Lockdowns in Europe and the U.S. knock out Korean exports in April.
Demand in German manufacturing rebounded slightly at the end of Q1, though the overall picture for the sector remains grim.
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.
Friday's data added further colour to the September CPI data for the Eurozone.
Falling gas prices will make themselves felt in the November CPI data today, with a likely 4% seasonally adjusted decline enough to subtract 0.2% from the month-to-month change in the headline index. But gas prices plunged by 7.2% in November last year, so in year-over-year terms gas prices will push aggregate headline inflation up. We look for the rate to rise to 0.4%, up from 0.2% in October and zero in September. The same story will play out in January and February too, by which time the headline rate should have risen to 1¼%, assuming a crude oil price of about $35 per barrel.
Manufacturers in the Eurozone stood tall mid-way through Q2, despite still-subdued leading indicators.
The failure of the core CPI to mean-revert in April, after the unexpected March drop, does not mean that the Fed can relax.
Real GDP in the Eurozone rose 0.4% quarter-on-quarter in Q1, in line with the consensus, but slightly below our expectation for a 0.5% increase. We don't get much detail from the country-specific advance estimates but all evidence indicates that the technical hit from net trade was much larger than we expected.
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.
Yesterday, China finally retaliated against Mr. Trump's Friday tariff hikes, promising to increase tariffs on around $60B-worth of U.S. goods.
Data on Friday showed that the upturn in French manufacturing petered out at the end of Q1.
Chile and Peru faced similar growth trends in 2018, namely, a solid first half, followed by a poor second half, particularly Q3.
Markets are caught in a trade loop.
The German economy fired on all cylinders at the beginning of the year. Advance data on Friday showed that real GDP rose 0.6% quarter-on-quarter, accelerating from a 0.4% increase in Q4.
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.
Following Chinese retaliation against new U.S. tariffs last week, the U.S. responded last night, as promised, setting in train the process to slap tariffs on the remaining approximately $300B of imports from China.
Yesterday's inflation data in Germany were old news to markets, but the details were spectacular all the same.
The gap between the official measure of the rate of growth of core retail sales and the Redbook chainstore sales numbers remains bafflingly huge, but we have no specific reason to expect it to narrow substantially with the release of the April report today.
LatAm assets did well in Q1, on the back of upbeat investor risk sentiment, low volatility in developed markets and a relatively benign USD.
Mexican industrial production is slowly improving, and further good numbers are likely in coming months.
At the end of last year, we highlighted a tail risk that strain in currency basis swaps markets signalled looming yen appreciation.
Recent industrial data for Mexico point to renewed upside risks for GDP growth, despite the likely headwind to consumption from high inflation and depressed confidence.
Italy is edging closer to a coalition government with the Five-Star Movement, the Northern League, and Forza Italia at the helm.
The story of U.S. retail sales since last summer is mostly a story about the impact of the hurricanes, Harvey in particular.
Germany's newly-appointed finance minister, Olaf Scholz, proudly announced earlier this month that his country would be running a budget surplus of €63B over the next four years--about 1.9% of GDP between now and 2022--some €14B more than initially estimated.
To answer the question: Yes, growth could hit 5% in the second quarter.
The core CPI inflation rate rose in April to 2.1% from 2.0%, thanks to unfavorable rounding, despite the below consensus 0.14% month-to-month print.
The U.S. pulled the trigger on Friday, following through on President Donald Trump's tweeted threat to raise the tariffs on $200B-worth of Chinese goods, under the so-called "List 3", to 25% from 10%.
External and domestic shocks in Mexico over the last two years, including the "gasolinazo", NAFTA renegotiation and the presidential election, have put the country's financial metrics under severe stress and pushed inflation to cyclical highs.
• U.S. - The April NFP report was terrible; reality is worse • EUROZONE - How to spy to a rebound in the EZ economy • U.K. - The BOE will boost its QE program in due course • ASIA - China's 2020 budget deficit is set to soar • LATAM - Brazil is suffering from the government's Covid-19 mismanagement
Suggestions that the U.K. government might choose to hold a second referendum have been constantly rebuffed by the Prime Minister.
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.
The renewed decline in bond EZ bond yields has raised the question of whether inflation expectations will recover at all in this cycle. We think they will, and we also believe 10-year yields will rise towards 1%-to-1.2% towards the end of the year. But two factors will keep inflation expectations and yields in check in the near term.
The renewed fall in market interest rates and sterling this month indicates that markets expect the MPC to strike a dovish note at midday, when the Inflation Report is published, alongside the rate decision and minutes of this week's meeting.
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.
We have argued for some time that market disappointment over the recent sluggishness of consumption has been misplaced. In our view, investors have placed too little weight on the impact of the severe winter, and have been too hasty in looking for the impact of the drop in gasoline sales.
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 Fed surprised no-one by raising rates 25bp yesterday and leaving in place the median forecast for three hikes next year and two next year.
We are a bit uneasy about today's data on economic activity. The NFIB index of activity in the small business sector is likely to undershoot consensus expectations, while retail sales are something of a black hole, at least at the core level, where we have no reliable month-to-month advance indicators. Our bullish view on the underlying state of the economy, and its likely second-half performance, hasn't changed, but perceptions count in the short-term and these reports will help set the market mood just ahead of Chair Yellen's Testimony tomorrow.
Data released last week in Brazil reinforced our view of a modest, final, interest rate cut this week, despite the recent strength of the USD and volatility in global markets.
China's monetary conditions remain tight, pointing to a substantial downtrend in GDP growth this year and next.
The MPC's "Super Thursday" releases suggest that the Committee won't wait long to raise interest rates after a vote to stay in the E.U., which remains the most likely outcome of June's referendum. Meanwhile, we saw nothing to support markets' view that the MPC would ease policy in the wake of a Brexit.
Some of the rise in the saving rate in recent months is real, but part of the increase likely reflects seasonal adjustment problems. The saving rate has risen between the fourth and first quarters in eight of the past 10 years, as our first chart shows.
The US employment data last week reduced further the likelihood of a June Fed rate increase. In turn, this changes the likely timing of the normalization process in some LatAm economies. Our Chief Economist, Ian Shepherdson, expects the Fed to start its normalization process in July or September; the strength of the employment data will prevent any postponement beyond the third quarter.
The 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.
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.
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.
Consumption has been a serious weak spot in Brazil over the past year. After reaching record growth rates in 2010, it has gradually slowed to its lowest pace in more than ten years.
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%.
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.
The 21K rise in the headline, three-month average, unemployment rate between November and February confirmed last month that the U.K.'s period of fantastically strong growth in employment has ended. Timelier indicators, however, suggest unemployment is stabilising, not on the cusp of a major increase.
The gloom which descended on the FOMC in April has lifted, mostly, and policymakers remain on track for two rate hikes this year, likely starting in September. The median fed funds forecast for the end of this year remains at 0.625%, implying a target range of 0.5-to-0.75%.
Market-implied expectations of negative rates through 2021, and bund yields plunging below -0.1%, are an accident waiting to happen, but the main story is clear as rain.
Evidence in support of our view that the U.S. industrial slowdown is ending continues to mount, though nothing is yet definitive and the re-escalation of the trade war is a threat of uncertain magnitude to the incipient upturn.
The Japanese GDP report yesterday contained substantial revisions to Q4. We had expected the Q1 contraction, but the revisions recast the health of the recovery, making the domestic demand performance look much less impressive recently, with the economy struggling since the burst of growth in the first half last year.
Some of the recent labor market data appear contradictory. For example, the official JOLTS measure of the number of job openings has spiked to an all-time high, and the number of openings is now greater than the number of unemployed people, for the first time since the data series begins, in 2001.
Economic data released on Wednesday underscored that Brazil was struggling at the end of the first quarter, strengthening our case that Q1 GDP fell 0.2% quarter-on-quarter, the first contraction since Q4 2016.
Japan's economic data have been very volatile in the last 18 months.
The turmoil in Washington has begun to hit markets. We don't know how this will end, but we do know that it isn't going away quickly.
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.
Comments by Mr. Draghi in Washington last week point to a high bar for an adjustment to the QE program. The ECB president noted that while asset purchases and negative interest rates have driven a notable improvement in confidence and asset prices, the real key to the central bank's policies' success is a lasting boost to investment, consumption and inflation.
Chile's Central Bank left its main interest rate unchanged last week at 3.0%, for the seventh month in a row. The press release maintained its neutral tone, as in previous recent meetings, as the BCCh acknowledged that the economy is growing at a moderate pace, with some indicators suggesting less dynamic growth "at the margin".
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.
The half-way point of the quarter is not, alas, the half-way point of the data flow for the quarter.
Downward revisions to Japan's Q4 real GDP growth, published on Wednesday, lead us to revisit our main worry over the durability of the recovery; namely, that monetary conditions appear to be signalling a slowdown.
Yesterday's labour market figures revealed that employment growth has picked up this year, despite the shadow cast over the medium-term economic outlook by Brexit. The 122K, or 0.4%, quarter-on-quarter rise in employment in Q1 was the biggest since Q2 2016.
"Disappointing" is probably the word that most EZ equity investors would use to describe their market so far this year.
Brazil's monetary authority adopted a neutral tone and kept its main rate on hold at 6.5% at its monetary policy meeting on Wednesday, surprising investors.
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.
Mexico's central bank likely will pause its monetary tightening on Thursday, keeping the main rate at 6.5%. A hike this week would follow five consecutive increases, totalling 350bp since December 2015, when policymakers were first overwhelmed by the MXN's sell-off.
It's now four weeks since the Prime Minister called a snap general election, and the Conservatives still are riding high in the opinion polls. The average of the last 10 polls suggests that the Tories are on track to take 47% of the vote, well above Labour's 30%.
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.
Colombia's Q1 GDP report confirms that the economy is improving. Leading indicators and survey data suggest that the recovery will continue over the second half of the year.
Chinese April retail sales growth slowed sharply in value terms, to 9.4% year-over-year, from 10.1% in March.
The over-hyped mystery of the gap between the hard and soft data in the industrial economy has largely resolved itself in recent months.
Mr. Macron will be in Berlin today with the message that France wants a strong Eurozone and a tight relationship with Germany. Friendly overtures between Paris and Berlin are good news for investors; they reduce political uncertainty while increasing the chance that the economic recovery will continue. But it is too early to get excited about closer fiscal coordination, let alone a common EZ fiscal policy and bond issuance.
The consequences of the collapse in oil prices continue to reverberate through the sector. The number of rigs in operation is still falling rapidly, but the rate of decline is slowing. According to data from Baker Hughes, Inc., an average of 23 rigs per week have ceased operation over the past four weeks, the slowest decline since December.
Recent bond market volatility has left a significant mark on Eurozone credit markets. The recent slide in the Bloomberg composite index for Eurozone corporate bonds is the biggest since the U.S. taper tantrum in 2013. The prospect of a Fed hike later this year and rising inflation expectations in the Eurozone have changed the balance of risk for fixed income markets.
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.
We see downside risk to the housing starts numbers for April, due today. Our core view on housing market activity, both sales and construction activity, is that the next few months, through the summer, will be broadly flat-to-down.
Yesterday's economic reports mainly were backward-looking, but provided further evidence that the Eurozone economy hit the skids at the start of the year.
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.
Last week, the MBA's measure of the volume of applications for new mortgages to finance house purchase rose 1.7%.
Yesterday's economic reports confirmed that the Eurozone economy had a strong start to 2017. Real GDP rose 0.5% quarter-on-quarter in Q1, similar to the pace in Q4, and consistent with the first estimate. The year-over-year rate fell marginally to 1.7%, from 1.8% in Q4, mainly due to base effects.
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?
Brazil's Vice-President, Michel Temer, has taken over as interim president, following the approval of the impeachment motion against President Dilma Rousseff, accused of using creative accounting to hide large budget deficits. The impeachment motion suspends Ms. Rousseff for now; she will be removed from office permanently if a two-thirds majority finds her guilty.
Official industrial production growth in China plunged to 5.4% year-over-year in April, from 8.5% in March.
Yesterday's data in the EZ provided a little more evidence on what happened in Q1.
The second round of EZ GDP data on Friday confirmed the resilience of cyclical upturn. Real GDP in the euro area rose 0.5% quarter-on-quarter in Q1, up from 0.3% in Q4, and the fastest pace since the first quarter of last year. But the headline was slightly lower than the initial estimate, 0.6%, and consistent with our forecast before Friday's data.
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.
The four-quarter average growth trend in private investment, excluding dwellings, fell to 0.1% in Q4, and the recent improvement in the PMIs indicates only a modest upturn in Q2. The dearth of investment by non-financial corporates remains one of the biggest threats to long-term growth in the Eurozone.
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.
Along with just about every other commentator and market participant, we have been wondering in recent months how longer Treasuries would react to the Fed starting to raise rates at the same time the ECB and BoJ are pumping new money into their economies via QE.
Even though Greece managed to avert default yesterday by paying €200M in interest to the IMF, our assumption is that the country remains on the brink of running out of money. Our view is supported by the government's decision to expropriate local authority funds, and reports that the government's domestic liabilities, excluding wages and pensions, are not being met.
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.
Mexican manufacturing sector kicked off the year on a soft note, due mainly to the sharp drop in oil prices, and the sharp weather-induced slowdown in the U.S. Mexico's northern neighbor is its largest trading partner, by far, accounting for about 85% of total exports last year and close to 80% of total non-oil exports.
Long-time readers will be aware of our disdain fro the ADP employment report, which usually tells us nothing more than that the monthly changes in payrolls tend to mean-revert. That's because the published ADP employment number for each month is generated by regressions which incorporate lagged official payroll data, as well as information from companies which use ADP for payroll processing.
The major Andean economies had a very challenging first quarter. In Colombia, the effect of the sharp fall in oil prices has become more evident in the last few months. The ISE economic activity index--a monthly proxy for GDP--fell considerably during 2014, with a significant deceleration over the last half of the year.
Just two components of first quarter GDP were weak enough together to depress growth by 2.0 percentage points. Net foreign trade subtracted 1.25 percentage points, while falling investment in non-residential structures reduced growth by 0.75pp.
Advance data indicate that Q1 annualized GDP growth in the U.S. was a trivial 0.2%. And in the U.K., annualized growth is estimated to have slowed to 1.2%, from 2.4% in Q4.
We have argued for some time that investors began much too soon to look for stronger consumption in the wake of the drop in gasoline prices. Typically, turning points in gas prices trigger turning points in the rate of growth of retail sales with a lag of six or seven months.
The headline 0.9% month-to-month increase in German factory orders--a 1.9% increase year-over-year-- is not enough to change the picture of an overall sluggish first quarter.
In the wake of the soft-looking ADP employment report released on Wednesday, the true consensus for today's official payroll number likely is lower than the 230K reported in the Bloomberg survey. As we argued in the Monitor yesterday, though, we view ADP as a lagging indicator and we don't use it is as a forecasting tool.
We're expecting the April ISM report today to bring yet more evidence that the manufacturing cycle is peaking, though we remain of the view that the next cyclical downturn is still some way off.
Yesterday's first estimate of Q1 GDP in Mexico confirmed that growth was resilient at the start of the year, despite the lingering hit to confidence from domestic and external threats.
On the face of it, the timing of the drop in the E.C.'s measure of consumers' confidence, to its lowest level since July 2016 in April, is peculiar.
Yesterday's Chinese PMI numbers disappointed forecasts across the board, failing to meet widespread expectations for either stability or a continued, albeit marginal, improvement in April.
Yesterday's money supply data in the Eurozone were alarmingly poor.
This week's March economic activity reports in Chile have been relatively strong, with the industrial sector expanding briskly and retail sales solid.
The return of Chinese PPI inflation in 2016 helped to stabilise equities after the boom-bust of the previous year.
The first look at real consumers' spending for the second quarter will be discouraging, at least at the headline level. We expect to see a 0.1% month-to-month decline in real consumers' spending in April, below the +0.1% consensus.
If you apply a seasonal adjustment to a seasonally adjusted series, it shouldn't change. When you apply a seasonal adjustment to the U.S. GDP numbers, they do change. First quarter growth, reported Friday at just 0.7%, goes up to 1.7%, on our estimate.
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.
The Eurozone economy is slowing...will the ECB care?
The Latamrecovery continues...but the em financial rout has dented expectations
A rise in inflation will support an August hike....the MPC likely will tighten at a faster rate next year
The cycle is peaking as higher rates begin to bite...but the next downturn is still some way off
Early signs of financial fragilities emerge...with policymakers fretting, after the fact
Don't be distracted by weak first quarter GDP...The Fed doesn't care (much)
The Eurozone optimists are out in numbers...But don't expect economic miracles just yet
LatAm fundamentals are improving...but shaky commodity markets highlight threats
Rising Inflation has ended the consumer boom...Investment and Trade won't fill the void
China recovery falters...and now tariffs...Japan's Q1 gdp growth was a mirage; Korean exports are turning the corner, just...India's status quo vote won't turn growth around
Markets are still cheering the solid Q1 GDP data...but we are worried about a setback in Q2
Data Are Starting To Show The Covid Shock...Q2 Will Be A Write-Off
Recovery To Be Protracted, Despite Policymakers' Efforts...Consumers Will Be Cautious Long After The Lockdown Ends
The Economy Is Past The Covid Low, Just...But The Way Back Will Be Long And Painful
While we were out, monetary policy in Latin America was unchanged, except in Brazil, where the Monetary Policy Committee--Copom--this week raised the Selic rate by 50bp to 13.25%, in line with expectations. Looking ahead, we now expect no changes in policy in Brazil or elsewhere over the next few months, or at least until the Fed starts hiking rates.
The EZ Economy Is Rebounding From The Virus...But Risks To Output And Employment Persist
China's Unsustainable V-Shaped Recovery...Japan's Q1 GDP Contraction Is Just A Taster...Korea's Grim April Exports Is A Warning Shot...India's Lockdown Will Kill Q2, Despite Relaxation
Economic Activity Was Poor In Q1...But We See Encouraging Signs Of Gradual Rebound
No end to the brexit paralysis in sight...but growth will remain strong enough for rate hikes
Q1 Growth Is Unsustainable...But The Labor Market Will Continue To Tighten
Yesterday's economic headlines in the Eurozone were pleasant reading.
Yesterday's first estimate of Q1 GDP in Mexico confirmed that growth was under severe pressure at the start of the year.
The undershoot in the April core CPI wasn't a huge surprise to us; the downside risk we set out in yesterday's Monitor duly materialized, with used car prices dropping by a hefty 1.6% month-to-month, subtracting 0.05% from the core index.
The MPC emphasised yesterday that its faith that interest rates need to rise further has not been shaken by recent downside data surprises.
This week's data confirmed Mexico's strong economic performance over the first few months of this year.
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.
The Easter effect depressed services inflation more than markets expected in April, but the main downside surprise was the tepid rebound in non-energy goods inflation.
The re-emergence of Chinese PPI inflation in 2016 was instrumental in stabilising equities after the 2015 bubble burst.
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.
Today brings the April PPI data, which likely will show core inflation creeping higher, with upward pressure in both good and services. The upside risk in the goods component is clear enough, as our first chart shows.
Gilt yields have been remarkably stable following their decline in response to the Bank of England's Inflation Report in February. The average 60-day price volatility of gilts with outstanding maturities of greater than one year has fallen back recently to lows last seen in 2014, as our first chart shows.
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.
In the wake of the soft-looking ADP employment report released on Wednesday, the true consensus for today's official payroll number likely is lower than the 230K reported in the Bloomberg survey. As we argued in the Monitor yesterday, though, we view ADP as a lagging indicator and we don't use it is as a forecasting tool.
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.
Brazil's April CPI data this week showed that inflation pressures remain weak, supporting the BCB's focus on the downside risks to economic activity. Wednesday's report revealed that the benchmark IPCA inflation index rose 0.1% unadjusted month-to-month in April, marginally below market expectations.
The absence of a hawkish slant to the MPC's Inflation Report or the minutes of its meeting suggest that an increase in interest rates remains a long way off.
Emmanuel Macron's victory in France has lifted investors' hopes that the good times in the Eurozone economy and equity markets are here to stay. On the face of it, we share markets' optimism. Mr. Macron and his opposite number in Germany--our base case is that Ms. Merkel will remain Chancellor--will form a strong pro-EU axis in the core of the Eurozone.
February's industrial production and construction output data leave us little choice but to revise down our forecast for quarter-on-quarter GDP growth in Q1 to 0.2%, from 0.3% previously.
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.
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.
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.
We're pretty sure our forecast of a levelling-off in capital spending in the oil sector will prove correct. Unless you think the U.S. oil business is going to disappear, capex has fallen so far already that it must now be approaching the incompressible minimum required for replacement parts and equipment needed to keep production going.
With just over six weeks to go, opinion polls continue to suggest that the E.U. referendum will be extremely close. Noisy interventions in the public debate from the Treasury, independent international bodies, President Obama, and from the Prime Minister again today have had no discernible positive impact on the support for "Bremain" relative to "Brexit"
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.
Britain is indisputably beyond the peak of the first wave of Covid-19 infections, though the descent in new cases, hospitalisations and deaths has been shallower than the ascent.
Payroll growth has slowed, no matter how you slice and dice the numbers.
April's Retail Sales Monitor from the British Chambers of Commerce, released yesterday, provided a powerful signal that households' spending rebounded in April, following a terrible Q1.
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.
Yesterday's first estimate of Q1 GDP in Mexico confirmed that growth was under severe pressure at the start of the year. GDP fell by 1.6% quarter- on-quarter, the biggest drop since mid-2009, well below market expectations and following a 0.1% drop in Q4.
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.
The FOMC meeting today will be a non-event from a policy perspective but we are very curious to see what both the written statement and the Chair will have to say about the unexpected strength of the economy in the first quarter.
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.
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.
Market participants and analysts have gradually softened their cautious stance towards Mexico, as concerns about the new U.S. administration's trade and immigration policies have eased, and risks of a credit rating downgrade have lessened.
The CBO reckons that the April budget surplus jumped to about $179B, some $72B more than in the same month last year. This looks great, but alas all the apparent improvement reflects calendar distortions on the spending side of the accounts.
Brazil's economy remains mired in a renewed slowdown, and low--albeit temporarily rising-- inflation, which is allowing the BCB to keep interest rates on hold, at historic lows.
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.
On the face of it, our forecast of higher core inflation by the end of this year is seriously challenged by the recent data.
In the wake of the payroll report on Friday, several readers sent us a version of the chart reproduced below, showing the rates of growth of S&P earnings and private sector payrolls. The message from the chart appears to be that the current trend in payroll growth, a bit over 200K per month cannot be sustained.
As we head to press, investors are holding their breath over whether today's trade talks between the U.S. and China will be enough for Mr. Trump to step back from his pledge to increase tariffs on $200B of Chinese goods to 25%.
The MPC was relatively bullish on the outlook for households' spending when it signalled its view, in February's Inflation Report, that the case for raising interest rates before the end of this year had strengthened.
The French manufacturing sector slowed more than we expected in Q1.
The headline April CPI, due today, will be boosted slightly by rising gasoline prices.
We have been rigorous in using the word nascent whenever referring to Japan's wage-price spiral.
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.
China's official manufacturing PMI implies a modest gain in momentum in Q2, at 51.4, compared with 51.0 on average in Q1.
The Prime Minister's resignation and the stillborn launch of the Withdrawal Agreement Bill last week has forced us to revise our Brexit base case, from a soft E.U. departure on October 31 to continued paralysis.
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.
We covered the detailed German Q1 GDP report in Friday's Monitor--see here--but the investment data could do with closer inspection. The headline numbers looked great.
The trade war with China is a macroeconomic event, whose implications for economic growth and inflation can be estimated and measured using straightforward standard macroeconomic tools and data.
Brazil's economic prospects continue to deteriorate rapidly, due to a combination of rising political uncertainty, the failure of the new government to advance on reforms, and ongoing external threats.
Money supply growth in the Eurozone rebounded slightly last month, reversing some of the weakness at the start of the year.
After a busy week of data, and a holiday weekend ahead, it's worth stepping back a bit and evaluating the arguments over the timing of the next Fed hike. The first question, though, is whether the data will support action, on the Fed's own terms. The April FOMC minutes said: "Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June".
Recent political and economic developments in Brazil make us more confidence in our forecast of a gradual recovery. On Wednesday, interim President Michel Temer scored his first victory in Congress, winning approval for his request to raise this year's budget target to a more realistic level. Under the new target, Brazil's government plans to run a budget gap, before interest, of about 2.7% of GDP this year.
The second estimate of Q1 GDP confirmed that the recovery has lost momentum and revealed that growth would have ground to a halt without consumers. GDP growth likely will slow further in Q2, as Brexit risk undermines business investment.
The April international trade numbers were startlingly, and surprisingly, horrible. The deficit in trade in goods leaped by $6.2B -- the biggest one-month jump in two years -- to $67.1B, though the headline damage was limited by a sharp narrowing in the oil deficit, thanks to lower prices, and a rebound in the aircraft surplus.
We argued in the Monitor yesterday that the very low and declining level of jobless claims is a good indicator that businesses were not much bothered by the slowdown in the pace of economic growth in the first quarter. The numbers also help illustrate another key point when thinking about the current state of the economy and, in particular, the rollover in the oil business.
We have to hand it to Italy's politicians. In an economy with a current account surplus of 3% of GDP, a nearly balanced net foreign asset position and with the majority of government debt held by domestic investors, the leading parties have managed to prompt markets to flatten the yield curve via a jump in shortterm interest rates.
Headline money supply growth in the Eurozone accelerated further at the start of Q2.
While businesses--and farmers--fret over the damage already wrought by the trade war with China and the further pain to come, consumers are remarkably happy.
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.
The biggest single driver of the downward revision to first quarter GDP growth, due this morning, will be the foreign trade component. Headline GDP growth likely will be pushed down by a full percentage point, to -0.8% from +0.2%, with trade accounting for about 0.7 percentage points of the revision.
Industrial profits in China dropped 3.7% year-over- year in April, after surging 13.9% in March, according to the officially reported data.
Brazil's external accounts continue to surprise to the upside, with the current account deficit remaining close to historic lows and capital flows performing better than anticipated, mostly due to higher-than- expected FDI.
The newly-revised data on capital goods orders, released on Friday, support our view that sustained strength in business capex remains a good bet for this year.
A long period of extremely accommodative U.S. monetary policy generated sizable capital inflows and asset price appreciation in EM countries.
Last week's second estimate of GDP reaffirmed that quarter-on-quarter growth declined to 0.1% in Q1--the lowest rate since Q4 2012--from 0.4% in Q4.
The news that the seasonal adjustments in the GDP numbers are even less reliable than previously thought means the Fed likely will put even greater emphasis on the labor market when pondering when to begin raising rates. A cost-push view of the inflation process necessarily centers on the labor data, but every FOMC statement begins with an assessment of the overall pace of growth.
Mexico's external accounts remain solid, despite adverse global conditions over the past year. The current account decreased to USD9.5B, or 3.2% of GDP, in the first quarter, just down from 3.3% a year earlier. Shortfalls of USD10.3B in the income account and USD4.7B in goods and services--mostly the latter--were again the key driver of the overall deficit.
A widening core trade deficit is the inevitable consequence of a strengthening currency and faster growth than most of your trading partners. Falling oil prices have limited the headline damage by driving down net oil imports, but the downward trend in core exports since late 2014 has been steep and sustained, as our first chart shows. The deterioration meant that trade subtracted an average of 0.3 percentage points from GDP growth in the past three quarters.
April's public finances show that borrowing still is falling more slowly than the Chancellor had envisaged. This casts further doubt over whether he will be able to keep his pledge to run a budget surplus before the end of this parliament in 2020.
We didn't believe the first estimate of Q1 GDP growth, 0.7%, and we won't believe today's second estimate, either. The data are riddled with distortions, most notably the long-standing problem of residual seasonality, which depressed the number by about one percentage point.
We have warned that the ECB' decision to add corporate bonds to QE would lead to unprecedented market distortions. Evidence of this is now abundantly clear. The central bank has bought €82B-worth of corporate bonds in the past 11 months, and now holds more than 6% of the market. Assuming the central bank continues its purchases until the middle of next year, it will end up owning 13%-to-14% of the whole Eurozone corporate bond market.
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.
Detailed GDP data yesterday showed that the domestic German economy fired on all cylinders in the first quarter. Real GDP rose 0.7% quarter-on-quarter in Q1, up from 0.3% in Q4, lifted by strong investment and spending. Domestic demand rose 0.8%, only slightly slower than the 0.9% ris e in the fourth quarter. Net exports fell 0.3%, a bit better than in Q4, when gross exports fell outright.
The headline in yesterday's detailed Q1 German GDP data was old news, confirming that growth in the euro area's largest economy slowed at the start of the year.
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.
The BoK kept rates unchanged at 1.50% yesterday. We thought a hike was open to consideration, as the authorities had professed to be on a mission to reduce dependency on exports and household debt. But we remain more bearish than the BoK on the outlook for the rest of the year.
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.
The second estimate of Q1 GDP made for grim reading. Quarter-on-quarter GDP growth was revised down to 0.2%--the joint-slowest rate since Q4 2012--from the preliminary estimate of 0.3%.
This morning's second estimate of Q1 GDP likely will restate the preliminary estimate of a 0.4% quarter-on-quarter rise, confirming that the economic recovery has lost momentum since last year. Meanwhile, the new expenditure breakdown is set to show that growth remained extremely dependent on households and will bring more evidence that businesses held back from investing, ostensibly due to Brexit concerns.
We were wrong about headline durable goods orders in April, because the civilian aircraft component behaved very strangely.
A tentative revival in mortgage lending is underway, following the lull in the four months after the MPC hiked interest rates in November.
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%.
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.
After four straight above-trend increases in the core CPI, you could be forgiven for thinking that something is afoot. It's still too soon, though to rush to judgment. The data show three previous streaks of 0.2%-or-bigger over four-month periods since the crash of 2008, and none of them were sustained.
We've suspected that China's GDP targeting system was on its last legs for some time now.
The euro has so far defied the most bearish forecasters' predictions that it is on track for parity with the dollar. Currencies can disregard long-run parity conditions, however, for longer than most investors can hold positions.
Brazil's central bank is desperately trying to get a grip on inflation. It has raised the Selic rate by 225bp, to 13.25%, in just the last six months, and real rates now stand at a hefty 5.0%. And, at last, we are seeing tentative signs that policymakers and the government, after hiking rates and adjusting regulated prices, are making some headway.
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.
Predictably, the Bank of England's estimate that GDP would plunge by 8% in the first year after a disorderly no-deal, no transition Brexit and that interest rates would need to rise to 5.5% to contain inflation grabbed the headlines yesterday.
Many investors probably glossed over yesterday's barrage of data in the Eurozone, for fear of being caught out by another swoon in Italian bond yields. Don't worry, we are here to help.
Our Chief Eurozone Economist, Claus Vistesen, is covering the Italian situation in detail in his daily Monitor but it's worth summarizing the key points for U.S. investors here.
Defaults by Chinese companies have been on the rise lately. Most recently, China Energy, an oil and gas producer with $1.8B of offshore notes outstanding, missed a bond payment earlier this week. We've highlighted the likelihood of a rise in defaults this year, for three main reasons.
The widespread view, which we share, that GDP will rebound in Q2 following the disruption caused by bad weather in Q1, was supported yesterday by the E.C.'s Economic Sentiment survey.
The recent narrowing of the Conservatives' opinion poll lead suggests that investors, particularly in the gilt market, now must consider other parties' fiscal proposals.
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 trade war with China is not big enough or bad enough alone to push the U.S. economy into recession.
Reporting on the German labour market has been like watching paint dry in this expansion, but yesterday's data were a stark exception to this rule.
In the wake of April's 0.2% increase in real consumers' spending, and the upward revisions to the first quarter numbers, we now think that second quarter spending is on course to rise at an annualized rate of about 3.5%.
Was this an isolated occurrence, connected to the graft investigation into Chinese billionaire Xiao Jianhua, and his financial conglomerate?
Households' willingness to save a smaller fraction of their incomes goes a long way to explaining why the U.K. economy hasn't lost too much momentum since the Brexit vote.
The Fed surprised no-one yesterday, leaving rates on hold, saying nothing new about the balance sheet, and making no substantive changes to its view on the economy. The statement was tweaked slightly, making it clear that policymakers are skeptical of the reported slowdown in GDP growth to just 0.7% in Q1: "The Committee views the slowing in growth during the first quarter as likely to be transitory".
Today's local elections are more important than usual, because they will enable investors to assess if the Conservatives really are on track for a landslide victory in the general election, as suggested by the opinion polls and priced-in by the forex market.
The Eurozone enjoyed a strong start to 2017. Yesterday's advance data showed that real GDP rose 0.5% quarter-on-quarter in Q1, a similar pace to Q4, which was revised up by 0.1 percentage points. The year-over-year rate dipped to 1.7%, from an upwardly revised 1.8% in Q4.
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.
Europeans, who usually save more of their income than Americans, have spent all the windfall from falling gas prices. Americans have not. It is tempting, therefore, to argue that perhaps Americans have come to see the error of their low-saving ways, and are now seeking to emulate the behavior of high-saving Europeans. Undeniably, the plunge in gas prices has given Americans the opportunity to save more without making hard choices.
Banxico's quarterly inflation report, released last week, underscored concerns over growth as well as the weakness of the MXN and the risks p osed by the Fed's imminent tightening. Policymakers downgraded Mexico's GDP forecast for 2017 to 2.3-to-3.3% year-over-year, from 2.5-to-3.5%. Weaker-than-expected U.S. manufacturing activity is behind the downshift.
Brazil's economic recovery faltered in the first quarter and the near-term outlook remains challenging.
On a headline level, last week's European Parliament elections were an excellent occasion for the EU.
The biggest surprise in the revisions to first quarter GDP growth, released yesterday, was in the core PCE deflator.
Japan's domestic demand has underperformed in the last three quarters, while exports were strong last year but weakened--due to temporary factors--in Q1.
Price action in Italian bonds went from hairy to scary yesterday as two-year yields jumped to just under 3.0%.
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.
The Fed pretty clearly wanted to tell markets yesterday that inflation is likely to nudge above the target over the next few months, but that this will not prompt any sort of knee-jerk policy response beyond the continued "gradual" tightening.
Inflation and growth paths remain diverse across LatAm, but in the Andes, the broad picture is one of modest inflationary pressures and gradual economic recovery.
A robust April payroll number today is a good bet, but a gain in line with the 275K ADP reading probably is out of reach.
Yesterday's advance Q1 GDP data in the EZ confirmed that growth slowed at the start of the year.
The Fed likely will do nothing today, both in terms of interest rates and substantive changes to the statement. We'd be very surprised to hear anything new on the Fed's plans for its balance sheet.
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.
Colombia's sluggish growth and near-term economic outlook resembles that of most other LatAm economies. Domestic demand is weak, credit conditions are tight, and confidence is depressed. The medium term outlook, however, is perking up, slowly.
Survey data point to a very strong headline, 0.6%-to-0.7% quarter-on-quarter, in today's Q1 advance Eurozone GDP report. But the hard data have been less ebullient than the surveys. A GDP regression using retail sales, industrial production and construction points to a more modest 0.4% increase, implying a slowdown from the upwardly-revised 0.5% gain in Q4.
Manufacturers in the Eurozone are still suffering, but yesterday's final PMI data for April offered a few bright spots.
Modern Money Theory has come up at two consecutive BoJ press conferences.
Markets expect the Fed will fail to follow through on its current intention to raise rates twice more this year and three times next year. Part of this skepticism reflects recent experience.
BanRep cut Colombia's key interest rate by 25 basis points last Friday, to 6.25%. We were expecting a bolder cut, as economic activity has been under severe pressures in recent months.
Hard data released in Argentina over recent weeks showed that the economy was resilient in Q1 and early Q2.
Investors have concluded that Italy's political crisis will compel the U.K. MPC to increase interest rates even more gradually than they thought previously.
Fiscal stimulus, partly financed by a border adjustment tax, and Fed rate hikes, were supposed to be a powerful cocktail driving a stronger dollar in 2017. But so far only the Fed has delivered--we expect another rate hike next month--while Mr. Trump has disappointed in the White House.
Most of the time, sterling broadly tracks a path implied by the difference between markets' expectations for interest rates in the U.K. and overseas. During the financial crisis, however, sterling fell much further than interest rate differentials implied, as our first chart shows.
The MPC restated its commitment to an "ongoing tightening of monetary policy" yesterday, but provided no new guidance to suggest that the next hike is imminent.
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.
Last week's advance EZ GDP data for the first quarter suggest the economy shrugged off the volatility in financial markets. Eurostat's first estimate indicates that real GDP in the euro area rose 0.6% quarter-on-quarter in Q1, up from 0.3% in Q4, and above the consensus, 0.4%.
In a relatively light week in terms of economic indicators in Brazil, the inflation numbers and the potential effect of the recent BRL sell-off garnered all the attention.
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'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".
The Chilean economy improved in the first quarter, growing 2.0% year-over-year, up from 1.3% in the fourth quarter. Net trade led the improvement, with exports rising 2.1% quarter-on-quarter, thanks to the modest rise in metal prices and an increase in exports of services, especially tourism.
If you gave us $100, we'd put $90 on inflation, headline and core, being higher a year from now than it is today. Our view, however, is not universally shared, and some commentators continue to argue that the U.S. faces deflation risks. Exhibit one for this view is our first chart, which shows a high correlation between the PPI for finished goods prices and the CPI inflation rate, ex-shelter.
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
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.
Colombia, the third largest economy in LatAm, has not been immune to the headwinds of the global economy since the financial crisis in 2008, though it remains one of the fastest growing economies in the region. GDP growth slowed sharply to just 1.7% in 2009, but that was still much better than the 1.2% contraction of the region as a whole.
China's property market is slowly finding its feet, following a marked and consistent moderation in monthly price gains from mid-2018 to early this year.
We have been puzzled in recent months by the sudden and substantial divergence between the Redbook chainstore sales numbers and the official data.
Friday's CPI data for April provided the final piece of evidence for the significant Easter distortions in this year's data.
• U.S. - The strength of the recovery is growing • EUROZONE - A full recovery will take time, but a turning point is looming • U.K. - GDP in the U.K. won't make a full recovery in H2 • ASIA - The V-shaped rebouned in Chinese manufacturing is at an end • LATAM - Further rate cuts on the way in Mexico
April's consensus-beating retail sales figures fostered an impression that the recovery in consumer spending is in fine fettle, even though the rest of the economy is suffering from Brexit blues. Retailers have stimulated demand, however, by slashing prices at an unsustainable rate. With import prices and labour costs now rising, retailers are set to increase prices, sapping the momentum in sales volumes.
Over the past couple of weeks, the number of applications for new mortgages to finance house purchase have reached their highest level since late 2010, when activity was boosted by the impending expiration of a time-limited tax credit for homebuyers.
The Eurozone's external surplus fell further at the end of Q1, and has now fully reversed the jump at the start of the year.
On the face of it, Japanese GDP came thumping home in Q1, rising 0.5% quarter-on-quarter, after the 0.4% increase in Q4.
We have been asked recently why we rarely talk about the signal from the U.S. money supply numbers, in contrast to the emphasis we give to real M1 growth in our forecasts for economic growth in both the Eurozone and China.
The day of reckoning in Greece has been continuously postponed in the past three months, but government officials told national TV yesterday that the country cannot meet its IMF payment of €300M June 5th, without a deal with the EU. The urgency was echoed by the joint statement earlier this week by German Chancellor Merkel and French President Hollande that Greece has until the end of this month to reach a deal.
Chile's Q1 GDP report, released yesterday, confirmed that the economy weakened sharply at the beginning of the year, due mainly to temporary shocks, including adverse weather conditions.
April's consumer price figures, due on Wednesday, are set to show that CPI inflation has fallen, primarily due to the earlier timing of Easter this year than last. We
Mexico's central bank last week left its policy rate at 7.0%, the highest level since early 2009.
China reportedly has offered President Trump a $200B reduction in its annual trade surplus with the U.S., engineered by increasing imports of American products, among other steps.
Oil prices have risen by about $20 per barrel since last fall.
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.
Mexico's recent rebound in inflation and a more volatile financial environment, due to increasing global trade tensions, forced Banxico to keep its policy rate unchanged at 8.25% last Thursday.
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.
The April FOMC minutes don't mince words: "Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June".
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.
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 level of mortgage applications long ago ceased to be a reliable indicator of the level of new home sales, thanks to the fracturing of the mortgage market triggered by the financial crash. But the rates of change of mortgage demand and new home sales are correlated, as our first chart shows, and the current message clearly is positive.
A Reuters interview yesterday with ECB governing council member Benoît Coeuré cemented expectations that the ECB will adjust its language on forward guidance next month.
Political risk in Brazil has increased substantially, following reports that President Temer was taped in an alleged cover-up scheme involving the jailed former Speaker of the House. If the tapes are verified, calls for Mr. Temer to face impeachment will mount.
We see significant upside risk to today's headline durable goods orders numbers for April.
Retail sales volumes jumped by 2.3% month-to-month in April, exceeding the 1.0% consensus and even our 2.0% forecast. It would be a big mistake to conclude, however, that households' spending will propel the economy forward this year like it did between 2013 and 2016.
Brazil's recovery has been steady in recent months, and Q1 likely will mark the end of the recession. The gradual recovery of the industrial and agricultural sectors has been the highlight, thanks to improving external demand, the lagged effect of the more competitive BRL, and the more stable political situation, which has boosted sentiment.
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.
In broad terms, the euro has followed the EZ economy in the past 12-to-18 months.
GDP growth currently is subdued by historical standards, but at least it is not debt-fuelled.
The Fed yesterday acknowledged clearly the new economic information of recent months, namely, that first quarter GDP growth was "solid", with Chair Powell noting that it was stronger than most forecasters expected.
For most of the decade since the whole-economy average hourly earnings numbers were first published, the year-over-year rate of increase has run faster than the ECI measure of private sector wages and salaries, excluding incentive-paid occupations. But in the first quarter of this year, the ECI measure rose 2.5% year-over-year, the fastest increase in six years, while hourly earnings rose 2.3%. That difference might not sound like much, but it matters a good deal when put into context.
The March money and credit figures provide more evidence that the economy's weak start to the year won't be just a blip.
We expect the BoK to hike this month, believing that it's necessary to curtail household debt growth now, in order to prevent a sharper economic slowdown as the Fed hiking cycle continues, China slows, and trade risks unfold.
Argentina's central bank unexpectedly hiked its main interest rate, the 7-day repo rate, by 300bp to 30.25% last Friday, in an unscheduled decision.
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.
We previewed today's advance EZ Q1 GDP number in our Monitor on April 30--see here--and the data since have not changed our outlook.
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.
Korean exports continued to fall year-over-year in April, but the story isn't as bleak as the headlines suggest.
Like just about everyone else, we have struggled in recent years to find a convincing explanation for the persistent sluggishness of growth even as the Fed has cut rates to zero and expanded its balance sheet to a peak of $4.2T. Sure, we can explain the slowdown in growth in 2010, when the post-crash stimulus ended, and the subsequent softening in 2013, when government spending was cut by the sequester.
Weakness across EM asset markets returned after the April FOMC minutes, released last week, suggested that a June rate hike is a real possibility. The risks posed by Brexit, however, is still a very real barrier to Fed action, with the vote coming just eight days after the FOMC meeting.
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.
Sterling rebounded last week and the probability of a Brexit, implied by betting markets, fell from 30% to 20%. The gap between cable and interest rate expectations, which opened up at the start of this year, appears to have closed completely, as our first chart shows. Sterling's rally in April quickly ran out of steam, but the evidence that support for "Bremain" has risen recently is persuasive.
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.
Japanese policymakers will have been scouring yesterday's data for signs that the trade situation is improving.
Yesterday's public finance figures brought more good news for the Chancellor.
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.
The EZ national accounts were updated and rebased in 2015--from ESA 1995 to ESA 2010--in the name of timeliness and precision.
Today's EZ calendar is a busy one.
Investors in the Eurozone were faced with a busy economic calendar yesterday, but the message from the plethora of survey data was simple. The economic recovery in the euro area is strengthening, and risks to GDP growth are firmly tilted to the upside in coming quarters.
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.
Sterling is well below its $1.57 average of the last five years, despite rallying this month to about $1.45, from a low of $1.38 in late February. But hopes that cable will bounce back to its previous levels, after a vote to remain in the E .U., likely will be dashed.
We expect the second estimate of Q1 GDP, released today, to restate that quarter-on-quarter growth slowed to just 0.3%, from 0.7% in Q4. The second estimate of growth rarely is different to the first.
LatAm's relatively calm market environment has been thrown into disarray over the last few weeks.New fears of a slowdown in China, political turmoil in the U.S. and, most importantly, the serious corruption allegations facing Brazil's President, Michel Temer, have triggered a modest correction in asset markets and have disrupted the region's near-term policy dynamics.
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.
The recent run of grim sales and earnings numbers from major national retailers, including Kohl's, Nordstrom, and Macy's, reflects two major trends. The first is obvious; the rising market share of internet sales is squeezing brick and mortar retailers, as our first chart shows. We have no idea how far this trend has yet to run but it shows no signs yet of peaking.
India's National Democratic Alliance, led by Prime Minister Narendra Modi's Bharatiya Janata Party,
Yesterday's data in the Eurozone did little to calm investors' nerves amid rising political uncertainty in Italy and tremors in emerging markets.
A grim-looking headline durable goods orders number for April seems inevitable today, given the troubles at Boeing.
Mexico's retail sector is finally improving, following a grim second half last year.
The monthly new home sales numbers are so volatile that just about anything can happen in any given month.
The recovery in existing home sales appears to have stalled, at best.
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.
The Spanish economy has been living a quiet life recently, amid markets' focus on political risks in Italy and manufacturing slowdowns in Germany and France.
Data released on Monday showed that Chile's external accounts remained under pressure at the start of the year, and trade tensions mean that it will be harder to finance the gap.
On a trade-weighted basis, sterling has dropped by only 1.5% since the start of the month, but it is easy to envisage circumstances in which it would fall significantly further.
April's retail sales figures, due Thursday, likely will show that spending recovered from snow-induced weakness in March.
President Nicolás Maduro has "won' another six-year term, as expected, even as millions of Venezuelans boycotted the election.
Even the most bullish estate agent in Britain would struggle to put a positive spin on the latest housing market news. The latest levels of the official, Nationwide, and Halifax measures of house prices all are below their peaks.
In recent years only one event has made a material difference to the growth path of the U.S. economy, namely, the plunge in oil prices which began in the summer of 2014. The ensuing collapse in capital spending in the mining sector and everything connected to it, pulled GDP growth down from 2½% in both 2014 and 2015 to just 1.6% in 2016.
We have been pleasantly surprised by the recent Redbook chainstore sales numbers.
China's capex growth faces renewed challenges this year, as PPI inflation slows.
We still don't have the complete picture of what happened to EZ consumers' spending in Q1, but the initial details suggest that growth acceleretated slightly at the start of the year.
The latest trade data from Korea underscore the unfortunate timing of the resumption of the U.S.-China tit-for-tat tariff war.
The recovery in the French economy since the sovereign debt crisis has been lukewarm. Growth in domestic demand, excluding inventories, has averaged 0.4% quarter-on-quarter since 2012. This comp ares with 0.8%-to-1.1% in the two major business cycle upturns in the 1990s and from 2000s before the crisis.
Mexico's economy stuttered at the start of the year. Real GDP rose 0.4% quarter-on-quarter in the first quarter, after a solid 0.7% in the fourth quarter. Q1 activity was supported by the services sector, rising 0.5%, offsetting the 0.2% contraction in industrial activity.
The latest iteration of the Atlanta Fed's GDPNow model puts second quarter GDP growth at 4.1%. Assuming a modest upward revision to growth in the first quarter -- the data will be released Friday -- that would mean average growth of 2.5% in the first half, in line with our forecast for the year as a whole, and rather better than the 1.6% growth recorded in 2016.
The recent deceleration in households' real spending means that either business investment or net exports will have to pickup if the economy is to avoid a severe slowdown this year.
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.
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.
Yesterday's detailed Mexican GDP report confirmed that growth was resilient in Q1, despite external and domestic headwinds. GDP rose 0.7% quarter-on-quarter in Q1, in line with our expectation, but marginally above the first estimate, 0.6%.
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.
Consumers' demand for cars slowed in the Eurozone at the end of the second quarter. New car registrations in the euro area rose 3.0% year-over-year in June, slowing dramatically from a 10.3% rise in May.
The market for new cars in the Eurozone remained red-hot last month. New registrations surged 18.4% year-over-year in May, up from a 9.4% rise in April, and pushing the 12-month average level of registrations to a post-crisis high of 843K units. Accelerating growth in Italy and France was the key driver.
Final German inflation data for May confirm that price pressures are gradually recovering in the Eurozone. Inflation rose to 0.7% in May, up from 0.5% in April, in line with the initial estimate. Headline inflation continues to move higher, a trend which will continue in the second half of the year as base effects push up energy inflation.
May's activity data underline the gradual recovery in Colombia's economic growth, following signs of weakness at the start of the year.
The euro area's trade surplus slipped further mid- way through the second quarter; falling to a 15-month low of €16.9B in May, from a downwardly-revised €18.0B in April, and extending its descent from last year's peak of nearly €24.0B.
December's consumer prices figures, released tomorrow, look set to show CPI inflation ticked up to 0.2% from 0.1% in November, despite the renewed collapse in oil prices. The further fall in energy prices this year means that the inflation print won't reach 1% until May's figures are published in June. But Governor Carney has emphasised that core price pressures will motivate the first rate hike--a focus he likely will reiterate in a speech on Tuesday-- meaning that a May lift-off is still on the table.
The long-awaited decisive upturn in wage growth still hasn't emerged. Year-over-year growth in average weekly wages, excluding bonuses, held steady at 2.6% in May.
China's money data, out last week, bode ill for real GDP growth in the second half. June M2 growth dipped to 9.4% year-over-year from 9.6% in May and 10.5% in April.
Data released over the weekend confirm that the Peruvian economy enjoyed a strong second quarter. The economic activity index rose 6.4% year-over-year in May, well above market expectations, and up from 3.2% in Q1.
Chinese residential property prices appear to be staging a comeback, with new home prices rising 1.1% month-on-month in June, faster than the 0.8% increase in May.
Growth in new EZ car registrations slowed last month, but the data continue to tell a story of strong consumer demand for new cars. New registrations in the euro area rose 6.9% y/y in June, down from a 16.9% jump in May, mainly due to slowing growth in France. New registrations in the euro area's second largest economy rose a mere 0.8% year-over-year, after a 22% surge in May.
ebruary's labour market data failed to make a resounding case for the MPC to raise interest rates in May, prompting markets to reduce the probability attached to a hike next month to 85%, from nearly 90% before the data were released.
May's activity data underline the weakness of Colombia's economic growth. Domestic demand still is under pressure due to the lagged effect of the deterioration in the terms of trade and other temporary shocks in 2016, and the VAT increase in January this year.
Sharp increases in retail sales over the last two months suggest that consumers are not overly concerned by the risk that the U.K. could leave the E.U. next week. Sales volumes rose 0.9% month-on-month in May, and April's surge was revised larger, to 1.9% from 1.3%.
The headline May retail sales numbers were flattered by a 2.4% leap in the wildly volatile building materials component and a price-driven 2.0% surge in gasoline sales.
When the dust settles after today's wave of data, we expect to have learned that core retail sales continued to rise in June, core inflation nudged back up to its cycle high, and manufacturing output rebounded after an auto-led drop in May. None of these reports will be enough to push the Fed into early action, but they will add to the picture of a reasonably solid domestic economy ahead of the U.K. Brexit referendum.
Industrial data released this week showed that the Mexican economy stumbled during the second quarter. Private consumption, however, continues to rise, albeit at a more modest pace than in recent months. The ANTAD same store sales survey rose 5.3% year-over-year in June, up from 2.8% in May, but this is misleading.
The drop in CPI inflation to 0.5% in May, from 0.8% in April, brought it another big step closer to the near-zero rate we foresee in the second half of this year.
Retail sales data released yesterday for Brazil confirmed that weakness in private consumption remains a key challenge for the economy. Retail sales plunged 0.9% month-on-month in May, equivalent to a 4.5% fall year-over-year, the lowest rate since late 2003. On a quarterly basis, sales are headed for a 2% contraction in Q2, pointing to a -0.5% GDP contribution from consumer spending.
Yesterday's industrial production report was grim reading, with volatility in Greece and the Netherlands, as well as revisions, throwing off our own, and the market's, forecasts. Output fell 0.4% month-to-month in May, well below the consensus and our expectation for a 0.2% rise, pushing the year-over-year rate higher to 1.6%, from a revised 0.9% in April.
Whichever way you choose to slice the numbers, retail sales growth has slowed this year. Ex-gasoline, ex-autos, core, whatever, sales growth in year-over-year terms is notably weaker now than at the end of last year. It is equally, true, however, that after-tax incomes have risen at a robust pace--up 3.8% in the year to May, exactly the same pace as in the year to May 2014--so consumers in aggregate have plenty of cash to spend. So, what's holding people back at the mall? Why aren't they spending more?
German inflation eased in May, but the underlying upward pressure on the core is increasing. Yesterday's data showed that inflation fell to 1.5% year-over-year in May, from 2.0% in April, as the boost from the late Easter reversed. Inflation in leisure and entertainment services was driven down to +0.8%, from +3.3% in April, as a result of sharply lower inflation in package holidays and airfares.
Last week's hard data in Colombia were upbeat, confirming that economic growth accelerated in the first half. Retail sales rose 5.9% year-over-year in May, overshooting consensus.
Final May CPI data in the Eurozone today likely will confirm that inflation pressures edged marginally higher last month. We think inflation increased to -0.1% year-over-year, from -0.2% in April, as a result of slightly higher services inflation, and a reduced drag from falling energy prices.
The Mexican peso and spreads have recently come under severe pressure. Last week, for instance, the MXN plummeted 2% against the USD to 18.9, the weakest level since May, as our first chart shows.
Another month, another sluggish performance in the manufacturing sector. Even a third straight big jump in auto output was unable to rescue the May numbers, and aggregate output fell by 0.2%. The trend in output has been broadly flat over the past six months or so, and we see little prospect of any sustained near-term recovery.
We still expect CPI inflation to decline a little further in the second half of this year, despite its surprise increase to 0.6% in June, from 0.5% in May.
We expect June's consumer prices report, released on Wednesday, to show that CPI inflation increased to 2.7%, from 2.4% in May, above the consensus, 2.6%, and the Bank of England's forecast, 2.5%.
We expect June's consumer prices report, due on Wednesday, to show that CPI inflation fell to 1.9%, from 2.0% in May.
The Eurozone's trade surplus remained subdued at the end of the second quarter; it dipped to €16.7B in June from €16.9B in May.
The vote in the House of Commons today on whether MPs should effectively take control of Brexit negotiations, if Theresa May can't strike a deal by mid-January, looks finely balanced.
Japan's trade balance deteriorated sharply in May, flipping to a ¥967B deficit from the modest ¥57B surplus in April.
May's consumer prices report contained few surprises. The fall in the headline rate of CPI inflation to 2.0%, from April's Easter-boosted 2.1%, matched the consensus, our forecast and the MPC's.
Today's labour market data look set to show that the headline, three-month average, unemployment rate held steady at just 5% in May, unchanged from April's reading.
Yesterday's EZ construction data confirmed that capex in the building sector plunged in the second quarter. Construction output fell 0.5% month-to-month in May, pushing the year-over-year rate up trivially to -0.8%, from a revised -1.0% in April. Our forecast for construction investment in Q2 is not pretty, even after including our assumption that production rebounded by 0.5% month-to-month in June.
The MPC's "Super Thursday" communications left markets a little more confident that interest rates will rise again in May, shor tly after the likely start of the Brexit transition period.
After three straight lower-than-expected jobless claims numbers, we have to consider, at least, the idea that maybe the trend is falling again. This would be a remarkable development, given that claims already are at their lowest level ever, when adjusted for population growth, and at their lowest absolute level since the early 1970s.
After soaring in the Spring, inflation has slipped back in the Summer. July's consumer prices report, released while we were away last week, showed that CPI inflation held steady at 2.6% in July, one -tenth below the consensus and three tenths below May's year-to-date peak.
If the only things that mattered for the housing markets were the obvious factors--the strength of the labor market, and low mortgage rates--the sector would be booming. Activity is picking up, with new and existing home sales up by 23% and 9% year-over-year respectively in the three months to May, but the level of transactions volumes remains hugely depressed. At the peak, new home sales were sustained at an annualized rate of about 1½M, but May sales stood at only 546K. Adjusting for population growth, the long-run data suggests sales ought to be running at close to 1M.
Producer prices in Germany rose 0.4% month-to-month in May, stronger than the consensus expectation of a 0.3% gain, and we think further upside surprises are likely in coming months. The headline was boosted by a 0.7% jump in energy prices, but food and manufacturing goods prices also rose.
It is looking increasingly likely that core inflation, which already has fallen to 2.1% in May, from a peak of 2.7% last year, will slip below 2% next year.
We are pushing back our forecast for the next rise in Bank Rate to May 2020, from the tail-end of this year.
The startling jump in the Philly Fed index in May, when it rose 11.2 points to a 12-month high, seemed at first sight to be a response to fading tensions over global trade.
The Eurozone's current account surplus plunged to €18.0B in May from €24.0B, the biggest monthly fall since July 2013, but an upward revision to the April data makes the headline look worse than it is. These numbers are volatile, even after seasonal adjustments, and revisions have been larger than normal this year, so we need to smooth the data to get the true story.
German producer price inflation fell last month, following uninterrupted gains since the beginning of this year. Headline PPI inflation fell to 2.8% year-over- year in May, from 3.4% in April, constrained by lower energy inflation, which slipped to 3.0%, from 4.6% in April. Meanwhile, non-energy inflation declined marginally to 2.7%, from 2.8%.
We think today's ADP private sector employment report for May will reflect the impact of the Verizon strike, which kept 35K people away from work last month, but we can't be sure. ADP's methodology should in theory only capture the strike if Verizon uses ADP for payroll processing--we don't know--but there's nothing to stop them from manually tweaking the numbers to account for known events. Indeed, it would be absurd to ignore the strike.
Inflation pressures are slowly, but surely, rising in the Eurozone. Advance data indicate that inflation in Germany rose to 0.7% year-over-year in May, up from 0.5% in April. Reduced drag from the non-core components is the main driver, with energy prices rebounding, and food prices now rising steadily at 1.4% year-over-year.
The sustained upturn in mortgage applications since last fall ought to have driven up the pace of new home construction quite sharply. But our first chart shows that single-family building permit issuance--we use permits rather than starts, as they are much less volatile--rose only 8.3% year-over-year in the three months to May, while applications for new mortgages to finance house purchase jumped by 18.8% over the same period.
Demand for new cars in the Eurozone rebounded last month. New car registrations jumped 10.3% year-over-year in May, reversing the 5.1% decline in April. The headline was boosted by solid growth in all the major economies.
The spike in the May core CPI, and its likely echo in the core PCE, won't stop the Fed easing at the end of this month.
The fall in CPI inflation to 2.6% in June, from 2.9% in May, greatly undershot expectations for an unchanged rate and it has made a vote by the MPC to keep interest rates at 0.25% in August a near certainty.
The rapid fall in CPI inflation over the last two months challenges the MPC's view that sterling's 2016 depreciation will keep inflation above the 2% target for the next three years, and greatly undermines the case for another interest rate increase in May.
Data this week confirmed that private spending in Colombia stumbled in June. Retail sales fell 0.7% year-over-year, from an already poor -0.4% in May. The underlying trend is negative, following two consecutive declines, for the first time since late 2009. Domestic demand remains subdued as consumers are scaling back spending due to weaker real incomes, lower confidence and tighter credit and labor market conditions.
The RICS Residential Market Survey caught our eye last week for reporting that new sale instructions to estate agents rose in May for the first month since February 2016.
Core inflation failed in May to record its fifth straight 0.2% increase, but--on the 200th anniversary of the Battle of Waterloo--we are obliged to point out that it was the nearest-run thing you ever saw. As published, the core index rose 0.145%, but favorable rounding--at the fourth decimal place--did the job.
Most of the indicators we follow point to another very strong payroll report today; we look for a 260K gain, matching May's performance. The best single leading indicator, the NFIB small business hiring intentions number, points to a massive 320K leap in private payrolls, as our first chart shows.
Yesterday's final May manufacturing PMIs confirmed that the EZ industrial sector is in fine form. The PMI for the euro area was unchanged at a cyclical high of 57.0 in May, in line with the initial estimate.
The PMI survey points to a slow, but steady improvement, in Eurozone manufacturing. The gauge rose marginally to 52.5 in June, up from 52.2 in May. This pushed the quarterly average in Q2 to 52.2, up from 51.1 in Q1. The survey is also telling a story of broad-based manufacturing strength in the two major peripheral economies, despite declines in June.
May's money and credit data indicate, reassuringly, that the economy still is growing at a steady, albeit unspectacular, rate, despite the endless uncertainty created by Brexit.
At the October FOMC meeting, policymakers softened their view on the threat posed by the summer's market turmoil and the slowdown in China, dropping September's stark warning that "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." Instead, the October statement merely said that the committee is "monitoring global economic and financial developments."
At the October FOMC meeting, policymakers softened their view on the threat posed by the summer's market turmoil and the slowdown in China, dropping September's stark warning that "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." Instead, the October statement merely said that the committee is "monitoring global economic and financial developments."
An unusual factor may have contributed to the German economy's likely fall into a shallow recession at the tail end of 2018, a new report from research house Pantheon Macroeconomics suggests.
Industrial production hit its stride last year, notching up eight consecutive month-to-month gains--the longest run of unbroken growth since May 1994--before a setback in December, which was triggered by the temporary closure of the Forties oil pipeline.
A year has now elapsed since sterling began its precipitous descent, and the trade data still have not improved. Net trade subtracted 0.9 percentage points from year-over-year growth in GDP in Q3. And while the trade deficit of £2.0B in October was the smallest since May, this followed extraordinarily large deficits in the previous two months. In fact, the trade deficit has been on a slightly deteriorating trend over the last year, as our first chart shows, and we expect today's data to show that the deficit re-widened to about £3.5B in November.
News yesterday that exports surged to a record high in April was leapt on as "evidence" that sterling's Brexit-related weakness already is having positive side-effects and that therefore the economy would be relatively unscathed by a Brexit. However appealing this explanation may sound, it is nonsense.
The May NFIB survey and the April JOLTS report, both released yesterday, paint a coherent, if not yet definitive, picture of labor market developments which should alarm the Fed. The data suggest that the true labor supply, in the eyes of potential employers, is much smaller than implied by the BLS's measures of broad unemployment.
Friday's industrial production reports in the Eurozone were sizzling. In Germany, headline output rose 1.2% month-to-month in May--after a downwardly-revised 0.7% rise in April--which pushed the year-over-year rate up to a six-year high of 4.9%.
Mexico's headline inflation fell to a record low of 2.9% in May, down from 3.1% in April and below the middle of Banxico's inflation target, 2-to-4%, for the first time since May 2005. C ore inflation was unchanged at 2.3% in May; higher services prices were offset by a slowing in the rate of increase of goods prices to 2.4% from 2.7% in April, confirming that the pass-through effect from the MXN's depreciation has been very limited.
The German trade surplus increased slightly in May, following weakness in the beginning of spring. The seasonally adjusted surplus rose to €20.3B in May, from €19.7B in April; it was lifted by a 1.4% month-to-month jump in exports, which offset a 1.2% rise imports.
China's PPI inflation rose again in June, to 4.7%, from 4.1% in May.
The resolution of tensions in Italy and aboveconsensus U.K. PMIs for May last week persuaded investors that the MPC likely will press on and raise interest rates soon.
China's trade surplus bounced back strongly in May, rising to $40.1B on our adjustment, from $35.7B previously.
The German trade data on Friday completed a poor week for economic reports in the Eurozone's largest economy. The seasonally adjusted trade surplus fell to €22.1B in May, from €24.1B in April, mainly due to a 1.8% month-to-month fall in exports. Imports, on the other hand, were little changed.
The latest IPCA inflation data in Brazil show the year-over-year rate fell to 8.8% in June from 9.3% in May. This is the slowest pace since May 2015, with inflation pulled lower by declines across all major components, except food. Indeed, food prices were the main driver of the modest 0.4% unadjusted monthto-month increase, rising by 0.7%, following a 0.8% jump in May. The year-over-year rate rose to 12.8% in June from 12.4%.
The upturn in the new monthly measure of GDP in May, released yesterday, was strong enough--just--to suggest that the MPC likely will raise Bank Rate at its next meeting on August 2.
The economy looks to be in better shape following May's GDP report than widely feared.
Last week's industrial production and construction output figures for May were surprisingly weak. They have compelled us to revise down our expectation for the preliminary estimate of Q2 GDP to 0.2% quarter-on-quarter, from 0.3% previously.
Brazil's retail sales ended the second quarter on a less-bad footing. Sales volumes increased 0.1% month-to-month in June, pushing the year-over-year rate up to -5.3%, from -9.0% in May. Smoothed year-over-year growth in retail sales has improved to -7% from its cyclical trough of around -9% in the end of last year.
We are wary of a downside surprise in today's German orders, due to weak advance data from the engineering organisation, VDMA. We think factory orders fell 0.5% month-to-month, pushing the year-over-year rate slightly lower to 4.5% in June from 4.7% in May. This is noticeably worse than the market expects, but the consensus forecast for a 0.3% rise implies a jump in the year-over-year rate, which is difficult to reconcile with leading indicators.
The latest money and credit data highlight that the financial fortunes of firms and households have begun to differ markedly. Private non- financial corporations--PNFCs--are enjoying strong growth in their broad money holdings. The 1.2% month-to-month increase in PNFC's M4 was the largest rise since August 2016, and it lifted the year- over-year growth rate to 9.3%, from 9.0% in May.
A looming rate lift-off at the Fed, chaos in Greece, and a renewed rout in commodities have given credit markets plenty to worry about this year. The Bloomberg global high yield index is just about holding on to a 0.7% gain year-to-date, but down 2.5% since the middle of May. The picture carries over to the euro area where the sell-off is worse than during the taper tantrum in 2013.
Markets think a May rate hike is almost certain...but activity and inflation data point to a delay
MPC to delay in May due to Q1 GDP and Inflation...Political risks will resurface later this year
Fed Chair Yellen made it clear in last week's press conference that she is not convinced the increase in core inflation will persist: "I want to warn that there may be some transitory factors that are influencing [the rise in core inflation]... I see some of that is having to do with unusually high inflation readings in categories that tend to be quite volatile without very much significance for inflation over time.
Japan's industrial production data for May carried more evidence that the economy is getting a lift--at least temporarily--from the front-loading of activity ahead of the scheduled sales tax increase in October.
Eurozone inflation eased slightly to 0.2% year-over- year in June, down from 0.3% in May, according to the advance data but we continue to think that the trend has turned up. A 5.1% fall in energy prices, accelerating from a 4.8% in May, was partly to blame for the fall in June. But the key driver was the sharp drop in services inflation to 1.0% from 1.3% in May, likely due to volatility in package holiday prices.
Chief U.K. Economist Samuel Tombs on U.K. Labour Market data for May
We're expecting a 180K increase in today's May headline payroll number, a bit below the underlying trend--200K or so--for the second straight month.
Yesterday's advance EZ CPI report bolstered the ECB doves' case for only marginal adjustments to the language on forward guidance at next week's meeting. Inflation in the euro area fell to 1.4% in May, from 1.9% in April, constrained by almost all the key components.
We're expecting a strong-looking 225K increase in the May ADP measure of private sector payroll growth, due today. The consensus forecast is 180K.
The Eurozone escaped deflation last month, and we doubt it will return in this business cycle. Inflation rose to 0.1% year-over-year in June, up from -0.1% in May; it was lifted chiefly by the gradual recovery in oil and other global commodity prices. Energy prices fell 6.5% in June, up from a 8.4% fall in May, and we think the recovery will accelerate in coming months.
We already know that the key labor market numbers in today's May NFIB survey are strong.
Inflation appears no longer to be an issue for Mexican policymakers. The annual headline rate slowed to 3.0% year-over-year in February from 3.1% in January, in the middle of the central bank's target range, for the first time since May 2006.
We have no argument with the consensus view that the language accompanying Wednesday's rate hike will be emollient. The FOMC likely will point out that the policy stance remains very accommodative, and seek to reinforce the idea that it intends to raise rates slowly. That said, recent FOMC statements have not offered any specific guidance on the pace of tightening, saying instead that the Fed "...will take a balanced approach consistent with its longer-run goals... even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."
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.
• U.S. - Hope for the economy if Mr. Trump strikes a quick deal with China • EUROZONE - Bad news; maybe Germany wasn't in recession after all in Q2/Q3 • U.K. - The MPC's dovish bias won't survive into next year • ASIA - No sign of life in Chinese M1 data; we're downgrading our 2020 forecast • LATAM - Inflation data still support dovish monetary policies in Brazil and Mexico
Inflation in Germany rebounded last month, rising to plus 0.1% year-over-year in May, from minus 0.1% in April. We think the economy has escaped the claws of deflation, for now. Household energy prices fell 5.7% year-over-year in May, up from a 6.3% decline in April, and the rate will rise further. Base effects and higher oil prices point to a surge in energy inflation in the next three-to-six months.
The core CPI rose only 0.1% in May, marking the fourth straight soft reading.
Markets are still discounting Banxico rate increases in the near term, despite the fact that Mexico's inflation is under control. Unless the MXN goes significantly above 18.7 per USD in the near term, or activity accelerates, we see little scope for rate increases until after the Fed hikes. After May's soft U.S. payrolls, and in light of the economic and financial risk posed by the U.K. referendum, we think a hike this week is unlikely.
China's headline trade numbers appear to paint a picture of an economy in rude health but scratch the surface and the story is quite different. The trade surplus rose to$42.8B in June from $40.8B in May, hitting consensus.
Data yesterday showed that industrial production in the Eurozone stumbled in May. Production fell 1.2% month-to-month, driven by weakness in all major economies and falling output in all sub-industries. The poor headline follows an upwardly revised 1.4% jump in April, which means that production rose marginally in the first two months of the second quarter.
No matter how you choose to slice-and-dice the recent retail sales numbers, the core data for the past couple of months have been disappointing. Our favorite measure--total sales less autos, gasoline, food and building materials--rose by just 0.1% month-to- month in May but then reversed this minimal gain in June.
Last week's industrial report confirmed that the Mexican economy softened at the end of the second quarter. Industrial production was unchanged year- over-year in June, calendar-and seasonally adjusted, down marginally from +0.1% in May.
We expect today's consumer prices figures to show that CPI inflation picked up to 0.5% in May, from 0.3% in April, exceeding the 0.4% rate anticipated by both the consensus and the MPC, in last month's Inflation Report. We expect the increase to be driven by a jump in the core rate to 1.4%, from 1.2% in April.
May's consumer prices figures bolster the case for the MPC to sit tight and wait until next year to raise interest rates, when the economy should have more momentum.
CPI inflation increased to 2.9% in May, from 2.7% in April, exceeding the no-change expectation of both the consensus and the MPC, as well as our own 2.8% forecast.
Chinese M2 growth was stable at 8.3% year- over-year in May, despite favorable base effects.
Evidence that Brazil's consumption recession has hit bottom seemed to vanish yesterday with the May retail sales report. Sales plunged 1.0% month-to-month, pushing the year-over-rate down to a terrible-looking -9.0%, from a revised -6.9% in April. Adding insult to injury, the month-to-month number for April was revised down by 0.2 percentage points.
The final June inflation report from Germany yesterday confirmed that pressures are rising. Inflation rose to 0.3% year-over-year in June, up from 0.1% in May, mainly due to higher energy prices. Household energy prices--utilities--fell 4.9% year-over-year, up from a 5.7% decline in May, while deflation in petrol prices eased to -9.4%, up from -12.1% in May.
Brazil's benchmark inflation index, the IPCA, rose 0.7% month-to-month in May, above market expectations. The stickiness of some components explains the surprise upshift; food prices in particular rose by 1.4% in May, after a 1% increase in April. Housing also rose at a faster rate than we had expected, due mainly to a 2.8% jump in the electricity component, the largest single contributor to May's headline increase.
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.
Japanese M2 growth increased trivially in June to 3.9% year-on-year from 3.8% in May, significantly higher than the 3.2% rate in August, before the BoJ began targeting the yield curve.
Japan is the only major advanced economy to have recently experienced an exchange rate depreciation as large as Britain's. Between July 2012 and May 2013, the yen f ell by 24%, matching sterling's depreciation since its peak in August 2015.
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.
Mexico's latest industrial production figures, released yesterday, showed that growth is stabilizing, but it likely will not accelerate any time soon. June output rose 1.4% year-over-year, rebounding from the 1.0% contraction in May, and matching April's gain. The increase in output was relatively broad-based, with solid gains in mining and utilities.
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.
Industrial activity in Mexico had a very poor start to the third quarter. Output plunged 1.0% month-to- month in July, the biggest drop since May 2015, pushing the year-over-year rate down to -1.5%, from -0.2% in June.
Yesterday's data showed that industrial production in the Eurozone accelerated at the end of spring. Output, ex-construction, jumped 1.3% month-to-month in May, much better than the downwardly-revised 0.3% rise in April; the rise pushed the year-over-year rate up to a six-year high of 4.0%.
Friday's economic data in the Eurozone provided further evidence of a sharp rebound in manufacturing output as the economy reopened. Industrial production in France jumped by 19.6% month-to-month in May, lifting the year-over-year rate to -23.4% from -35.0% in April.
Claims abound that sterling's sharp depreciation since the start of the year--to its lowest level against the dollar since May 2010--partly reflects the growing risk that the U.K. will vote to leave the European Union in the forthcoming referendum. We see little evidence to support this assertion. Sterling's decline to date can be explained by the weakness of the economic data, meaning that scope remains for Brexit fears to push the currency even lower this year.
November production data in Mexico, released Monday, showed that the industrial economy remained quite soft in the last part of last year. The collapse in capital spending in the oil sector, slowing public spending, and weaker growth in EM and the U.S. manufacturing sector have combined to hit Mexican industrial output quite hard. Total production rose just 0.1% year-over-year in November, down from an already weak 0.5% in October, and below the 1.3% average increase in Q3. Output fell 0.5% month-to-month, the biggest drop since May, reflecting broad-based weakness.
Many analysts argue that the MPC inevitably will raise interest rates at its May 10 meeting because markets have fully priced-in a 25bp uplift.
The stand-out development in yesterday's labour market report was the drop in the he adline, three-month average, unemployment rate to just 4.0% in June--its lowest rate since February 1975--from 4.2% in May.
China's service sector slowed again in June, with the Caixin PMI falling to 51.6 from 52.8 in May. The Q2 average of 52.0 was only minimally lower than the 52.6 in Q1.
Japan's average year-over-year wage growth slowed sharply in May, but this mainly was a correction of the April spike.
This week's uproar over the ECB's purchases of Italian debt in May--or lack thereof--shows that monetary policy in the euro is never far removed from the political sphere.
German factory orders struggled in the second quarter. New orders were unchanged month-to-month in May, a poor headline following the revised 1.9% plunge in April. The year-over-year rate rose to -0.2%, from a revised -0.4% in April. The month-to-month rate was depressed by a big fall in domestic orders, which offset a rise in export orders.
February's consumer price figures give the MPC reason to doubt the case for raising interest rates again as soon as May.
...The Fed did nothing, surprising no-one; the labor market tightened further; the housing market tracked sideways; survey data mostly slipped a bit; and oil prices jumped nearly $4, briefly nudging above $50 for the first time since May.
December's meeting of the Monetary Policy Committee is likely to be a quiet affair in comparison to this month's pivotal ECB and Fed meetings. It's hard to see what news would have persuaded other members to join Ian McCafferty in voting to raise interest rates this month. The MPC might comment in the minutes to try to reverse the further fall in market interest rate expectations since its previous meeting, when it already thought they were too low. But the potency of any moderately hawkish guidance may be diluted by further strident comments from the Committee's doves.
Recent polls in the U.K. have reminded markets that the vote is too close to call at this point, but investors in the Eurozone appear unfazed, so far. The headline Sentix index rose to 9.9 in June, from 6.2 in May, lifted by the expectations index, which increased to a six-month high of 10.0 from 5.5 in May.
The headline hourly earnings data for May were dull, showing the year-over-year rate unchanged at 2.5%. That's up from 2.1% in the year to May 2015, but it's not an alarming rate of increase. But the Atlanta Fed's median hourly earnings data, which track the wages of individuals from year-to-year, show wages up 3.4% year-over-year, the fastest rate of increase since February 2009.
German GDP growth jumped in the first quarter, but monthly economic data suggest the economy all but stalled in Q2. Yesterday's industrial production data are a case in point. Output slid 1.3% month-tomonth in May, pushing the year-over-year rate down to -0.4% from a revised 0.8% gain in April. Adding insult to injury, the month-to-month number for April was revised down by 0.3 percentage points
Favourable inflation conditions in Mexico remain in place with June consumer prices increasing just 0.1% month-to-month, unadjusted, better than expected. A modest gain in core prices was largely offset by falling non-core prices, so year-over-year inflation edged down to 2.5% from 2.6% in May.
In the wake of the May international trade numbers, our hopes that net foreign trade would contribute more than a full percentage point to second quarter GDP growth have taken something of a knock. We're now looking for a 0.7pp contribution.
Household sentiment in Mexico continues to improve, consistent with tailwinds from low inflation, accommodative monetary policy, and the improving labor market. The consumers confidence index rose to 94.7 in June from 92.0 in May, with four of the five components improving, especially big-ticket purchasing expectations and expectations for the economy.
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.
German GDP growth likely accelerated in the second quarter, following a disappointing 0.3% quarter-on-quarter expansion in Q1. Growth in the manufacturing sector remains modest, and the trend in consumers' spending remains solid. Industrial production was unchanged in May, pushing year-over-year growth to 2.1% from a revised 1.1% in April.
Japanese average cash earnings posted a surprise drop of 0.4% year-over-year in June, down from 0.6% in May and sharply below the consensus for a rise of 0.5%. The decline was driven by a fall in the June bonus, by 1.5%.
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.
All the fundamentals point to a very strong payroll number for May. The NFIB hiring in tentions index, the best single leading indicator of payrolls five months ahead, signalled back in December that May employment would rise by about 300K. The NFIB actual net hiring number, released yesterday, is a bit less bullish, implying 250K, but the extraordinarily low level of jobless claims, shown in our first chart, points to 300K. Finally, the ISM non-manufacturing employment index suggests we should be looking for payrolls to rise by about 260K. Our estimate is 280K.
The release of pent-up consumer demand in Japan has been rocky, following the end of the nationwide state of emergency in May. Retail sales values rose by 4.6% month-on-month in August, albeit following a 3.4% correction in the previous month.
The headline May ISM non-manufacturing index today likely will mirror, at least in part, the increase in the manufacturing survey, reported Friday.
Japan's monetary base growth showed further signs of stabilisation in May, at 8.1% year-over-year, edging up trivially from 7.8% in April.
The pick-up in the Markit/CIPS services PMI to an eight-month high of 55.1 in June, from 54.0 in May, has provided another boost to expectations that the MPC will raise Bank Rate at its next meeting on August 2.
Yesterday's EZ consumers' spending data were mixed. Retail sales in the euro area fell by 0.3% month-to-month in May, extending the slide from a revised 0.1% dip in April.
The latest PMIs suggest that investors have jumped the gun in pricing-in a 50% chance of the MPC raising interest rates again as soon as May.
The latest drop in crude oil prices me ans that sub-zero headline CPI inflation in the spring is now more likely than not. We expect a lurch down from November's 1.3% to 0.7% in December, then 0.3% in January. The rate will remain close to that level for the next few months before hitting zero in May and slipping into negative territory--just--in June and July.
On the face of it, the Caixin services PMI was unremarkable in May, unchanged at 52.9.
On the face of it, markets' newfound view that the MPC's next move is more likely to be a rate cut than a hike was supported by May's Markit/CIPS PMIs.
Yesterday's final May PMI data in the Eurozone confirmed the strength of the cyclical upturn. The composite PMI was unchanged at 56.8, in line with the initial estimate.
The shock of the weak May payroll report means that the June numbers this week will come under even greater scrutiny than usual. We are not optimistic that a substantial rebound is coming immediately. The headline number will be better than in May, because the 35K May drag from the Verizon strike will reverse.
The ADP private sector employment number was a bit weaker than we expected in May, and the undershoot relative to our forecast has pulled down our model's estimate for today's official number
China's FX reserves data pointed to an about-turn in net capital flows in May, with capital leaving the country again after two months of net inflows, and a current account deficit in Q1.
House prices continue to struggle for momentum, instilling caution among households. Admittedly, Halifax reported yesterday that its index jumped by 1.5% month-to-month in May.
June moderation confirms May nadir in Chinese PPI deflation. Food price disinflation in China stalls in June. No signs of Japan's M2 growth spike tapering anytime soon. The surprise bounce in Japanese core machine orders was fairly narrow. Machine tool orders in Japan end Q2 on an encouraging note.
State of emergency destroyed Japanese overtime pay in April. M2 growth in Japan hasn't been this strong since the early 90s. No relief for Japanese tool orders in May, despite the phased withdrawal of the emergency declaration.
China's trade surplus probably has peaked. Chinese FX reserves jump in May, thanks primarily to valuation effects. Chinese FX reserves jump in May, thanks primarily to valuation effects. April should be the low of Japan's current account surplus.
China's see-sawing trade surplus is likely to continue in the short run, but it mostly has peaked. Japan's unadjusted current account surplus slipped to ¥1,211B in June, from ¥1,595B in May, marginally surpassing the consensus, ¥1,149B.
Korea's current account balance returns to the black in May
Rapidly falling wages in Japan rule out a V-shaped spending bounce. May confirms that Korea's current account deficit in April was just a one-off.
The headline Sentix investor sentiment index in the Eurozone rose to -24.8 in June, from -41.8 in May, slightly below the consensus, -22.0.
In one line: Core inflation was stable--maybe nudging up a bit--before the virus. Expect it to slow over the next few months
In one line: This is the bottom; expect a big rebound in May.
In one line: Expect the rebound to start in May.
In one line: A huge decline, but timelier data point to a tentative recovery in May.
In one line: Calendar quirks explain the drop in manufacturing output; expect a rebound in May.
In one line: The proportion of positive U.S. tests may be flattening; good news, if it persists.
China's Caixin gauge still to register renewed tariff threat. Japan's Capex growth on borrowed time. Korean exports stumble in May, but Q2 is shaping up to be better than Q1. Korea's PMI for May highlights the still-huge downside risks facing exporters.
Commodity-price pressures dampen Chinese profits' return to growth, Retail sales in Japan recover only modestly in May
Yesterday's headline economic data in Germany were decent enough. Industrial output edged higher by 0.3% month-to-month in May, lifted primarily by rising production of capital and consumer goods.
April's 2.0% month-to-month leap in industrial production was the biggest upside surprise on record to the consensus forecast, which predicted no change. The surge, however, just reflects statistical and weather-related distortions. These boosts will unwind in May, ensuring that industry provides little support to Q2 GDP growth. Make no mistake, the recovery has not suddenly gained momentum.
The 7.8% month-on-month plunge in Japan's core machine orders in May re-emphasises the underlying weakness that we have been worrying about, after the 5.2% jump in April.
A casual glance at our char t below, which shows the number of job openings from the JOLTS report, seems to fit our story that the slowdown in payrolls in April and May--perhaps triggered by the drop in stocks in January and February--will prove temporary. Job openings dipped, but have recovered and now stand very close to their cycle high.
Tomorrow, Mexico's INEGI will release its inflation report for the second half of May, which is of key importance for Banxico's monetary policy. The Bank, in particular governor Agustin Carstens, has said on many occasions that it will watch external conditions and their impact on consumer prices closely. We expect inflation to edge down to 2.9% year-over-year in May, thanks to a 0.1% increase in the second half.
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.
In one line: May trough, confirmed.
Manufacturers in China are skating on thin ice. Construction is still doing most of the heavy lifting for China's non-manufacturing index. MoF data suggest that Japan probably avoided a technical recession in Q1, just. Korean exports stabilise in May, but Q2 still looks like a lost cause. Korea's PMI continued to sink in May, with no clear signs of a turnaround in export orders.
The BoJ keeps it promises vague. Japan's April is turning out quite nicely. PPI inflation in Korea slipped in May, and is heading for deflation in Q3.
Japan's stable unemployment rate belies underlying weakness. Tokyo energy inflation turns the corner. Sales tax preparations breathe life into Japanese production in May... if only temporarily. Korea's IP plunge in May shows why Japan can't rest on its laurels.
A trivial upgrade to Korea's Q1 GDP, CPI deflation in Korea will last for the rest of 2020, Monetary base growth in Japan continued to accelerate in May, as the rate of QE rose
Short-term trends in Chinese industry continued to soften in May, with catch-up growth fading, No noticeably May Day lift, as retail sales in China continue to fall behind, Chinese investment looks to have taken a breather in May, Don't put too much stock into the stronger increase in Chinese home prices, Japan's tertiary index should rebound from April, but Q2 is a write-off
China's firms aren't passing on tax hikes after all. China takes full advantage of previous oil price declines. Japan's core machine orders better than expected, but that won't help Q2. Japan is heading for a spell of sustained PPI deflation in H2. Better May jobs report will help to keep any BoK rate cuts at bay.
Payroll growth rebounded to 223K in May, after two sub-200K readings, and we're expecting today's June ADP report to signal that labor demand remains strong.
The hard numbers in Eurozone manufacturing continue to lag the sharp rise in the main surveys. Data yesterday showed that German factory orders rose 1.0% month-to-month in May, only partially rebounding from a downwardly revised 2.2% plunge in April.
The FTSE 100 has dropped by 7% since the end of September--leaving it on course for its worst month since May 2012--and now is 12% below its May peak.
The alarming-looking decline in core capital goods orders since late 2014 has been substantially due, in our view, to the rollover in investment in the mining sector. But the 29% jump in the number of oil rigs in operation, since the mid-May low, makes it clear that the collapse is over.
Mauricio Macri, the centre-right candidate of the Cambiemos--Let's Change--coalition won Argentina's weekend presidential election. Mr. Macri, the mayor of Buenos Aires, defeated Daniel Scioli, of the ruling Front for Victory--FpV--coalition on Sunday. His victory marks the end of the 12-year Kirchnerist era, characterized by wild inflation, huge public deficits and unsustainable subsidies. If Mr. Macri lives up to his promises, Argentina, the second-largest economy in South America, will become an orthodox economy on a sustainable path. The recovery will come, we think, but it will be a long and challenging process.
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.
The forecasts compiled by Bloomberg for today's June German factory orders data look too timid to us. The consensus is pencilling in a 0.5% month-to month rise, which would push the year-over-year rate down to -2.1%, from zero in May. But survey data point to an increase in year-over-year growth, which would require a large month-to-month rise due to base effects from last year.
The PMI survey yesterday painted a more upbeat picture on the Eurozone economy than we expected. The composite index rose to 54.1 in June from 53.6 in May, taking the quarterly average to its highest level since Q2 2011.
We are fundamentally quite bullish on the housing market, given the 100bp drop in mortgage rates over the past six months and the continued strength of the labor market, but today's May new home sales report likely will be unexciting.
The chaos in Greece was identified as the main culprit for yesterday's soft IFO report. The headline business climate index fell to 107.4 in July, down from 108.1 in May, driven by declines in respondents' views on the current economy and their expectations for the future. We expected a dip in the he adline IFO, but we were surprised by the fall in the manufacturing sub-index, given the firmer PMI earlier this week.
the 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.
The MPC held back last week from decisively signalling that interest rates would rise when it meets next, in May.
Japanese data continue to come in strongly for the second quarter. The manufacturing PMI points to continued sturdy growth, despite the headline index dipping to 52.0 in June from 53.1 in May. The average for Q2 overall was 52.6, almost unchanged from Q1's 52.8, signalling that manufacturing output growth has maintained its recent rate of growth.
The Eurozone PMIs stumbled at the end of Q2. The composite index slipped to a five-month low of 55.7 in June, from 56.8 in May, constrained by a fall in the services index. This offset a marginal rise in the manufacturing index to a new cyclical high. The dip in the headline does not alter the survey's upbeat short- term outlook for the economy.
S&P downgraded Chinese government debt last week to A+ from AA- yesterday, following a Moody's downgrade last May.
House purchase mortgage approvals by the main high street banks continued to recover in June, rising to a nine-month high of 40.5K, from 39.5K in May. June approvals, however, merely matched their postreferendum average, and the chances of a more substantial recovery are slim.
Japan's national CPI inflation has peaked, falling to 0.7% in May from 0.9% in April.
Mexican consumers' spending improved toward the end of Q2. Retail sales jumped by 1.0% month-to-month in June, pushing the year-over-year rate up to 9.4%, from an already solid 8.6% in May. Still, private spending lost some momentum in the second quarter as a whole, rising by 2.5% quarter-on-quarter, after a 3.8% jump in Q1. A modest slowdown in consumers' spending had to come eventually, following surging growth rates in the initial phases of the recovery.
Brazil's mid-June inflation reading surprised to the downside, falling to 9.0% from 9.6% in May. The reading essentially confirmed that May's rebound was a pause in the downward trend rather than a resurgence of inflationary pressures. A 1.3% increase in housing prices, including services, was the main driver of mid-June's modest unadjusted 0.4% month-to-month rise in the IPCA-15.
The Eurozone's current account surplus extended its decline in May, falling to a nine-month low of €22.4B, from €29.6B in April.
Yesterday's ZEW investor sentiment in Germany shows showed no signs that uncertainty over the U.K. referendum is taking its toll on EZ investors. The expectations index surged to 19.2 in June, from 6.4 in May, the biggest month-to-month jump since January last year, when investors were eagerly expecting the ECB's QE announcement.
Friday's inflation data in Brazil confirmed that the ripples from the truckers' strike in May were still being felt at the start of the third quarter.
Back on May 14, we argued--see here--that the stars were aligned to generate very strong second quarter GDP growth, perhaps even reaching 5%.
On balance, our conviction that the MPC will surprise markets on May 2 by retreating from its dovish stance has risen, following last week's labour and retail sales data.
The June batch of the French statistical office's business surveys continues to signal a firming cyclical recovery. The aggregate business index rose to cyclical high of 106 in June from a revised 105 in May, continuing an uptrend that began in the middle of 2016.
Korea's preliminary export numbers rebounded quite spectacularly in June, with growth at 24.4% year-on-year, compared with just 3.4% in May. This reading is important as it comes early in the monthly data cycle. Korea's position close to the beginning of the global supply chain, moreover, means its exports often lead shifts in global trade.
Mexico's economy continues to withstand several headwinds, especially the sharp currency depreciation--shown in our first chart--falling commodity prices, and the tough external environment. The country is still one of the economic bright spots in the region, thanks to its resilient domestic demand. June retail sales rose 5.4% year-over-year, well above expectations, and up from 4.1% in May. The underlying trend is positive, averaging 4.8% in the second quarter, well above its 2014 pace.
The rate of increase of the financial services and insurance component of the PCE deflator has slowed from a recent peak of 5.8% in May 2014 to 3.3% in June this year. This matters, because it accounts for 8.4% of the core deflator, a much bigger weight than in the core CPI.
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.
Sterling jumped last week to its highest level against the dollar since last October in response to news that a general election will be held on June 8. Markets are betting that the Conservative Government will sharply increase its majority, enabling Theresa May to ignore Eurosceptic backbenchers when she strikes a deal with the EU.
This is the final Monitor before we hit the beach for two weeks, so want to highlight some of the key data and event risks while we're out. First, we're expecting little more from the FOMC statement than an acknowledgment that the labor market data improved in June. After the May jobs report, the FOMC remarked that "...the pace of improvement in the labor market has slowed".
The flat trend in core capital goods orders continued through May, according to yesterday's durable goods orders report. We are not surprised.
LatAm currencies and stock markets have suffered badly in recent weeks, but Monday turned into a massacre with the MSCI stock index for the region falling close to 4%. Markets rebounded marginally yesterday, but remain substantially lower than their April-May peaks. Each economy has its own story, so the market hit has been uneven, but all have been battered as China's stock market has crashed. The downward spiral in commodity prices--oil hit almost a seven-year low on Monday--is making the economic and financial outlook even worse for LatAm.
Brazil's recession has deepened. Overall, the economy has sunk into its worst slump in six years, and the recovery will be painful and slow. This is not surprising, but the sharper than expected 3% contraction over the first half of the year may have thrown a further bucket of cold water on President Rousseff, whose popularity ratings have fallen to a level not seen since 1992, when President Collor de Mello was forced out of office after being impeached for corruption. Real GDP in Brazil fell 1.9% quarter-on-quarter in Q2, much worse than the downwardly revised 0.7% contraction in Q1.
The jobless rate fell back to 2.8% in June after the surprise rise to 3.1% in May. This drop takes us back to where we were in April before voluntary unemployment jumped in May.
Sterling strengthened last week to its highest tradeweighted level since mid-May, amid hopes that the U.K. government will concede more ground to ensure that the European Council deems, at its December 14 meeting, that "sufficient progress" has been made in Brexit talks for trade discussions to begin
Brazil's unadjusted current account surplus soared to USD2.9B in May, its highest level since 2006, from USD1.1B in May 2016.
Advance country data indicate that headline EZ inflation fell slightly in June; we think the rate dipped to 1.3% year-over-year, from 1.4% in May.
Last week's preliminary estimate of Q1 GDP has extinguished any lingering chance that the MPC might raise interest rates at its next meeting on May 10.
Japanese services price inflation edged down in May as the twin upside drivers of commodity price inflation and yen weakness began to lose steam. We expect wage costs to begin edging up in the second half but this will provide only a partial counterbalance.
The 15% fall in the FTSE 100 since its May 2018 peak undoubtedly is an unwelcome development for the economy, but past experience suggests we shouldn't rush to revise down our forecasts for GDP growth.
Yesterday's PMI data confirmed that the EZ manufacturing sector is in rude health. The manufacturing PMI in the euro area rose to a cyclical high of 57.4 in June, from 57.0 in May, slightly above the first estimate. New orders and output growth are robust, pushing work backlogs higher and helping to sustain employment growth.
The downbeat tone of Markit's May manufacturing survey shouldn't come as a surprise, given the weak global backdrop and the inevitable fading of the boost to output from Brexit preparations.
The Conservatives are rallying in the opinion polls, as their uncompromising line on leaving the E.U. by October 31, come what may, resonates with Brexit party supporters.
The Caixin manufacturing PMI was steady in May, at 50.2, in contrast to the official gauge published on Friday, which dropped to 49.5, from April's 50.2.
The May employment report was somewhat overshadowed by the furor over the president's tweet, at 7.15AM, hinting--more than hinting--that the numbers would be good.
We were surprised to see Japan's services PMI edging up to 51.9 in June, from 51.7 in May. We attributed apparent service sector resilience in April and May to the abnormally long holiday this year.
The Caixin manufacturing headline was unremarkable, but the input price index signals that PPI inflation is set to rise again in May, to 4.0%-plus, from 3.4% in April.
The sharp fall in China's manufacturing PMI in May makes clear that its recovery is nowhere near secured.
Recently data from Argentina continue to signal a firming cyclical recovery. According to INDEC's EMAE economic activity index, a monthly proxy for GDP, the economy grew 4.0% year-over-year in June, up from an already-solid 3.4% in May.
The decline in headline durable goods orders in May, reported yesterday, doesn't matter.
Debt issuance by Eurozone non-financial firms is soaring, consistent with the ECB's hope that adding private debt to QE would boost supply. Our first chart shows that the three-month sum of net debt sold in the euro area jumped to a new record of €60.3B in May. A short-term decline in issuance is a good bet after the initial euphoria in firms' treasury departments.
Money supply dynamics in the Eurozone were broadly stable last month. M3 rose 5.0% year-over-year in May, accelerating slightly from a 4.9% increase in April, in line with the trend since the middle of 2015.
Chinese industrial profits growth rose to 16.7% year-on-year in May, from 14.0% in April. But this headline is highly misleading. Profits growth data are about as cyclical as they come so taking one point in the year and looking back 12 months is very arbitrary. Moreover, the data are very volatile over short periods.
The headline in yesterday's EZ money supply report gave the illusion that monetary conditions are stable, but the details tell a different story. M3 growth accelerated marginally to 5.0% year-over-year in June, from 4.9%, but momentum in narrow money fell further. M1 growth slowed to 8.5% year-over-year, from 9.0% in May due to a fall in overnight deposits and currency in circulation.
The U.K.'s political situation is extremely fluid, so it would be risky automatically to assume that the U.K. is heading for Brexit. Although the Prime Minister has resigned, his attempt to hold out until October to begin the formal process of exiting the E.U. signals that he may be seeking to engineer a revised deal, or at least to force his successor to make the momentous decision of whether to trigger Article 50, to begin the leaving process.
Multiple factors have shaken LatAm financial markets this week. China's market turmoil, commodity price oscillations, currency volatility, and political mayhem in every corner of the region, have all conspired against markets. But market chaos has also driven some central banks to rethink their monetary policy plans. For EM, in particular for LatAm, the stance of the Federal Reserve is key, given the region's close ties to the U.S., and the dollar.
Money supply data continue to send a bullish message on the euro area economy. Broad money growth was unchanged at 5.0% year-over-year in June, but M1 growth surged to 11.8%, from 11.2% in May. Combined with low inflation, real M1--the best leading indicator in the Eurozone--indicates a surge in GDP growth on par with previous record business cycle upturns in 1999, 2005-06 and 2009-10.
Mexico's economy hit a sticky patch in the first quarter, with confidence slipping, employment growth slowing and the downward trend in unemployment stalling. Indeed, the headline unemployment rate rose to 4.5% in May from 4.3% in April. The seasonally adjusted rate, though, was little changed at 4.4%, with a stable participation rate.
Japan's May retail sales rebound was underwhelming at a mere 0.3% month-on-month, after a 0.1% fall in April.
The defeat in the House of Lords of the Government's plans to cut spending on tax credits by £4.4B next year is not a barrier to their implementation. But it has prompted speculation that the Chancellor will reduce the size of the fiscal consolidation planned for next year. The plans may be tweaked in the Autumn Statement on 25 November, but we think the economy will still endure a major fiscal tightening next year.
French consumer sentiment dipped slightly in June, but we see no major hit from ongoing labour market disputes. The headline index slipped to 97 in June, from 98 in May; this is a decent reading given the fourpoint jump last month. The headline was constrained by a big fall in consumers' "major purchasing intentions," but this partly was mean-reversion following a surge last month.
Ian Shepherdson, founder at Pantheon Macroeconomics, and Jeff Saut, chief investment strategist at Raymond James, look forward to a potential Federal Reserve rate hike on December 16 and how markets and the U.S. economy may react in the year ahead.
Samuel Tombs has more than a decade of experience covering the U.K. economy for investors. At Pantheon, Samuel's research is rigorous, free of dogma and jargon, and unafraid to challenge consensus views. His work focuses on what matters to professional investors: The links between the real economy, monetary policy and asset prices. He has a strong track record of getting the big calls right. The Sunday Times ranked Samuel as the most accurate forecaster of the U.K. economy in both 2014 and 2018. In addition, Bloomberg consistently has ranked Samuel as one of the top three U.K. forecasters, out of pool of 35 economists, throughout 2018 and 2019. His in-depth knowledge of market-moving data and his forensic forecasting approach explain why he consistently beats the consensus. Samuel's work on Brexit goes beyond simply reporting developments and is always analytical and unbiased, enabling investors to see through the noise of the daily headlines. While his analysis points to a particular path that politicians will take, he acknowledges the inherent uncertainty and draws out the economic and financial market implications of all plausible Brexit scenarios. Samuel holds an MSc in Economics from Birkbeck College, University of London and an undergraduate degree in History and Economics from the University of Oxford. Prior to joining Pantheon in 2015, he was Senior U.K. Economist at Capital Economics. In 2011, Samuel won the Society of Business Economists' prestigious Rybczynski Prize for an article on quantitative easing in the UK. He is based in London but frequently visits our other offices. Recent key calls include: 2018 - Correctly forecast that GDP growth would slow and inflation would undershoot the MPC's initial forecast, prompting the Committee to shock investors and almost other economists by waiting until August to raise Bank Rate, rather than pressing ahead in May. 2017 - Argued that the MPC was wrong to expect CPI inflation to stay below 3% following sterling's depreciation. He also highlighted that economic indicators pointed to the Conservatives losing their outright majority in the snap general election.
Chief U.S. Economist Ian Shepherdson discussing Durable Goods Orders in May
Chief U.S. Economist Ian Shepherdson discussing Durable Goods Orders in May
Chief Eurozone Economist Claus Vistesen on Latvia
Is Covid-19 the main factor behind Mexico's poor economic performance?
Ian Shepherdson on U.S. Manufacturing Activity
Senior LatAm Economist Andres Abadia on Colombia
Chief U.S. Economist Ian Shepherdson on U.S. Producer Prices
Chief Eurozone Economist Claus Vistesen on Eurozone Growth
Samuel Tombs on U.K. Manufacturing Output
Chief U.K. Economist Samuel Tombs discussing the effect the general election will have on the pound,
Claus Vistesen comments on Eurozone deflation
Chief U.K. Economist Samuel Tombs on Consumer Price Index, June
Chief U.K. Economist Samuel Tombs discussing U.K. Consumer Confidence
Chief UK Economist Samuel Tombs on the chance of a no-deal Brexit
Samuel Tombs on U.K. Manufacturing
Chief U.K. Economist Samuel Tombs on U.K. Bank of England Interest Rates
Chief U.K. Economist Samuel Tombs on U.K House Prices
Chief Eurozone Economist Claus Vistesen on Eurozone Inflation.
Senior International Economist Andres Abadia on Latam currency risks.
Chief U.S. Economist Ian Shepherdson discussing U.S. Durable Goods Orders
Chief U.K. Economist Samuel Tombs on U.K. Inflation
Chief U.K. Economist Samuel Tombs on U.K. House Prices
Chief U.S. Economist Ian Shepherdson on ISM Non-Manufacturing
Monthly publication telling the economic story of each region in roughly 40 charts
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