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1054 matches for " china":
China's current account surplus grew further in the final quarter of 2018, more than doubling to $54.6B, from $23.3B in Q3.
China's September PMIs, most of which were released over the weekend, mark out a clear downtrend in activity since late last year.
China's FX reserves fell to $3,134B in February, from $3,161B in January, after a year of gains.
House price inflation in tier-one cities has been crushed by China's most recent monetary tightening. This is a sharp turnaround from the overheating mid-way through last year. Unlike in previous cycles, interest rates are probably more important for house prices than broad money growth.
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.
China's Caixin manufacturing PMI was unchanged at 51.0 in October, continuing the sideways trend this year.
China's current account dropped sharply in Q1, to a deficit of $28.2B, from a surplus of $62.3B in Q4.
At the end of last year, China's Central Economic Work Conference set out the lay of the land for 2019. Cutting through the rhetoric, we think the readout implies more expansionary fiscal policy, and a looser stance on monetary policy.
China has a nuclear option in the face of pressure from U.S. tariffs, namely, to devalue the currency.
Geopolitical tensions have risen sharply for Asia in the last few months, yet the RMB has appreciated sharply. China's currency appears to be playing some kind of safe haven role.
We have argued for a while that China and the U.S. will not reach a comprehensive trade deal until after the next election.
China's manufacturing PMI posted a surprise, albeit trivial, increase in February, to 51.6 up from 51.5 in January.
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.
China's unadjusted current account surplus widened to $16.0B in the preliminary report for Q3, from $5.3B in Q2.
We've written in previous Monitors about the stabilisation of China's debt ratio. In this Monitor we look at whether this stabilisation is cyclical or a sign that China really has managed to change the structure of its economy to be less reliant on debt.
China's unadjusted current account was effectively in balance in Q2, after the deficit in Q1.
China's once much-talked-about "Belt and Road Initiative" has gradually disappeared from the headlines over the past twelve months.
The China Daily ran an article entitled "Beijing, nation get breath of fresh air" on the day Chinese GDP figures were published last week, underlining where the authorities' priorities now lie.
So much has changed in China over the last six months that we are taking the opportunity in this Monitor to step back and gain an overview of where the economy is going in the long term.
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.
We've had pushback from readers over our take on the likelihood of a trade deal with China in the near future.
The details of next year's Japanese budget are not yet official and the Chinese budget remains unknown. But the main figures of the Japanese budget are available, while China's Economic Work Conference, which concluded yesterday, has set out the colour of the paint for the budget, if not the actual brush strokes.
Bloomberg reported on Monday that the PBoC is drafting a package of reforms to give foreign investors greater access to the China's financial services sector. This could involve allowing foreign institutions to control their local joint ventures and raising the 25% ceiling on foreign ownership of Chinese banks.
All regulators face the challenge that when you regulate one part of the economy, problems appear somewhere else. For China, the game is particularly intense because liquidity created by previous debt binges continues to slosh around the financial system, with no outlet to the real economy.
China's Caixin services PMI for December surprised well to the upside, providing a glimmer of hope that the economy isn't losing steam on all fronts.
China last week banned unlicensed micro-lending and put a ceiling on borrowing costs for the sector, in an effort to curtail the spiralling of consumer credit.
China's trade numbers for July surprised to the upside, with both exports and imports faring better than consensus forecasts in year-over-year terms.
The bulk of China's PMIs were published over the weekend and yesterday, leaving only the Caixin services PMI on Wednesday.
China's real GDP growth was unchanged at 6.4% year-over-year in Q1, above the consensus for a slowdown to 6.3%.
We can't afford the luxury of believing China's year-over-year growth rates. Real GDP growth was 6.8% year-over-year in Q1, matching the rate in Q4 and Q3, and hitting consensus.
New home price growth in China has held up longer than we expected.
Chinese official headline data paint a picture of a strengthening economy in Q2. Our analysis shows a sharply contrasting picture. China's nominal GDP, real GDP and deflators are often internally inconsistent.
In one line: China's October money and credit data make a mockery of the 5bp PBoC rate cut
The headlines of China's August activity data are missing the real story in recent months.
China's activity data yesterday made pretty uncomfortable reading for policymakers.
We expect China's quarterly real GDP growth in the second quarter to edge down from Q1, but only because Q1 growth was unsustainable. The official data shows real GDP growth at 1.3% quarter-onquarter in Q1.
China's official real GDP growth is absurdly stable, but the risks in Q3 are tilted to the downside.
China and the U.S. are officially to restart trade talks, according to China's Ministry of Commerce, after previous negotiations stalled in June.
In our daily Monitors we've talked about the four paths that we see for the Chinese economy over the medium-to-long term. First, China could make history and actively transition to private consumption-led growth.
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.
In one line: Increase reflects valuation effects; China happy to see RMB appreciation.
Money and credit data released last weekend suggest that China's demand for credit remains insatiable.
China's trade surplus tumbled to $20.3B in January, from $54.7B in December, surprising the consensus for little change.
The first round of trade talks between the U.S.and China kicked off in Beijing on Monday, marking the first face-to-face meeting between the two sides since Presidents Donald Trump and Xi Jinping struck a "truce" in December.
President Xi Jinping started China's Party Congress yesterday with a speech setting out the priorities for the next five years.
China's property market continued to slow in August, with prices rising by just 0.2% month-on- month seasonally adjusted, half the July pace.
China's export data shows little impact from trade tensions so far.
China's National People's Congress this year was the most significant in years and followed 12 months of lightning-speed change in the country.
China's official GDP data, published on Monday, showed year-over-year growth edging down to 6.7% in Q2, from 6.8% in Q1.
In one line: Domestic weakness rebuilds China's current account surplus.
China's residential property market surprised again in August, with prices popping by 1.5% month- on-month, faster than the 1.2% rise in July, and the biggest increase since the 2016 boomlet.
China's trade surplus collapsed unexpectedly in April, to $13.8B, from a trivially-revised $32.4B in March.
China is a collection of hugely disparate provinces and cities. Managing all these cities with one interest rate is always difficult but in this cycle it is proving to be nearly impossible.
China's growth can be decomposed into the structural story and the mini-cycle, which is policy- driven.
The main story to emerge from China's Economic Work Report is the extent of tax cuts, which on our calculations will leave a large funding hole.
China's official PMIs for January, due out tomorrow, will give the first indications of how the economy started the year.
In the yesterday's Monitor, we presented an exagerated upper-bound for China's bad debt problem, at 61% of GDP. The limitations of the data meant that we double-counted a significant portion of non-financial corporate--NFC--debt with financial corporations and government.
The latest profits data out of China were grim, as we had expected.
China's official real GDP growth slowed to 6.0% year-over-year in Q3, from 6.2% in Q2 and 6.4% in Q1. Consecutive 0.2 percentage points declines are significant in China.
China's Party Congress is now less than one month away. Most commentators habitually add the words "all-important" before any reference to the event.
China's industrial profits tanked in January/ February, falling 14.0% year-to-date year-over-year, after a 1.9% drop year-over-year in December.
China's government overshot its deficit target last year, and probably will overshoot it by at least as much this year
China's industrial profits data for August were a mixed bag.
In yesterday's Monitor we suggested that China's profits surge has been party dependent on developers' risky debt issuance practices.
Since the Party Congress last month, China has made a number of bold moves in multiple policy fields, with a regularity that almost implies the authorities are working through a list.
China's finance minister Liu Kun provided his report on China's current fiscal situation to the legislature last Friday.
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.
The BoJ until last week had been in wait-and-see mode over China's slowdown, but they finally folded with Thursday's decision.
China's industrial profits data for December showed continued weakness in the sector, with no clear signs that a turnaround is in the offing.
China will have to issue a lot of government debt in the next few years. The government will need to continue migrating to its balance sheet, all the debt that should have been registered there in the first place. This will mean a rapid expansion of liabilities, but if handled correctly, the government will also gain valuable assets in the process.
China is set to ease reserve requirements for banks lending to small businesses. In a statement after the State Council meeting yesterday, Premier Li Keqiang said that commercial banks would receive a cut in their RRR , from 17% currently, based on how much they lend to businesses run by individuals.
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 sharp fall in China's manufacturing PMI in May makes clear that its recovery is nowhere near secured.
China's Caixin manufacturing PMI doused hopes of turning over a January new leaf; it dropped to 49.7 in November, from 50.2 in December.
Our analysis of the Q3 activity and GDP data in yesterday's Monitor strongly suggests that China's authorities will soon ready further stimulus.
After a week--yes, a whole week!--with no significant new developments in the trade war with China--it's worth stepping back and asking a couple of fundamental questions, which might give us some clues as to what will happen over the months ahead.
China's Q2 real GDP growth officially slowed to 6.2% year-over-year, from 6.4% in Q1, which already matched the trough in the financial crisis.
China's official PMIs were little changed in August, with the manufacturing gauge up trivially to 51.3, from 51.2 in July and the non-manufacturing gauge up to 54.2, from 54.0.
China's total debt stock is high for a country at its stage of development, relative to GDP, but it is sustainable for country with excess savings. China was never going to be a typical EM, where external debtors can trigger a crisis by demanding payment.
China's PMIs show no sign of a recovery yet, but the authorities are sticking to the playbook; they've done the bulk of the stimulus and are waiting for the effects to kick in, but are recognising that they need to make some adjustments.
The 90-day truce in the trade wars between the U.S. and China, brokered on Saturday at the G20 meeting in Argentina, is a big deal for financial markets in the euro area, at least in the near term.
LatAm assets and currencies enjoyed a good start to the week, following the agreement between the U.S. and China to pause the trade war.
China's National People's Congress is set to convene its annual meeting next week.
Expectations that the ECB will respond to weakening growth in China with Additional stimulus mean that survey data will be under particular scrutiny this week. The consensus thinks the Chinese manufacturing PMI--released overnight--will remain weak, but advance PMIs in the Eurozone should confirm that the cyclical recovery remained firm in Q3. We think the composite PMI edged slightly lower to 54.0 in September from 54.3 in August, consistent with real GDP growth of about 0.4% quarter-on-quarter in Q3.
The sell-off in risky assets intensified while we were away, driven by China's decision to loosen its grip on the currency, and looming rate hikes in the U.S. The Chinese move partly shows, we think, the PBoC is uncomfortable pegging to a strengthening dollar amid the unwinding investment boom and weakness in manufacturing.
We believe China is going through a paradigm shift in its economic policy, away from GDPism-- the obsession with GDP growth targeting--to environmentalism, setting widespread environmental targets on everything, from air to water to waste.
China's 2018 property market boomlet let out more air last month.
China is facing a nasty mix of spiking CPI inflation and ongoing PPI deflation.
In recent months we've been thinking more deeply about the themes for the next economic cycle for China, and its impact on the world.
China's real GDP growth officially slowed to 6.5% year-over-year in Q3, from 6.7% in Q2.
China's National People's Congress yesterday laid out its main goals for this year, on the first day of its annual meeting.
China's Caixin services PMI picked up further in November to 51.9 from October's 51.2, but the rebound is merely a correction to the overshoot in September, when the headline dropped sharply.
China's PMIs point to softening activity in Q3. The Caixin services PMI fell to 52.8 in July, from 53.9 in June.
We've always said that China's first weapon, should the trade war escalate, is to do nothing and allow the RMB to depreciate.
China hit back against the Trump-administration tariffs yesterday, targeting Mr. Trump's electorate.
We have argued over the past couple of years that if you want to know what's likely to happen to U.S. manufacturing over the next few months, you should look at China's PMI, rather than the domestic ISM survey, which is beset by huge seasonal adjustment problems.
It is becomingly increasingly clear that the trade war with China is hurting manufacturers in both countries.
The Caixin manufacturing PMI for January was grim, indicating that China's start to the year wasn't as benign as the official surveys suggested.
After years of rapid increase, China appears finally to have stabilised its ratio of private non-financial to GDP ratio.
It's pretty clear now that the President is not a reliable guide to what's actually happening in the China trade war, or what will happen in the future.
China's annual "two sessions" conference is due to start on Sunday, with the economic targets for this year set to be made official over the course of the meetings.
A trade deal with China is in sight. President Trump tweeted Sunday that the planned increase in tariffs on $200B of Chinese imports to 25% from 10%, due March 1, has been deferred--no date was specified-- in light of the "substantial progress" in the talks.
The decline in China's unofficial PMI, which has dropped to a six-year low, signals increasing troubles ahead for U.S. manufacturers selling into China, and U.S. businesses operating in China. This does not mean, though, that the U.S. ISM will immediately fall as low as the Caixin/Markit China index appears to suggest in the next couple of months. Our first chart shows that in recent years the U.S. manufacturing ISM has tended hugely to outperform China's PMI from late spring to late fall, thanks to flawed seasonals.
China's current account surplus was revised down last week to $46.2B in Q2, from $57.0B in the preliminary data, marking a dip from $49.0B in Q1.
Amid all the trade tensions, it's easy to lose sight of the big picture for China.
In yesterday's Monitor, we suggested that China's monetary policy stance is now easing.
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.
China's official real GDP growth likely slowed to 6.0% year-over-year in Q3, from 6.2% in Q2.
China's March money and credit data, published last Friday, showed that conditions continue to tighten, posing a threat to GDP growth this year.
China's M2 growth stabilised in November, at 8.0% year-over-year, matching the October rate.
China's State Administration of Foreign Exchange-- SAFE--yesterday refuted claims, made earlier in the week, that senior government officials had recommended slowing or halting purchases of U.S. Treasuries.
Chile's economic outlook is still clouded, due mostly to the slowdown in China and low copper prices. But the steady, slow increase in the Imacec index, a monthly proxy for GDP, supports our view of a sustained but modest economic recovery this year. The index increased 1.8% year-over-year in November, marginally up from the meagre 1.5% gain in October, but below the 2.2% average seen during Q3 as a whole. November's gain was driven by an increase in services activity, offsetting weakness in mining. Services have been the key engine of growth in the current cycle and likely will remain so in H1.
China's 1.8% downshift in the RMB/dollar reference rate will make only a microscopic difference to the pace of U.S. economic growth and inflation. It will not deter the Fed from raising rates if the domestic labor market continues to tighten, as all the data suggest. The drop in the RMB merely restores the nominal exchange rate to its fall 2012 level, since which time the real exchange rate has risen by some 20%, according to the BIS.
CPI inflation in China surged to a five-month high of 2.3% in March, from 1.5% in February.
China's PPI deflation deepened in August, with prices dropping 0.8% year-over-year, after a 0.3% decline in July.
At the time of writing, Mr. Trump reportedly is finalising plans to impose tariffs of up to 25% on a further $200B of imports from China.
China's Q2 official GDP growth, to be released on Monday, likely slowed to 6.2% year-over-year, from 6.4% in Q1.
China faces three possible macro outcomes over the next few years. First, the economy could pull off an active transition to consumer-led growth. Second, it could gradually slide into Japan-style growth and inflation, with government debt spiralling up. Third, it could face a full blown debt crisis, where the authorities lose control and China drags the global economy down too
China's CPI inflation rose to 2.1% in July, from 1.9% in June.
Data over the weekend revealed a further slowdown in China's CPI inflation, to 1.5% in February, from 1.7% in January.
China's money and credit numbers were once again unspectacular in August. M2 growth edged up to 8.2% year-over-year, from 8.1% in July.
Next week is a big one for China. The five yearly Party Congress opens on Wednesday, and on Thursday, the monthly raft of activity data is published, along with Q3 GDP.
China's PPI inflation has been trending down since early 2017.
We have downgraded our 2019 and 2020 China GDP forecasts on previous occasions because monetary conditions have been surprisingly unresponsive to lower short-term rates.
We have recently looked at China's capacity to grow its way out of the debt overhang--see here--and whether last year's deleveraging can be sustained; see here.
The 2.4% depreciation of the yuan over the past month has not been quite as big as the 3.0% move on August 11, and it's not a big enough shift to make a material difference to aggregate U.S. export performance. Market nerves, then, seem to us to be largely a reflection of fear of what might come next. China's real effective exchange rate--the trade-weighted index adjusted for relative inflation rates--has risen relentlessly over the past decade, and to restore competitiveness to, say, its 2011 level, would require a 20%-plus devaluation.
China's official manufacturing PMI implies a modest gain in momentum in Q2, at 51.4, compared with 51.0 on average in Q1.
Since the protests in Hong Kong began, we've become increasingly convinced that China is backing away from a comprehensive trade deal with Mr. Trump.
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%.
China's official and Caixin manufacturing PMIs have diverged in the last couple of months.
China's FX reserves were relatively stable in March, with the minimal increase driven by currency valuation effects.
China's FX reserves were little changed in June, at $3,112B.
China's August foreign trade data were nasty, on the face of it, with exports falling 1.0% year-over- year, after the 3.3% increase in July.
China's PMIs surprised the consensus forecasts to the downside for February. The manufacturing PMI dropped to 50.3 in February from 51.3 in January, while the non-manufacturing PMI fell to 54.4 from 55.3 in January.
China's trade surplus bounced back strongly in May, rising to $40.1B on our adjustment, from $35.7B previously.
Trade talks between the U.S. and China officially resumed this week, with the first face-to-face meeting of the main negotiators taking place yesterday in Shanghai.
China's PPI inflation rose again in June, to 4.7%, from 4.1% in May.
China's manufacturing PMIs have softened in Q4. Indeed, we think the indices understate the slowdown in real GDP growth in Q4, as anti-pollution curbs were implemented. More positively, though, real GDP growth should rebound in Q1 as these measures are loosened.
China's trade surplus appears modestly to be rebuilding, edging up to $34.0B in November, on our adjustment, from $33.3B in October. The recent trough was $24.B, in March.
China's official manufacturing PMI was little changed in January, ticking up to 49.5, from 49.4 in December, with the output and new orders sub-indices largely stable.
China's M2 growth slowed to 8.2% year-over-year in August, from 8.5% in July
China's October activity data showed signs of the infrastructure stimulus machine sputtering into life. Consensus expectations appear to hold out for a continuation into November, but we think the numbers will be disappointing.
It has been clear for some months now that China's housing market is refusing to quit, and July's data showed the phoenix rising strongly from the ashes.
China's December foreign trade numbers were unpleasant, with both exports and imports falling year-over-year, after rising, albeit slowly in November.
The headlines of China's main activity gauges paint a dreary picture of the start of the year, implying a slowdown.
China's industrial production grew at an annualised 7.2% rate by volume in Q1, according to our estimates, up from an average 5.9% rate in the six quar ters through mid-2016.
Yesterday, China finally retaliated against Mr. Trump's Friday tariff hikes, promising to increase tariffs on around $60B-worth of U.S. goods.
China's monetary conditions remain tight, pointing to a substantial downtrend in GDP growth this year and next.
Our view on the trade data last week was that U.S. tariff hikes have caused minimal damage, so far. China's tariff increases on imports to date have resulted in stockpiling, with little evidence in the CPI of any inflationary pressure.
The New York Times called the China trade agreement reached Friday "half a deal", but that's absurdly generous.
China's September imports missed expectations, but commentators and markets tend to focus on the year-over-year numbers.
Chief Asia Economist Freya Beamish discussing China.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, discusses how China's economy can influence a U.S. trade agreement and looks forward to U.S.-European trade talks.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, joins 'Squawk Box' to discuss how the tensions between the U.S., Iran and China might impact the economy.
Nothing is done until it's done, and, in the case of Sino-U.S. trade talks, even if a deal is reached, the new normal is that tensions will be bubbling in the background.
Capital outflow pressure is slowly rebuilding.
In one line: Just a valuations drag; net capital outflows up modestly
S&P downgraded Chinese government debt last week to A+ from AA- yesterday, following a Moody's downgrade last May.
Easing isn't going exactly to plan... a trade deal would really help
In one line: Confidence to borrow is lacking, but M1 growth pick-up is a welcome sign.
In one line: That's a bit better, but a rate cut remains more likely than not.
In one line: A rate cut is needed.
In one line: Earth to Trump, the PBoC isn't devaluing the yuan
In one line: Some improvement in retails sales, which now face renewed headwinds; infrastructure growth driver sputters.
Over the next 18 months we expect to see interest rates break out further on the upside. Initially, we expect developed market growth to be resilient to that.
Fears of a Chinese hard landing have roiled financial and commodity markets this past year and have constrained the economic recovery of major raw material exporters in LatAm.
Korean real GDP growth slumped in Q2 to 0.6% quarter-on-quarter, from 1.1% in Q1, as both the main drivers--construction and exports--ran out of steam simultaneously. Construction investment grew by 1.0%, sharply slower than the 6.8% in Q1 and contributing just 0.2% to GDP growth in Q2, a turnaround from the 1.1 percentage point contribution in the first quarter.
In yesterday's Monitor, we laid out how conditions last year were conducive to Chinese deleveraging, and how the debt ratio fell for the first time since the financial crisis.
So that happened.
The Caixin PMI likely remained stable or even strengthened in January. The December jump was driven by the forward-looking components, with both the new export orders and total new orders indices picking up.
This Monitor provides a summary of the main points of interest over the two weeks we were out. The Chinese Caixin manufacturing PMI, published last Friday, confounded expectations for a modest fall, rising to 51.6 in August from 51.1 in July.
Following the much-anticipated meeting between Presidents Xi and Trump over the weekend, the U.S. will now leave existing tariffs on $200B of Chinese goods at 10%, rather than increasing the rate to 25% in January, as previously slated.
Chinese industrial profits continue to surge, rising 27.7% year-over-year in September, up from 24.0% in August.
In yesterday's Monitor, we outlined how the government's plans to allow more migrants to register in cities could help counterbalance the effects of aging and put a floor under medium-term property prices.
Data last Friday showed Japan's labour market trends deteriorating.
One of the main reasons we expect the Reserve Bank of India to roll back at least one of this year's rate cuts before the end of the year is the likely further rise in food inflation.
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.
In yesterday's Monitor we set out how government will have to prepare for an increase in debt issuance both to bring debts on-balance sheet and also to issue new debt as government is obliged to run deficits while the corporate sector deleverages.
A growing number of economists have marked down their forecasts for Chinese growth next year to below the critical 6% year-over-year rate, required to ensure that the authorities meet their implicit medium- term growth targets.
The Caixin services PMI leapt to an eyebrow- raising 53.8 in November, from 50.8 in October.
Chilean GDP growth hit bottom in August, but activity is now picking up and will gather speed over the coming quarters. The tailwinds from lower oil prices and fiscal stimulus will soon be visible in the activity data.
The PBoC cut the Reserve Requirement Ratio late on Friday--as signalled at last Wednesday's State Council meeting--by 0.5 percentage points, to be implemented from September 16.
We highlighted in previous reports that the Chinese authorities appear to be making a serious pivot from GDPism--the rigid targeting of real GDP growth-- toward environmentalism, with pollution targets now taking centre stage.
Eurozone manufacturing is showing signs of stabilisation. Final PMI data showed the headline gauge falling trivially to 52.4 in July from 52.5 in June, slightly above the initial estimate of 52.2. New orders slowed, though, with companies reporting weakness in export business amid firm domestic demand.
We held our breath this month.
The return of Chinese PPI inflation in 2016 helped to stabilise equities after the boom-bust of the previous year.
Official, real GDP growth was low in Q1, at 1.4% quarter-on-quarter, down from 1.6% in Q4.
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%.
Japanese domestic demand probably strengthened in Q2, with both private consumption and fixed investment accelerating. Trade and inventories are the key swing components for GDP growth.
The big difference in this round of stimulus is in the complete lack of easing on the shadow banking side.
Credit to the Chinese authorities for sticking it out with the marginal approach to easing for so long... at least two quarters.
The National People's Congress yesterday announced a sweeping restructuring of Party/State architecture.
Chinese monetary conditions remain tight. Systemic tightening through higher interest rates last year is playing a role, but intensified and ever- more public regulatory enforcement is becoming the primary driver of tightening credit conditions for businesses.
The imposition of 10% tariffs on $200B-worth of Chinese imports is not a serious threat either to U.S. economic growth--the tariffs amount to 0.1% of GDP--or inflation.
Mexico's inflation remains the envy of LatAm, having consistently outperformed the rest of the region this year. Headline inflation slowed marginally to 2.5% in October, a record low and below the middle of Banxico's target, 2-to-4%, for the sixth straight month. The annual core rate increased marginally to 2.5% in October from 2.4% in September, but it remains below the target and its underlying trend is inching up only at a very slow pace. We expect it to remain subdued, closing the year around 2.7% year-over-year. Next year it will gradually increase, but will stay below 3.5% during the first half of 2016, given the lack of demand pressures and the ample output gap.
The PBoC will find itself between a rock and a hard place in the coming months, as CPI inflation creeps further up towards its 3% target but PPI deflation deepens.
Chinese exports grew by just 5.5% in dollar terms year-over-year in August, down from 7.2% in July. Export growth continues to trend down, with a rise of just 0.2% in RMB terms in the three months to August compared to the previous three months, significantly slower than the 4.8% jump at the p eak in January.
Chinese monetary conditions show signs of a temporary stabilisation. M2 growth picked up to 9.1% year-over-year in November from 8.8% in October, though largely as a correction for understated growth in recent months.
We wrote last month about how the Caixin services PMI appeared to be missing the deterioration in several key services subsectors.
Chinese data still are in the midst of Lunar New Year-related noise, so take February's PMIs with a pinch of salt, even though they ostensibly are adjusted for seasonal effects.
Last week, the Chinese authorities were out in force, talking up the economy and markets, and bearing measures to support private firms.
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.
Chinese M1 growth has slowed sharply in the past year from the 25% rates prevailing in the first half of last year. Growth appeared to rebound in July to 15.3% year-over-year, from 15.0% in June. But the rebound looks erratic. Instead, growth has probably slowed slightly less sharply in 2017 than the official data suggest, but the downtrend continues.
The Chinese authorities have been out in force in the last few days, aiming to reassure markets and the populace that they are ready and able to support the economy, after abysmal trade data on Monday.
The Eurozone's external surplus remains solid, despite hitting a wall in August. The seasonally adjusted current account surplus fell to €17.7B in August from €25.6B in July, due to a €7B fall in the goods component. A 5.2% month-to-month collapse in German exports -- the biggest fall since 2009 -- was the key driver, but we expect a rebound next month. The 12-month trend in the Eurozone's external surplus continues to edge higher, rising to 3% of GDP up from 2.1% in August last year.
For countries with developed non-banking funding channels, narrow money isn't necessarily a good predictor of GDP growth.
The PBoC's reformed one-year Loan Prime Rate was published yesterday at 4.25%, compared with 4.31% on the previous LPR, and below the benchmark lending rate, 4.35%.
The PBoC's quarterly monetary policy report seemed relatively sanguine on the question of PPI deflation, attributing it mainly to base effects--not entirely fairly--and suggesting that inflation will soon return.
After the strong Philly Fed survey was released last week, we argued that the regional economy likely was outperforming because of its relatively low dependence on exports, making it less vulnerable to the trade war.
In his opening speech at the Party Congress, President Xi received warm applause for his comment that houses are "for living in, not for speculation".
Two major themes emerged from the Chinese Party Congress last week, namely, further opening of the financial sector to foreigners, and the threat of a Minsky moment.
Korean 20-day exports are volatile and often miss the mark with respect to the full-month print. But these data offer the month's first look at Asian trade, and we often find value in these early signs.
Chinese PPI inflation dropped again in March to 3.1%, from February's 3.7%. Commodities were the driver, but base effects should mean the headline rate won't fall further in coming months; it is more likely to rise in Q2.
The PBoC probably will start soon to run modestly easier monetary policy, but conditions have been tightening consistently for over a year, so a slowdown in economic growth likely is already locked in.
We had expected the batch of Chinese data released at the end of last week to disappoint.
Chinese monetary policymakers can rely on several different instruments to affect market and broad liquidity, ranging from various forms of open market operations to interest rates to FX intervention. The tool kit is constantly changing as the PBoC refines its operations.
The Chinese trade surplus was reasonably stable on our seasonal adjustment in September, falling to $27.5B from $29.7B in August.
Chinese real GDP growth reportedly edged down to 6.7% year-over-year in Q2, from 6.8% in Q1.
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.
At the end of last year, after October's Party Congress, the Chinese authorities came out with significant new directives and regulations on an almost weekly basis.
Chinese prices largely moved in line with our expectations in September, according to yesterday's data.
Chinese policymakers' calls to abandon the obsession with high GDP growth--GDPism--are multiplying.
The PBoC and Ministry of Finance have been locked in a relatively public debate recently over which body should shoulder the burden of stimulating the economy as growth slows and trade tensions take their toll.
The re-emergence of Chinese PPI inflation in 2016 was instrumental in stabilising equities after the 2015 bubble burst.
China's manufacturing PMI edged up in July. Services in China are finally starting to feel the pinch. Korean IP looks poised for a stronger increase in July, notwithstanding Japan's export curbs.
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.
BoJ remains in an alternate reality in order to avoid a rate cut, underlining its concerns over damage to the financial sector. Chances of a serious PBoC blunder are rising. No "Phase 1" sentiment lift for Chinese manufacturers. A sharp fall in China's official services gauge was due. This probably is as good as it'll get for Japanese industrial production. Korean industrial production remains volatile, but the trend is decisively up.
China's manufacturing PMIs suggest the private sector is recovering ahead of SoEs. China's non-manufacturing PMI again masks construction/services cross currents. Japan's industrial production continues to languish. OK so now Japanese households are front-loading spending. Korean IP corrects from the bumper July; the momentum from the Q2 recovery is waning.
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.
China's manufacturing PMIs turn less grim, but look unsupported, for now. China's non-manufacturing PMI receives a one-off singles day boost. Japan's capex data suggests Q3 upgrade. Net trade is shaping up to be a drag on Q4 GDP, as Korean exports remained weak in November. Korea's exit from deflation is complete, thanks largely to more favourable base effects. Korea's PMI jumps in November... and that's before the likely sentiment boost from normalising ties with Japan.
China's manufacturing PMIs remain in the downdraft
China's rate corridor cut was enough to bring down the LPR
China's Caixin gauges are picking up but both are volatile
China's meagre cut is not enough. Broad slowdown in Chinese services activity continues. Japan's rate of QE is low but roughly stable.
Japan's Q2 GDP growth was not all it's cracked up to be. M2 growth in Japan inched up in July, but trends at the margin have rolled over. China's July inflation uptick shows that the swine flu outbreak is nowhere near under control. China officially enters PPI deflation... but it shouldn't last beyond Q3.
Not giving up on China's stimulus yet. China's PPI inflation will head higher this month. China's CPI inflation will peak soon.
Japan's capex on a much weaker footing than original data showed. Japan's current account surplus will continue to face cross-currents. China's export weakness is not over yet. China FX reserves spared as intervention goes on behind the scenes.
Japan's wage growth rebounded because August is not a bonus month. Japan's current account maintains stability as trade balance cross currents persist. China's services PMI report contains some positive details but we aren't convinced. The rebuilding of Korea's current account surplus will soon lose momentum.
China's real imports showing signs of stabilisation? Japan's regular wages staging a comeback?
China is not taking any chances with the RMB ahead of its 70th anniversary
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.
Valuation effects boost China's June FX reserves. Japan's currency account surplus unlikely to fall further. Japan's core machine orders should shake policymakers' conviction in Capex resilience.
Both China and U.S. look for good will on opposite side and find none; political and economic constraints will soon kick in. BoJ QE remains neutralised by negative yields
China's new Loan Prime Rate amounts to a rate cut, but supply-side banking strains limit its efficacy. Chinese slowdown and pre-tax front-loading keeps Japan's trade balance in deficit.
CPI inflation in China is nearing a peak, with pork prices starting to stabilise. November's data confirm that PPI deflation in China has bottomed out. Japan's M2 growth looks exposed to a downward revision. Japan's machine tool orders refuse to turn.
CPI inflation in China punches through the 3% target. PPI deflation in China should soon bottom out. Japan's rugby boost small in the face of pre-tax front loading. September machinery orders data seriously undermines Japan's "resilient capex" story.
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.
Japan's wage picture has turned ugly for workers, even accounting for sampling distortions. China's current account surplus increase is hard to fathom.
China's trade surplus rejoins previous uptrend. China's FX reserves; strong valuations boost outweighs sales. Japan's Q1 GDP gets an upgrade, at the expense of Q2. Japan's current account surplus.
Tankan reinforces our impression of a nasty Q2. China's manufacturing PMIs show why the authorities are eager for a trade deal. China's non-manufacturing sector holds steady for now. Korean exports disappointed in June, but this probably is as bad as it will get. Ignore Korea's volatile PMI readings... sentiment is improving gradually.
Japan GDP now shows more of the tax distortions. Japan's current account surplus is likely to see another downshift. Chinese imports boosted soybeans and circuits. China's FX reserves slide in November, as Phase One talks enter crunch time.
Expect Chinese PPI deflation in the second half. China's CPI inflation faces non-core cross currents; services inflation still slowing. Unemployment in Korea held steady in June; the BoK will be chuffed about improving job growth. PPI deflation in Japan will persist until the end of the year.
Mr. Trump's partial U-turn on September tariffs shows some semblance of an understanding of reality...that's a good thing. China's industrial production crushes June hopes of a swift recovery. Chinese consumers struggle. Chinese FAI: the infrastructure industry growth slowdown is especially worrying. Japan's strong core machine orders rebound in June probably faded in recent weeks. Korea's jobless rate will soon creep back up after remaining steady in July.
Slowing FAI growth underscores the urgency for more PBoC easing October was painful and the slowdown in Chinese IP growth is far from over and no, households in China won't come to the economy's rescue. Japan sneaks in a tax hike; GDP data unfazed. Japan's tertiary index jars with the GDP data.
China's house price rises should continue slowing
China's housing recovery faces headwinds.
Chinese quarterly GDP growth was dire. China's industrial production was due an upward correction. China's retail sales data suggest that households took a Q3 battering. China's FAI growth shows no signs of turning. Japan's CPI avoids deflation.
China's industrial production growth downtrend worsens. China's retail sales dragged down by autos but boosted as people spend more at home. China's fixed asset investment growth slows despite greater support from infrastructure.
PPI inflation in Japan likely has peaked... expect steeper drops in coming months. China's property recovery is spreading to more cities.
China's homes market faces fundamental headwinds.
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.
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.
The imposition of 25% tariffs on $50B-worth of imports from China, announced Friday, had been clearly flagged in media reports over the previous couple of weeks.
The apparent thaw in the U.S.-China trade dispute is great news for LatAm, particularly for the Andean economies, which are highly dependent on commodity prices and the health of the world's two largest economies
China's October foreign trade headlines beat expectations, but the year-over-year numbers remain grim, with imports falling 6.4%, only a modest improvement from the 8.5% tumble in September.
Yesterday's price data for China showed continued declines in both CPI and PPI inflation.
Monetary policy loosening over the last year implies that China's M1 growth already should be picking up.
If the Phase One trade deal with China is completed, and is accompanied by a significant tariff roll-back, we'll revise up our growth forecasts, but we'll probably lower our near-term inflation forecasts, assuming that the tariff reductions are focused on consumer goods.
China's M2 growth surprised on the upside in July, rising to 8.5% year-over-year, from 8.0% in June.
In her inaugural Monitor, our Chief Asia Economist Freya Beamish plots three scenarios for the Chinese economy. The best-case scenario is that China makes a smooth transition to consumer-led growth.
Today's producer price report for March likely will show a further increase in core goods inflation, which already has risen to 2.0% in February, from 0.2% in the same month last year. The acceleration in the U.S. PPI follows the even more dramatic surge in China's PPI for manufactured goods, which jumped to 6.6% year-over-year in February, from minus 4.9% a year ago. China's PPI is much more sensitive to commodity prices than the U.S. series, so there's very little chance that core U.S. PPI goods inflation will rise to anything like this rate.
President Xi Jinping yesterday reiterated China's commitment to reform and the opening of its economy at a highly-anticipated speech at the Boao forum.
The likely dip in the headline NFIB index of small business sentiment and activity today will tell us that business owners are unhappy and nervous about the potential impact of the latest China tariffs on their sales and profits.
Investors are increasingly anxious that an intentional sharp devaluation of the renminbi, aiming to combat China's slowdown, might lead to prolonged deflation in the West, particularly in an economy as open as the U.K.
The worst is over for manufacturers, we think. The three major forces depressing activity in the sector last year--namely, the strong dollar, the slowdown in China, and the collapse in capital spending in the oil sector--will be much less powerful this year.
The agreement between Presidents Trump and Xi at the G20 is a deferment of disaster rather than a fundamental rebuilding of the trading relationship between the U.S. and China.
The Chancellor argued in a speech on Thursday that the U.K.'s economic recovery is threatened by a "dangerous cocktail" of overseas risks, including slowing growth in the BRICs--Brazil, Russia, India, and China--and escalating tensions in the Middle East. Exports are set to struggle this year, but the strong pound, not weakness in emerging markets, will be the main drag.
China's official manufacturing PMI, published on Monday, implies the industrial complex has maintained momentum going into Q3. The official manufacturing PMI moderated slightly to 51.4 in July from 51.7 in June. The July reading was unchanged from the average in Q2 and only modestly down from the 51.6 in Q1.
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.
For some time now we have argued that the forces which have depressed business capex--the collapse in oil prices, the strong dollar, and slower growth in China--are now fading, and will soon become neutral at worst. As these forces dissipate, the year-over-year rate of growth of capex will revert to the prior trend, about 4-to-6%. We have made this point in the context of our forecast of faster GDP growth, but it also matters if you're thinking about the likely performance of the stock market.
More evidence indicating that the recovery in global industrial activity is underway and gaining momentum- has poured in. In particular, trade data from China, one of LatAm's biggest trading partners, was stronger than the market expected last month. Both commodity import and export volumes increased sharply in January, and this suggests better economic conditions for China's key trading partners.
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.
Economic data are telling a story of a strengthening recovery, but downbeat investor sentiment points to a more difficult environment. The headline ZEW expectations index fell to a ten-month low of 12.1 in September, from 25.0 in August. This takes sentiment back to levels not seen before QE was announced, highlighting the increasing worry that deflation risks and low growth in China will derail the recovery. We don't agree, but we can't be sure the ECB thinks the same, and risks of additional stimulus this year have increased.
Industrial production growth in China appears to be stabilising, following the slowdown in Q2.
Official industrial production growth in China plunged to 5.4% year-over-year in April, from 8.5% in March.
China's property market looks to be turning the corner, going by the stronger-than-expected March report.
Japan's PPI inflation likely has peaked, with commodities still in the driving seat. Manufactured goods price inflation will soon start to slow, following the downshift in China's numbers.
Take China's data dump last Friday with a pinch of salt, as Chinese New Year--CNY-- effects look to have distorted January's money and price data.
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.
China's GDP data--to be published on Monday-- are likely to report that growth slowed to 1.4% quarter-on-quarter in Q4, from 1.6% in Q3. A 1.4% increase would match the series low of Q1 2016.
The ramifications of continued disappointing Asian growth, particularly in China, and its impact on global manufacturing, are especially hard-felt in LatAm.
We can see no hard evidence, yet, that the expanding trade war with China and other U.S. trading partners is hitting business investment.
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.
In our Monitor of January 10, we argued that the market turmoil in Q4 was largely driven by the U.S.- China trade war, and that a resolution--which we expect by the spring, at the latest--would trigger a substantial easing of financial conditions.
China's import growth in dollar terms slowed sharply to 4.5% year-over-year in December from 17.7% in November, significantly below the consensus forecast.
China's main activity data for October disappointed across the board, strengthening our conviction that the PBoC probably isn't quite done with easing this year.
Few Eurozone investors are going blindly to accept the rosy premise of last week's relief rally in equities that both a Brexit and a U.S-China trade deal are now, suddenly, and miraculously, within touching distance. But they're allowed to hope, nonetheless.
China's money and credit data released last Friday reaffirm our impression that the tightening has gone too far.
China's September trade numbers show that, far from reducing the surplus with the U.S., the trade wars so far have pushed it up to a new record.
PBoC holding still in the wake of Fed rate cut. China's Caixin manufacturing PMI was due a bounce. Inflation in Korea will soon take another nosedive, due largely to unfavourable non-core base effects. Korea's export slump turned less bad in July. Korea's two main manufacturing surveys aren't talking to each other.
China's unadjusted trade surplus collapsed in February, to just $4.1B, from $39.2B in January.
Chile's economy remains under pressure, at least temporarily. After signs of recovery in Q1, activity deteriorated in Q2 and at the start of the third quarter. The sluggish global economy--especially China, Chile's main trading partner--is exacerbating the domestic slowdown, hit by low business and consumer confidence.
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.
The services sector in China is notoriously difficult to track, with the major aggregate statistics published only on a quarterly or even annual basis.
The trade war with China is not big enough or bad enough alone to push the U.S. economy into recession.
The main thing on investors' minds is how much more pain the global economy has to take as a result of China's slowdown.
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.
China's abysmal industrial profits data for October underscore why the chances of less- timid monetary easing are rising rapidly.
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.
Industrial profits in China dropped 3.7% year-over- year in April, after surging 13.9% in March, according to the officially reported data.
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.
The recent spate of manufacturing business survey indices from Korea show that sentiment is deteriorating in the wake of its trade spat with Japan and the re-intensification of U.S.-China tensions.
Chile's economic outlook is still positive, but clouds have been gradually gathering since mid-year, due mostly to the slowdown in China, low copper prices and falling consumer and business confidence.
On the face of it, BoJ policy seems to be to change none of the settings and let things unfold, hoping that the trade war doesn't escalate, that China's recovery gets underway soon, and that semiconductor sales pick up in the second half.
Barely a day passes now without an email asking about "evidence" that the U.S. economy is slowing or even heading into recession. The usual factors cited are the elevated headline inventory-to-sales ratio, weak manufacturing activity, slowing earnings growth and the hit from weaker growth in China. We addressed these specific issues in the Monitor last week, on the 23rd--you can download it from our website--but the alternative approach to the end-of-the-world-is-nigh view is via the labor market.
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.
China's Caixin manufacturing PMI edged down to 50.6 in August, from July's 50.8. This clashed with the increase in the official PMI, though the moves in both indexes were modest.
If the plunge in the stock market last week, and especially Friday, was a entirely a reaction to the slowdown in China and its perceived impact on other emerging economies, then it was an over-reaction. Exports to China account for just 0.7% of U.S. GDP; exports to all emerging markets account for 2.1%. So, even a 25% plunge in exports to these economies-- comparable to the meltdown seen as global trade collapsed after the financial crisis--would subtract only 0.5% from U.S. growth over a full year, gross.
President Trump made official his plan to impose tariffs on up to $60B of annual imports from China, as well as limitations on Chinese investments in the U.S.
The end of China's Party Congress can feel like an endless exercise in reading the tea leaves.
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%.
It probably would be wise to view the increase in the ISM manufacturing index in December with a degree of skepticism. The index is supposed to record only hard activity, but we can't help but wonder if some of the euphoria evident in surveys of consumers' sentiment has leaked into responses to the ISM. That said, the jump in the key new orders index-- which tends to lead the other components--looked to be overdue, relative to the strength of the import component of China's PMI.
The economic slowdown in China is old news for Eurozone investors.
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.
Yesterday's announcement that the administration plans to imposes tariffs worth about $60B per year -- thatìs 0.3% of GDP -- on an array of imports of consumer goods from China is a serious escalation.
China has undoubtedly been through a credit tightening, commonly explained as the PBoC attempting to engineer a squeeze, to spur on corporate deleveraging.
China's capex growth faces renewed challenges this year, as PPI inflation slows.
The meta game between China and Mr. Trump started as soon as he had any possibility of winning the election in 2016.
The woes of the manufacturing sector are likely to intensify over the next few months, even if--as we expect--overall economic growth picks up. The core problem is the strong dollar, which is hammering exporters, as our first chart shows. The slowdown in growth in China and other emerging markets is hurting too, but this is part of the reason why the dollar is strong in the first place.
On the official gauge, China's real GDP growth fell minimally to 6.8% year-on-year in Q3, from 6.9% in Q2. Growth edged down to 1.7% quarter-on-quarter from an upwardly revised 1.8% in 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.
We were happy to see the small increase in the March ISM manufacturing index yesterday, following better news from China's PMIs, but none of these reports constitute definitive evidence that the manufacturing slowdown is over.
The People's Bank of China cut its seven-day reverse-repo rate yesterday, to 2.50% from 2.55%.
We aren't convinced that China's recovery is in train just yet.
China's official PMIs paint a picture of robust momentum going into 2018 but we find this difficult to reconcile with the other data.
We anticipated that the G20 meeting at Osaka over last weekend would be a potentially important mark of thawing relations between China and the U.S., with the hotly awaited meeting between Messrs. Xi and Trump.
China's manufacturing PMIs put in a better performance in November, with the official gauge ticking up to 50.2 in November, from 49.3 in October, and the Caixin measure little changed, at 51.8, up from 51.7.
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.
China's investment slowdown went from worrying to frightening in October. Last week's fixed asset investment ex-rural numbers showed that year- to-date spending grew by 5.2% year-over-year in October, marking a further slowdown from 5.4% in the year to September.
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."
The FOMC minutes showed both sides of the hike debate are digging in their heels. As the doves are a majority--rates haven't been hiked--the tone of the minutes is, well, a bit do vish. But don't let that detract from the key point that, "Most participants continued to anticipate that, based on their assessment of current economic conditions and their outlook for economic activity, the labor market, and inflation, the conditions for policy firming had been met or would likely be met by the end of the year." Confidence in this view has diminished among "some" participants, however, worried about the impact of the strong dollar, falling stock prices and weaker growth in China on U.S. net exports and inflation.
A big picture approach to the China trade war, from the perspective of Mr. Trump, is reasonably positive. The president very clearly wants to be re-elected, and he knows that his chances are better if the economy and the stock market are in good shape.
China was in lockdown ahead of the 70th Anniversary last week, as is typical around important political events.
Mr. Trump laid out plans yesterday to impose a new 10% tariff on a further $200B-worth of imports from China, to be levied from next week.
The truce in trade relations between the U.S. and China, agreed at the G20, is good news for LatAm, at least for now.
Stories of Chinese ghost cities are plentiful and alarming. The aggregate data present a startling picture. Between 2012 and 2015, China started around six billion square meters of residential floorspace but sold only around five billion.
The external environment was relatively benign for China in July. The euro and yen appreciated as markets began to question how long policy can remain on their current emergency settings.
China's authorities recognised, around the middle of this year, that activity was slowing and that monetary conditions had become overly tight.
Markets clearly love the idea that the "Phase One" trade deal with China will be signed soon, at a location apparently still subject to haggling between the parties.
China's FX reserves rose to $3119B in November from $3109B in October. But the increase is explained by simultaneous yen, euro and sterling strength, which raises the dollar value of assets denominated in these currencies.
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.
China's official, unadjusted trade data for October grabbed the headlines, as they look great at first glance.
In yesterday's Monitor, we laid out the prime causes of China's weekend announcement, cutting the reserve requirement ratio.
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.
China's Recovery Tentatively Pending *Japan is Weaker than it Looks *The Worst is Over in Korea *Expect an RBI U-Turn
Japanese real Q2 GDP growth surprised analysts, increasing sharply to a quarterly annualised rate of 4.0%, up from 1.0% in Q1 and much higher than the consensus, 2.5%. But its no coincidence that the jump in Japanese growth follows strong growth in China in Q1.
China's monetary and credit data--released yesterday, two days behind schedule--suggest that monetary conditions are loosening at the margin, while credit conditions have remained stable, but easier than in the first half.
Chief U.S. Economist Ian Shepherdson on U.S.-China Trade Wars
China's export growth surged to 44.5% year-over- year in February, from 11.2% in January. The timing of this news is unfortunate.
Freya Beamish, Chief Asia economist at Pantheon Macroeconomics, discussing US-China Trade Talks with Philippa Thomas on BBC World
China's trade surplus has been trending down in the last two years.
China's FX reserves rose to $3,062B in November, from $3,053B on October. On the face of it, the increase is surprising.
China's July activity data pretty categorically wiped out any false hopes of a V-shaped recovery, after the June spike.
China's FX reserves continued to climb in December, reaching $3.140T, up from $3.119T in November, with currency valuation effects negligible.
China's September activity data, released at the end of last week, back up our claim that GDP growth weakened in Q3, on a quarter-on-quarter basis.
China announced the appointment of key political and financial jobs yesterday.
China's official manufacturing PMI slipped in June, but the overall picture for Q2 is sound despite the uncertainty posed by rising trade tensions with the U.S.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, discusses U.S.-China trade talks and the domestic state of the Chinese economy. She speaks with Francine Lacqua on Tom Keene on "Bloomberg Surveillance."
• China's economy remains weak after more than a year of easing. • Are the authorities willing to see GDP growth slow further? • Are they making a big policy blunder, running the economy too tight?
Chief U.S. Economist Ian Shepherdson on the U.S. China-Trade War
Chief U.S. Economist Ian Shepherdson on the U.S. Trade War with China
Are there any signs of a Chinese recovery yet? Freya Beamish discusses
Isabelle Mateos Y Lago, official institutions group deputy head at BlackRock, and Freya Beamish, chief Asia economist at Pantheon Macroeconomics, discuss U.S.-China trade concerns and their impact on investing. They speak with Lisa Abramowicz on "Bloomberg Surveillance."
All eyes will be on the core PCE deflator data today, in the wake of the upside surprise in the January core CPI, reported last week. The numbers do not move perfectly together each month, but a 0.2% increase in the core deflator is a solid bet, with an outside chance of an outsized 0.3% jump.
Japan's CPI inflation has risen sharply in recent months, driven by non-core elements. The headline faces cross-currents in coming months, but should remain high, posing problems for BoJ policy.
After many years in which the phrase "twin deficits" was never mentioned, suddenly it is the explanation of choice for the weakening of the dollar and the sudden increase in real Treasury yields since the turn of the year, shortly after the tax cut bill passed Congress.
The economy's resilience in the first quarter of this year, in the midst of heightened Brexit uncertainty, can be attributed partly to a boost from no-deal Brexit precautionary stockpiling.
The ECB made no changes to policy yesterday, leaving its key refinancing and deposit rates unchanged, at 0.00% and -0.5%, and confirmed that it will restart QE in November at €20B per month.
Yesterday's IFO report reinforced the message from the PMIs that the Eurozone economy stumbled slightly at the beginning of the first quarter. The headline business climate index fell to an 11-month low of 107.3 in January, from a revised 108.6 in December, hit mainly by a drop in the expectations component. Intensified market volatility and worries over further weakness in the Chinese economy likely were the main drivers. Last week's dovish message from Mr. Draghi, however, came after the survey's cut-off date, leaving us cautiously optimistic for a rebound next month.
Japan's September PMI report showed some slippage, but overall, it suggests that GDP growth in Q3 was a little stronger than the 0.3% quarter- on-quarter rate in Q2.
After three days of jaw-dropping actions from President Trump, the position seems to be this: The U.S. will apply 15% tariffs on imported Chinese consumer goods, rather than the previously promised 10%, effective in two stages on September 1 and December 15.
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.
Everyone needs to take a deep breath: This is not 1930, and Smoot-Hawley all over again.
Meetings are a nice way to stress test our base case stories and gauge what questions are important for clients.
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 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.
We're nudging down our estimate of Q2 GDP growth, due today, by 0.3 percentage points to 1.8%, in the wake of yesterday's array of data.
Japan's CPI inflation was stable at 0.2% in October, despite the sales tax hike, thanks to a combination of offsetting measures from the government and a deepening of energy deflation.
Korean GDP unexpectedly declined in Q4, for the first time since the financial crisis, falling 0.2% quarter-on-quarter after a 1.5% jump in Q3.
The weaker is the economy over the next few months, the more likely it is that Mr. Trump blinks and removes some--perhaps even all--the tariffs on Chinese imports.
Chile's Q2 GDP report, released yesterday, confirmed that the economy gathered strength in the first half of the year, consolidating a strong recovery that started in Q3 2017.
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.
Last week's data added yet more weight to our view that manufacturing is in deep trouble, and that the bottom has not yet been reached.
Friday's economic data in Germany left markets with a confused picture of the Eurozone's largest economy.
Weakness in risk assets turned into panic yesterday with the Eurostoxx falling over 6%, taking the accumulated decline to 19% since the beginning of August, and volatility hitting a three-year high. Market crashes of this kind are usually followed by a period of violent ups and downs, and we expect volatile trading in coming weeks. Following an extended bull market in risk assets, the key question investors will be asking is whether the economic cycle is turning.
If you wanted to be charitable, you could argue that the downturn in the rate of growth of core durable goods orders in recent months has not been as bad as implied by the ISM manufacturing survey.
PMI data yesterday provided some relief to anxious investors, despite a modest drop in the headline. The composite PMI in the Eurozone fell to 53.9 in September from 54.3 in August, driven by slight falls in both manufacturing and services. Assuming no major changes to the advance September reading--usually a fair bet--the PMI rose marginally in Q3, pointing to a continuation of the cyclical recovery.
We are revising our forecast for Fed action this year, taking out two of the four hikes we had previously expected. We now look for the Fed to hike by 25bp in September and December, so the funds rate ends the year at 0.875%. The Fed's current forecast is also 0.875%, but the fed funds future shows 0.6%.
Korean real GDP growth--to be published on Thursday--should bounce back in Q1 to 1.0% quarter-on-quarter, after the 0.2% drop in Q4.
Advance PMI data indicate a slow start to the first quarter for the Eurozone economy. The composite index fell to 53.5 in January from 54.3 in December, due to weakness in both services and manufacturing. The correlation between month-to-month changes in the PMI and MSCI EU ex-UK is a decent 0.4, and we can't rule out the ide a that the horrible equity market performance has dented sentiment. The sudden swoon in markets, however, has also led to fears of an imminent recession. But it would be a major overreaction to extrapolate three weeks' worth of price action in equities to the real economy.
Brazil's external accounts were the bright spot last year, once again, but the ne ws will soon take a turn for the worse. The current account deficit fell to just USD24B last year, or 1.3% of GDP, from USD59B in 2015. The improvement was driven by the trade surplus, which rose to USD48B, the highest since 1992, when the comparable data series begins. A 20% plunge in imports, coupled with a mere 3% dip in exports, explain the rising trade surplus.
The June durable goods, trade and inventory reports today, could make a material difference to forecasts for the first estimate of second quarter GDP growth, due tomorrow.
The commentariat was very excited Friday by the inversion of the curve, with three-year yields dipping to 2.24% while three-month bills yield 2.45%.
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.
Yesterday's first batch of Q3 survey data in the Eurozone suggest that economic growth eased further, albeit it slightly, at the start of the quarter.
The Monetary Policy Board of the Bank of Korea yesterday left its benchmark base rate unchanged, at 1.75%, at its first meeting of the year.
Chinese New Year effects were very visible in Japan's December trade data. Export growth slowed sharply to 9.3% year-over-year in December, from 16.2% in November.
Data released this week in Brazil, coupled with the message from President Bolsonaro at the World Economic Forum, vowing to meet the country's fiscal targets and reduce distortions, support our benign inflation view and monetary policy forecasts for this year.
Neither of the major economic reports due today will be published on schedule.
Hong Kong delivered a resounding landslide victory to pro-Democracy parties in district council elections over the weekend.
Mexico's final estimate of third quarter GDP, released yesterday, confirmed that the economy is still struggling in the face of domestic and external headwinds.
We have no choice but to revise down our forecast for GDP growth in Q2, now that the threat of a no-deal Brexit likely will hang over the economy beyond March, probably for three more months.
The end of the government shutdown--for three weeks, at least-- means that the data backlog will start to clear this week.
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.
Japan's May retail sales rebound was underwhelming at a mere 0.3% month-on-month, after a 0.1% fall in April.
Data and events have gone against the idea of further BoK policy normalisation since the November hike.
It seems pretty clear from press reports that the White House budget, which reportedly will be released March 14, will propose substantial increases in defense spending, deep cuts to discretionary non- defense spending, and no substantive changes to entitlement programs. None of this will come as a surprise.
Brazil's external accounts have recovered dramatically this year, and we expect a further improvement--albeit at a much slower pace--in the fourth quarter. The steep depreciation of the BRL last year, and the improving terms of trade due to the gradual recovery in commodity prices, drove the decline in the current account deficit in the first half.
The disappearance from the FOMC statement of any reference to global risks, which first appeared back in September, was both surprising and, in the context of this cautious Fed, quite bold. After all, one bad month in global markets or a reversal of the jump in the latest Chinese PMI surveys presumably would force the Fed quickly to reinstate the global get-out clause. So, why drop it now?
The Colombian economy was relatively resilient at the end of last year, but economic reports released during the last few weeks indicate that growth is still fragile, and that downside risks have increased. Real GDP rose 1.0% quarter-on-quarter in Q4, pushing the year-over-year rate up to 1.6% from 1.2% in Q3.
Difficult though it is to tear ourselves away from Britain's political and economic train-wreck, morbid fascination is no substitute for economic analysis. The key point here is that our case for stronger growth in the U.S. over the next year is not much changed by events in Europe.
Data to be released this Friday should show that Japan's labour market remains tight, though the unemployment rate likely ticked back up in February, to 2.6%, after the erratic drop to 2.4% in January.
The publication yesterday of the BCB's second quarterly inflation report under the new president, Ilan Golfajn, revealed that inflation is expected to hit the official target next year, for the first time since 2009. The inflation forecast for 2017 was lowered from 4.7% to 4.4%, just below the central bank's 4.5% target.
Concern over individual freedoms was the spark for Hong Kong's recent demonstrations and troubles, and protesters' demands continue to be political in nature.
Another month, another bleak Brazilian labor market report. The seasonally adjusted unemployment rate increased marginally to 8.3% in December, up from 8.2% in November, much worse than the 5.1% recorded in December 2014.
Japan's CPI inflation jumped to 1.0% in December from 0.6% in November, driven by food prices.
Today brings a ton of data, as well as an appearance by Fed Chair Powell at the Economic Club of New York, in which we assume he will address the current state of the economy and the Fed's approach to policy.
Chinese industrial profits growth officially edged down to 25.1% year-over-year in October, from 27.7% in September. This is still very rapid but we think the official data are overstating the true rate of growth.
Fourth quarter GDP growth is likely to be revised down today.
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.
CPI inflation last Friday gave Japanese policymakers a break from the run of bad data, jumping to 0.9% in April, from 0.5% in March.
The Fed is on course to hike again in December, with 12 of the 16 FOMC forecasters expecting rates to end the year 25bp higher than the current 2-to-21⁄4%; back in June, just eight expected four or more hikes for the year.
Venezuelan bond markets have been on a rollercoaster ride this year, with yields rising significantly in response to heightened political uncertainty and then declining when the government pays its obligations or when protests ease.
Korean real GDP growth rebounded to 1.1% quarter-on-quarter in Q1, after GDP fell 0.2% in Q4. Growth in Q4 was hit by distortions, thanks to a long holiday in October, which normally falls in September.
The biggest single problem for the stock market is the president.
The Chinese Communist Party looks set to repeal Presidential term limits, meaning that Xi Jinping likely intends to stay on beyond 2023.
Brazil's external accounts are well under control, despite the wider deficit in January, mainly driven by seasonal deterioration on the trade account.
A rate hike today would be a surprise of monumental proportions, and the Yellen Fed is not in that business. What matters to markets, then, is the language the Fed uses to describe the soft-looking recent domestic economic data, the upturn in inflation, and, critically, policymakers' views of the extent of global risks.
Mr. Abe yesterday called a snap general election, to be held on October 22nd; more on this in tomorrow's Monitor. For now, note that the election comes at a reasonably good stage of the economic cycle, hot on the heels of very rapid GDP growth in Q2, while the PMIs indicate that the economy remained healthy in Q3.
The Chinese Communist Party revealed the new members of its top brass yesterday, with the line-up ensuring policy continuity.
In the absence of reliable advance indicators, forecasting the monthly movements in the trade deficit is difficult.
After the disruption in repo markets last week, theories are flying as to what's going on.
Fed Chair Powell's semi-annual Monetary Policy Testimony yesterday broke no new ground, largely repeating the message of the January 30 press conference.
Today's FOMC announcement will be something of a non-event. Rates were never likely to rise immediately after December's hike, and the weakness of global equity markets means the chance of a further tightening today is zero.
Japan's retail sales data--due out on Thursday-- have been badly affected by the October tax hike.
All eyes today will be on the core PCE deflator for August, which we think probably rose by a solid 0.2%.
In the financial crisis, a squeeze in short-term dollar markets forced banks to sell assets, which were then exposed as soured.
It has been difficult to be an optimist about U.S. international trade performance in recent years. The year-over-year growth rate of real exports of goods and services hasn't breached 2% in a single quarter for two years.
The U.K.'s unexpected decision to vote to leave the E.U. will have serious ramifications for the global economy, and LatAm economies are unlikely to emerge unscathed. It is very difficult to quantify the short-term effects due to the intricacies of the financial transmission channels into the real economy.
U.S. President Trump on Wednesday signed an executive order aimed at delivering on his campaign pledge to build a wall on the U.S.-Mexico border. The executive order also includes measures to boost border patrol forces and increase the number of immigration enforcement officers. As previous U.S. presidents have discovered, however, signing an executive order is one thing and fulfilling it is something else. President Obama, for instance, signed an executive order to close the Guantanamo detention facility on his second day in office.
In this Monitor, befitting these uncertain times, we set out the decision tree facing Chinese policymakers.
Yesterday's raft of data had no net impact on our forecast for second quarter GDP growth, which we still think will be about 21⁄4%.
The rational thing to do when the price of a consumer good you are considering buying is thought likely to rise sharply in the near future is to buy it now, provided that the opportunity cost of the purchase--the interest income foregone on the cash, or the interest charged if you finance the purchase with credit--is less than the expected increase in the price.
It is often argued that the average weekly earnings--AWE--figures exaggerate the severity of the squeeze on households' incomes.
Yesterday's partial trade data for Korea showed that the downturn in exports softened to -13.3% year-over-year in August from -13.8% in July, based on the 20-day gauge.
It would be easy to characterize the Fed as quite split at the July meeting.
LatAm's economies are gradually rebounding, boosted by easier monetary policy in most countries, falling inflation, and a relatively calm external backdrop.
Yesterday's February PMI data sent a clear message to markets.
The U.S. consumer is back on track, almost. We have argued in recent months that the sharp slowdown in the rate of growth of consumption is mostly a story about a transition from last year's surge, when spending was boosted by the tax cuts and, later, by falling gas prices, to a sustainable pace roughly in line with real after-tax income growth.
The Andean economies haven't been immune to the turmoil roiling the global economy in the past few weeks.
Mr. Trump fired the shot everyone was expecting this week with a 10% tariff on $200B-worth of Chinese goods, and a pledge to lift the rate to 25% on January 1.
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.
The recent sharp, if not startling, upturn in the regional manufacturing surveys should continue today with the release of the Philadelphia Fed report. The survey is constructed in the same way as the more volatile Empire State, which has rocketed in the past few months, and the headline indexes follow similar trends, as our first chart shows.
Brazil's decision to keep interest rates at 14.25% on Wednesday was a surprise. The consensus forecast immediately before the meeting was for a 25bp increase. As recently as Tuesday, though, most forecasters expected a 50bp increase, following hawkish comments from Board members since the last meeting in November, and rising inflation expectations. But the day before the meeting, the IMF revised its forecast for 2016 GDP to -3.5%, much worse than the 1% drop it predicted in October.
Yesterday's ECB meeting provided no immediate relief to nervous investors. The central bank kept its main interest rates unchanged, and maintained the pace of QE purchases at €60B per month. Mr. Draghi compensated for the lack of action, however, by hinting heavily at further easing at its next meeting. The president emphasized that the ECB's policies will be "reviewed and reconsidered" in light of the March update to the staff projections. Mr. Draghi also admitted that inflation has been "weaker than expected" since the last meeting, and that downside risks have increased further. The central bank does not pre-commit, but we think it is a good bet that the ECB will do more in March.
President Nicolás Maduro has "won' another six-year term, as expected, even as millions of Venezuelans boycotted the election.
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.
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.
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.
Existing home sales peaked last February, and the news since then has been almost unremittingly gloomy.
The data tell an increasingly convincing story that the Eurozone's external surplus rose further in the second half of last year.
Chinese GDP numbers always require a great deal of detective work, and yesterday's needed more than the norm; multiple rounds of revisions needed decoding.
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.
German producer price inflation rebounded last month. The headline PPI index rose 2.6% year-over-year in August, up from a 2.3% increase in July, driven almost exclusively by a jump in energy inflation.
Forecasting BoJ policy for this year is trickier than it has been in a long time.
Japan's official adjusted surplus rose in October but we think the September figure was an understatement. On our adjustment, the surplus was little unchanged at ¥360B in October.
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.
Expectations for a March rate hike have dipped since Fed Vice-Chair Clarida's CNBC interview last Friday.
The PBoC has let up on its open-market operations after allowing bond yields to move higher again in October.
Our forecast of significantly higher core inflation over the next year has been met, it would be fair to say, with a degree of skepticism.
The big question left by the BoJ at yesterday's meeting is how, if at all, they will follow up in October.
Looking through recent supply disruptions, Japan's adjusted trade balance seems likely to remain in the red until the new year.
If the only manufacturing survey you track is the Philadelphia Fed report, you could be forgiven for thinking that the sector is booming.
Now that the Fed has abandoned the idea of raising rates this year, despite 3.8% unemployment and accelerating wages, it is very exposed to the risk that the bad things it fears don't happen.
Brazil's external accounts were a relatively bright spot last year, once again.
CPI inflation in India jumped to 4.6% in October, from 4.0% in September, marking a 16-month high and blasting through the RBI's target.
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.
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%.
The BoJ kept all policy measures unchanged at its meeting yesterday.
Financial markets in the Eurozone will be pushed around by global events today. The Bank of Japan kicks off the party in the early hours CET, and the spectrum of investors' expectations is wide.
PPI inflation in Korea slowed sharply in October, to a five-month low of 2.2%, from 2.7% in September.
The external surplus in the EZ economy slipped in July. The seasonally-adjusted current account surplus dropped to €21.0B, from a revised €29.5B in June, hit by an increase in the current transfers deficit, and a falling trade surplus. The recent increase in the transfers deficit partly is due to the migrant deal with Turkey, and we expect it to remain elevated.
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.
Back-to-back elevated weekly jobless claims numbers prove nothing, but they have grabbed our attention.
Korea's trade figures for the first 20 days of November, published yesterday, gave the first real glimpse in a long time of how its exporters are truly performing.
Yesterday's data were mixed, though disappointment over the weakening in the Richmond Fed survey should be tempered by a quick look at the history, shown in our first chart.
Consensus forecasts expect further gains in this week's key EZ business surveys, but the data will struggle to live up to expectations. The headline EZ PMIs, the IFO in Germany, and French manufacturing sentiment have increased almost uninterruptedly since August, and we think the consensus is getting ahead of itself expecting further gains. Our first chart shows that macroeconomic surprise indices in the euro area have jumped to levels which usually have been followed by mean-reversion.
One of the arguments we hear in favor of an endless Fed pause--in other words, the cyclical tightening is over--is that GDP growth is set to slow markedly this year, to only 2% or so.
We suspect that under the calm surface of the BoJ, a major decision is being debated.
The preliminary April PMIs point to a continuation of the cyclical bounce, despite falling slightly from last month. The composite PMI in the Eurozone fell to 53.5 in April, down from 54.0 in March.
Data on Friday showed that German producer price inflation is now in free-fall.
The prospect of fiscal stimulus in the euro area-- ostensibly to "help" the ECB reach its inflation target-- remains a hot topic for investors and economists.
The 17-point leap in the Richmond Fed index for October, reported yesterday, was startlingly large.
The PBoC left its interest rate corridor, including the Medium-term Lending Facility rate, unchanged last Friday, but published the reformed Loan Prime Rate modestly lower, at 4.20% in September, down from 4.25% in August.
GDP data for Q2 are due July 26; we expect the report to show a marginal dip in growth, to a seasonally adjusted 0.8% quarter-on-quarter, from 1.0% in Q1.
Japan's national CPI inflation has peaked, falling to 0.7% in May from 0.9% in April.
Core durable goods orders have not weakened as much as implied by the ISM manufacturing survey, as our first chart shows, but it is risky to assume this situation persists.
Japanese trade remained in the doldrums in October, keeping policymakers on their toes as they repeat the refrain of "resilient" domestic demand.
Korea's preliminary GDP report for Q3 will be released tomorrow.
Today's ECB meeting will mainly be a victory lap for Mr. Draghi--it is the president's last meeting before Ms. Lagarde takes over--rather than the scene of any major new policy decisions.
An array of data today will be mostly positive, and even the most likely candidate for a downside surprise--the October advance trade numbers--is very unlikely to change anyone's mind on the Fed's December decision. On the plus side, the first revision to third quarter GDP growth should see the headline number dragged up into almost respectable territory, at 2.4%, from the deeply underwhelming 1.5% initial estimate.
Brazil has made a convincing escape from high inflation in the past few months, laying the groundwork for a gradual economic recovery and faster cuts in interest rates. Mid-March CPI data, released this week, confirmed that inflation pressures eased substantially this month.
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.
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.
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.
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.
We have had something of a rethink about the likely timing of the coming cyclical downturn. Previously, we thought the economy would start to slow markedly in the middle of next year, with a mild recession--two quarters of modest declines in GDP-- beginning in the fourth quarter.
Japan's flash PMI numbers for August were a mixed bag.
The Mexican economy shrank by 0.2% quarter-on-quarter in Q2, according to the final GDP report, a tenth better than the preliminary reading. The year-over-year rate rose marginally to 2.5% from 2.4% in Q1. But the year-over-year data are not seasonally adjusted, understating the slowdown in the first half of the year, as shown in our first chart.
Yesterday's report on October private spending in Mexico was positive, suggesting that consumption remained relatively strong at the start of Q4. Retail sales jumped 1.6% month-to-month, following a modest 0.2% drop in September. October's rebound was the biggest gain since March this year, but note that wild swings are not unusual in these data. The headline year-over-year rate rose to 9.3%, from 8.1% in September, but survey data signal to a gradual slowdown in coming months to around 5%.
Financial markets have put maximum pressure on the ECB going into today's meeting, but we doubt it will be enough to spur the governing council into action so soon after announcing additional stimulus in December. We think the central bank will keep its refi and deposit rate unchanged at 0.05% and -0.3% respectively, and maintain the pace of asset purchases at €60B a month.
The BoJ kept policy unchanged yesterday, with the policy balance rate remaining at -0.1% and the 10-year yield target remaining around zero.
It's going to be very hard for Fed Chair Powell's Jackson Hole speech today to satisfy markets, which now expect three further rate cuts by March next year.
We're expecting to learn today that existing home sales rose quite sharply in July, perhaps reaching the highest level since early 2018.
Advance PMI data yesterday supported our suspicion that Q1 economic survey data will paint a picture of slowing growth in the Eurozone economy. The composite PMI in the Eurozone fell to a 13-month low of 52.7 in February from 53.6 in January, driven by declines in both the French and German advance data.
Yesterday's national surveys in the EZ confirmed the downbeat message from the PMIs and consumer sentiment data earlier this week.
Economic sentiment data, which rebounded in March, continue to suggest slight downside risk to EZ GDP growth in Q1. The composite Eurozone PMI in March rose modestly to 53.7 from 53.0 in February, only partially erasing the weakness in recent months. The PMI dipped slightly over the quarter as a whole, although not enough to change the EZ GDP forecast in a statistically meaningful way.
Japanese policymakers will have been scouring yesterday's data for signs that the trade situation is improving.
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.
2016 has been another terrible year for Venezuela, and we have no hope that the country's economic and political situation will improve in the near-term. Economic mismanagement, authoritarianism, corruption, violent looting and social unrest are the norm.
With most poll-of-poll measures showing a very narrow margin in the U.K. Brexit referendum, while betting markets show a huge majority for "Remain", today brings a live experiment in the idea that the wisdom of crowds is a better guide to elections than peoples' preferences.
The Eurozone has come under the spotlight for its growing external surplus, but domestic households have been doing the heavy lifting for GDP growth in this business cycle. During the last four quarters, consumers' spending has boosted year-over-year GDP growth by an average of 1.0 percentage points, in contrast to a 0.4pp drag from net exports.
In April last year, something odd happened in the FX market.
As we reach our deadline--4pm eastern time--media reports indicate that a debt ceiling agreement is close.
India's Finance Minister Nirmala Sitharaman finally brought out the big guns on September 20, announcing significant cuts to corporate tax rates.
It will take months, and perhaps years, before markets have any clarity on the U.K.'s new relationship with the EU. In the U.K., the main parties remain shell-shocked. Both leading candidates for the Tory leadership, and, hence, the post of Prime Minister, have said that they would wait before triggering Article 50.
The Caixin services PMI fell to 51.5 in August, from 52.8 in July.
If the current rate of contraction continues, the U.S. onshore oil industry will cease to exist in the third week of January next year. Over the past six weeks, the number of operating rigs has dropped by an average of 8.5, and 362 rigs were running last week. At the peak, in early October 2014--just 18 months ago--the rig count reached 1,609.
Always expect the unexpected in a bonus month for Japanese wages.
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%.
We're nudging up our forecast for today's August payroll number to 180K, in the wake of the ADP report.
Yesterday's Caixin services PMI data complete the set for October.
The PBoC finally moved yesterday, cutting its one-year MLF rate by 5bp to 3.25%, whilst replacing around RMB 400B of maturing loans.
German manufacturing data continues to offer a sobering counterbalance to strong services and consumers' spending data. New orders plunged 1.7% month-to-month in September, well below the consensus, pushing the year-over-year rate down to a 1.0% fall from a revised 1.7% increase in August. These data are very volatile, and revisions probably will lift the final number slightly next month, but the evidence points to clear risks of a further decline in the underlying trend of production.
Macroeconomic and financial conditions in Venezuela are deteriorating at an accelerating pace.
Manufacturing activity in Germany rebounded at the start of the fourth quarter, following a miserable Q3. New orders jumped 1.8% month-to-month in October, lifted by increases in consumer and capital goods orders, both domestic and export. But the year-over-year rate fell to -1.4%, from a revised -0.7% in September, due to unfavorable base effects, and the three-month trend remained below zero. Our first chart shows that non-Eurozone export orders are the key drag, with export orders to other euro area economies doing significantly better.
Chile's central bank, the BCCh, held its reference rate unchanged at 2.75% on Tuesday, in line with the majority of analysts' forecasts.
BoJ signals a package is coming in October. Waning construction tarnishes July's all-industry activity report. No PBoC move, for now, but it's coming.
Easing of curbs so far won't slow property decline
In terms of one-day moves, the drop in U.S. equities yesterday and Asian equities in the past two days has been pretty bad.
PBoC furthers efforts to push down real economy rates, signals more to come.
Chinese profits show signs of stabilisation, but headwinds will continue
The tepid recovery in German manufacturing continued in at the start of Q4. Factory orders edged higher by 0.3% month-to-month in October, boosted by a 2.9% month-to-month increase in export orders, primarily for capital and intermediate goods in other EZ economies.
Fresh deterioration in Chinese profits.
Recent market turmoil and concerns on the outlook for global growth have re-awakened talk of stimulus. For the BoJ, this inevitably raises the question of what could possibly be done, given that policy already appears to be on the excessively loose side of loose.
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.
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.
Yesterday's news that the business activity index of the Markit/CIPS services survey fell again in January, to just 50.1--its lowest level since July 2016--has created a downbeat backdrop to the MPC meeting; the minutes and Q1 Inflation Report will be published on Thursday.
Chile's Imacec index confirmed that economic growth ended the year on a soft note, due mainly to weakness in the mining sector.
Yesterday's Brazilian industrial production data continue to tell a story of a slow business cycle upturn. Output rose 0.2% month-to-month in November, after a downwardly revised 1.2% plunge in October. The year-over-year rate, though, jumped to -1.1%, from -7.3% in October. The underlying trend is now on the mend, following weakness in Q3 and early Q4. Output rose in November three of the four major categories and in 13 of the 24 sectors.
We are not concerned by the very modest tightening in business lending standards reported in the Fed's quarterly survey of senior loan officers, published on Monday.
The final EZ PMI data for November yesterday confirmed that the composite index in the Eurozone rose to an 11-month high of 53.9, from 53.3 in October. The key driver was an improvement in services, boosted by stronger data in all the major economies. Manufacturing activity also improved, though, and the details showed that new business growth was robust in both sectors.
Consumers' spending in the Eurozone slowed in the second half of 2017, providing a favourable base for growth in H1 2018.
The rise in the Markit/CIPS services PMI to a nine-month high of 51.4 in July, from 50.2 in June, isn't a game-changer, though it does provide some reassurance that the economy isn't on a downward spiral.
We have consistently flagged the likelihood that Japan's government would boost spending after the consumption tax hike was implemented.
Demand in German manufacturing rebounded strongly midway through the second quarter.
Industrial activity in LatAm, at least in the largest economies, is taking different paths.
Chile's IMACEC economic activity index rose 2.4% year-over-year in January, down from 2.6% in December, and 3.3% on average in Q4, thanks mostly to weak mining production.
Friday's CPI data in the euro area confirmed our expectation that inflation jumped last month.
It would be astonishing if the May and June payroll numbers looked much like April's strong data, at least in the private sector.
Fed Chair Yellen's speech Friday was remarkably blunt: "Indeed, at our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate."
The Brazilian industrial sector started this year on a very downbeat note, despite a 2% month-to-month jump in output. The underlying trend in activity is still very weak. Production fell 5.2% year-over-year.
Economic activity is slowing in Colombia. The ISE activity index--a monthly proxy for GDP--rose only 0.6% year-over-year in April, down from 2.3% in March, and we expect it to rise at this pace over the coming months. During the first quarter, the index rose at an average year-over-year rate of 3.0%.
We are sticking to our call for a weak first half in Japan, despite likely upgrades to Q1 GDP on Monday.
The key aspects of the ECB's policy stance will remain unchanged at today's meeting.
Signs of stabilisation in Chinese trade?
Final Q2 GDP data yesterday indicate the euro area economy was stronger than initially estimated in the first half of the year. Real GDP rose 0.4% quarter-on-quarter in Q2, slightly higher than the initial estimate of 0.3, following an upwardly revised 0.5% increase in Q1. Upward revisions to GDP in Italy were the key driver of the more upbeat growth picture. The revisions mean that annualised Eurozone growth is now estimated at 1.8% in the first six months of the year, up from the previous 1.4%, consistent with the bullish message from real M1 growth and the composite PMI.
The two big surprises in the September employment report--the drop in the unemployment rate and the flat hourly earnings number--were inconsequential, when set against the sharp and clear slowdown in payroll growth, which has further to run.
The RMB has been on a tear, as expectations for a "Phase One" trade deal have firmed.
The disappointing German factory orders ended the run of strong economic data last week. New orders fell 1.4% month-to-month in July, pushing the year-over-year rate down to a 0.6% fall from a 7.0% increase in June. This is a poor headline, but it partly reflects mean-reversion from last month's revised 1.8% jump. We expect a rebound next month, and the details also offer a useful reminder that these data are extremely volatile on a month-to-month basis.
Japanese labour cash earnings data threw analysts another curveball in July, falling 0.3% year-over-year. At the same time, June earnings are now said to have risen by 0.4%, compared with a fall of 0.4% in the initial print.
India's PMIs for October were grim, indicating minimal carry-over of energy from the third quarter rebound.
Korea's final GDP report for Q4 was little changed, in the end.
Brazil's industrial sector was off to a soft-looking start in Q1, but the fall in January output was chiefly payback for an especially strong end to 2017.
In his second confirmation hearing, Governor Kuroda continued his dance with markets, dialling down the exit talk.
We are surprised by the EU's reaction to Mr. Trump's announcement that the U.S. will impose tariffs on steel and aluminium.
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.
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.
The verdict is in.
We hadn't expected the scorching 3.6% year-over- year growth rate in Japan's June average wages
The Monetary Policy Committee of the RBI ventured into the unknown yesterday, cutting its benchmark repo rate further, by an unconventional 35 basis points, to 5.40%.
If you need more evidence that the U.S. economy is bifurcating, look at the spread between the ISM non- manufacturing and manufacturing indexes, which has risen to 3.5 points, the widest gap since September 2016.
External demand in France probably weakened in the first quarter. The trade deficit widened sharply to €5.2B in February, from a revised €3.9B in January, pushing the current account deficit to an 18-month high. It is tempting to blame the stronger euro, but that wasn't the whole story.
The June employment report pretty much killed the idea that the Fed will cut rates by 50bp on July 31.
Yesterday's Nikkei services PMI report completed Japan's set of surveys for the fourth quarter of 2018.
Colombia was one of the fastest growing economies in LatAm in 2018, and prospects for this year have improved significantly following June's presidential election, with the market-friendly candidate, Iván Duque, winning.
Monday will see 5% tariffs going into effect on Mexican exports to the U.S.--which totalled about USD360B last year--unless President Trump steps back from the brink.
Friday's CPI data for April provided the final piece of evidence for the significant Easter distortions in this year's data.
Bond market volatility and political turmoil in Greece have been the key drivers of an abysmal second quarter for Eurozone equities. Recent panic in Chinese markets has further increased the pressure, adding to the wall of worry for investors. A correction in stocks is not alarming, though, following the surge in Q1 from the lows in October. The total return-- year-to-date in euros--for the benchmark MSCI EU ex-UK index remains a respectable 11.4%.
After 29 straight weekly declines, the number of oil rigs in operation in the U.S. rose to 640 in the week ended July 2, from 628 the previous week, according to oil services firm Baker Hughes, Inc. If today's report for the week ended July 9 shows the rig count steady or up again, it will b e much easier to argue that the plunge in activity since the peak--1,601 rigs, in mid-September--is now over.
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.
Demand for German manufacturing goods remained subdued at the end of Q4.
Core producer price inflation is falling, and it probably has not yet hit bottom.
The startling November international trade numbers, released yesterday, greatly improve the chance that the fourth quarter saw a third straight quarter of 3%- plus GDP growth.
We expect August's GDP figures, released on Wednesday, to show that month-to-month growth slowed to 0.1%, from 0.3% in July.
Over the weekend, the PBoC cut the RRR for the vast majority of banks. FX reserves data released shortly after suggested that the Bank already is propping up the currency.
The only way to read the December NFIB survey and not be alarmed is to look at the headline, which fell by less than expected, and ignore the details.
The slew of EZ economic data on Friday supports our view that the economy ended 2016. The Commission's economic sentiment index jumped to 107.8 in December from a revised 106.6 in November. The headline strength was due to a big increase in "business climate indicator" and higher consumer sentiment. In individual countries, solid numbers for German construction and French services sentiment were the stand-out details.
The headline Chinese trade numbers are beginning to come into line with the story we have been telling about the more recent trends.
We are not political analysts or psephologists, but we note that each of the nine separate election forecasting models tracked by the New York Times suggests that Hillary Clinton will be president, with odds ranging from 67% to greater than 99%.
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.
In Friday's Monitor we analysed the draft Japanese budget, as reported by Bloomberg. We suggested that the GDP bang-for-government-expenditure- buck is likely to be less than that implied by the authorities' forecasts.
If our composite index of businesses' hiring plans could speak, it would say: "Told you payrolls were going to go nuts at the end of the year."
December's payroll numbers were unexciting, exactly matching the 175K consensus when the 19K upward revision to November is taken into account. Some of the details were a bit odd, though, notably the 63K jump in healthcare jobs, well above the 40K trend, and the 19K drop in temporary workers, compared to the typical 15K monthly gain.
In contrast to the strong December trade numbers in France--see here--yesterday's German data were soft. The seasonally adjusted trade surplus dipped to €21.5B in December, from €22.3B in November.
Chile's economic outlook remains challenging. Overall, 2015 will likely mark the second consecutive year of disappointing growth, but it will be better than 2014, a year to forget.
The final Eurozone PMIs indicate that the cyclical recovery continued in Q1, but downside risks are rising. The composite index rose marginally to 53.0 in March, from 53.1 in February, below the initial estimate 53.7. Over the quarter as a whole, though, the index fell to 53.2 from 54.1 in Q4, indicating that economic momentum moderated in the first quarter.
August's 14-year high in the ISM manufacturing index, reported yesterday, clearly is a noteworthy event from a numerology perspective, but we doubt it marks the start of a renewed upward trend.
Tokyo inflation surprised us on Friday, rising to 0.9% in July, from 0.6% in June.
The downturn in LatAm is finally bottoming out, but the economy of the region as a whole will not return to positive year-over-year economic growth until next year. The domestic side of the region's economy is improving, at the margin, thanks mainly to the improving inflation picture, and relatively healthy labor markets.
Capex data by industry are available only on an annual basis, with a very long lag, so we can't directly observe the impact the collapse in the oil sector has had on total equipment spending. But we can make the simple observation that orders for non-defense capital goods were rising strongly and quite steadily-- allowing for the considerable noise in the data--from mid-2013 through mid-2014, before crashing by 9% between their September peak and the February low. It cannot be a coincidence that this followed a 55% plunge in oil prices.
Japanese retail sales were unchanged in October month-on-month, after a 0.8% rise in September.
Today's FOMC meeting will be the first non-forecast meeting to be followed by a press conference.
Japan's Q1 is coming more sharply into focus.
Korean industrial production surprised to the upside in August, according to data released yesterday.
Yesterday's final EZ manufacturing PMIs for August provided little in the way of relief for the beleaguered industrial sector.
Today's ECB meeting will be accompanied by an update of the staff projections, where the inflation outlook will be in the spotlight. The June forecasts predicted an average inflation rate of 0.3% year-over-year this year, currently requiring a rather steep increase in inflation towards 1.1% at the end of the year. We think this is achievable, but we doubt the ECB is willing to be as bold, and it is reasonable to assume this year's forecast will be revised down a notch.
Markets see a strong possibility, though not a probability, that the BoJ will cut rates on Thursday.
French consumer confidence and consumption have been among the main bright spots in the euro area economy so far this year.
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.
Was this an isolated occurrence, connected to the graft investigation into Chinese billionaire Xiao Jianhua, and his financial conglomerate?
We are struggling to make sense of the third quarter GDP numbers. The reality is that the massive surge in soybean exports--which we estimate contributed 0.9 percentage points, gross, to GDP growth--mostly came from falling inventory, because the soybean harvest mostly takes place in Q4.
The FOMC has gone all-in, more or less, on the idea that the headwinds facing the economy mean that the hiking cycle is over.
Data released yesterday show that the Chilean economy had a weak start to the second half of the year.
Chinese headline industrial profits data show that growth slowed to just 4.1% year-over-year in September, from 9.2% in August.
We have no way of knowing what will be the final outcome of the impeachment inquiry now underway in the House of Representatives, but we are pretty sure that the first key stage will end with a vote to send the President for trial in the Senate.
Mexico's central bank, Banxico, last night capitulated again to the depreciation of the MXN and increased interest rates by 50bp, for the third time this year. This week's rebound in the currency was not enough to prevent action.
This week's main economic data from Korea--the last batch before the BoK meets on the 16th--missed consensus expectations, further fuelling speculation that it will cut rates for a second time, after pausing in August.
The two major central banks in Asia currently have hugely different aims, causing a policy divergence that won't survive the 2018 rise in external yields.
We'd be very surprised to see a material weakening in today's March ISM manufacturing survey. The regional reports released in recent weeks point to another reading in the high 50s, with a further advance from February's 57.7 a real possibility.
Don't expect a pretty picture when Korea's Q1 GDP report appears in the last week of April.
The Redbook chainstore sales survey today is likely to give the superficial impression that the peak holiday shopping season got off to a robust start last week.
Brazil's current account deficit is stabilizing following an substantial narrowing since early 2015, thanks to the deep recession.
Monetary policy usually is the first line of defence whenever a recession hits.
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%.
In previous Monitors, we have outlined our base case that the direct impact of tariffs on Chinese GDP will be minimal this year.
The picture for Korean quarterly real GDP growth in Q4 was unchanged in the final reading, published yesterday, showing a contraction of 0.2%, after the 1.4% jump in Q3.
The Bank of Korea finally pulled the trigger, raising its base rate to 1.75% at its meeting on Friday. After a year of will-they-or-won't-they, five of the Monetary Policy Board's seven members voted to add another 25 basis points to their previous hike twelve months ago.
We are not bothered by either the drop in real December consumption, all of which was due to a weather-induced plunge in utility spending, or the drop in the ISM manufacturing index, which is mostly a story about hopeless seasonal adjustments.
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.
Modern Money Theory has come up at two consecutive BoJ press conferences.
Most of the time, markets view auto sales as a bellwether indicator of the state of the consumer. Vehicles are the biggest-ticket item for most households, after housing, and most people buy cars and trucks with credit. Auto purchase decisions, therefore, tend not to be taken lightly, and so are a good guide to peoples' underlying confidence and cashflow. We appreciate that things were different at the peak of the boom, when anyone could get a loan and homeowners could tap the rising values of their properties, but that's not the situation today.
Brazil's recession eased considerably in the first quarter, due mainly to a slowing decline in gross fixed capital formation, a strong contribution from net exports, and a sharp, albeit temporary, rebound in government spending. Real GDP fell 0.3% quarter-on-quarter, much less bad than the revised 1.3% contraction in Q4.
The chance of a self-inflicted, unnecessary weakening in the economy this year, and perhaps even a recession, has increased markedly in the wake of the president's announcement on Friday that tariffs will be applied to all imports from Mexico, from June 10.
In our Monitor on January 27 we speculated that the new U.S. administration would see Germany's booming trade surplus as a bone of contention. We were right. Earlier this week, Peter Navarro, the head of Mr. Trump's new National Trade Council, fired a broadside against Germany, accusing Berlin for using the weak euro to gain an unfair trade advantage visa-vis the U.S.
The Caixin manufacturing PMI picked up to 51.5 in December from 50.8 in November. But the jump looks erratic and we expect it to correct in January.
Japan's Q2 Tankan survey wasn't all bad news, but the positives won't last long. The large manufacturers index dropped to 7 in Q2, after the decline to 12 in Q1.
LatAm, particularly Mexico, has dealt with Donald Trump's presidency better than expected thus far. Indeed, the MXN rose 10.7% against the USD in Q1, the stock market has recovered after its initial post-Trump plunge, and risk metrics have eased significantly.
Japan's services PMI edged down to 52.0 in March, from 52.3 in February, taking the Q1 average to 52.0, minimally up from Q4's 51.9.
India's headline GDP print for the third quarter was damning, with growth slowing further, to 4.5% year- over-year, from 5.0% in Q2.
The key data originally scheduled for today--ADP employment and the ISM non-manufacturing survey, and the revised Q3 productivity and unit labor costs-- have been pushed to Thursday because the federal government will be closed for the National Day of Mourning for president George H. W. Bush.
We very much doubt that Fed Chair Powell dramatically changed his position last week because President Trump repeatedly, and publicly, berated him and the idea of further increases in interest rates.
We were worried about downside risk to yesterday's ADP employment measure, but the 67K increase in November private payrolls was at the very bottom of our expected range.
The President's threat to impose tariffs on imported Chinese consumer goods on September 1 might yet come to nothing.
LatAm markets and central banks have been paying close attention to developments in the U.S. The FOMC left rates on hold on Wednesday, as expected, but underscored its core view that inflation will rise in the medium-term, requiring gradual increases in the fed funds rate.
We look for a 150K increase in September payrolls, rather better than the August 130K headline number, which was flattered by a 28K increase in federal government jobs, likely due to hiring for the 2020 Census.
The ECB left its key interest rates unchanged yesterday, and maintained the pace of QE at €60B a month, but increased the issue limit to 33% from 25%. The updated staff projections revealed a downward adjustment of the central bank's inflation and growth forecasts across all horizons up to 2017. These forecasts were accompanied by a very dovish introductory statement, noting disappointment with the pace of the cyclical recovery, and emphasizing renewed downside risks to the economy and the inflation outlook.
The June ISM manufacturing index signalled clearly that the industrial recovery continues, with the headline number rising to its highest level since August 2014, propelled by rising orders and production. But the industrial economy is not booming and the upturn likely will lose a bit of momentum in the second half as the rebound in oil sector capex slows.
Korea's economic data for June largely were poor, and are likely to make more BoK board members anxious ,ahead of their meeting on July 18.
The simultaneous decline in both ISM indexes was a key factor driving markets to anticipate last week's Fed easing.
Factory orders in Germany probably jumped in September, following a string of losses in the beginning of Q3. We think new orders rose 1.0% month-to-month, pushing the year-over-year rate slightly lower, to 1.8% from 2.0% in August. A rebound in non- Eurozone export orders likely will be the key driver of the monthly gain, following a 14.8% cumulative plunge in the previous two months. The rise will be concentrated in capital and consumer goods, and should be enough to offset a fall in export orders within the euro area. Our forecast is consistent with new orders falling 2.0% quarter-on-quarter in Q3, partly reversing the 3.0% surge in the second quarter, and raising downside risks for production in Q4.
When the BoJ tweaked policy back in July, we think the increase in flexibility in part was to lay groundwork for the BoJ to respond to the Fed's ongoing hiking cycle.
Friday's economic data in Germany suggest that households had a slow start to the year.
Fed Chair Powell yesterday said about as little as he could without appearing to ignore the turmoil in markets since the President announced his intention to apply tariffs to imports from Mexico: "We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective."
The economic recovery disappointed in Chile during most of the first half of the year, despite relatively healthy fundamentals, including low interest rates, low inflation and stable financial metrics.
We expect to see a 160K increase in June payrolls today, though uncertainty over the extent of the rebound after June's modest 75K increase means that all payroll forecasts should be viewed with even more skepticism than usual.
The headline May ISM non-manufacturing index today likely will mirror, at least in part, the increase in the manufacturing survey, reported Friday.
Final October PMI data today will confirm the Eurozone's recovery remains on track. We think the composite PMI rose to 54.0 from 53.6 in September, in line with the consensus and initial estimate. Data on Monday showed that manufacturing performed better than expected in October, and the composite index likely will enjoy a further boost from solid services. The PMIs currently point to a trend in GDP growth of 0.4%-to-0.5% quarter-on-quarter, the strongest performance since the last recession.
The downturn in global trade looks set to turn a corner, at least judging by the outlook for Korean exports, which are a key bellwether.
Brazil's manufacturing PMI edged down to a six-month low of 45.2 in December, from 46.2 in November. This marks a disappointing end to Q4, following a steady upward trend during the first half of the year, as shown in our first chart. December's new work index fell to 45.2 from 47.7 in November, driving a slowdown in production, purchases of materials, and employment. The new export orders index also deteriorated sharply in December, falling close to its lowest level since mid-2009.
Let's say we are right, and global yields go up this year. Somewhere in the world, imbalances will be exposed, causing financial ructions and damaging GDP growth.
Today's December payroll number was a tricky call even before yesterday's remarkably strong ADP report, showing private payrolls soaring by 271K.
The days of +2% inflation in the Eurozone are long gone. Data on Friday showed that the headline rate slipped to 1.4% year-over-year in January, from 1.6% in December, thanks to a 2.9 percentage point plunge in energy inflation to 2.6%.
Where to start with the January employment report, where all the key numbers were off-kilter in one way or another?
Korea's final GDP report for the third quarter confirmed the economy's growth slowdown to 0.4% quarter-on-quarter, following the 1.0% bounce-back in Q2.
Japan's labour market is already tight, but last week's data suggest it is set to tighten further.
The rebound in the ISM manufacturing index was a relief, after the sharp drop in October, though the strength in last week's Chicago PMI meant that it wasn't a complete surprise.
Korean hard data for December, so far, leave the door ajar for the possibility that the Bank of Korea will roll back its November hike sooner than we expect.
The Tankan survey powered ahead in Q2, pulling away from Q1 and mostly beating consensus. This confirms our impression of the strength of the recovery ,just as Prime Minister Abe's Liberal Democratic Party is trounced at the polls in Tokyo. The drubbing is understandable as the main benefits of Abenomics have gone to the business sector, at the expense of the household sector.
Brazil is now paying the price of President Rousseff's first term, which was characterized by unaffordable expansionary policies. As a result, inflation is now trending higher, forcing the BCB to tighten at a more aggressive pace than initially intended--or expected by investors--depressing business and investment confidence.
Japan's jobless rate inched up to 2.5% in January, from 2.4% in December.
Eurozone manufacturing selling prices remain under pressure from deflationary headwinds. The PPI index, ex-construction, in the euro area fell 4.2% year-over-year in March, matching February's drop. Weakness in oil prices continues to drive the headline.
The Fed is in a double bind.
The most positive thing to say about the EZ manufacturing PMI at the moment is that it has stopped falling.
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.
Investors have concluded from June's Markit/CIPS PMIs and Governor Carney's speech on Tuesday that the chance of the MPC cutting Bank Rate before the end of this year now is about 50%, rising to 55% by the time of Mr. Carney's final meeting at the end of January.
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.
In the last few weeks markets have been treated to the news that euro area industrial production crashed towards the end of Q4, warning that GDP growth failed to rebound at the end of 2018 from an already weak Q3.
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.
GDP growth in Japan surprised to the upside in the second quarter, although the preliminary headline arguably flattered the economy's actual performance.
Brexiteers have downplayed the economic consequences of a no-deal exit by arguing that a further depreciation of sterling would cushion the blow.
Chair Yellen broke no new ground in her Testimony yesterday, repeating her long-standing view that the tightening labor market requires the Fed to continue normalizing policy at a gradual pace.
Friday's economic data added to the evidence that the German economy stumbled in July. The seasonally adjusted trade surplus slipped to €19.4B, from a revised €21.4B in June.
Chinese PPI inflation surprised analysts with a sharp rebound to 6.3% in August, from 5.5% in July, above the consensus, 5.7%.
CPI data today in France and Germany will confirm that current inflation rates remain very low in the euro area. Inflation in Germany likely rose to 0.3% year-over-year from 0.0% in September, in line with the consensus and initial estimate. State data indicate that the rise was driven by surging fresh food prices and slightly higher services inflation, principally due to a jump in the volatile recreation and culture sector. Looking ahead, food prices will drop back, but energy inflation will rise rapidly as last year's plunge drops out of the year-over-year comparison, while upward core pressure is now emerging too.
Our forecast for a 0.3% increase in the September core PPI, slightly above the underlying trend, is even more tentative than usual.
Core inflation probably will remain close to June's 2.3% rate for the next few months.
We expect Greece to do what it needs to do by Wednesday to secure its third bailout, and, judging by her speech in Cleveland last Friday, so does the Fed Chair. It's always risky to assume blithely that European politicians will do the right thing in the end, and they seem absolutely determined to humiliate Greece before writing the checks, but a completed deal is the most likely outcome.
We expect the Fed today to shift its dotplot to forecast one rate hike this year, down from two in December and three in September.
Japan's Ministry of Finance yesterday admitted falsifying documents submitted to the country's parliament during a corruption probe last year.
Our default position for core durable goods orders over the next few months is that they will fall, sharply.
LatAm currencies have suffered in recent weeks. Each country has its own story, so the currency hit has been uneven, but all LatAm economies share one factor: Fear of the start of a Fed tightening cycle.
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.
When Park Geun-hye came to power in Korea 2013, it was to cheers of "economic democratisation". At the time, I wrote a report with a list of reforms that would be needed for Korea to "economically democratise".
We previewed the FOMC meeting in detail in the Monitor on Monday--see here--but, to reiterate, we expect rates to rise by 25bp but that the Fed will not add a fourth dot to the projections for this year.
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.
One critical point emerged from last week's otherwise uneventful BoJ meeting: Governor Kuroda said that the BoJ might "adjust" rates before hitting the 2% inflation target.
Japan's official seasonally adjusted current account surplus rose to ¥2.27T in August from ¥2.03T in July. But we don't trust the seasonals, and our adjustment model shows the surplus fell slightly, to ¥1.91T in August. A further small decline likely is coming in Q4.
Yesterday's German trade data showed that the external surplus recovered in August, following its poor start to Q3. The seasonally-adjusted trade surplus rose to €22.2B, from €19.4B in July.
Manufacturing in France rebounded only modestly at the start of Q3, despite favourable base effects.
Business investment in Japan took a nasty hit in the third quarter.
Uncertainty about the U.S. economic and political outlook, following Donald Trump's presidential win, likely will cast a long shadow over EM in general and LatAm in particular. On the campaign trail, Mr. Trump argued for tearing up NAFTA and building a border wall.
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.
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.
Another day, another downbeat survey. The British Chamber of Commerce's comprehensive and long-running Quarterly Economic Survey was published yesterday, and it added to evidence of a Q1 slowdown.
The month-to-month core CPI numbers in March were consistent, in aggregate, with the underlying trend.
The recent cyclical upturn in the EZ began in the first quarter of 2013. GDP growth has accelerated almost uninterruptedly for the last two years to 1.5% year-over-year in Q3, despite the Greek debt crisis and slower growth in emerging markets. Overall we think the recovery will continue with full-year GDP growth of about 1.6%. But we also think the business cycle is maturing, characterised by stable GDP growth and higher inflation, and we see the economy slowing next year.
Investors likely will be caught out by the extent to which gilt yields rise this year. Forward rates imply that the 10-year spot rate will rise by a mere 20bp to just 1.45% by the end of 2018. By contrast, we see scope for 10-year yields to climb to 1.60% by the end of this year.
Japan's preliminary GDP report for Q4 is out on Thursday, and we expect to see a punchy number.
The escalation in the U.S.-Chinese trade wars has understandably pushed EZ economic data firmly into the background while we have been resting on the beach.
The sluggishness of consumers' spending and business investment in the first quarter means that hopes of a headline GDP print close to 2% rely in part on the noisier components of the economy, namely, inventories and foreign trade.
Inflation in Brazil surprised to the upside this week, with a sharp rebound that looks alarming at face value.
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.
Chile's market volatility and high political risk continue, despite government efforts to ease the crisis.
Friday's data added further colour to the September CPI data for the Eurozone.
Today's CPI report from India should raise the pressure on the RBI to abandon its aggressive easing, which has resulted in 135 basis points worth of rate cuts since February.
We were right about the below-consensus inflation numbers for June, but wrong about the explanation. We thought the core would be constrained by a drop in used car prices, while apparel and medical costs would rebound after their July declines.
Chinese monetary conditions have tightened sharply in the past year. Conditions have stabilised in recent months but Fed policy normalisation implies the increase in the money stock should slow again in 2018.
The minutes of the September 19/20 FOMC meeting record that "...it was noted that the National Federation of Independent Business reported that greater optimism among small businesses had contributed to a sharp increase in the proportion of small firms planning increases in their capital expenditures."
It's hard to know what to make of the October CPI data, which recorded hefty increases in healthcare costs and used car prices but a huge drop in hotel room rates, and big decline in apparel prices, and inexplicable weakness in rents.
Japan's PPI data yesterday confirmed that October was a turning point for prices--due to the consumption tax hike--despite the surprising stability of CPI inflation in Tokyo for the same month.
The MPC surprised nobody yesterday by voting unanimously to keep Bank Rate at 0.75% and to maintain the stocks of gilt and corporate bond purchases at £435B and £10B, respectively.
Investors anticipate a shift up in the MPC's hawkish rhetoric today. After August's consumer price figures showed CPI inflation rising to 2.9%--0.2 percentage points above the Committee's forecast--the market implied probabilities of a rate hike by the November and February meetings jumped to 35% and 60%, respectively, from 20% and 40%.
The Eurozone economy was resilient at the end of last year, but yesterday's reports indicated that growth was less buoyant than markets expected. Real GDP in the euro area rose 0.4% quarter-on-quarter in Q4, the same pace as in Q3, but slightly less than the initial estimate 0.5%.
Japan's 0.3% quarter-on quarter increase in Q4 GDP was disappointing, on the face of it, after a downwardly-revised 0.7% fall in Q3.
Following this week's 25bp Fed hike, the PBoC hiked the main interest rates in its corridor by... 5bp. The move was unexpected so the RMB strengthened modestly; commentary is full of how this means the deleveraging drive is serious.
Eurozone manufacturers had an underwhelming start to Q4. Data yesterday showed that production fell 0.1% month-to-month in October, pushing the year-over-year rate down to 0.6%, from a revised 1.3% in September. Output was constrained mostly by weakness in France and a big month-to-month fall in Ireland, which offset marginal gains in Germany and Spain.
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.
Industrial production in Eurozone had a decent start to the fourth quarter. Output ex-construction rose 0.6% month-to-month in October, pushing the year-over-year rate up to 1.9% from a revised 1.3% in September. Production was lifted by gains in the major economies, and surging output in the Netherlands, Portugal and Lithuania. Across sectors, increases in production of capital and consumer goods were the main drivers, but energy output also helped, due to a cold spell lifting demand and production in France.
Markets are caught in a trade loop.
Chile and Peru faced similar growth trends in 2018, namely, a solid first half, followed by a poor second half, particularly Q3.
Brazil's outlook is still improving at the margin, as positive economic signals mix with relatively encouraging political news.
Korea's jobs report for August was a stonker, with unemployment plunging to 3.1%, from 4.0% in July, marking the lowest rate in more than five years.
The surge in gasoline prices triggered by refinery outages after Hurricane Harvey came much too late to push up the August PPI, but gas prices had risen before the storm so the headline PPI will be stronger than the core.
Japanese PPI inflation continues to be driven mainly by imported metals and energy price inflation. Metals, energy, power and water utilities, and related items, account for nearly 30% of the PPI.
PPI inflation has finally started to soften, after having increased steadily from 2.0% in April, and holding steady at 3.0% in Q3.
PM Abe last week asked the cabinet to put together a package of measures in a 15-month budget aimed at bolstering GDP growth through productivity enhancement, in addition to the shorter-term goal of disaster recovery.
The consensus forecast for the October core CPI, which will be reported today, is 0.2%. Take the over. Nothing is certain in these data, but the risk of a 0.3% print is much higher than the chance of 0.1%.
The Korean unemployment rate edged back up to 3.7% in November from October's 3.6%. Young graduates--the usual suspects--accounted for most of the rise.
We argued earlier this week that the data on the consumer economy are likely to be rather stronger than the industrial numbers.
Small businesses remain extremely positive about the economy, but some of the post-election gloss appears to be wearing off. To be clear, the headline composite index of small business sentiment and activity in February, due this morning, will be much higher than immediately before the election, but a modest correction seems likely after January's 12- year high.
The January durable goods numbers, viewed in isolation, were not terrible.
A huge wave of data will break over markets this week, along with the FOMC meeting, new dot plots and Chair Yellen's press conference. But today is calm, with no significant data releases and no Fed speeches; policymakers are in purdah ahead of the meeting.
Peru's central bank, the BCRP, kept borrowing costs at 3.25% last week, surprising the consensus forecast for a 25bp increase. This was an unexpected move because inflation risks have not abated much since the previous meeting, when policymakers lifted rates for the third straight month.
Korea watchers appear to be hanging on Governor Lee Ju-yeol's every word, searching for any sign that he'll drop his hawkish pursuit of more sustainable household debt levels and prioritise short-term growth concerns.
The benchmark MSCI EU ex-UK equity index was down a startling 17% year-over-year at the end of February. A disappointing policy package from the ECB in December initially put Eurozone equities on the back foot, and the awful start to the year for global risk assets has since piled on the misery.
The 20K increase in February payrolls is not remotely indicative of the underlying trend, and we see no reason to expect similar numbers over the next few months.
Friday's manufacturing data in the Eurozone were mixed.
We expect to see a 70K increase in October payrolls today.
The BoJ yesterday kept the policy balance rate at -0.1%, and the 10-year yield target at "around zero", in line with the consensus.
The more headline hard data we see in the Eurozone, the more we are getting the impression that 2019 is the year of stabilisation, rather than a precursor to recession.
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.
Brazil's GDP growth slowed to just 0.1% quarter- on-quarter in Q4, from a downwardly-revised 0.5% in Q3.
We have lost count of the number of times the drop in the ISM manufacturing survey, in the wake of the plunge in oil prices, was a harbinger o f recession across the whole economy. It wasn't, because the havoc wreaked in the industrial economy by the collapse in capital spending in the oil sector was contained.
A quick rebound in growth, after the slowdown to a reported 2.6% in the fourth quarter, is unlikely.
In the absence of an unexpected surge in auto sales or a sudden burst of unseasonably cold weather, lifting spending on utilities, fourth quarter consumption is going to struggle to rise much more quickly than the 2.1% annualized third quarter increase.
Industrial output in Chile struggled late in the third quarter, falling 1.3% month-to-month in September. The year-over-year rate, calendar and seasonally adjusted, rose 2.4% in September, down from a revised 5.3% in August.
Brazil's economic activity data have disappointed in recent months, firming expectations that the Q1 GDP report will show another relatively meagre expansion.
Chinese PPI inflation was unchanged at 5.5% in July; it had been expected to rise modestly. Officially, inflation peaked at 7.8% in February, but we think this peak was artificially high, thanks to seasonal effects. The slowing in PPI inflation since the peak appears to suggest that monthly price gains have slowed sharply. We find little evidence to support this.
The first of this week's two July inflation reports, the PPI, will be released today. With energy prices dipping slightly between the June and July survey dates, the headline should undercut the 0.2% increase we expect for the core by a tenth or so.
Last fall and winter, when the weather was warmer than usual--thanks largely to El Nino--construction employment rocketed. Between October and March, job gains averaged 36K, compared to an average of 20K per month over the previous year. When these strong numbers began to emerge, we expected to see a parallel acceleration in construction spending.
The case for believing that August's unexpected 14-year high in the ISM manufacturing index was a fluke is pretty straightforward, and it has both short and medium-term elements.
The BoJ kept monetary policy unchanged yesterday, as expected, with the signal coming through loud and clear: Japan's central bank will continue its aggressive easing policy until the inflation cows come home...
On the heels of yesterday's benign Q3 employment costs data--wages rebounded but benefit costs slowed, and a 2.9% year-over-year rate is unthreatening--today brings the first estimates of productivity growth and unit labor costs.
President Moon was elected earlier this year on a promise to rebalance the economy toward domestic demand and reduce export dependency. It's not the first time politicians have received such a mandate.
The big story in global macro over the past 18 months or so has been the gigantic transfer of income from oil producers to oil consumers. The final verdict on the net impact of this shift--worth nearly $2T at an annualized rate--is not yet clear, because the boost to consumption takes longer than the hit to oil firms ' capex, which began to collapse just a few months after prices began to fall sharply. But our first chart, which shows oil production by country as a share of oil consumption, plotted against the change in real year-over-year GDP growth between Q2 2014 and Q2 2015, tells a clear story.
Data yesterday showed that the downward trend in Eurozone unemployment continued towards the end of last year. The unemployment rate fell to 10.4% in December from 10.5% in November, extending an almost uninterrupted decline which began in the first quarter of 2013.
Today's September ISM manufacturing survey is one of the most keenly-awaited for some time. Was the unexpected plunge in August a one-time fluke--perhaps due to sampling error, or a temporary reaction to the Gulf Coast floods, or Brexit--or was it evidence of a more sustained downshift, possibly triggered by political uncertainty?
Data yesterday suggest Eurozone consumers' spending rebounded towards the end of Q4. Retail sales rose 0.3% month-to-month in December, pushing the year-over-year rate down to 1.4%, from a revised 1.6% in November. A +0.3 percentage point net revision to the month-to-month data added to the optimism, but was not enough to prevent a slowdown over the quarter as a whole.
Markets reacted strongly to yesterday's consensus-beating data, with the ISM manufacturing survey drawing most of the attention as the industrial recession thesis took another body blow. But we are more interested in the strong construction spending data for January, which set the first quarter off on a very strong note.
The upward revisions to real consumers' spending in the fourth quarter, coupled with the likelihood of a hefty rebound in spending on utility energy services, means first quarter spending ought to rise at a faster pace than the 2.2% fourth quarter gain. Spending on utilities was hugely depressed in November and December by the extended spell of much warmer-than-usual weather.
Freya Beamish produces the Asia service at Pantheon. She has several years of experience in covering the global economy, with a particular focus on China, Japan and Korea. Previously, she worked at Lombard Street Research (now TS Lombard), where she delivered research on Asia and the Global economy for over five years, latterly as the manager of the Macroeconomics group.
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.
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.
Strong real M1 growth suggests the cyclical recovery is in good shape. But recent economic data indicate GDP growth slowed in Q4, and survey evidence deteriorated in January. This slightly downbeat message, however, is a far cry from the horror story told by financial markets. The recent collapse in stock-to-bond returns extends the decline which began in Q2 last year, signalling the Eurozone is on the brink of recession.
Economic growth in Colombia and--especially-- Chile, braked in the fourth quarter and at the start of this year as the strong USD drove up imported good prices and tepid global demand weighed on exports. Colombia's January exports plunged 36.6% year-over-year, even worse than the 35% average drop in Q4.
The BoJ had two tasks at its meeting yesterday.
Yesterday's German factory orders report showed that manufacturing activity accelerated in August. New orders rose 1.0% month-to-month, after a 0.3% increase in July, pushing the year-over-year rate up to +2.1% from a revised -0.6%.
The outlook for Brazil's industrial economy is better than at any time since before the crisis. But data released this week highlighted that the recovery will be slow and bumpy.
The first major data release of 2016 showed manufacturing activity slipping a bit further at the end of last year, but we doubt the underlying trend in the ISM manufacturing index will decline much more. Anything can happen in any given month, especially in data where the seasonal adjustments are so wayward, but the key new orders and production indexes both rose in January; almost all the decline in the headline index was due to a drop in the lagging employment index.
Yesterday's EZ producer price data showed that deflationary pressures in the manufacturing sector are fading. The headline PPI index fell 0.2% month- to-month in August, pushing the year-over-year up to -2.1%, from a revised -2.6% July.
The continued modest rate of increase in unit labor costs makes it hard to worry much about the near-term outlook for core inflation.
Japan's GDP growth was revised up, to 0.4% quarter-on-quarter in Q3, from 0.1% in the preliminary reading.
If Fed Chair Yellen's objective yesterday was to deliver studied ambiguity in her Testimony--and we believe it was--she succeeded. She offered plenty to both sides of the rate debate. For the hawks, she noted that unemployment is now "...in line with the median of FOMC participants' most recent estimates of its longer-run normal level", and that inflation is still expected to return to the 2% target, "...once oil and import prices stop falling".
Markets' inflation expectations have fallen in recent weeks, maintaining the trend seen over the previous 18 months. The fall in expectations for the next year or so is justified by the sharp fall in oil prices. But expectations for inflation further ahead have drifted down too, even though lower oil prices will have no effect on the annual comparison of prices beyond a year or so from now.
German exports flatlined for most of 2018, driving the trade surplus down by 7.3% amid still-solid growth in imports.
German net exports were treading water at the start of the fourth quarter. The seasonally adjusted trade surplus slipped to €17.4B in October, from a revised €17.7B in September, constrained by a 1.3% month-to-month rise in imports, which offset a 0.7% increase in exports.
A plunge in apparel prices attracted most of the attention after the release of the March CPI report, but it was not, in our view, the most important number.
The Mexican economy's brightest spot continues to be private consumption.
The economy has remained remarkably resilient in the face of intense political uncertainty.
Last week's events highlighted the seriously challenging global environment for LatAm equities and currencies. Trading in Chinese shares was stopped twice early last week, after falls greater than 7% of the CSI 300 index reverberated around the world. Markets were calmer on Friday but the volatility nevertheless reminded investors that LatAm's economies are floating in rough waters and their resilience will be put to the test again this year. The Fed's policy normalization, the unwinding of the leverage in EM, the continued slowdown of the Chinese economy, low commodity prices and currency depreciation are all real threats across the continent.
Chinese PPI inflation fell to 4.9% in December, from 5.8% in November. The decline was expected, but underneath the slowdown in commodity price inflation, the rate of increase of manufacturing goods prices is slowing sharply too.
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 border security agreement between the U.S. and Mexico has strengthened hopes that the Sino- U.S. trade war will end soon.
At least some investors clearly were expecting Fed Chair Powell yesterday to offer a degree of resistance to the idea that a rate cut at the end o f this month is a done deal.
PPI inflation in Asia looks set to go from bad to worse, following June's poor numbers, which showed that the weakness in commodity prices is feeding through quicker than expected.
If the CPI measure of core consumer goods inflation were currently tracking the same measure in the PPI in the usual way, core CPI inflation would now be at 2.3%, rather than the 1.7% reported in November.
Economic data in the euro area are still slipping and sliding.
Data yesterday suggest that EZ investor sentiment is on track for a modest recovery in Q3.
Gloom and uncertainty are spreading across the global economy as we head into the final stretch of the year.
The two major central banks of Asia have chosen hugely divergent policies. The BoJ has chosen to fix interest rates, while the PBoC appears set on preventing a meaningful depreciation of the currency.
We'd be surprised to see any serious shift in the tone of Fed Chair Powell's semi-annual Monetary Policy Testimony today compared to the FOMC statement and press conference just three weeks ago.
We think Japanese monetary policy easing essentially is tapped out, both theoretically and by political constraints.
The latest batch of FOMC speakers yesterday, together with the December minutes--participants said "the committee could afford to be patient about further policy firming"--offered nothing to challenge the idea, now firmly embedded in markets, that the next rate hike will come no sooner than June, if it comes at all.
German exporters stumbled at the end of last year. The seasonally adjusted trade surplus in Germany dipped to €18.4B in December, from €21.8B in November, hit by a 3.3% month-to-month plunge in exports. Imports were flat on the month. The fall in exports looks dramatic, but it followed a 3.9% jump in the previous month, and nominal exports were up 2.5% over Q4 as a whole. Advance GDP data next week likely will show that net trade lifted quarter-on-quarter growth by 0.2 percentage points, partly reversing the 0.3pp drag in Q3. Real imports were held back by a jump in the import price deflator, due to rebounding oil prices.
The monthly survey of small businesses conducted by the National Federation of Independent Business is quite sensitive to short-term movements in the stock market, so we're expecting an increase in the November reading, due today.
German exports had a sluggish start to the fourth quarter, falling 1.2% month-to-month in October. The monthly drop pushed the year-over-year rate down to 3.0% from 4.2% in September, well down from the 5.6% third quarter average and extending the loss of momentum in recent months. Imports fell 3.6%, so net exports rose, but it's too early to make any useful estimates of net trade in the fourth quarter as a whole.
Interest rate expectations continued to fall sharply last week.
In an interview with Bloomberg on Friday, PBoC Governor Yi Gang hinted at the intended policy if the trade war escalates.
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.
Note: This updates our initial post-election thoughts, adding more detail to the fiscal policy discussion. Apologies for the density of the text, but there's a lot to say. Our core conclusions have not changed since the election result emerged. The biggest single economic policy change, by far, will be on the fiscal front.
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.
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.
Payroll growth has slowed, no matter how you slice and dice the numbers.
LatAm's growth outlook is deteriorating, despite decent domestic fundamentals and political transitions toward more market-oriented governments in some of the region's main economies.
We can't remember the last time a single economic report was as surprising as the December retail sales numbers, released yesterday.
Germany's external surplus remained resilient at the start of the year. Data on Friday showed that the seasonally adjusted trade surplus rose marginally to €18.5B in January, from a revised €18.3B in December.
Car sales continue to offer solid support for consumption spending in the Eurozone. Growth of new car registrations in the euro area fell trivially to 10.6% year-over-year in September, from 10.8% in August, consistent with a stable trend. Surging sales in the periphery are the key driver of the impressive performance, with new registrations rising 22.1% and 17.1% in Spain and Italy respectively, and surging 30% in Portugal. Favorable base effects mean that rapid growth rates will continue in Q4, supporting consumers' spending.
Rising mortgage rates appear to have triggered the start, perhaps, of a tightening in lending standards, even before Treasury yields spiked this month and stock prices fell.
The Monetary Policy Board of the Bank of Korea yesterday left its benchmark base rate unchanged, at 1.50%.
Japan's adjusted trade balance flipped back to a modest surplus of ¥116B in February, after seven straight months of deficit.
The Fed will leave rates unchanged today.
On the face of it, trade negotiations have deteriorated in the last week.
In light of Mr. Draghi's Sintra speech, we take this opportunity to give an update on the BoJ's stance, ahead of the meeting on Thursday.
The Fed headlines yesterday carried no real surprises; rates were cut by 25bp, with a promise to take further action if "appropriate to sustain the expansion".
President Trump wrote to Congress on Monday, saying that the U.S. finally has reached a trade deal with Japan, about a month after he and Prime Minister Abe announced an agreement in principle, on the sidelines of the G7 Summit in France.
Industrial sector activity in the euro area was broadly stable at the beginning of the third quarter, despite the headline dip in the July manufacturing PMI. The Eurozone index fell to 52.0 in July, from 52.8 in June, but if it holds at this level it will be unchanged in Q3 compared with the second quarter.
We're reasonably happy with the idea that business sentiment is stabilizing, albeit at a low level, but that does not mean that all the downside risk to economic growth is over.
Japan's jobless rate was unchanged, at 2.4% in October, as the market took a breather after September's job losses.
The past two days have seen a slew of data that should keep the hawks in the Bank of Korea at bay during the Board's meeting at the end of this month.
The Caixin manufacturing PMI rebounded to 51.1 in July from 50.4 in June, soundly beating the consensus for no change. The PMIs are seasonally adjusted but the data are much less volatile on our adjustment model. On our adjustment, the headline has averaged 50.9 so far this year, modestly higher than in the second half of last year.
Construction data in the Eurozone usually don't attract much attention, but today's July report will provide encouraging news, compared with recent poor manufacturing data. We think construction output leapt 2.1% month-to-month, pushing the year-over-year rate up to 2.3%, from 0.7% in June. This strong start to the third quarter was due mainly to a jump in non-residential building activity in France and Germany.
The Fed's strategic view of the economy and policy has not changed since last December, when it first said that "The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.
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.
Detailed German inflation data today likely will confirm that inflation fell to 0.3% year-over-year in December from 0.4% in November, mainly due to falling food inflation. Preliminary data suggest that food inflation declined sharply to 1.4% from 2.3% in November, offsetting slower energy price deflation, due to base effects. Food and energy prices are wild cards in the next three-to-six months, and could weigh on the headline, given the renewed weakness in oil prices, and lower fresh food prices. Core inflation, however, is a lagging indicator, and will continue to increase this year.
You'd be hard-pressed to read the minutes of the September FOMC meeting and draw a conclusion other than that most policymakers are very comfortable with their forecasts of one more rate hike this year, and three next year.
Our colleagues have been telling some unpleasant stories recently.
Markets have given the BoJ a break this month, with the 10-year JGB yield rising back into the implied band around the 0% target, and the yen snapping its appreciation streak.
Venezuela's fundamentals continue to deteriorate, economic chaos is increasing and the social/political situation remains fragile.
Our first impression of the proposed Brexit deal between the EU and the U.K. is that it is sufficiently opaque for both sides to claim that they have stuck to their guns, even if in reality, they have both made concessions.
Rapidly increasing food inflation is creating all sorts of dilemmas for policymakers in Asia's giants.
The declines in headline housing starts and building permits in September don't matter; both were driven by corrections in the volatile multi-family sector.
The ongoing weakness in DM has been a feature of the global landscape over the last year.
The Yellen Fed acted--or rather, didn't act--true to form yesterday, preferring to take its chances with inflation one or two years down the line rather than surprising the markets by hiking rates and risking the consequences. Even before Dr. Yellen's tenure, the Fed has long been reluctant to defy market expectations on the day of FOMC meetings. Engineering a shift in market views of the likely broad path of policy is one thing, but shocking investors with unexpected action on specific days is another matter altogether.
From a bird's-eye perspective, the argument for continued steady Fed rate hikes is clear.
A slew of Asian price numbers are due this Friday, and they will all likely show that price gains softened further in January.
A PBoC rate cut is looking increasingly likely. Policy is already on the loosest setting possible without cutting rates, but the Bank has little to show for its marginal approach to easing, with M1 growth still languishing.
Japan's trade surplus is set to fall in coming months, as domestic demand remains robust, while recent oil price increases will be a drag, lifting imports.
The first estimate of retail sales growth in August was weaker than implied by the Redbook chainstore sales survey, but our first chart shows that the difference between the numbers was well within the usual margin of error.
Sebastián Piñera returns to the Presidential Palacio de la Moneda, succeeding Michelle Bachelet as president of Chile, as in 2010.
Oil and gas extraction, and the drilling of wells to facilitate extraction, accounts for only 2.0% of GDP, but it punches far above its weight when it comes to capital spending.
Brazil's recession is getting uglier. Real GDP in Brazil fell 1.7% quarter-on-quarter in Q3, much worse than expected, though marginally less terrible than the downwardly revised 2.1% contraction in Q2. Year-over-year, the economy plunged by 4.5% in the third quarter, down from -3.0% in Q2, and -2.5% in the first half. The disappointment was widespread in Q3; though rising mining output was a positive, the underlying trend in mining is still falling. The key story here, though, is that the economy has sunk into its worst slump since the Great Depression.
Yesterday's surprising decline in the Eurozone unemployment rate adds further evidence to the story of a slowly healing economy. The rate of joblessness fell to 10.9% in July from 11.1% in June, the lowest since the beginning of 2012, mainly driven by a 0.5 percentage point fall in Italy, and improvement in Spain, where unemployment fell 0.2 pp to 22.2%.
The key market risk in the August employment report is the hourly earnings number. The consensus forecast is for a 0.2% month-to-month increase, in line with the underlying trend, but the balance of risks is firmly to the downside.
Inflation in the Eurozone eased at the start of Q3.
Chile's activity numbers at the beginning of Q3 were mediocre, suggesting that the economy remains sluggish. The industrial production index--comprising mining, manufacturing, and utility output--fell by 1.7% year-over-year in July, reversing a 1.6% expansion in June. A disappointing 4.5% year-over-year contraction in mining activity depressed the July headline index, following a 1.4% increase in June. The moderation in output growth was due to maintenance-related shutdowns at key processing plants, and disruptions from labor strikes, especially a three-week strike by contract workers at Codelco--the state-owned mining firm--which badly hit production.
As a general rule, the best forecast of ADP payrolls in any given month is the official estimate for private payrolls in the previous month. This partly reflects the simple observation that payroll trends, once established, tend to persist, but it also is a consequence of ADP's methodology. The ADP number is generated from a model which combines both data collected from firms which use ADP for payroll processing, and lagged official data. The latter appear to be more important in determining in the month-to-month swings in the ADP number. ADP does not hide the incorporation of lagged official data in its model--you can read about it in the technical guide to the report--but neither does it shout it from the rooftops.
The inevitable--more or less--correction from August's 14-year high is no big deal.
The Japanese government's plan to smooth out the consumption cliff-edge generated by October's sales tax hike is either going too well, or consumers now are facing fundamental headwinds.
The PBoC announced on Saturday that it will publish a new Loan Prime Rate, from today, following a State Council announcement last Friday.
The PBoC late on Wednesday announced measures to provide medium-term funding for smaller businesses.
The tone of Fed Chair Powell's opening comments at the press conference yesterday was much more dovish than the statement, which did little more than most analysts expected.
Japan's trade balance deteriorated sharply in May, flipping to a ¥967B deficit from the modest ¥57B surplus in April.
Local policy drivers have remained in the spotlight in Brazil, against a background of important recent global events.
Today brings more housing data, in the form of the May existing home sales numbers.
The average FICO credit score for successful mortgage applicants has risen in each of the past four months.
The FOMC did the minimum expected of it yesterday, raising rates by 25bp--with a 20bp increase in IOER--and dropping one of its dots for 2019.
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.
The recent sell-off in Treasuries has not yet reached significant proportions.
Final PMI data in the Eurozone yesterday confirmed that manufacturing remains under pressure from global headwinds. The manufacturing PMI in the zone fell to 52.0 in September from 52.3 in August, in line with the initial estimate. A rare upside surprise in France was not enough to offset weakness in the other major economies, and the trend in private investment growth likely will stay subdued this year.
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.
If recent labor market trends continue, the four employment reports which will be released before the June FOMC meeting will show the economy creating about 1.1M jobs, pushing the unemployment rate down to 5.3%, almost at the bottom of the Fed's estimated Nairu range, 5.2-to-5.5%.
The odds of a hike this month have increased in recent days, though the chance probably is not as high as the 82% implied by the fed funds future. The arguments against a March hike are that GDP growth seems likely to be very sluggish in Q1, following a sub-2% Q4, and that a hike this month would be seen as a political act.
We keep hearing that the auto market is struggling, but that idea is not supported by the recent sales numbers.
Yesterday's preliminary full-year GDP data in Germany tell a cautionary tale of the dangers in taking national accounts at face value. The headline data suggest real GDP growth rose to 1.7% in 2015, up slightly from 1.6% in 2014, but these data are not adjusted for calendar effects. The working-day adjusted measure buried in the press release instead indicates that growth slowed marginally to 1.5% from 1.6% in 2014.
The FOMC statement did enough to keep alive the idea that rates could rise in March, but the ball is now mostly in Congress' court. If a clear plan for substantial fiscal easing has emerged by the time of the meeting on March 15, policymakers can incorporate its potential impact on growth, unemployment and inflation into their forecasts, then a rate hike will be much more likely.
We suspect that euro area investors have one question on their mind as we step into 2019.
This week has seen a huge wave of data releases for both January and February, but the calendar today is empty save for the final Michigan consumer sentiment numbers; the preliminary index rose to a very strong 99.9 from 95.7, and we expect no significant change in the final reading.
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 won't raise rates today, or substantively change the wording of the post-meeting statement. In September, the FOMC said that "The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives."
The dreadful September ISM manufacturing survey reinforces our view that the sector will be in recession for the foreseeable future, and that both business capex and exports are on the verge of a serious downturn.
Don't bet the farm on today's October payroll numbers, which will be hopelessly--and unpredictably-- compromised by the impact of hurricanes Florence and Michael.
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.
Korean exports continued to fall year-over-year in April, but the story isn't as bleak as the headlines suggest.
In broad terms, the euro has followed the EZ economy in the past 12-to-18 months.
Growth in EZ car sales slowed further at the beginning of Q4. New registrations in the euro area fell 1.2% year-over-year in October, down from a 7.2% increase in September.
Markets now think the Fed is done.
We are not worried about the reported drop in April manufacturing output, which probably will reverse in May.
Back in September, after the Fed decided to hold fire in the wake of market turmoil, we expected rates to rise in December and again in March. We forecast 10-year yields would rise to 2.75% by the end of March. in the event, the Fed hiked only once, and 10-year yields ended the first quarter at just 1.77%. So, what went wrong with our forecasts?
The headline retail sales numbers for October looked good, but the details were less comforting.
Chinese April retail sales growth slowed sharply in value terms, to 9.4% year-over-year, from 10.1% in March.
The further improvement in labor market conditions and the jump in core inflation means that the economic data have given the Fed all the excuse it needs to raise rates today. But the chance of a hike is very small, not least because the fed funds future puts the odds of an action today at just 4%, and the Fed has proved itself very reluctant to surprise investors-- at least, in a bad way--in the past.
Fed Chair Yellen said nothing very new in the core of her Monetary Policy Testimony yesterday, repeating her view that rates likely will have to rise this year but policy will remain accommodative, and that the labor market is less tight than the headline unemployment rate suggests. The upturn in wage growth remains "tentative", in her view, making the next two payroll reports before the September FOMC meeting key to whether the Fed moves then.
Wednesday's money data confirmed that Chinese households have continued to borrow into Q2 but at a slower rate than in 2016. The slowdown will really set in during the second half, and into 2018. Households have done a sterling job of taking over the borrowing baton from corporates, but they can't do everything.
Falling demand for utility energy, thanks to yet another very warm month, relative to normal, will depress the headline industrial production number for October, due today. We look for a 21⁄2% drop in utility energy production, enough to subtract a quarter point from total industrial output.
Selling pressure in LatAm markets after Donald Trump's election victory eased when the dollar rally paused earlier this week. Yesterday, the yield on 10- year Mexican bonds slipped from its cycle high, and rates in other major LatAm economies also dipped slightly.
Japan's tertiary index edged up 0.1% month-on-month in July, after the 0.1% decrease in June.
Yesterday's data on EZ car sales added to the evidence that consumers' spending is slowing. We now reckon sales will rise by 1% quarter-on-quarter in the third quarter, after gains averaging 2.6% in the first half of the year.
Data released last week in Argentina reaffirm that President Macri remains in a challenging position ahead of the October 27 presidential election.
Tariffs are a tax on imported goods, and higher taxes depress growth, other things equal.
Evidence of accelerating economic activity in Colombia continues to mount, in stark contrast with its regional peers and DM economies.
Yesterday's final inflation data in France for September were misleadingly soft.
Today's brings the June retail sales and industrial production reports, after which we'll update our second quarter GDP forecast.
In yesterday's Monitor, we argued that if the upside risk in an array of core CPI components crystallised in January, the month-to-month gain would print at 0.3%, for the first time since August. That's exactly what happened, though we couldn't justify it as our base forecast. A combination of rebounding airline fares, apparel prices, new vehicle prices, and education costs conspired to generate a 0.31% gain, lifting the year-over-year rate back to the 2.3% cycle high, first reached in February last year.
Manufacturing is not in recession, yet, despite the reams of gloomy analysis of the sector, including our own.
The story of U.S. retail sales since last summer is mostly a story about the impact of the hurricanes, Harvey in particular.
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.
Industrial production bounced back in February. These data point to a reprieve for old-guard dirty industry, after stringent anti-pollution curbs were put in place in Q4.
The PBoC has left rates unchanged, so far, in the wake of the Fed hike.
Some shoes never drop. But it would be unwise to assume that the steep plunge in manufacturing output apparently signalled by the ISM manufacturing index won't happen, just because the hard data recently have been better than the survey implied.
Treasury Secretary Mnuchin's five-line letter to House Speaker Pelosi on last Friday--copied to other Congressional leaders--which said that "there is a scenario in which we run out of cash in early September, before Congress reconvenes", introduces a new element of uncertainty to the debt ceiling story.
LatAm assets did well in Q1, on the back of upbeat investor risk sentiment, low volatility in developed markets and a relatively benign USD.
The rate of growth of nominal core retail sales substantially outstripped the rate of growth of nominal personal incomes, after tax, in both the second and third quarters.
Demand for new cars rebounded strongly last month, following the dip in October. Registrations in the EU27 rose 13.7% year-over-year in November, up from 2.9% in October, lifted mainly by buoyant growth in the periphery. New registrations surged 25.4% and 23.4% year-over-year in Spain and Italy respectively, while growth in the core was a more modest 10%. We also see few signs of the VW emissions scandal hitting the aggregate data. VW group sales have weakened, but were still up a respectable 4.1% year-over-year. This pushed the company's market share down marginally compared to last year. But sizzling growth rates for other manufacturers indicate that consumers are simply choosing different brands.
Mr. Draghi's introductory statement before yesterday's hearing at the European Parliament repeated that the ECB will "review and possibly reconsider its monetary policy stance in March." But it didn't provide any conclusive smoking gun that further easing is a done deal.
The Chinese activity data published yesterday were much weaker than expected; growth rates fell resoundingly. Did analysts really get it wrong, or is this just another example of erratic Chinese data?
Yesterday's industrial production report was poor, but the headline was better than we, and the market, feared. Output fell 0.5% month-to-month in August, but the July data were revised up 0.2%, pushing the year over-year rate--using the seasonally- and working day-adjusted index--higher to 1.9% from 1.4% in July. Bloomberg reported the year-over-year rate fell to 0.9% from 1.7% in July, but they used an index which is only working day-adjusted.
The Chinese activity data published yesterday were a mixed bag, with headline retail sales and production weakening, while FAI growth was stable. We compile our own indices for all three, to crosscheck the official versions.
Japanese leading indicators point to a slowdown, and the trend over this volatile year is emerging as firmly downward.
Last week's horrible manufacturing data in the major EZ economies had already warned investors that yesterday's industrial production report for the zone as a whole would be one to forget.
We have been quite bullish on U.S. economic growth this year.
Inflation data are known to defy economists' forecasts, but it should in principle b e straightforward to predict the cyclical path of EZ core inflation. It is the longest lagging indicator in the economy, and leading indicators currently signal that core inflation pressures are rising.
Japan's July adjusted trade surplus rebounded to ¥337.4B from ¥87.3B in June, far above consensus. On our seasonal adjustment, the rebound is slightly smaller but only because we saw less of a drop in June.
Just how weak would the manufacturing sector have to be in order to persuade the Fed to hold fire this fall, assuming the labor market numbers continue to improve steadily? The question is germane in the wake of the startlingly terrible August Empire State manufacturing survey, which suggested that conditions for manufacturers in New York are deteriorating at the fastest rate since June 2009.
As warned--see our Monitor April 7--economic data in the Eurozone disappointed while we were away. Industrial production, ex-construction, in the euro area slipped 0.3% month-to-month in February, and the January month-to-month gain was revised down by 0.6 percentage point to +0.3%.
Growth in Eurozone car sales slowed slightly at the end of the first quarter. New car registrations in the euro area rose 5.8% year-over-year in March, down from a 14.4% increase in February. But the 12-month average level of new registrations jumped to new cyclical highs of 440,000 and 252,000 in the core and periphery respectively.
Colombia's July activity numbers, released on Friday, portrayed still-strong retail sales and a reviving manufacturing sector, with both indicators stronger than expected.
We have not been expecting the Fed to raise rates next week, and yesterday's data made a hike even less likely. The September Philly Fed and Empire State surveys were alarmingly weak everywhere except the headline level, and the official August production data were grim.
The shortfall in nominal wage growth, relative to measures of labor market tightness, remains the single biggest mystery of this business cycle.
The monthly industrial production numbers are collected and released by the Fed, rather than the BEA, so today's December report will not be delayed by the government shutdown.
The April FOMC statement dropped the March assertion that "global economic and financial developments continue to pose risks" to the U.S. economy, even though growth "appears to have slowed". Instead policymakers pointed out that "labor conditions have improved further", perhaps suggesting they don't take the weak-looking March data at face value. We certainly don't.
Eurozone inflation pressures remained subdued in April. Today's final data likely will show that inflation fell to -0.2% year-over-year in April, from 0.0% in March. The main story in this report will be the reversal in services inflation from the March surge, which was due to the early Easter.
Most of the Andean economies have been hit by the turmoil roiling the global economy in the past few quarters. But modest recovery in commodity prices in Q3, and relatively solid domestic fundamentals helped them to avoid a protracted slowdown in Q2 and most of Q3.
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.
Hard data on Mexico's industrial sector for the last couple of months have highlighted major divergences across sectors.
Japanese policymakers have a wary eye on the weakness in industrial production and exports.
Japan's inflation target came under heavy fire yesterday, as Finance Minister Taro Aso suggested that "things will go wrong if you focus too much on 2%."
Manufacturing is in recession, with few signs yet that a floor is near, still less a recovery.
We expect the Fed not to raise rates today. In the eyes of the waverers who will need to change their minds in order to trigger action, the latest data-- especially wages--do not make a compelling case for immediate action, and the obvious fragility of markets strengthens the case for doing nothing today. This is a Fed which in recent years has greatly preferred to err on the side of caution. With no immediate inflation threat, the waverers and the doves will take the view that the cost of delaying the first move until October or December is small. As far as we can tell, they are the majority on the committee.
The Eurozone's trade surplus rebounded slightly over the summer, rising to €16.6B in August from €12.6B in July, helped mainly by a 2.0% month-to- month jump in exports.
The outlook for growth in the EZ economy is currently both stable and relatively uncomplicated, at least based on the most widely-watched leading indicators.
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.
External conditions are becoming more demanding for LatAm economies, with global trade tensions intensifying in recent weeks.
Over the past 18 months, the year-over-year rate of growth of manufacturing output has swung from minus 2.1% to plus 2.5%.
On the face of it, the December core retail sales numbers were something of a damp squib. The headline numbers were lifted by an incentive-driven jump in auto sales and the rise in gas prices, but our measure of core sales--stripping out autos, gas and food--was dead flat. One soft month doesn't prove anything, and core sales rose at a 3.9% annualized rate in the fourth quarter as a whole.
Demand for new cars in the Eurozone bounced back strongly last month. Accelerating growth in the major economies lifted new registrations by 14.6% year-over-year in February, up from a 6.8% increase in January. Surging growth in Italy was a key driver, with new registrations jumping 27.3%, up from an already sizzling 17.4% in January.
We have revised up our second quarter consumption forecast to a startling 4.0% in the wake of yesterday's strong June retail sales numbers, which were accompanied by upward revisions to prior data.
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.
The GM strike will make itself felt in the September industrial production data, due today.
The Monetary Policy Board of the Bank of Korea voted yesterday to lower its policy base rate to 1.25%, from 1.50%.
The beleaguered EZ car sector finally enjoyed some relief at the end of Q3, though base effects were the major driver of yesterday's strong headline.
Japan's economic data have been very volatile in the last 18 months.
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.
Final October inflation data surprised to the upside yesterday, consistent with our view that inflation will rise faster than the market and ECB expect in coming months. Inflation rose to 0.1% year-over-year in from -0.1% in September, lifted mainly by higher food inflation due to surging prices for fruits and vegetables. This won't last, but base effects will push the year-over-year rate in energy prices sharply higher into the first quarter, and core inflation is climbing too. Core inflation rose to 1.1% in October from 0.9% in September, higher than the consensus forecast, 1.0%.
Official Chinese real GDP growth likely slipped to 6.3% year-over-year in Q1, the lowest on record, from 6.4% in Q4, which matched the trough in the Great Financial Crisis.
While we were out, most of the action was on the political front, while the economic data mostly were unexciting.
Freya Beamish, Chief Asia economist at Pantheon Macroeconomics, discusses the Chinese government's ability to provide economic stimulus. She speaks on "Bloomberg Surveillance."
Officially, Chinese real GDP growth was a sturdy 6.8% year-over-year in Q4, matching the Q3 rate, with full year growth at 6.9%.
Ian Shepherdson, Pantheon Macroeconomics, and Said Haidar, Haidar Capital Management, discuss the market, economic and geopolitical impacts of the Trump administration's trade actions.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, outlines her expectations from the impending Sino-U.S. trade talks.
Chief U.S. Economist Ian Shepherdson with the latest on the trade war
The Caixin services PMI ticked down to 53.6 in January, from 53.9 in December.
Small business sentiment and activity, as reported by the NFIB survey, has recovered exactly half the drop triggered by the rollover in stock prices in the fourth quarter. This matters, because most people work at small firms, which are responsible for the vast bulk of net job growth.
Premier Li Keqiang rounded out the National People's Congress with his press conference yesterday.
Pantheon Macroeconomics is pleased to make available to you our Outlooks for the second half of 2017 for the US, Eurozone, UK, Asia, and Latin America. These reports present our key views, giving you a concise summary of our economic and policy expectations. If you are interested in seeing publications which you don't already receive, please request a complimentary trial
Asia H1 2019 Outlook
The jump in the Caixin services PMI in the past two months looks erratic, with holiday effects playing a role, though there could be more going on here.
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.
Lower Rates are a Mistake Unless the Trade War Intensifies
China's social contract has changed...Fed normalisation to test the new paradism
China's first recourse: Secure a trade deal...The boj is reticent to join the chorus of doves...The bok won't blink, green shoots are evident...India's Q1 was poor, but rbi cuts are overkill
China's Stimulus Faces Q4 Hurdles...Japan Bounced Back in October but will it last?...Misplaced BoK Hopes for Stable Growth
China Delivers Stimulus; No Trough Yet...Korea and Japan Pummelled by China's Slowdown...Time for a Boj Inflation Target Rethink?
China's Dire Q3 GDP points to Further Easing
After June respite, China will hit Q3 headwinds...Japan probably dodged a Q2 GDP contraction...The BOK's surprise cut in July is a one-and-done...The case for additional RBI cuts narrows further
Back to 2014/2015 for China? A Weak Q3 for Japan, After Rocket-Charged Q2...The BOK Will Kick Its Rate Hike Into the Long Grass
Asia supported by U.S. demand in Q3...while domestic demand weakens in China and Japan
Worries over China and deflation linger...and will likely push the ECB to extend QE this month
A Major Turning Point For China? Financial Fragilities; Political Regime Change
Winter has come as China curbs pollution...Asia will use fed hikes to tackle financial risks
China's switch to easing shows up in the data...The BOJ takes a baby step away from uber-easing
Is This Really The Recovery For China?...Japan Catches A Cold;...Q1 Will Be Poor, But The BOK Is Set For A Long Pause
China's 2018 growth forecast revised up...but activity in Japan took a breather in Q1
China's Stimulus Faces Q4 Hurdles....Japan Bouced Back in October, But Will it Last? Growth in Korea is Set to Become Much Weaker
The Slowdown Story is Overdone...If a China Deal is Done, the Fed Will Keep Hiking
Latam Economic Prospects Are Improving...A Trade Deal Between The U.S. And China Will Help
China Downtrend Worse; Outlook Better..Japan's Bouncy Q4 Won't Be Repeated In Q1...Korea's Job Market Pummelled By Minimum Wage Hike
China and commodities still hurting Latam....But Brazil has severe domestic woes
China shifts to easing but scope is limited...While the Boj is set to tweak its yield curve targets
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
We have argued for some time that much of the early phase of the downturn in global manufacturing was due to the weakening of China's economic cycle, rather than the trade war.
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.
Volatility in commodities and emerging markets has intensified since the beginning of July, with the stock market drama in China taking centre stage. The bubble in Chinese equities inflated without much ado elsewhere, and can probably deflate in isolation too. But the accelerating economic slowdown in EM is becoming an issue for policy makers in the Eurozone.
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.
Growth momentum in Mexico has improved marginally over the last few months after the soft patch during the first quarter, with business and households gaining confidence in the economic recovery. But the upswing has been rather modest, due to the volatility in global financial markets and the challenging external environment. The outlook for the global economy has deteriorated over recent months due to China's problems, and commodity prices remain under pressure. All these factors are now weighing on investors' confidence and hurting EM across asset classes.
China Takes the Trade High Road..The BOJ will Act Before Markets Expect Unemployment Upshift Rules out 2018 BOK Hike
In one line: More evidence that China's PMI upturn is filtering into U.S. manufacturing.
The collapse in capital spending in the oil sector last year was the biggest single drag on the manufacturing sector, by far. The strong dollar hurt too, as did the slowdown in growth in China, but most companies don't export anything. Capex has fallen in proportion to the drop in oil prices, so our first chart strongly suggests that the bottom of the cycle is now very near.
Japan's services PMI points to Q2 GDP contraction. China's Caixin services PMI highlights the reasons for official concern over employment. Korea's current account slips into deficit for the first time since 2012.
In one line: Trade deficit has stabilized, provided the China talks don't fall apart.
In one line: Disconnected from the rebound in China's surveys by the trade war.
2018 Will Test Chinese Leaders' Will To Reform...China Is Exposed To The Coming Rise In Global Yields
Guo Shuqing, head of the newly formed China Banking and Insurance Regulatory Commission, has been named as Party Secretary for the PBoC.
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."
China's interbank rates in February so far, on average, have been a little more than 20bp below the floor of the PBoC's corridor, the 2.55% seven-day reverse repo rate.
The RMB has risen strongly in recent months, initially with the euro and the yen, but China's currency rose on a trade-weighted basis in August.
In recent weeks LatAm's currencies and stock markets, together with key commodity prices, have risen as financial markets' expectations for a rate increase by the Fed this year have faded. The COP has risen 8.5% over the last month, the MXN is up 2.5%, the CLP has climbed 1.4% and the PEN has been practically stable against the USD. The minutes of the Federal Reserve's latest meeting added strength to this market's view, showing that policymakers postponed an interest rate hike as they worried about a global slowdown, particularly China, the strong USD and the impact of the drop in stock prices.
The announcement, late Tuesday, that the administration plans to impose 10% tariffs on some $200B-worth of imports from China raises the prospect of a substantial hit to the CPI.
Eurozone investors continue to look to the ECB as the main reason to justify a constructive stance on the equity market. Last week, the central bank all but promised additional easing in March, but the soothing words by Mr. Draghi have, so far, given only a limited lift to equities. Easy monetary policy has partly been offset by external risks, in the form of fears over slow growth in China, and the risk of low oil prices sparking a wave of corporate defaults. But uncertainty over earnings is another story we frequently hear from disappointed equity investors. We continue to think that QE and ZIRP offer powerful support for equity valuations in the Eurozone, but weak earnings are a key missing link in the story.
As promised, Mr. Trump retaliated earlier this week against China's weekend retaliation, after his refusal to back down on the initial tariffs on $50B-worth of imports of Chinese goods, on top of the steel and aluminium tariffs first announced back in March.
After strong real GDP growth in Q1, China commentators called the peak, claiming that growth would slow for the rest of 2017.
The latest trade data from Korea underscore the unfortunate timing of the resumption of the U.S.-China tit-for-tat tariff war.
ECB growth bears looking for the Fed to move in order to take the sting out of the euro's recent strength were disappointed last week. The FOMC refrained from a hike, referring to the risk that slowing growth in China and emerging markets could "restrain economic activity" and put "downward pressure on inflation in the near term." In doing so, the Fed had an eye on the same global risks as the ECB, highlighting increased fears of deflation risks in China, despite a rosier domestic outlook.
A mix of political and economic events have triggered outflows of capital from emerging markets this year. Tensions in Europe, due to the "Grexit" saga, together with China's slowdown and concerns about Fed lift-off have weighed on EM flows. In recent months, though, some of the pressure on EM currencies has eased as the markets have come to expect fewer U.S. rate hikes in the near term.
The resilience and adaptability that the Chilean economy has shown over previous cycles has been tested repeatedly over the last year. Uncertainty on the political front, falling metal prices, and growing concerns about growth in China have been the key factors behind expectations of slowing GDP growth.
Andres Abadia authors our Latin American service. Andres is a native of Colombia and has many years' experience covering the global economy, with a particular focus on Latin America. In 2017, he won the Thomson Reuters Starmine Top Forecaster Award for Latam FX. Andres's research covers Brazil, Mexico, Argentina, Chile, Colombia, Peru and Venezuela, focusing on economic, political and financial developments. The countries of Latin America differ substantially in terms of structure, business cycle and politics, and Andres' researchhighlights the impact of these differences on currencies, interest rates and equity markets. He believes that most LatAm economies are heavily influenced by cyclical forces in the U.S. and China, as well as domestic policy shocks and local politics. He keeps a close eye on both external and domestic developments to forecast their effects on LatAm economies, monetary policy, and financial markets. Before starting to work at Pantheon Macroeconomics in 2013, Dr. Abadia was the Head of Research for Arcalia/Bancaja (now Bankia) in Madrid, and formerly Chief Economist for the same institution. Previously, he worked at Ahorro Coporacion Financiera, as an Economist. Andres earned a PhD in Applied Economics, and a Masters Degree in Economics and International Business Administration from Universidad Autónoma de Madrid, and a BSc in Economics from the Universidad Externado de Colombia.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, discusses the lack of inflation in Asia, PBOC policy and China's economy.
Machine tool orders in Japan are still in the doldrums.
Miguel Chanco helps to produce Pantheon's Asia service, having covered several parts of the region for nearly ten years. He was most recently the Lead Analyst for ASEAN at the Economist Intelligence Unit. Prior to that role, Miguel focused on India and frontier markets in South Asia for Capital Economics and BMI Research, Fitch Group.
Ian Shepherdson on U.S. Manufacturing Activity
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Chief U.S. Economist Ian Shepherdson on the U.S. Trade Deficit
Why is the EZ current account surplus rising and net exports falling at the same time?
Chief U.K.. economist Samuel Tombs comments on U.K. PMI
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