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694 matches for " construction":
The construction sector in the Eurozone probably stumbled in March. Advance data for the major economies suggest that output fell 1.2% month-to-month, pushing the year-over-year rate down to 1.6% from 2.4% in February.
Today's construction data in the Eurozone will inject a dose of optimism amid the series of poor economic reports at the start of Q2.
February's Markit/CIPS construction survey brought further evidence that the economy is being weighed down by Brexit uncertainty.
The construction sector in the Eurozone remains moribund. Output fell 0.4% month-to-month in September, pushing the year-over-year rate up to 1.8% from a revised 1.4% fall in August. Declines were recorded in France, Germany, and Italy, with a small increase in Spain. These data could, in theory, lead to revisions in the final Q3 Eurozone GDP data released December 8th, but we very much doubt they will move the needle. Our first chart shows the relationship between construction and GDP growth has broken down since the crisis.
The upturn in the Eurozone construction sector likely paused in Q3. Yesterday's August report showed that output fell 0.2% month-to-month, pushing the year-over-year rate down to +1.6%, from a revised +2.8% in July.
November's Markit/CIPS construction report brings hope that the sector no longer is contracting. The PMI increased to a five-month high of 53.1 in November from 50.8 in October, exceeding the 52-mark that in practice has separated expansion from contraction.
Construction accounted for the entire 1.1% quarter-to- quarter expansion of the Korean economy in Q1, but the sector is now set to slow.
The flow of downbeat business surveys continued yesterday, with the release of the Markit/CIPS construction survey.
Judging by the monthly production data, construction in the Eurozone slowed sharply in the second half of 2018.
Data today will show that the EZ construction sector finished 2017 on a decent note.
Yesterday's November EZ construction data offered little respite to the gloomy outlook for the Q4 GDP headline.
The Eurozone construction sector took a step back at the end of Q1, but only temporarily. Construction output fell 1.1% month-to-month in March, after a revised 5.5% jump in February. The year-over-year rate slipped to +3.6%, from a two-year high of 5.5% in February.
In one line: EZ construction is stalling.
Fourth quarter construction activity in the Eurozone was much better than in Q3, despite a dip in December. Output fell 0.6% month-to-month in the final month of the year, pushing the year-over-year rate down to -0.4% from a revised 0.3% in November.
Today's economic data will add to the evidence that construction in the Eurozone slowed in the first quarter.
Output in EZ construction rebounded sharply in February, erasing a slip at the start of the year.
Don't write off the outlook for the construction sector purely on the basis of June's grim Markit/CIPS survey.
In the short-term, all the housing data are volatile. But you can be sure that if the recent pace of new home sales is sustained, housing construction will rise.
Evidence that the U.K. economy has slowed significantly this year is starting to come in thick and fast. Following the Markit/CIPS manufacturing PMI on Monday --which signalled that growth in production declined in March to its lowest rate since July--the construction PMI dropped to 52.2 in March, from 52.5 in February.
Households remain the key driver of the cyclical recovery in the Eurozone. We have seen, so far, little sign that investment will be able convincingly to take over the baton if momentum in consumers' spending slows. The average rate of growth of investment since 2013 has been 0.5%, about two-thirds of the pace seen in previous cyclical upturns. Weakness in construction--about 50% of total euro area investment--has been one of the key factors behind of the under performance.
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.
2019 is a year many in the construction sector would prefer to forget.
Construction in the Eurozone had a decent start in the third quarter. Output rose 0.5% month-to- month in July, pushing the year-over-year rate down to 1.9% from 2.8% in June.
We still don't have the complete picture of what happened to the EZ construction sector in Q2, but we have enough evidence to suggest that it rolled over.
The construction sector remains a stand-out performer in the Eurozone economy, despite stumbling at the end of Q2.
The revival in the construction sector is slowing on all fronts as the fiscal squeeze intensifies, business confidence fades and the recovery in housebuilding loses momentum. These headwinds are likely to ensure that construction output only holds steady this year, thereby contributing to the broader economic slowdown.
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.
Promises of new money to facilitate construction on public sector land from the Chancellor and the pick-up in the construction PMI have fostered optimism that the sector's downturn is over.
The recent increases in single-family housing construction are consistent with the rise in new home sales, triggered by the substantial fall in mortgage rates over the past year.
Construction in the EZ stumbled at the start of the year.
Markets tend to ignore Eurozone construction data, but we suspect today's report will be an exception to that rule. Our first chart shows that we're forecasting a 8.5% month-to-month leap in February EZ construction output, and we also expect an upward revision to January's numbers.
Perhaps the single strongest U.S. economic data series in recent months has been construction spending, which has risen by more than 1%, month-to-month, in four of the past five months.
The underlying health of the construction sector isn't as poor as today's official output figures likely will imply. Nonetheless, growth in construction output, which accounts for 6% of GDP, probably won't return to the stellar rates seen in 2013 and 2014, and the sector can't be relied upon to provide much support to overall growth.
The single most important number in the housing construction report is single-family permits, because they lead starts by a month or two but are much less volatile.
Construction in the euro area stumbled at the end of last year. Output fell 0.2% month-to-month in December, but the year-over-year rose to 2.4%, from a revised 1.6% in November.
The Eurozone construction sector ground to a halt at the start of 2017. Data on Friday showed that output plunged 2.3% month-to-month in January, pushing the year-over-year rate down to -6.0%, from a revised +3.0% in December. The weakness was broad-based across the major economies, but it was concentrated in France and Spain where output fell by 3.5% and 3.8%, respectively.
We continue to see signs of a strengthening upturn in Eurozone construction. Output in construction rose 0.3% month-to-month in April, pushing the year-over-year rate down to 3.2%, from an upwardly revised 3.8% in March.
Yesterday's EZ construction data confirmed that capex in the building sector plunged in the second quarter. Construction output fell 0.5% month-to-month in May, pushing the year-over-year rate up trivially to -0.8%, from a revised -1.0% in April. Our forecast for construction investment in Q2 is not pretty, even after including our assumption that production rebounded by 0.5% month-to-month in June.
In one line: Core inflation will fall back this month; construction jumped in Q1, but a setback looms in Q2.
Yesterday's industrial production numbers in Germany were similar to Friday's confusing new orders data.
In one line: More poor Q2 data; EZ core inflation rebounds, but it is not going anywhere fast.
In one line: A worrying step change in the impact of Brexit uncertainty.
In one line: Don't extrapolate low EZ inflation; both the headline and core will rise into year-end.
In one line: Strong finish to Q3, but the quarter as a whole was poor.
In one line: Flatlining at the end of a weak quarter.
In one line: The downturn is deepening, through a rapid rebound will emerge if no-deal Brexit risk subsides.
In one line: Work is continuing to dry up as no-deal Brexit risk mounts.
In one line: Overall stagnation masks sub-sector divergence.
In one line: The downturn is accelerating; Brexit uncertainty still to blame.
In one line: Still struggling, but a recovery in 2020 is in sight.
In one line: Brexit uncertainty is still hurting, but a boost from lower borrowing costs is coming.
In one line: Weak, and Q2 as a whole likely will be bleak.
Headline GDP growth in Korea was revised down, to a seasonally-adjusted 0.6% quarter-on-quarter in Q2, from 0.7% in the preliminary report.
Yesterday's economic data provided further evidence that GDP growth in the EZ economy slowed in Q2.
The declines in headline housing starts and building permits in June don't matter; both were depressed by declines in the wildly volatile multi-family components.
Unemployment in France remains high, but the trend is turning. The mainland rate of joblessness fell to a five-year low of 8.6% in Q4, and yesterday's employment report continued the good news.
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.
As we reach our Sunday afternoon deadline, Hurricane Irma is pounding Florida's west coast with an intensity not seen since Andrew, in 1992.
Yesterday's economic data added further evidence that GDP growth in the EZ will slow in Q2.
Yesterday's headline economic data in the euro area were solid across the board, though the details were mixed.
Barring some sort of miracle, or substantial upward revision to prior data--it happens--first quarter consumption spending growth is unlikely to reach 3%, despite the robust 0.3% gain reported yesterday for January. Part of the problem is a basis effect.
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.
The INSEE's manufacturing sentiment data in France are slightly confusing at the moment.
Yesterday's barrage of survey data in France suggests that business sentiment in the industrial sector remained soft mid-way through Q4, but the numbers are more uncertain than usual this month.
The bad news in German manufacturing keeps coming thick and fast.
In one line: Still weighed down by Brexit uncertainty, but next year should be better.
Japan's flash PMIs for August point to short-term gain and long-term pain. Construction is starting to show signs of peaking.
Construction data released yesterday provided further evidence that the Eurozone economy had a decent start to the fourth quarter. Output rose 1.3% month-on-month in October, equivalent to a 1.4% year-over-year increase.
Today brings the September housing construction report, which likely will show that activity was depressed by the hurricanes.
March payrolls were constrained by both the impact of colder and snowier weather than usual in the survey week, and a correction in the construction and retail components, which were unsustainably strong in February.
The euro area economy continues to defy rising political uncertainty. Data yesterday showed that industrial production, ex-construction, in the Eurozone jumped 1.5% month-to-month in November, pushing the year-over-year rate up to 3.2% from a revised 0.8% in October. Output rose in all the major economies, but the headline was flattered by a 16.3% month-to-month leap in Ireland. This was due to a production jump in Ireland's "modern sector" which includes the country's large multinational technology sector.
Readers have asked us about the availability of flow-of-funds data in the Eurozone similar to the detailed U.S. reports. The ECB's sector accounts come close and cover a lot of ground, but are also released with a lag. We can't cover all sectors in one Monitor, but the investment data for non-financial firms, excluding construction, suggest that investment growth slowed last year.
The rise in Markit/CIPS services PMI to 55.0 in March, from 53.3 in February, brings some relief that GDP growth has not stalled in Q1, following manufacturing and construction surveys that signalled near-stagnation.
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%.
Another day, another solid economic report in the Eurozone. Data yesterday showed that industrial production in France jumped 2.2% month-to-month in November, pushing the year-over-year rate up to +1.8%, from -1.8% in October. The 2.3% jump in manufacturing output was the key story, offsetting a 0.3% decline in construction activity. Production of food and beverages rebounded from weakness in October, and oil refining also accelerated.
Yesterday's industrial production, construction output and trade data for November collectively suggest that the economy lost a little momentum in the fourth quarter. GDP growth likely slowed to 0.5% quarter-on-quarter in Q4, from 0.6% in Q3. Growth remains set to slow further this year, as inflation shoots up and constrains consumers.
Mexico's latest industrial production figures, released on Friday, showed that the recovery is stuttering. May output fell 0.9% year-over-year, down from the 1.2% gain in April. Total production was depressed by a 1.5% month-to-month drop in construction output, after two consecutive increases.
Mexico's industrial sector did relatively well in Q3, due mainly to the resilience of the manufacturing sector, and the rebound in construction and oil output, following a long period of sluggishness.
Wednesday's Mexican industrial production report was upbeat for manufacturing, but it revealed that the oil and public construction sectors remain under severe strain.
Data released yesterday showed that gross fixed investment in Mexico started Q4 on a decent note, increasing on the back of healthy purchases of imported machinery and equipment and construction spending.
February's industrial production and construction output data leave us little choice but to revise down our forecast for quarter-on-quarter GDP growth in Q1 to 0.2%, from 0.3% previously.
The collapse in capital spending in the oil sector and poor construction spending have constrained aggregate Mexican industrial output in recent months, despite the strength of the manufacturing sector. Total production fell 0.1% year-over-year in January, though note this was a clear improvement after the 0.6% drop in December, and better than the average 0.4% contraction over the second half of 2016.
The sustained upturn in mortgage applications since last fall ought to have driven up the pace of new home construction quite sharply. But our first chart shows that single-family building permit issuance--we use permits rather than starts, as they are much less volatile--rose only 8.3% year-over-year in the three months to May, while applications for new mortgages to finance house purchase jumped by 18.8% over the same period.
Markets likely will be particularly sensitive to May's industrial production and construction output figures, released today, as they will provide a guide to the strength of the preliminary estimate of Q2 GDP, released shortly before the MPC's key meeting on August 3.
The preliminary estimate of a 0.5% quarter-on-quarter rise in GDP in Q4 slightly exceeded our expectation and the third quarter's growth rate, both 0.4%. Nonetheless, there was little to console the optimists in the figures. The recovery remains unbalanced, with industrial production and construction output falling by 0.2% and 0.1% respectively, while services output rose 0.7% quarter-on-quarter.
Japan's all-industry activity index fell 0.5% month-on- month in September after a 0.2% rise in August. Construction activity continued to plummet, with the subindex dropping 2.3%, after a 2.2% fall in August.
We argued in the Monitor yesterday that the plunge in capital spending on equipment in the oil sector could cost about 300K jobs over the course of this year. Adding in the potential hit from falling spending on structures, which likely will occur over a longer period, given the lead times in the construction process, the payroll hit this year could easily be 500K, or just over 40K per month.
The Atlanta Fed's GDP Now estimate for second quarter GDP growth will be revised today, in light of the data released over the past few days. We aren't expecting a big change from the June 24 estimate, 2.6%, because most of the recent data don't capture the most volatile components of growth, including inventories and government spending. The key driver of quarterly swings in the government component is state and local construction, but at this point we have data only for April; those numbers were weak.
Political volatility is a recurrent theme in Brazil. Six members of President Michel Temer's cabinet resigned last Friday due to allegations of conflict of interest on a construction deal. Rumours that President Temer was involved in the affair stirred up market volatility and revived political risk concerns
The downside surprise in April payrolls reflected weakness in just three components--retail, construction, and government--compared to their prior trends. Of these, we think only the construction numbers are likely to remain soft in May. Had it not been for the Verizon strike, then, we would have expected payrolls to rise by just over 200K in May, but the 35K strike hit means our forecast is 170K.
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.
The bad news on economic activity keeps coming for Brazil. The formal payroll employment report-- CAGED--for December was very weak, with 120K net jobs eliminated, compared to a 40K net destruction in December 2014, according to our seasonal adjustment. The severe downturn has translated into huge job losses. The economy eliminated 1.5 million jobs last year, compared to 152K gains in 2014. Last year's job destruction was the worst since the data series started in 1992. The payroll losses have been broad-based, but manufacturing has been hit very hard, with 606K jobs eliminated, followed by civil construction and services. Since the end of 2014, the crisis has hit one sector after another.
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.
Taken at face value, the GDP data continue to suggest that the Brexit vote has had no adverse consequences for the economy. The official estimate of quarter-on-quarter GDP growth in Q4 was revised up yesterday to 0.7%, from 0.6%. The revision had been flagged earlier this month by stronger industrial production and construction output figures.
The information available to date--which is still very incomplete--suggests that new housing construction will decline in the third quarter. This would be the second straight decline, following the 6.1% drop in Q2. We aren't expecting such a large fall in the third quarter, but it is nonetheless curious that housing investment--construction, in other words--is falling at a time when new home sales have risen sharply.
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.
A further rise in the business activity index of the November Markit/CIPS report on services offset declines in the manufacturing and construction surveys' key balances. The composite PMI--a weighted average of three survey's activity indices -- therefore rose, to a level consistent with quarter-on-quarter GDP growth strengthening to 0.6% in the fourth quarter, from 0.5% in Q3. Nonetheless, we do not think this is a convincing signal that the economic recovery is regaining strength.
Japan will host the Olympics in 2020 and the preparatory surge in construction investment makes 2017-to-2018 the peak spending period.
Ian Shepherdson comments on strong construction data
We see downside risk to the housing starts numbers for April, due today. Our core view on housing market activity, both sales and construction activity, is that the next few months, through the summer, will be broadly flat-to-down.
Chief U.K. Economist Samuel Tombs on U.K. construction
We think the EZ construction industry stuttered in August, following a strong start to Q3. Advance data from Germany, France and Spain suggest that output fell 1.4% month-to-month, pushing the year-over- year rate down to 1.8%, from a revised 3.1% in July.
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.
We have given up, more or less, on the idea that housing construction will be a serious driver of economic growth in this cycle. The next cycle should be different, but it was never realistic to expect the sector which brought down the economy to recover fully as soon as the dust settled.
Chief U.K.. economist Samuel Tombs comments on U.K. Construction
Chief Eurozone Economist Claus Vistesen discussing the latest Eurozone Construction data
Samuel Tombs on U.K. Construction in June
What do the protests mean for Chile's economy?
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.
Mexican GDP was unchanged quarter-on-quarter in Q2, according to the final report, a tenth worse than the preliminary reading.
The strengthening recovery in the euro area is proving to be a poisoned chalice for some of the region's most vulnerable banks. Earlier this month-- see our Monitor of June 8--Spain's Banco Populare was acquired by Banco Santander, and the bank's equity and junior credit holders were bailed-in as part of the deal.
Friday's advance Eurozone PMI reports capped a fine quarter for the survey. The composite PMI jumped to a 80-month high of 56.7 in March, from 56.1 in February, rising to a cyclical high over Q1 as a whole.
Recent upbeat economic reports have mitigated the downside risks we had been flagging to our growth forecast for Mexico for the current quarter.
The BRL remains under severe stress, despite renewed signals of a sustained economic recovery and strengthening expectations that the end of the monetary easing cycle is near.
GDP rose by 0.3% quarter-on-quarter in Q2, according to the ONS' preliminary estimate, confirming that the economy has fundamentally slowed since the Brexit vote. The modest growth has reduced further the already-small risk that the MPC will raise interest rates at its next meeting on August 3.
We are happy to report that the laws of gravity have been temporarily suspended in the German survey data.
Last week's detailed Q3 GDP data in Germany verified that GDP fell 0.2% quarter-on-quarter, down from a 0.5% rise in Q2, a number which all but confirms the key story for the economy over the year as a whole.
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.
ECB board member Peter Praet fired the first shot across the markets' bow yesterday following this week's turmoil. Speaking to journalists in Germany, Mr. Praet noted "increased downside risk of achieving a sustainable inflation path towards 2%," and assured investors the current QE program is fully flexible, and can be readily adjusted in response to an adverse development in inflation expectations. We don't think, though, this is a pre -cursor for additional easing at next week's ECB meeting.
When Fed Chair Powell said last week that the "surprise" weakness in the official retail sales numbers is "inconsistent with a significant amount of other data", we're guessing that he had in mind a couple of reports which will be updated today.
The trend of consensus-beating EZ economic data was brought to a halt yesterday. The IFO business climate index in Germany slipped to a five-month low of 109.8 in January, from 111.0 in December, mainly due to a fall in the expectations index. But we are not alarmed. The dip in the headline comes after a run of strong data, and the IFO remains consistent with GDP growth of about 1.6% year-over-year.
Yesterday's national business surveys provided an optimistic counterbalance to the underwhelming PMIs on Monday, although they all suggest that the euro area economy is in good form.
Today's preliminary estimate of GDP likely will show that the economy continued to struggle in response to high inflation, further fiscal austerity and Brexit uncertainty.
We remain negative about the medium-term growth prospects of the Mexican economy.
Data released yesterday confirmed that the Mexican economy ended Q4 poorly; policymakers will take note.
Mexico's inflation is finally falling, giving policymakers room for manoeuvre.
The IFO survey signals that markets shouldn't be too downbeat on the German economy, even as it faces uncertainty from global trade tensions.
Yesterday's German IFO survey suggests that economic momentum in the Eurozone's largest country remained modest at the start of Q2. The headline business climate index fell trivially to 106.6 in April, from 106.7 in March, lower than the consensus expectation of an increase to 107.2.
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.
Today's second estimate of Q2 GDP likely will restate the preliminary estimate that quarter-onquarter growth picked up to 0.6%, from 0.4% in Q1. Over the last two decades, the second estimate of GDP has differed from the preliminary estimate just 38% of the time.
The verdict from the German business surveys is in; economic growth probably slowed further in Q2.
Yesterday's IFO offered a rare upside surprise in the German survey data.
Korea's GDP growth in Q3 was a miss. Quarter- on-quarter growth was unchanged at 0.6%, below the consensus for a 0.8% rise.
Yesterday's IFO survey confirmed that the private business sector in Germany was off to a flying start in Q4. The headline business climate index rose to 110.5 in October, from 109.5 in September, lifted mainly by a rise in the expectations index to a 30-month high of 106.5.
In the absence of reliable advance indicators, forecasting the monthly movements in the trade deficit is difficult.
Yesterday's IFO survey in Germany sent a marginally more downbeat message than the strong PMIs last week. The IFO business climate index fell to 115.2 in September, from 115.9 in August, its second straight monthly dip.
The ECB kept its cool yesterday, at the headline level, amid crashing stock markets, volatile BTPs and souring economic data.
The pick-up in GDP growth in Q3 means that we now expect a majority of MPC members to vote to raise interest rates next week.
Economic sentiment in the Eurozone's largest economy stayed solid at the start of the fourth quarter, despite subdued manufacturing and poor investor sentiment. The headline IFO business climate index fell slightly to 108.2 in October from 108.5 in September, due to a fall in the current assessment index. The expectations index rose, though, to 103.8 from 103.5 last month pointing to a resilient outlook for businesses and solid GDP growth in coming quarters.
The November IFO report suggests that the headline indices are on track for a tepid recovery in Q4 as a whole, but the central message is still one of downside risks to growth
Mexico's economic picture remains positive, although the outlook for 2019 is growing cloudy as the economy likely will lose momentum if AMLO's populist approach continues next year.
Yesterday's barrage of French business sentiment data was mixed.
Judging by the survey data, German business sentiment remained depressed at the start of the year.
The BoJ until last week had been in wait-and-see mode over China's slowdown, but they finally folded with Thursday's decision.
Mr. Draghi snubbed investors looking for hints on policy and the euro in his Jackson Hole address--see here--on Friday.
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.
The persistence of no-deal Brexit risk has taken a toll on confidence across the economy over the last month.
Markets responded to yesterday's disappointing GDP figures by pushing back expectations for the first rise in official interest rates even further into 2017. The first rate hike is now expected--by the overnight index swap market--in April 2017, two months later than anticipated before the GDP release. The figures certainly look weak--particularly when you scratch below the surface--and we expect growth to slow further over the coming quarters. But we don't agree they imply an even longer period of inaction on the Monetary Policy Committee.
Survey data in Germany showed few signs of picking up from their depressed level at the start of Q4.
Recent export performance has been poor, but the export orders index in the ISM manufacturing survey-- the most reliable short-term leading indicator--strongly suggests that it will be terrible in the fourth quarter.
The national accounts, released today, likely will restate that quarter-on-quarter GDP growth held steady at 0.4% in Q4.
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.
We aren't convinced by the idea that consumers' confidence will be depressed as a direct result of the rollover in most of the regular surveys of business sentiment and activity.
Monetary policy usually is the first line of defence whenever a recession hits.
The estimate of services output for the first month of the current quarter usually gets lost among the deluge of national accounts and balance of payments data released for the previous quarter.
Our analysis of the Q3 activity and GDP data in yesterday's Monitor strongly suggests that China's authorities will soon ready further stimulus.
Yesterday's EZ money supply data confirmed that liquidity conditions in the private sector improved in Q3, despite the dip in the headline.
Data yesterday revealed that headline inflation in Germany was unchanged in March at 1.5%, thanks mainly to higher energy inflation, which offset a dip in food inflation.
Last week's second estimate of GDP reaffirmed that quarter-on-quarter growth declined to 0.1% in Q1--the lowest rate since Q4 2012--from 0.4% in Q4.
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.
We have been asked how we can justify raising our growth forecasts but at the same time arguing that the housing market is set to weaken quite dramatically, thanks to the clear downshift in mortgage applications in recent months. Applications peaked back in June, so this is not just a story about the post-election rise in mortgage rates.
Fed Chair Yellen's speech in Cleveland yesterday elaborated on the key themes from last week's FOMC meeting.
The preliminary estimate of Q1 GDP looks set to show that the economy started 2017 on a weak footing. We share the consensus view that quarter-on-quarter GDP growth slowed to 0.4%, from 0.7% in Q4.
Whatever number the BEA publishes this morning for first quarter GDP growth -- we expect zero -- you probably should add about one percentage point to correct for the persistent seasonal adjustment problem which has plagued the data for many years. Reported first quarter growth has been weaker than the average for the preceding three quarters in 21 of the 31 years since 1985 -- and in eight of the past 10 years.
French business sentiment cooled marginally at the end of Q3. The headline manufacturing confidence index dipped to 110 in September, from 111 in August, though the overall business sentiment gauge was unchanged at 110.
Yesterday's IFO survey in Germany was a big relief for markets, in light of recent soft data. The main business climate index jumped to 109.5 in September, from 106.3 in August, the biggest month-to-month increase since 2010.
Today's preliminary estimate of Q3 GDP looks set to indicate that the Brexit vote has had little detrimental impact on the economy so far.
We're revising down our forecast for quarteron-quarter GDP growth in Q3 to 0.3%, from 0.4%, in response to signs that the rebound in industrial production is shaping up to b e smaller than we had anticipated.
Yesterday's detailed GDP data in Germany confirmed that the economy shrank slightly in the second quarter, by 0.1% quarter-on-quarter, following the 0.4% increase in Q1.
Friday's detailed GDP data in Germany confirm that the euro area's largest economy performed strongly in the second quarter.
The MPC will be looking for the Q1 national accounts and April's index of services data, both released on Friday, to support its view that the economy hasn't lost momentum this year.
We covered the detailed German Q1 GDP report in Friday's Monitor--see here--but the investment data could do with closer inspection. The headline numbers looked great.
Argentina's near-term economic outlook remains murky, as recent data has highlighted, hit by tighter financial conditions.
Taken at face value, the preliminary estimate of Q2 GDP suggests that the economic recovery weathered Brexit risk well. But growth received support from some unsustainable sources, and also probably was boosted by a calendar quirk. Meanwhile, with few firms or consumers expecting a vote for Brexit prior to the referendum, Q2's brisk growth tells us little about how well the economy will cope in the current climate of heightened uncertainty.
Argentina's economy continues to recover steadily.
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.
The E.C.'s Economic Sentiment Indicator for the U.K., released yesterday, painted an upbeat picture of the economy's recent performance. The ESI picked up to 109.4 in February from 107.1 in January; its average level since 1990 is 100. February's reading was the highest since December 2015, and it slightly exceeded the E.U.'s average of 108.9.
The headline durable goods orders number for October, due today, likely will be depressed by falling aircraft orders, both civilian and military. Boeing reported orders for 55 civilian aircraft in September, compared to only three in August, but a hefty adverse swing in the seasonal factor will translate that into a small seasonally adjusted decline.
Yesterday's detailed GDP report in Germany showed net exports propelled GDP growth to a cyclical high last quarter.
We see no compelling reason to expect a significant revision to the third quarter GDP numbers today, so our base case is that the second estimate, 3.3%, will still stand.
The national accounts for the fourth quarter showed that the economy relied on households slashing their saving rate to a record low in order to spend more. Now, growth in consumer spending will have to fall back in line with real incomes, which will increasingly be impaired by rising inflation.
Yesterday's national surveys in the EZ confirmed the downbeat message from the PMIs and consumer sentiment data earlier this week.
Today's housing market data likely will look soft, but will probably not be representative of the underlying story, which remains quite positive.
So far, the surge in retail spending promised by the plunge in gasoline prices has not materialized. The latest Redbook chain store sales numbers dipped below the gently rising trend last week, perhaps because of severe weather, but the point is that the holiday season burst of spending has not been maintained.
The French economy has suffered from weakness in manufacturing this year, alongside the other major EZ economies.
Colombia is one of the few larger economies in Latin America to have enjoyed solid, positive economic growth over the past two years. But lower commodity prices and last year's central bank tightening, to curb high inflation generated by strong growth, have started to become visible in the main economic data.
The PBoC managed to keep interest rates well- anchored around the Chinese New Year holiday, when volatility is often elevated.
We see considerable downside risk to the consensus forecast that GDP increased by 0.4% quarter-on-quarter in Q4, the same as in Q3.
The recovery in the French economy since the sovereign debt crisis has been lukewarm. Growth in domestic demand, excluding inventories, has averaged 0.4% quarter-on-quarter since 2012. This comp ares with 0.8%-to-1.1% in the two major business cycle upturns in the 1990s and from 2000s before the crisis.
Yesterday's March retail sales report for Mexico is in line with other recently released hard and survey data, painting an upbeat picture of the economy.
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.
Yesterday's barrage of economic data in the Eurozone added to the evidence that economic momentum is slowing.
The Eurozone economy is becoming increasingly service-oriented. The private services sector has contributed just over 50% of gross value added-- GVA -- in the past three years, up from 44% in the seven years before the crash of 2008.
Korea's preliminary Q4 GDP report was stronger than nearly all forecasters, including ourselves, expected.
The June batch of the French statistical office's business surveys continues to signal a firming cyclical recovery. The aggregate business index rose to cyclical high of 106 in June from a revised 105 in May, continuing an uptrend that began in the middle of 2016.
Economic growth in France has been the key downside surprise in the Eurozone this year.
We expect the official estimate of quarter-on-quarter GDP growth in Q4 to be revised up to 0.7% today, from last month's preliminary estimate of 0.6%. The consensus forecast is for no revision, so the data likely will boost interest rate expectations and sterling, if we're right.
Colombia's trade deficit continued to narrow in Q3; a postive development now that EM are back in the firing line. Assuming no revisions, the marginal year-over-year dip in the September trade deficit means that the third quarter deficit was USD3.1B, down from US4.6B a year ago.
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.
The slowdown in the EZ economy is well publicised.
The Spanish economy has been living a quiet life recently, amid markets' focus on political risks in Italy and manufacturing slowdowns in Germany and France.
Yesterday's barrage of French business sentiment data suggest that confidence in the industrial sector was a little stronger than expected in Q2.
We have to pinch ourselves when looking at economic data in Spain at the moment. Real GDP rose a dizzying 0.9% quarter-on-quarter in Q1, driven by solid gains of 0.7% and 1.1% in consumer's spending and investment respectively. Retail sales and industrial production data indicate GDP growth remained strong in Q2, even if survey data lost some momentum towards the end of the quarter. We will be looking for signs of further moderation in Q3, but surging private deposit growth indicate the cyclical recovery will continue.
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.
Before this week's earthquake, the resilience of Mexico's economy in the face of a volatile and challenging global backdrop owed much to the strength of domestic demand, especially private consumption.
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.
Yesterday's February PMI data sent a clear message to markets.
Yesterday's Japanese activity data were grim.
Yesterday's German IFO survey broadly confirmed the bullish message from the PMIs earlier this week. The headline business climate index rose to 111.0 in February from a revised 109.9 in January, boosted by increases in both the current assessment and the expectations index.
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.
Punished by the global economic slowdown depressing commodity prices, the Mexican economy is now making a gradual comeback, thanks to the continuing strength of its main trading partner, increasing public expenditure on key infrastructure projects, and accommodative monetary policy.
Yesterday's August PMI data in the euro area ran counter to the otherwise gloomy signals from the ZEW and Sentix investor sentiment indices.
Japan's flash PMI numbers for August were a mixed bag.
Mexico's economy gathered momentum in Q3, thanks mainly to solid gains in industrial and services activity. Real GDP rose 0.8% quarter-on-quarter in Q3, the fastest pace since Q3 2013 and the ninth consecutive increase. Year-over-year growth rose to 2.6% year-over-year, from 2.3% in Q2. In short, a positive report, surprising to the upside, and above the INEGI's advance estimate, released in late October.
Yesterday's advance consumer sentiment index in the Eurozone confirmed the upside risks for consumers' spending in Q4. The headline index rose to a 17- year high of +0.1 in November, from -1.0 in October.
Yesterday's barrage of French business surveys contains hundreds of indicators, but its central story is comfortably simple.
Yesterday's final Q2 GDP report in Germany confirmed the initial data showing that the economy slowed less than we expected last quarter. Real GDP rose 0.4% quarter-on-quarter in Q2, after a 0.7% jump in Q1. The working-day adjusted year-over-year rate fell marginally to 1.8%, from 1.9% in Q1.
Friday's economic data in Germany left markets with a confused picture of the Eurozone's largest economy.
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.
Today brings new housing market data, in the form of the weekly applications numbers from the MBA. The weekly data are seasonally adjusted but are still very volatile, especially in the spring.
A shutdown of the federal government, which could happen as early as this weekend, is a political event rather than a macroeconomic shock. But if it happens--if Congress cannot agree on even a shortterm stop-gap spending measure in order to keep the lights on after the 28th--it would demonstrate yet again that the splits in the House mean that the prospects of a substantial near-term loosening of fiscal policy are now very slim.
In Brazil, last week's formal payroll employment report for March was decent, with employment increasing by 56K, well above the consensus expectation for a 48K gain.
The ECB made no major policy changes yesterday.
Last week's news that the composite PMI collapsed to 47.7 in July--its lowest level since April 2009--from 52.4 in June is the first clear indication that the U.K. is heading for a recession.
The gaps in the third quarter GDP data are still quite large, with no numbers yet for September international trade or the public sector, but we're now thinking that growth likely was less than 11⁄2%.
Today's preliminary estimate of Q3 GDP is the last major economic report to be released before the MPC's meeting on November 2.
Yesterday's business confidence data in the EZ core were mixed.
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.
Survey data in Germany continue to tell an upbeat story on the economy. The IFO business climate index rose to 109.0 in November from 108.2 in October, lifted by gains in both the expectations and current assessment indexes. The IFO tends to be slightly over-optimistic on GDP growth, but our first chart shows that the survey points to upside risks in the fourth quarter.
The IFO continues to tell a story of a German economy on the ropes.
The headline in yesterday's detailed Q1 German GDP data was old news, confirming that growth in the euro area's largest economy slowed at the start of the year.
EU negotiations tend to go down to the wire; and last week's summit in Salzburg, and Theresa May's statement on Friday, suggest that the Brexit negotiations will do just that.
The path of new home sales over the past couple of years has followed the mortgage applications numbers quite closely.
Yesterday's IFO survey sent a clear signal that the German economy's engine is stuttering. The business climate index fell to a 14-month low of 105.7 in February from 107.3 in January, and the expectations index slumped to 98.8 from 102.3. The weakness was driven by weaker sentiment in manufacturing, which plunged at its fastest rate since November 2008.
The second estimate of Q4 GDP, published on Thursday, probably will show that the economy slowed more abruptly last year than previously thought and that it has become very dependent on consumers for momentum.
New home sales have tended to track the path of mortgage applications over the past year or so, with a lag of a few months. The message for today's January sales numbers, show in our next chart, is that sales likely dipped a bit, to about 525K.
French manufacturers recovered their optimism towards the end of Q3. The headline INSEE manufacturing sentiment index rose to 103 in September, from 101 in August, and the composite business confidence gauge also increased. A rebound in transport equipment firms' own production expectations was the key driver of the recovery.
Data on Friday showed that German producer price inflation is now in free-fall.
Yesterday's barrage of survey data in France, tentatively suggest that business sentiment is stabilising following a string of declines since the start of the year.
Brazil's external deficit fell marginally in October, but most of the improvement is now likely behind us. The unadjusted current account deficit dipped to USD3.3B, from USD4.3B in October 2015. The trend is stabilizing, with the 12-month total rolling deficit easing to USD22B--that's 1.2% of GDP--from USD23B in September.
Yesterday's detailed German GDP report raised more questions than it answered. The headline confirmed that growth accelerated to 0.4% quarteron- quarter in Q4, from 0.1% in Q3, leaving the year-over- year rate unchanged at 1.7%.
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.
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.
Consumer confidence in the Eurozone rose marginally at the start of Q4, though it is still down since the start of the year.
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.
The third estimate of first quarter GDP growth, due today, will not be the final word. The BEA will revise the data again on July 30, when it will also release its first estimate for the second quarter and the results of its annual revision exercise. Quarterly estimates back to 2012 will be revised. The revisions are of greater interest than usual this year because the new data will incorporate the first results of the BEA's review of the seasonal problems.
Most LatAm currencies traded higher against the USD yesterday, adding to the gains achieved after Donald Trump's inauguration last Friday. The MXN, which was the best performer during yesterday's session, was up about 0.8%; it was followed by the CLP, and the BRL. The positive performance of most LatAm currencies, especially the MXN, is related to positioning and technical factors.
Data released yesterday in Brazil helped to lay the ground for interest rate cuts over the coming months.
The two main national surveys--IFO and INSEE-- both beat consensus forecasts yesterday, supporting our story of that economic sentiment is holding up relatively well in the face increasing investor anxiety. In Germany, the main IFO business climate index rose marginally to 108.5 from a revised 108.4 in August, boosted by an increase in the expectations index to a six-month high of 103.3, up from 102.0 in August. The IFO expectations index points to real GDP growth rising 0.5%-to-0.6% quarter-on-quarter in Q3.
The economic and political backdrop to this week's Monetary Policy Committee meeting is significantly more benign than when it last met on September 19.
We were a bit disappointed by the November ADP employment report, though a 190K reading in the 102nd month of a cyclical expansion is hardly a disaster.
October's GDP report, released on Monday, might just manage to break through the wall of noise coming from parliament ahead of the key Brexit vote on Tuesday.
Yesterday's detailed EZ GDP report showed that real output rose 0.3% quarter-on-quarter in Q3, the same pace as in Q2. The year-over-over rate rose marginally to 1.7% from 1.6%, trivially higher than the first estimate, 1.6%. The details showed that consumers' spending and public consumption were the key drivers of growth in Q3, offsetting a slowdown in net trade.
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.
We're guessing Fed Chair Yellen would have preferred to have another acceleration in hourly earnings and a dip in the unemployment rate along side the hefty 211K leap in November payrolls, but no matter. At its October meeting, the Fed wanted to see "some further improvement in the labor market", and by any reasonable standard a 509K total increase in payrolls in two months fits the bill.
Manufacturing orders in Germany recovered some ground in the middle of Q1, following the plunge at the beginning of the year. Factory orders rose 3.4% in February, pushing the year-over-year rate up to +4.6% from a revised 0.0% in January.
Everything but the weather points to a strong headline payroll number for March. Our composite leading payroll indicator has signalled robust job growth since last fall, and the message for March is very clear.
December's GDP report, released next Monday, likely will maintain the flow of negative news on the U.K. economy.
Following the publication of Korea's preliminary Q4 GDP report last month--see here--we said the consensus-beating print would be susceptible to downgrades, unless the economy had a miraculous end to 2018
The economic data calendar for next week is so congested that we need to preview early September's GDP report, released on Monday.
Recently released data in Mexico are sending weak signals for the business outlook, and the Texcoco airport saga won't help.
The Brazilian Senate concluded last week the first vote- of-two- on the pension reform.
Korea's final GDP report for Q4 was little changed, in the end.
Last week's heavy snowfall, which blighted the entire country, will depress GDP growth in Q1, making it harder for the MPC to read the economy.
Evidence that mounting concerns about Brexit have caused the economy to slow to a near-halt continued to accumulate last week.
The Italian economy slowed at the end 2017, and it continues to underperform other major EZ economies. Real GDP rose 0.2% quarter-on-quarter in Q4, a bit slower than the 0.3% gain in Q3, pushing full-year growth up to a modest 1.0%. This compares poorly, though, with growth of 1.6% in the euro area as a whole.
Yesterday's German industrial production data were poor, but better than we expected. Output fell 0.5% month-to-month in February, pushing annual growth down to 1.3% from a revised 1.8% in January. In addition, net revisions to the month-to-month data were a hefty -1.0%, but this is not enough to change the story of a Q1 rebound in industrial production.
The improvement in the August services PMI has generated hyperbolic headlines suggesting the U.K. is on a tear despite the Brexit vote. Taken literally, however, the PMIs suggest that the revival in business activity in August only partially reversed July's decline. Meanwhile, the impact of sterling's sharp depreciation on the purchasing power of firms and consumers has only just begun to be felt.
The slump in the Markit/CIPS services PMI in November to its lowest level since July 2016 provides the clearest indication yet that uncertainty about Brexit has driven the economy virtually to a stand-still.
Argentina's economy was improving late last year, albeit slowing at the margin, according to the latest published indicators. GDP data confirmed that the revival continued during most of Q4, with the economy growing 0.4% month-to-month in November.
Demand in German manufacturing rebounded strongly midway through the second quarter.
Brazilian data strengthened early in Q4, supporting the case for the COPOM to slow the pace of rate cuts. We expect the SELIC policy rate to be lowered by 50bp today, to 7.0%.
For sterling traders, no election news is good news.
October payrolls were stronger than we expected, rising 128K, despite a 46K hit from the GM strike.
Yesterday's detailed Q3 growth data in the Eurozone offered no surprises in terms of the headline.
The Greek polls released Sunday evening indicate a comfortable victory for "no," rejecting the latest EU proposal. This is not a good outcome for the market, and volatility will likely increase substantially today. The result--not confirmed as we go to press but very clearly indicated by the count so far--gives an air of legitimacy to Syriza's brinkmanship, but the creditors' reaction to a "no" vote, which they likely did not expect, is uncertain.
The fall in the services PMI to 53.8 in May, from 55.8 in April, is a setback for hopes that the slowdown in GDP growth in Q1 will be fleeting. Both business activity and orders rose at their slowest rates since February.
October's Markit/CIPS services survey added to evidence that the economy has started Q4 on a very weak footing.
Brazil's industrial sector came roaring back at the start of Q3, following a poor end to Q2. Industrial production jumped 0.8% month-to-month in July, driving the year-over-year rate higher to 2.5%, from 0.5% in June and just 0.1% on average in Q2.
The Caixin services PMI fell to 51.5 in August, from 52.8 in July.
October's Markit/CIPS services survey suggests that the PM's new Brexit deal has had a lukewarm reception from firms.
It would be astonishing if the May and June payroll numbers looked much like April's strong data, at least in the private sector.
On the face of it, markets' newfound view that the MPC's next move is more likely to be a rate cut than a hike was supported by May's Markit/CIPS PMIs.
The case for the MPC to hold back from raising interest rates in May remains strong, despite the improvement in the Markit/CIPS services survey in February.
If you had asked us in the spring where the action would be in capital spending over the summer, we would have said that the housing component was the best bet. Right now, though, the opposite seems more likely, with housing likely to be the weakest component of capex.
A plunge in imports saved the EZ economy from a contraction in second quarter GDP. Yesterday's final data showed that real GDP growth rose 0.3% quarter- on-quarter, slowing from a 0.5% jump in Q1. A 0.4 percentage points boost from net exports was the key driving force.
Friday's industrial production data in Germany added to the manufacturing optimism following the sharp rise in new orders--see here--reported earlier in the week.
Mark Carney revealed last week that recent data had given him "greater confidence" that the weakness of Q1 GDP was almost entirely due to severe weather.
The 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.
Yesterday's manufacturing data in Germany provided alarming evidence of a much more severe slowdown in the second half of last year than economists had initially expected.
Last week's news that output per hour jumped by 0.9% quarter-on-quarter in Q3--the biggest rise since Q2 2011--has fanned hopes that the underlying trend finally is improving.
The hard data in Germany took a turn for the worse at the start of Q4. The outlook for consumers' spending was dented by the October plunge in retail sales--see here-- and on Friday, the misery spilled over into manufacturing.
The release of October's GDP report on Tuesday likely will be overshadowed by campaigning ahead of Thursday's general election.
Yesterday's headline economic data in Germany were decent enough. Industrial output edged higher by 0.3% month-to-month in May, lifted primarily by rising production of capital and consumer goods.
Industrial production data in Germany continued to defy the signal of doom and gloom from leading indicators.
Yesterday's industrial production data in Germany were better than we feared. Output slipped 0.3% month-to-month in August, depressing the year- over-rate to -0.4% from 1.6% in July, a minor fall given evidence of a big hit from weakness in the auto sector ahead of the EU emissions tests.
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.
Friday's detailed Q2 growth data in the EZ broadly confirmed the advance numbers.
German manufacturing rebounded somewhat mid-way through Q3.
We look for August's GDP report, released on Thursday, to show that output held steady, following July's 0.3% month-to-month jump.
We're among a small minority of economists forecasting that GDP rose by 0.1% month-to-month in March.
Chile's inflation outlook remains benign, allowing policymakers to cut interest rates if the economic recovery falters.
Investors with long sterling positions should not pin their hopes on Friday's GDP report to reverse some of the losses endured over the last week.
Economic data have yielded the limelight in recent months to Brexit news and, alas, we doubt that February's GDP data, released on Wednesday, will reclaim investors' attention.
German GDP growth jumped in the first quarter, but monthly economic data suggest the economy all but stalled in Q2. Yesterday's industrial production data are a case in point. Output slid 1.3% month-tomonth in May, pushing the year-over-year rate down to -0.4% from a revised 0.8% gain in April. Adding insult to injury, the month-to-month number for April was revised down by 0.3 percentage points
New orders data increasingly suggest that German manufacturers all but shut their production lines at the start of the year.
The third estimate of euro area growth in the first quarter provides clear evidence that measuring GDP is not an exact science. Real GDP rose 0.6% quarter-on-quarter in Q1, accelerating from 0.4% in Q4. This latest estimate is higher than the previous estimate, 0.5%, but in line with the first calculation. Eurostat and all the large Eurozone economies now provide early estimates of GDP, before data for the full quarter is available.
Data released last week confirmed that Mexico's economy stumbled in the first half of the year, hurt by a temporary shocks in both the industrial and services sectors, and heightened political uncertainty, due to policy mistakes at the outset of AMLO's presidency.
Odds-on, the consensus forecast for May's GDP report, released on Wednesday, will miss the mark.
Last week's manufacturing data in Germany left investors with more questions than answers.
The verdict is in.
The sharp 0.4% month-to-month fall in GDP in December and the slump in the Markit/CIPS PMIs towards 50 have created the impression the economy is on the cusp of recession.
Investors now see a 50/50 chance of the MPC cutting Bank Rate within the next nine months, following the slightly dovish minutes of the MPC's meeting, and its new forecasts.
The ECB made no changes to its policy stance yesterday. The central bank left its refinancing and deposit rates at 0.00% and -0.4%, respectively, and maintained the pace of QE at €60B per month. The program will run until December "or beyond, if necessary."
Evidence that households are not benefiting much from the Monetary Policy Committee's easing measures mounted yesterday, after the release of August data on advertised borrowing rates. Our first chart shows the drop in swap rates and average quoted mortgage rates since the end of last year.
Friday's industrial production report in Germany capped a miserable week for economic data in the Eurozone's largest economy.
Friday's GDP report likely will fuel concerns the economy has little underlying momentum. Granted, quarter-on-quarter growth probably sped up to 0.6% in Q3--exceeding the economy's potential rate--from 0.4% in Q2.
The RMB has been on a tear, as expectations for a "Phase One" trade deal have firmed.
Manufacturers in Germany endured another miserable quarter in Q3.
Headline inflation in Brazil remained low in October, and even breached the lower bound of the BCB's target range.
The MPC's view that the economy likely will grow at an above-trend rate over the coming quarters was challenged immediately last week by the PMIs.
The 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.
Yesterday's data in the French economy provided the final confirmation that growth remained sluggish in Q2, and showed that households had a slow start to the third quarter.
China's official PMIs for January, due out tomorrow, will give the first indications of how the economy started the year.
Argentina's Recession Has Ended, Supporting Mr. Macri's Odds
We're expecting a hefty increase in private payrolls in today's August ADP employment report. ADP's number is generated by a model which incorporates macroeconomic statistics and lagged official payroll data, as well as information collected from firms which use ADP's payroll processing services.
The Brazilian economy managed to avert a technical recession over the first half of the year.
Argentina's financial markets and embattled currency have been under severe pressure in recent weeks, with the ARS hitting a new record low against the USD and government bonds sinking to distress levels.
News that the U.K.'s departure from the E.U. has been delayed by six months, unless MPs ratify the existing deal sooner, appears to have done little to revive confidence among businesses.
Hard data released in Argentina over recent weeks showed that the economy was resilient in Q1 and early Q2.
The trade war with China is not big enough or bad enough alone to push the U.S. economy into recession.
Yesterday's advance CPI data in Germany suggest that inflation fell slightly in August.
Colombia's second quarter GDP data, released Monday, revealed a dismal 2.0% year-over-year growth rate, down from 2.5% in Q1. GDP rose by a very modest 0.2% quarter-on-quarter, for the second consecutive quarter. The year-over-year rate was the slowest since the end of the financial crisis, but it is in line with our 2.1% forecast for this year as a whole.
Yesterday's advance Eurozone Q4 GDP report conformed to expectations. Headline GDP increased 0.6% quarter-on-quarter, slowing trivially from an upwardly-revised 0.7% rise in Q3, and nudging the year-over-year rate down marginally to 2.7%.
Chinese industrial profits continue to surge, rising 27.7% year-over-year in September, up from 24.0% in August.
The stage is set for the Fed to ease by 25bp today, but to signal that further reductions in the funds rate would require a meaningful deterioration in the outlook for growth or unexpected downward pressure on inflation.
Today's data likely will show that inflation in the Eurozone rebounded in November.
Markets see a strong possibility, though not a probability, that the BoJ will cut rates on Thursday.
Japan's Q1 is coming more sharply into focus.
Last week's preliminary estimate of Q1 GDP has extinguished any lingering chance that the MPC might raise interest rates at its next meeting on May 10.
Our payroll model relies heavily on lagged indicators of the pace of hiring, most of which have improved in recent months after a sustained, though modest, softening which began last spring. That's why we expected an above-consensus reading from ADP on Wednesday and from the BLS today.
The data in LatAm have been all over the map in recent weeks. Brazil's cyclical stabilization continues, while Mexican numbers confirm that the economy has come under pressure in recent months.
The manufacturing sector appears to have finished 2017 on a strong note. The Markit/CIPS manufacturing PMI fell to 56.3 in December from 58.2 in November, but it remained above its 12-month average, 55.9.
Since its October 2012 revamp, the ADP measure of private employment--the November survey will be released this morning--has tended to be little more than a lagging indicator of the official number.That's because ADP incorporates official data, lagged by one month, into the regression which generates its employment measure.
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.
Don't expect a pretty picture when Korea's Q1 GDP report appears in the last week of April.
The political momentum in the run-up to the election now lies with Labour.
The Manufacturing Upswing Continues; no Sign of Weakening
Argentina's economic data released last week confirm that the economy is improving. Our core view, for now, is that the economy will continue to defy rising political uncertainty, both domestic and external.
Auto industry watchers at WardsAuto and JD Power are in agreement that today's September sales numbers will be little changed from a year ago, at around 17.5M.
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.
Friday's advance GDP data provided the first solid evidence of a Q1 slowdown in the euro area economy.
The startling 5.5% drop in auto sales in March left sales at just 16.5M, well below the 17.4M average for the previous three months and the lowest level since February last year. A combination of the early Easter, which causes serious problems for the seasonal adjustments, and the lagged effect of the plunge in stock prices in January and February, likely explains much of the decline.
Inflation and growth paths remain diverse across LatAm, but in the Andes, the broad picture is one of modest inflationary pressures and gradual economic recovery.
The startling jump in supplier delivery times in the June ISM manufacturing survey, to a 14-year high, was due--according to the ISM press release--to disruptions to steel and aluminum supplies, transportation problems and "supplier labor issues".
The sharp fall in China's manufacturing PMI in May makes clear that its recovery is nowhere near secured.
Yesterday's data dump in the EZ delivered something investors haven't seen for a while, namely, positive surprises.
The outlook for Argentina is improving. We expect economic growth to remain quite strong over the next year, despite a relatively soft start to 2017 and increasing external threats in recent weeks. The INDEC index of economic activity--a monthly proxy for GDP--is volatile, rising 1.9% month-to-month in March after a 2.6% drop in February, but the underlying trend is improving.
We have been telling an upbeat story about the EZ economy in recent Monitors, emphasizing solid services and consumers' spending data.
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.
Over the summer, both Chancellor Javid and PM Johnson appeared to be repositioning the Conservatives, claiming that the era of austerity was over and that higher levels of spending and investment were justified.
Inflation pressures in the Eurozone edged higher last month, reversing weakness at the start of the year.
Brazilian February industrial production data, released yesterday, were relatively positive. Output rose 0.1% month-to-month, pushing the yearover- year rate down to -0.8% from 1.4% in January. Statistical quirks were behind February's year-over-year fall, though.
We continue to distrust the suggestion from the Markit/CIPS PMIs that the economy is in recession.
Japan's real GDP seems unlikely to have risen in Q3, and could even have edge down quarter-on- quarter, after the 0.7% leap in Q2.
The majority of headlines from last week's advance Q4 GDP data in the Eurozone--see here--were negative.
Wednesday's Brazilian industrial production data were worse than we expected but the details were less alarming than the headline. Output slipped 1.8% month-to-month in March, the biggest fall since August 2015, setting a low starting point for Q2.
Recession fears were fanned yesterday by the renewed deterioration of the Markit/CIPS services survey.
August's Markit/CIPS services survey, released today, likely will show that the economy's biggest sector is continuing to slow. We think that the PMI fell to just 53.0--its lowest level since it plunged immediately after the Brexit vote--from 53.8 in July, below the consensus, 53.5.
Your correspondent is on the slopes this week, but the employment report deserves a preview nonetheless.
We've been surprised by the fast rate of Japanese GDP growth in the first half, though the Q1 pop merely was due to a plunge in imports.
Chile's unadjusted unemployment rate fell to 7.1% in July-to-September, from 7.3% in June-to-August, but it was up from 6.7% in September last year.
Economic conditions are deteriorating rapidly in Chile, despite the relatively decent Imacec reading for Q3.
Support in opinion polls for both the Conservatives and Labour has been increasing steadily.
Greece's exit from eight years of near constant bail-out programs raises as many questions as it answers.
The failure of the Markit/CIPS services PMI to rebound fully in April, following its fall in March, provides more evidence that the economy is in the midst of an underlying slowdown.
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.
The EU's negotiations with the U.K. over Brexit are off to a bad start. The position in Brussels is that negotiations on a new relationship can't begin before the bill on the U.K.'s existing membership is settled. But this has been met with resistance by Westminster; the U.K. does not recognise the condition of an upfront payment to leave.
All the main surveys of business activity in Q1 now have been released and they present a uniformly downbeat picture.
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.
Today's advance Q3 GDP report for Mexico will show that the economy performed relatively well at the start of the second half, despite external and domestic shocks.
The widespread view, which we share, that GDP will rebound in Q2 following the disruption caused by bad weather in Q1, was supported yesterday by the E.C.'s Economic Sentiment survey.
Brazil's economic recovery faltered in the first quarter and the near-term outlook remains challenging.
The ADP employment report was on the money in October at the headline level--it undershot the official private payroll number by a trivial 6K--but the BLS's measure was hit by the absence of 46K striking GM workers from the data.
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.
The most positive thing to say about the EZ manufacturing PMI at the moment is that it has stopped falling.
Economic prospects in the Andes have deteriorated significantly in recent weeks, due mainly to the escalation of the trade war.
Colombia's GDP growth hit a relatively solid 2.8% year-over-year in Q4, up from 2.7% in Q3, helped by improving domestic fundamentals, which offset the drag from weaker terms of trade.
Investors 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 economic calendar in Mexico was relatively quiet over Christmas, and broadly conformed to our expectations of resilient economic activity in Q4.
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.
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.
Japan's unemployment rate edged back up to 2.5% in February after the drop in January to 2.4%.
We doubt that this week will see the MPC joining the list of other major central banks that have abandoned plans to raise interest rates this year.
It's tempting to conclude that the pick-up in year over-year growth in average weekly wages, excluding bonuses, to a three-year high of 3.1% in July, from 2.8% in June, signals that employees' bargaining power has strengthened and that a sustained wage recovery now is under way.
Mexico's February industrial production report was weaker than markets expected. Output expanded by 0.7% year-over-year, below the consensus, 1.2%, and slowing from 0.9% in January.
The Bank kept interest rates unchanged at 1.50% yesterday, but downgraded its inflation forecast for 2018 to 1.6% from 1.7%
Mexico has been one of LatAm's highlights in terms of financial markets and currency performance in recent months.
The Spanish economy remains the stand-out performer in the Eurozone, but recent data suggest that growth is slowing.
French industrial production data offered a bit of relief last week following a string of woeful German data, and news of monthly falls in Italian and Spanish manufacturing output. Industrial production jumped 1.6% month-to-month in August, but the headline was flattered by a 0.3% downward revision of the July data. The monthly jump pushed the year-over-year rate higher to 1.6%, from a revised 0.9% fall in July. All sectors performed strongly in August, but the key story was a hefty increase in transport equipment manufacturing, due to a 11.9% surge in vehicle production.
Industrial activity in Mexico had a very poor start to the third quarter. Output plunged 1.0% month-to- month in July, the biggest drop since May 2015, pushing the year-over-year rate down to -1.5%, from -0.2% in June.
Industrial production in Mexico remained under pressure at the start of Q4. Output rose just 0.1% month-to-month in October, leaving the year-over-year rate unchanged at -1.4%, down from an average of -0.8% in Q3.
Today's industrial production data will confirm that EZ manufacturing suffered a slow start to Q4. Advance country data signal a 0.2% month-to-month fall in October, slightly worse than the consensus, 0.0%.
Japan's tertiary index fell further in December,by 0.3% month-on-month, after the downwardly- revised 0.4% drop in November.
November production data in Mexico, released Monday, showed that the industrial economy remained quite soft in the last part of last year. The collapse in capital spending in the oil sector, slowing public spending, and weaker growth in EM and the U.S. manufacturing sector have combined to hit Mexican industrial output quite hard. Total production rose just 0.1% year-over-year in November, down from an already weak 0.5% in October, and below the 1.3% average increase in Q3. Output fell 0.5% month-to-month, the biggest drop since May, reflecting broad-based weakness.
We will be paying special attention to the sentiment surveys for Argentina over the coming weeks.
Consumers' spending in Brazil weakened at the end of Q4, but we think households will support GDP growth in the first quarter.
French manufacturing cooled at the end of 2016. Industrial production slipped 0.9% month-to-month in December, partially reversing an upwardly revised 2.4% jump in November. The main hits came from declines in oil refining and manufacturing of cars and other transport equipment.
Storm clouds gathered over Eurozone financial markets last week. The sell-off in equities accelerated, pushing the MSCI EU ex-UK to an 11-month low.
September's GDP report laid bare the economy's sluggishness.
The Mexican economy gathered strength in Q3, due mainly to the strength of the services sector, and the rebound in manufacturing, following a long period of sluggishness, helped by the solid U.S. economy and improving domestic confidence.
Yesterday's industrial production report in Mexico added weight to the idea that the sector improved marginally in the first quarter, despite many external threats. Industrial output rose 0.1% month-to-month in February, following a similar gain in January. The calendar-adjusted year-over-year rate rose to -0.1%, after a modest 0.3% contraction in January.
Data on Friday showed that German wage growth is firming. Nominal labour costs rose 2.5% year-overyear in Q3, accelerating from a revised 1.9% increase in Q2. The main driver was a strong rebound in gross earnings growth, which rebounded to 2.4% year-over-year from an oddly weak 1.2% in Q2.
Markets rightly interpreted yesterday's above consensus GDP report as having little impact on the outlook for monetary policy.
The key question for the MPC at this week's meeting is whether it is prepared to tolerate the consequences for inflation of sterling's further depreciation since its last meeting in August.
The stagnation of GDP in August, following five consecutive month-to-month gains, confirms that the economy's momentum in prior months was simply weather-related.
Manufacturing in France rebounded only modestly at the start of Q3, despite favourable base effects.
Mexico's economy is not accelerating, but it is holding up very well in difficult circumstances, with rising domestic political risk and stifling interest rates.
Yesterday's Mexican industrial data painted a downbeat picture of the sector at the end of last year, and highlighted the downside risks facing the economy in the first half of this year. Industrial output fell 0.1% month-to-month and was flat year over-year in December, with weakness in all sectors except manufacturing. Overall, industrial activity expanded by only 0.2% year-over-year in the fourth quarter, the slowest pace since late 2013.
Last week's official data supported our forecast that GDP growth likely will slow further in Q1, suggesting that a May rate hike is not the sure bet that markets assume.
The economic data were mixed while we were away. The final PMI data showed that the composite PMI in the euro area fell to 53.1 in October, from 54.1 in September, somewhat better than the initial estimate, 52.7.
Mexico's industrial production report released yesterday brought encouraging news about the state of the economy, helping relieve some doubts about its health.
In March, CPI rents--the weighted average of primary and owners' equivalents rents--rose by 0.35% month- to-month.
On the face of it, the latest GDP data look awful. December's 0.4% month-to-month fall in GDP closed a poor Q4, in which quar ter-on-quarter growth slowed to 0.2%, from 0.6% in Q3.
We continue to expect core CPI inflation to drift up further over the course of this year, partly because of adverse base effects running through November, but it's hard to expect a serious acceleration in the monthly run rate when the rate of increase of unit labor costs is so low.
Brazil's central bank started the year firing on all cylinders. The Copom surprised markets on Wednesday by delivering a bold 75bp rate cut, bringing the Selic rate down to 13.0%. In October and November, the Copom eased by only 25bp, but inflation is now falling rapidly and consistently. The central bank said in its post-meeting communiqué that conditions have helped establish a "new rhythm of easing", assuming inflation expectations hold steady.
Yesterday's economic data in Brazil suggest that retailers suffered in the second quarter, hit by the effect of the truckers' strike, but private consumption remains somewhat resilient.
A cursory glance at November's GDP report gives the misleading impression that the U.K. economy is ticking over nicely, despite Brexit.
Brazil's economic situation has improved this year, and we still expect the recovery to continue over the second half, despite recent political volatility and soft Q2 data.
In a busy week in Brazil, ongoing signals of feeble economic activity have strengthened our forecast for GDP growth of just 1.0% this year, below the 1.3% consensus forecast.
The Brazilian central bank left its benchmark Selic interest rate on hold at 6.5% on Wednesday night and confirmed our view that policymakers will stand pat for the foreseeable future, provided the BRL remains stable and Mr. Bolsonaro is able to push forward his reform agenda.
German inflation pressures were unchanged last month. The CPI index rose 0.8% year-over-year, matching the increase in October, and in line with the consensus and initial estimate. Energy deflation intensified marginally, as a result of lower prices for household utilities.
Brazil's outlook is still improving at the margin, as positive economic signals mix with relatively encouraging political news.
Economic growth in Mexico will remain relatively modest over the second half of the year, and the outlook for 2017 remains cloudy, for now. The core fundamentals suggest that growth will increase, but we think that depressed mining output and fiscal tightening might limit the pace of the upturn.
Data today likely will show that manufacturing in the Eurozone was off to a strong start to the second quarter. Advance country data suggest that industrial production jumped 1.1% month-to-month in April, pushing the year-over-year rate up to 1.9% from 0.1% in March. The rise in output was driven mainly by Germany and France, but decent month-to-month gains in Ireland, Portugal and Greece also helped.
The consumer in Brazil was off to a strong start to the first quarter, and we expect household spending will continue to boost GDP growth in the near term.
Markets are beginning to grasp that President-elect Trump's economic plans, if implemented in full--or anything like it--will constitute substantial inflationary shock to the U.S.
Friday's data added further colour to the September CPI data for the Eurozone.
Volatility and risk will remain high in L atAm for the foreseeable future. President-elect Donald Trump's uncertain foreign policies could have a considerable impact on LatAm economies in the months and years ahead.
After recent interventionist moves and plans in Mexico from AMLO's incoming administration and his political party, uncertainty and soured sentiment are the name of the game.
Data on Friday showed that the upturn in French manufacturing petered out at the end of Q1.
LatAm's economies are starting to expand at a relatively healthy pace, inflation is more or less under control and near-term growth prospects are positive.
The outlook for private investment in the Eurozone has deteriorated this year, especially in manufacturing.
The sharp currency sell-off in Q2 and Q3, the financial crisis and tighter monetary and fiscal policies have pushed the Argentinian economy under stress since Q2.
Markets are still discounting Banxico rate increases in the near term, despite the fact that Mexico's inflation is under control. Unless the MXN goes significantly above 18.7 per USD in the near term, or activity accelerates, we see little scope for rate increases until after the Fed hikes. After May's soft U.S. payrolls, and in light of the economic and financial risk posed by the U.K. referendum, we think a hike this week is unlikely.
The MPC's meeting on Thursday looks set to be a perfunctory affair. Signs that the economy has lost momentum this year, alongside downward surprises from CPI inflation in January and wage growth in December, mean the Committee won't give the idea of hiking rates a moment's thought.
Mexico's industrial recovery, which began in late Q4, lost momentum at the start of the second quarter.
Activity in the Mexican industrial sector cooled marginally at the start of the second quarter, but the drop was not as dramatic as the headlines suggested. Output fell 4.4% year-over-year in April, after a 3.4% increase in March.
Manufacturing in the Eurozone rebounded midway through the second quarter.
Evidence that Brazil's consumption recession has hit bottom seemed to vanish yesterday with the May retail sales report. Sales plunged 1.0% month-to-month, pushing the year-over-rate down to a terrible-looking -9.0%, from a revised -6.9% in April. Adding insult to injury, the month-to-month number for April was revised down by 0.2 percentage points.
With rates now certain to rise this week, the real importance of the employment picture is what it says about the timing of the next hike. To be clear, we think the Fed will raise rates again in June, and will at that meeting add another dot to the plot, making four hikes this year.
Last week's detailed GDP data in the Eurozone confirmed that the economy is benefiting from an investment cycle for the first time since before the financial crisis.
The political situation in Spain remains an odd example of how complete gridlock can be a source of relative stability.
This weekend's first round of the French presidential election is too close to call. Our first chart indicates that a runoff between Marine Le Pen and Emmanuel Macron remains the best bet. But the statistical uncertainty inherent in the predictions, and the proximity of the two remaining candidates--the centre-right Mr. Fillon and far-left Mr. Melenchon-- mean that this is now effectively a four-horse race.
Chile's market volatility and high political risk continue, despite government efforts to ease the crisis.
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.
As we go to press, Mrs. May's last-minute scramble to Strasbourg appears to have failed to persuade enough rebels to back the government.
Our default position for core durable goods orders over the next few months is that they will fall, sharply.
The Office for National Statistics yesterday released the last major batch of output data before the preliminary estimate of Q3 GDP is published on October 25, just one week before the MPC's key meeting.
The latest GDP data continue to show that the economy is holding up well, despite the Brexit saga.
We're expecting a strong-looking 225K increase in the May ADP measure of private sector payroll growth, due today. The consensus forecast is 180K.
When the Fed raised rates in December, it subverted one of its own long-standing conventions by hiking with the ISM manufacturing index below 50. The December survey, released just 15 days before the meeting, showed the headline index slipping to 48.6, the third straight sub-50 reading. It has since been revised down to 48.0, the lowest reading since June 2009.
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.
The manufacturing sector is much more exposed to external forces--the dollar, and global growth--than the rest of the economy. But much of the slowdown in the sector over the past year-and-a-half, we think, can be traced back to the impact of plunging oil prices on capital spending in the sector.
We will have a much better idea of the pace of domestic demand growth after today's wave of economic data, though the report which will likely generate the most attention in the markets--ADP employment--tells us nothing of value. The headline employment number in the report is generated by a regression which is heavily influenced by the previous month's official data.
Yesterday's FOMC statement was a bit more upbeat on growth than we expected, with Janet Yellen's final missive describing everything -- economic growth, employment, household spending, and business investment -- as "solid".
Yesterday's advance Q4 GDP data in the Eurozone confirmed that growth slowed significantly in the second half of 2018.
Sterling fell to $1.38, from $1.39, in the hour following the EU's publication of a draft Article 50 withdrawal treaty, which set out the practical consequences of the principles the U.K. agreed to in December.
If you apply a seasonal adjustment to a seasonally adjusted series, it shouldn't change. When you apply a seasonal adjustment to the U.S. GDP numbers, they do change. First quarter growth, reported Friday at just 0.7%, goes up to 1.7%, on our estimate.
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.
The obsession of markets and the media with the industrial sector means that today's ISM manufacturing survey will be scrutinized far more closely than is justified by its real importance.
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 Brazilian Central Bank's policy board-- COPOM--voted unanimously on Wednesday to cut the Selic rate by 50bp to 5.00%, as expected.
We're expecting the April ISM report today to bring yet more evidence that the manufacturing cycle is peaking, though we remain of the view that the next cyclical downturn is still some way off.
We expect to see a 70K increase in October payrolls today.
Yesterday was a good day for headline EZ economic data. GDP growth accelerated, inflation rose and unemployment fell further. Advance Q4 data showed that real GDP in the Eurozone rose 0.5% quarter-on-quarter in Q4, marginally faster than the upwardly revised 0.4% in Q3. Full-year growth in 2016 slowed slightly to 1.7% from 2.0% in 2015.
Yesterday's first estimate of full-year 2016 GDP in Mexico indicates that growth gathered momentum over the second half of last year. But risks are now tilted to the downside, following the U.S. election. GDP rose 0.6% quarter-on-quarter in Q4, after a 1.0% increase in Q3. Growth was much slower in the firs t half, as shown in our char t below.
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?
The underlying trend in payroll growth probably has not changed significantly from the 228K average monthly gains recorded last year. But the average hides wide variations, some triggered by seasonal adjustment problems and others by one-time weather effects or unavoidable and random sampling error. January's below-trend 151K increase was likely a victim of seasonal problems, because payroll gains in recent years have tended to be soft at the start of the year after outsized fourth quarter increases.
Last week's official data unequivocally indicated that the Brexit vote has not had a detrimental impact on the economy yet.
Chile's weak indicators in January confirm that the economy is struggling. Mining output plunged 12.6% year-over-year, down from a modest 0.6% contraction during Q4, due mostly to falling copper production and an unfavourable base effect. This will reverse in February but we still look for a 5% drop.
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 0.7% first quarter increase in the ECI measure of private sector wages and salaries raised the year-over-year rate to 2.8%, the highest since late 2008 and significantly stronger than the 2.1% increase in hourly earnings in the year to March.
The substantial, though incomplete, rebound in the September ISM manufacturing survey is consistent with our view that the outlook for the industrial economy right now is better than at any time since before the crash in oil prices
Mexico's structural reforms, robust fundamentals, and its close ties to the U.S. should have conferred a degree of protection from the turmoil in EMs over the past year. But its markets have been hit as hard as other LatAm countries by the sell-off in global markets in recent weeks. The MXN fell about 5% against the USD in January alone, and has dropped by 20% over the last year.
All the regional PMI and Fed business surveys we follow suggest that today's national ISM manufacturing report for November will be weaker than in October
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.
The underlying U.S. consumer story, hidden behind a good deal of recent noise, is that the rate of growth of spending is reverting to the trend in place before last year's tax cuts temporarily boosted people's cashflow.
The easiest way to track the impact of the rising dollar on real economic activity is via the export orders component of the ISM manufacturing survey. We have been profoundly skeptical of the value of the ISM headline index, because it suffers from substantial seasonal adjustment problems, but the export orders index seems not to be similarly afflicted.
The Fed's decisions over the next few months hinge on the relative importance policymakers place on the apparent slowdown in payroll growth and the unambiguous acceleration in wages. We qualify our verdict on the payroll numbers because the January number was very close to our expectation, which in turn was based largely on an analysis of the seasonals, not the underlying economy.
German industrial output rebounded strongly at the beginning of the Q1. Production surged 3.3% month-to-month in January, pushing the year-over-year rate up to 2.2%, from a revised -1.2% in December
China's official and Caixin manufacturing PMIs have diverged in the last couple of months.
March's consumer price figures, released tomorrow, look set to show that inflation's ascent was kept in check by the later Easter this year compared to last. Nonetheless, CPI inflation will take big upward strides over the coming months, and it likely will exceed 3% by the summer.
The upturn in the new monthly measure of GDP in May, released yesterday, was strong enough--just--to suggest that the MPC likely will raise Bank Rate at its next meeting on August 2.
Recent economic indicators in Mexico have been relatively positive.
The economy looks to be in better shape following May's GDP report than widely feared.
Economic data in the euro area are still slipping and sliding.
Yesterday's deluge of output and trade data broadly supported our call that quarter-on-quarter GDP growth likely slowed to 0.3% in Q4, from 0.4% in Q3.
The combination of sluggish GDP growth in October and news that the Prime Minister will attempt to renegotiate the terms of the Brexit backstop, most likely pushing back the key vote in parliament until January, has extinguished any lingering chance that the MPC might be in a position to raise Bank Rate at its February meeting.
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.
France is solidifying its position as one of the Eurozone's best-performing economies.
April's GDP data give a grim firs t impression, though the details provide reassurance that the economy isn't on the cusp of a recession.
Yesterday's French industrial production data were worse than we expected. Output slipped 1.1% month-to-month in September, pushing the year-over-year rate down to -1.1% from a revised +0.4% in August. Mean-reversion was a big driver of the poor headline, given the upwardly-revised 2.4% jump in August.
Yesterday's economic reports in the Eurozone were ugly.
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.
French manufacturing came roaring back at the end of Q1. Industrial production jumped 2.0% month-to- month in March, driving the year-over-year rate higher to +2.0%, from a revised -0.7% in February.
March data for retail sales and manufacturing have tempered our optimism for the advance Q1 GDP estimate in Germany next week. Industrial production fell 0.5% month-to-month in March, equivalent to a mere 0.1% increase year-over-year, mainly as a result of weakness in core manufacturing activities.
October industrial production data in France surprised to the upside yesterday, with headline output rising 0.5% month-to-month, well above the consensus estimate and our own forecast for a monthly fall. Production was lifted by a 5.1% month-to-month jump in energy output, due to unusually cold weather, offsetting a 0.5% decline in manufacturing output, the fifth drop in the past six months.
The plunge in Russia's financial markets, in response to targeted U.S. sanctions--see here--against Russian oligarchs and government officials, was the main EU news story yesterday.
It's hardly surprising that the consensus forecast for month-to-month growth in November GDP, released on Friday, is a mere 0.1%, given the flow of downbeat business surveys.
Friday's data provided the first bit of evidence that manufacturing in the Eurozone is headed for a slowdown in Q2, partly reversing the strength in Q1.
Yesterday's German manufacturing and trade data did little to allay our fears over downside risks to this week's Q4 GDP data. At -1.2% month-to-month in December, industrial production was much weaker than the consensus forecast of a 0.5% increase. Exports also surprised to the downside, falling 1.6% month-to-month. Our GDP model, updated with these data, shows GDP growth fell 0.2%-to-0.3% quarter-on-quarter in Q4, reversing the 0.3% increase in Q3.
The softening in payroll growth in November appears mostly to be a story about short-term noise, rather than a sign that tariffs are hurting or that the broader economy is slowing.
Core CPI inflation has been 2.1-to-2.2% year-over- year for the past seven months, a remarkably stable run which likely will persist for a few more months.
Friday was a busy day in the Eurozone. The final and detailed GDP report confirmed that growth in the euro area slowed to 0.2% quarter-on-quarter in Q3, from 0.4% in Q2, with the year-over-year rate slipping by 0.6 percentage points to 1.6%, just 0.1pp below the first estimate.
Payroll growth has slowed, no matter how you slice and dice the numbers.
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.
Data released in recent days have supported our base case for further interest rate cuts in Mexico over the coming meetings.
Friday was a busy day in the Eurozone economy. The third detailed GDP estimate confirmed that growth was unchanged at 0.4% quarter-on-quarter in Q2, pushing the year-over-year rate down by 0.4 percentage points to 2.1%, marginally below the first estimate,2.2%.
The pick-up in GDP in July is a re assuring sign that the economy is on course to grow at a solid rate in Q3, thereby substantially weakening the case for the MPC to cut Bank Rate before Britain's Brexit path is known.
German manufacturing snapped back at the end of summer. Industrial production jumped 2.6% month-to-month in August, pushing the year-over- year rate up to 4.7% from a revised 4.2% in July.
The French manufacturing sector slowed more than we expected in Q1.
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.
Hard data for Brazil and Mexico, released last week, support the case for further interest rate cuts.
Mexican manufacturing data continue to offer a counterweight to strong consumers' spending and services numbers. Output in the key manufacturing sector contracted by 0.2% month-to-month in September, due mainly to severe external headwinds. But the year-over-year rate was unchanged at 3.3%, with a flat underlying trend. Total industrial output, by contrast, rose 0.4% month-to-month in September, pushing the year-over-year rate up to 1.7%, from an upwardly-revised 1.1% gain in August.
Yesterday's detailed CPI data for August confirmed that inflation in the Eurozone stayed subdued over the summer.
Our view that the economy is slowing sharply appears, superficially, to be challenged by the surge in the money supply. Year-over-year growth in the value of banknotes and coins in circulation has shot up this year, to 8.3% in August, from 5.5% in December 2015.
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.
As the impeachment hearings gather momentum, we have been asked to provide a cut-out-and-keep guide to the possible outcomes.
Italy's economy is still bumping along the bottom, after emerging from recession in the middle of last year.
Due to a technical quirk, Eurostat was not able to publish seasonally adjusted January trade numbers yesterday, so the report is of limited use. The unadjusted trade surplus in the Eurozone plunged to €7.9B in January, from €24.3B in December, driven in part by a collapse in Italy's surplus.
Sterling leapt to $1.27, from $1.22 last week, amid some positive signals from all sides engaged in Brexit talks.
The September NAHB survey, released yesterday, shows, that the housing market took a knock from the hurricanes but the damage, so far at least, appears to be contained.
The bulk of China's PMIs were published over the weekend and yesterday, leaving only the Caixin services PMI on Wednesday.
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.
With campaigning for the general election intensifying last week, it was unsurprising that October's money and credit release from the Bank of England received virtually no media or market attention.
The FOMC did nothing yesterday and said nothing significantly different from its June statement, as was universally expected.
The Brazilian Central Bank's policy board-- Copom--voted unanimously on Wednesday to cut the Selic rate by 50bp to 6.0%.
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.
Data released last week confirm that the Argentinian economy finally is stabilizing.
The Fed will leave rates unchanged today.
Peru's April supply-side monthly GDP data confirm that the economic rebound lost momentum at the start of the second quarter.
Yesterday's IFO data in Germany heaped more misery on the Eurozone economy.
Colombia's GDP growth was a poor 1.6% year-over- year in Q4, down from 2.3% in Q3, despite the oil recovery and the COP's rebound since mid-year. GDP rose a modest 0.3% quarter-on-quarter, after a 0.8% increase in Q3.
Sebastián Piñera returns to the Presidential Palacio de la Moneda, succeeding Michelle Bachelet as president of Chile, as in 2010.
This year has proved to be challenging for retailers in Mexico. The combination of fiscal reform, the economic slowdown over the first half of the year, and the collapse of consumer sentiment took a significant toll in the sector.
Greece goes to the polls this weekend, but unlike the chaos in the summer, we doubt it will be a nail-biting experience for investors. Polls put Syriza and the conservative New Democracy neck-and-neck, but neither party likely will be able to form a majority. Syriza has ruled out a grand coalition, which potentially means tricky negotiations with minority parties. But we are confident that any new government will be committed to euro membership, and a constructive dialogue with the EU and IMF.
If the rate of increase of the core CPI in the second half of the year matches the 0.19% average gains in the first half, the year-over-year rate will rise to 2.3% by December. In December last year, core inflation stood at just 1.6%, following a run of soft second half numbers. We can't rule out a slowdown in the monthly increases in the second half of this year too, given the evidence suggesting a small bias in the seasonal adjustments.
Investors have been used to central bank policy as a source of low volatility in recent years, but the last six months' events have changed that. Uncertainty over the timing of Fed policy changes this year, an ECB facing political obstacles to fight deflation, and last week's dramatic decision by the SNB to scrap the euro peg have significantly contributed to rising discomfort for markets since the middle of last year.
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.
The Spanish economy remains the star performer among the majors in the Eurozone.
Housing rents account for some 41% of the core CPI and 18% of the core PCE, making them hugely important determinants of the core inflation rate.
Following a challenging start to this year, Andean economic prospects are improving gradually, thanks to falling interest rates, lower inflation, relatively stable currencies and--in some cases--increased infrastructure spending.
The closer we look at the data, the more convinced we become that the rollover in CPI physicians' services prices, which has subtracted nearly 0.1% from core CPI inflation since January, is a response to sharply higher Medicare part B premiums, especially for new enrollees.
The solid numbers for December mean that core inflation remains on track to breach 2?-?% this year, though probably not until the summer. Over the next few months, base effects will help to hold the core rate close to the December pace.
Yesterday's ECB bank lending survey suggests that credit conditions remain favourable for the EZ economy. Credit standards eased slightly for business and mortgage lending and were unchanged for consumer credit.
The FOMC statement did enough to keep alive the idea that rates could rise in March, but the ball is now mostly in Congress' court. If a clear plan for substantial fiscal easing has emerged by the time of the meeting on March 15, policymakers can incorporate its potential impact on growth, unemployment and inflation into their forecasts, then a rate hike will be much more likely.
The case for expecting a robust January jobs number is strong, but it is not without risks.
The euro area's trade advantage with the rest of the world slipped at the start of the year.
Mr. Draghi's speech to the European Banking Congress on Friday--see here--was a timely reminder to markets that the ECB is in no hurry to make any changes to its policy setting.
Chile's Q3 GDP report, released yesterday, confirmed that the economy lost momentum in the last quarter.
Chile's central bank cut the policy rate 25bp last week to 3.0%, in line with consensus, amid easing inflationary pressures. The timing of the rate cut was no surprise; in January, the BCCh cut rates for the first time in more than two years, and kept a dovish bias.
Economic data released in recent weeks underscore that Brazil emerged from recession in Q1, but the recovery is fragile and further rate cuts are badly needed. The political crisis has damaged the reform agenda, and political uncertainty lingers.
German survey data did something out of character yesterday; they fell. The IFO business climate index declined to 117.2 in December from a revised 117.6 in November.
Final inflation data yesterday confirmed Eurozone inflation pressures are still low. Inflation rose to 0.2% year-over-year in December from 0.1% in November, lifted by easing deflation in energy prices. Base effects likely will lift energy price inflation in January and February, but the year-over-year rate will dip in Q2, if the oil price remains depressed. Food inflation fell in December due to a decline in unprocessed food prices, and we see further downside in Q1. Core inflation was unchanged, with the key surprise that services inflation fell to 1.1% from 1.2% in November. We think this dip will be temporary, however, and our first chart shows that risks to services inflation are tilted to the upside.
The EZ's current account surplus was stung at the end of Q3, falling to a three-year low of €16.9B in September, from a revised €23.9B in August.
Our new Chief U.K. economist, Samuel Tombs, initiated his coverage yesterday with a sombre, non-consensus, message on the economy. Headwinds from fiscal tightening and net trade will weigh on GDP growth next year, but the BoE will likely have to look through such cyclical weakness, and hike as inflation creeps higher. An intensified drag from net trade in the U.K. will, other things equal, benefit the Eurozone. But a slowdown in U.K. GDP growth still poses a notable risk to euro area headline export growth, especially in the latter part of next year.
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.
We have argued for some time that the plunge in gasoline prices will constrain core inflation over the course of this year, by reducing production and distribution costs for a broad array of goods.
In the wake of the unexpectedly weak September Empire State survey, released Monday, we are now very keen to see what today's Philadelphia Fed survey has to say.
Banxico's tightening cycle has totalled 400 basis points, lifting rates to 7.0%. Since late 2015, Banxico has followed the Fed closely, but other external factors also have guided many of its decisions.
The recent jobless claims numbers have been spectacularly good, with the absolute level dropping unexpectedly in the past two weeks to a 43-year low. The four-week moving average has dropped by a hefty 14K since late August.
The FOMC won't raise rates today, but we expect that the announcement of the start of balance sheet reduction will not be interrupted by Harvey and Irma.
Yesterday's IFO survey capped a fine Q4 for German business survey data. The headline business climate index climbed to a 34-month high of 111.0 in December, from 110.4 in November. An increase in the "current assessment" index was the main driver of the gain, while the expectations index rose only trivially.
Halfway through the third quarter, we have no objection to the idea that GDP growth likely will exceed 2% for the third straight quarter.
Brazil's GDP growth slowed to just 0.1% quarter- on-quarter in Q4, from an upwardly-revised 0.2% in Q3. This pushed the year-over-year rate up to 2.1%, from 1.4%, but this was weaker than market expectations.
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.
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 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.
China's official PMIs paint a picture of robust momentum going into 2018 but we find this difficult to reconcile with the other data.
Markets weren't impressed by the sub-consensus consumption numbers for April, reported yesterday, but the undershoot was all in the we ather-related utility component, where spending plunged 5.1% month-to-month. The process of post-winter mean reversion is now complete.
Korean exports continued to fall year-over-year in April, but the story isn't as bleak as the headlines suggest.
Japan's Tankan survey continues to paint a picture of a contracting economy.
As we're writing, the price of U.S. crude oil is only about 50 cents per barrel lower than on Thursday, when markets began to anticipate an OPEC deal to cut production over the weekend. The failure of the Doha talks generated an initial sharp drop in oil prices, but the damage now is very limited, as our first chart shows.
Lending conditions in the EZ economy continued to improve in Q1, according to the ECB's bank lending survey. Business and consumer credit supply conditions eased, but mortgage lending became more difficult to come by as standards tightened sharply in Germany, France, and the Netherlands. Demand for new loans also rose, but the increase was due entirely to gains in the mortgage and consumer credit components.
On the face of it, the rebound in the manufacturing PMI, to 53.3 in August from 48.3 in July, directly challenges our view that the economy is set to slow sharply over the coming quarters. A close look at the survey, however, suggests that the manufacturing PMI exaggerates the extent of the sector's recovery in August.
China's September PMIs, most of which were released over the weekend, mark out a clear downtrend in activity since late last year.
The recent sell-off in Treasuries has not yet reached significant proportions.
The inevitable--more or less--correction from August's 14-year high is no big deal.
Inflation pressures in LatAm are moderating, and governments have been taking steps to pursue fiscal consolidation. These factors, coupled with a relatively favourable external environment, are providing policymakers with the opportunity to start relaxing monetary policy.
Chile's Q3 GDP report, released yesterday, confirmed that the economy gathered speed in the third quarter, but this is now in the rearview mirror.
Yesterday's State of the Union address by EC president Jean-Claude Juncker commanded more attention than usual, but contained little news on the key talking points for investors.
Colombian activity data released this week were weak, but mostly better than we expected. Real GDP rose 0.7% quarter- on-quarter in Q2, in contrast to the 0.3% fall in Q1, when the economy was hit by the lagged effect of last year's monetary tightening and the one-off VAT increase.
It has been clear for some months now that China's housing market is refusing to quit, and July's data showed the phoenix rising strongly from the ashes.
The industrial production trajectory in Mexico looked strong going into Q3, but Friday's report for August threatens to change that picture.
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.
Investors face a busy EZ calendar today, but the second estimate of Q3 GDP, and the advance GDP data in Germany, likely will receive most attention. Yesterday's industrial production report in the Eurozone was soft, but it won't force a downward GDP revision, as we had feared.
We expect September's consumer prices report, released on Wednesday, to show that CPI inflation held steady at 1.7%, below the 1.8% consensus.
The ramifications of continued disappointing Asian growth, particularly in China, and its impact on global manufacturing, are especially hard-felt in LatAm.
Another month, another sluggish performance in the manufacturing sector. Even a third straight big jump in auto output was unable to rescue the May numbers, and aggregate output fell by 0.2%. The trend in output has been broadly flat over the past six months or so, and we see little prospect of any sustained near-term recovery.
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.
Yesterday's GDP reports confirmed that growth was stable at 0.3% quarter-on-quarter in the Eurozone, leaving the year-over-year rate unchanged at 1.5%. Rebounding growth outside Germany, which has been a main driver of EZ GDP growth in this cycle, was the key story.
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.
Two key points can be extracted from the minutes of the last BCB meeting, when policymakers increased the Selic interest rate by 50bp to 12.75%. First, the bank recognized that the balance of risks to inflation has deteriorated, due to the huge adjustment of regulated prices and the BRL's depreciation, but it specifically referred only to "this year" in the communiqué.
The Eurozone labour market is slowly healing following two severe recessions since 2008. Unemployment fell to a two-year low of 10.3% in January, and yesterday's quarterly labour force survey was upbeat. Fourth quarter employment rose 1.2% year-over-year, up from 1.1% in Q3, pushing total EZ employment to a new post-crisis high of 152 million.
The two biggest economies in the region have taken divergent paths in recent months, with the economic recovery strengthening in Brazil, but slowing sharply in Mexico.
Mexican industrial production is slowly improving, and further good numbers are likely in coming months.
Eurozone GDP data last Friday suggest the cyclical recovery continued at the end of last year. Real GDP in euro area rose 0.3% quarter-on-quarter in Q4, the same as in Q3, lifted by growth in all the major economies. This was in line with the consensus forecast, but noticeably higher than implied by monthly industrial production and retail sales data.
Brazil's consumer spending data yesterday appeared downbeat. Retail sales fell 2.1% month-to-month in December, pushing the year-over-year rate down to 4.9%, from -3.8% in November. This is a poor looking headline, but volatility is normal in these data at this time of the year, and the underlying trend is improving.
Last week's industrial report confirmed that the Mexican economy softened at the end of the second quarter. Industrial production was unchanged year- over-year in June, calendar-and seasonally adjusted, down marginally from +0.1% in May.
Yesterday's data showed that growth in the EZ slowed in the second quarter.
Mexican industrial production data for August were a little stronger-than-expected. Output rose 1.0% year-over-year, for the second consecutive month, and marginally higher than the 0.6% average growth in the second quarter. The rise in production in August is encouraging, especially the strong manufacturing component, which accounts for about half of all output.
The Brazilian consumer will continue to suffer from high interest rates and a deteriorating labour market this year. But sentiment data imply that the fundamentals are stabilising, at least at the margin. The headline consumer sentiment gauge, published by the FGV, has improved significantly in the past five months, and we expect another modest increase later this month
The 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%.
Upbeat survey data, a competitive MXN, and the strong U.S. manufacturing sector indicate that Mexican industry should be rebounding.
The German inflation rate soared at the start of 2017, but it likely will fall in the next few months. Final February data yesterday showed that inflation rose to 2.2% in February, from 1.9% in January, consistent with the initial estimate. Since December, headline inflation in Germany, and in the EZ as a whole, has been lifted by two factors. Base effects from the 2016 crash in oil prices have pushed energy inflation higher, and a supply shock in fresh produce--due to heavy snowfall in southern Europe--has lifted food inflation.
Headline inflation in the EZ remained elevated in September, rising by 0.1 percentage point to 2.1%, while the core rate was unchanged at 0.9% in August; both numbers are in line with the initial estimates.
Private consumption remains resilient in Brazil and recent data suggest that growth will continue over the coming months.
Downbeat sectoral data and weakening consumer spending numbers indicate that the Mexican economy remains in bad shape.
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.
Manufacturers in the Eurozone stood tall mid-way through Q2, despite still-subdued leading indicators.
Yesterday's final inflation data in France for September were misleadingly soft.
Recent industrial data for Mexico point to renewed upside risks for GDP growth, despite the likely headwind to consumption from high inflation and depressed confidence.
Markets currently see a 50/50 chance that the MPC will raise Bank Rate in August and will be looking for a strong signal on Thursday that the next meeting is "in play".
Speaking in Brussels earlier this week, Mr. Draghi noted that the ECB is encouraged by signs that private investment is finally turning up, to complement strong consumption. It is too early to make that assumption, we think, but we agree with the president that the trend is moving slowly in the right direction.
Central banks in Chile and Peru kept their reference rates unchanged last week, as expected, as inflation pressures in both countries are starting to ease. But different economic outlooks are emerging. Chile's economy continues to disappoint, while Peru's is picking up. Indeed, Peru is the only country in the region with clear positive momentum.
Spain heads to the polls on Sunday, but unlike the chaos that descended on Europe following Greece's elections earlier this year, we expect a market-friendly outcome. The key political story likely will be the end of the two-party system, as polls indicate neither of the two largest mainstream parties--Partido Popular and PSOE--will be able to form a majority. Markets' fears have been that the fall of the established parties would allow anti-austerity party, Podemos, to lead a confrontation with the EU, but this looks very unlikely.
Yesterday's final EZ CPI data for March confirmed the message from the advance report that inflation pressures eased last month.
Economic data in Brazil over the second quarter were relatively positive, and June reports released in recent weeks, coupled with leading indicators for July, are encouraging.
Hard data on Mexico's industrial sector for the last couple of months have highlighted major divergences across sectors.
The half-way point of the quarter is not, alas, the half-way point of the data flow for the quarter.
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.
The Brexit-related slump in corporate confidence finally has taken its toll on hiring.
PM Johnson has conceded considerable ground over the terms of Brexit for Northern Ireland in order to get a deal over the line in time for MPs to vote on it on Saturday, before the Benn Act requires him to seek an extension.
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.
Comments by Mr. Draghi in Washington last week point to a high bar for an adjustment to the QE program. The ECB president noted that while asset purchases and negative interest rates have driven a notable improvement in confidence and asset prices, the real key to the central bank's policies' success is a lasting boost to investment, consumption and inflation.
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 February activity report in Colombia showed a modest pick-up in manufacturing activity and strength in the retail sales numbers.
Demands that Germany pay reparations from the Second World War, and the apparently deteriorating relationship between Messrs. Varoufakis and Schauble, have further complicated talks between the Eurogroup and Greece in recent weeks.
Upbeat survey data and relatively resilient consumer spending numbers indicate that the Mexican economy is in good shape, despite a marginal slowdown in most of Q2.
The February industrial production numbers were flattered by an enormous 7.3% jump in the output of electricity and gas utility companies, thanks to a surge in demand in the face of the extraordinarily cold weather. February this year was the coldest since at least 1997, when comparable data on population weighted heating degree days begin.
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.
Yesterday's economic activity data from Peru signalled that the relatively firm business cycle continues. The monthly GDP index accelerated to 3.6% year-over-year in November, rising from 2.1% in October, but marginally below the 4.4% on average in Q3. Growth continued to be driven by mining output, including oil and gas, which rose 15% year-over- year. The opening of several new mines explains the upturn, and we expect the sector to remain key for the Peruvian economy this year.
The elevated readings from the ISM manufacturing survey this year have not been followed by rapid growth in output. The headline ISM averaged 55.8 in the second quarter, a solid if unspectacular reading. But output rose by only 1.2% year-over-year, and by 1.4% on a quarterly annualized basis.
Peru's central bank kept the reference rate unchanged at 3.5% at Thursday's meeting, in line with our view and market expectations.
Japan's economic data have been very volatile in the last 18 months.
Without tying its hands, the MPC--which voted unanimously to keep interest rates at 0.25% and to continue with the £60B of gilt purchases and £10B of corporate bond purchases authorised last month--gave a strong indication yesterday that it still expects to cut Bank Rate in November.
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.
The Monetary Policy Board of the Bank of Korea voted yesterday to lower its policy base rate to 1.25%, from 1.50%.
The winds of global politics are changing, and the major Eurozone countries could be forced to take heed. Donald Trump's foreign policy position remains highly uncertain. Our Chief Economist, Ian Shepherdson, expects the U.S. to increase defence spending next year; see the U.S. Monitor of October 20.
The spectacular 1.3% rebound in manufacturing output last month -- the biggest jump in seven years, apart from an Easter-distorted April gain -- does not change our core view that activity in the sector is no longer accelerating.
The year-over-year rate of core CPI inflation rose steadily from a low of 1.6% in January 2015 to 2.3% in February this year. At that point, the three-month annualized rate had reached a startling 3.0%. You could be forgiven, therefore, for thinking that the dip in core inflation back to 2.2% in March was an inevitable correction after a period of unsustainably rapid gains, and that the underlying trend in core inflation isn't really heading towards 3%.
Colombian activity data released this week were relatively strong, but mostly driven by the primary sectors; consumption remains sluggish compared to previous standards.
The case for the MPC to hold back from implementing more stimulus was bolstered by September's consumer prices figures.
We were surprised by the weakness of the April housing starts report; we expected a robust recovery after the March numbers were depressed by the severe snowstorms across a large swathe of the country. Instead, single-family permits rose only trivially and multi-family activity--which is always volatile--fell by 9% month-to-month.
Yesterday EZ industrial production report confirmed the message from advance country data that manufacturing rebounded towards the end of summer. Output, ex-construction, jumped 1.6% month-to-month in August, and the July data were revised up by 0.4 percentage points.
Yesterday's data showed that industrial production in the Eurozone accelerated at the end of spring. Output, ex-construction, jumped 1.3% month-to-month in May, much better than the downwardly-revised 0.3% rise in April; the rise pushed the year-over-year rate up to a six-year high of 4.0%.
The macro data reported in Brazil this week added weight to the view that the economy ended the second quarter in a severe recession. Brazil's retail sales fell 0.4% month-to-month in June, the fifth consecutive contraction. The broad retail index, which includes vehicles and construction materials, fell 0.8% month-to-month, with a sharp contraction in auto sales, down 2.8%.
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.
Today brings yet another broad array of data, with new information on housing construction, industrial production, consumer sentiment, and job openings.
Industrial production data yesterday indicate manufacturers in the Eurozone enjoyed a decent start to Q3, thanks to strength in Germany, Italy and Spain, which offset weakness in France. Production ex-construction rose 0.6% month-to-month in July, boosted in part by a 3% jump in energy output. If production is unchanged in August and September, output will rise 0.3% quarter-on-quarter in Q3, but this estimate is uncertain, and we look for an increase of about 0.4%-to-0.5%.
Eurozone manufacturing probably stalled at the start of the second quarter. We think industrial production rose a mere 0.1% month-to-month in April, lower than the 0.4% consensus forecast, and equivalent to a 0.8% increase year-over-year. Output ex-construction was up 0.8% in Germany, but this is likely to be offset by declines in France and Italy, and a hefty 3.2% fall in Greece.
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.
The underlying trend in payroll growth is running at about 225K-to-250K, perhaps more, and the leading indicators we follow suggest that's a reasonable starting point for our December forecast. The trend in jobless claims is extraordinarily low and stable--the week-to-week volatility is eye-catching, especially over the holidays, but unimportant--and indicators of hiring remain robust. The unusually warm weather in the eastern half of the country between the November and December survey weeks also likely will give payrolls a small nudge upwards, with construction likely the key beneficiary, as in November.
Brazil's retail sales plunged in August, falling 0.9% month-to-month--the seventh consecutive contraction -- and with a net revision of -0.6%. The broad retail index, which includes vehicles and construction materials, dropped 2.0% month-to-month, the biggest fall this year, due mainly to a 5.2% collapse in auto sales, reversing July's unexpected increase. In annual terms, headline sales fell by an eye-popping 6.9% in August, after the downwardly-revised 3.9% drop in July. In short, the sales data show that consumers are suffering. They will struggle for some time yet.
This week's manufacturing, construction and services PMIs for October will demonstrate how well the economy is coping with the prospect of higher interest rates.
Survey data have been signalling a stronger German economy in the last few months, and hard data are beginning to confirm this story. Data yesterday showed that industrial production rose 0.4% month-to-month in November, pushing the year-over-year rate up to 2.2%, from an upwardly-revised 1.6% in October. The headline was boosted mainly by a 1.5% month-to-month jump in construction and a 0.9% rise in intermediate goods production.
Last week's industrial production and construction output figures for May were surprisingly weak. They have compelled us to revise down our expectation for the preliminary estimate of Q2 GDP to 0.2% quarter-on-quarter, from 0.3% previously.
Chief U.K. Economist Samuel Tombs on U.K. Construction
The chances of a cut in official interest rates were boosted yesterday by the sharp fall in the business activity index of the Markit/CIPS report on services in February, to its weakest level since April 2013. Its decline, to just 52.8 from 55.6 in January, mirrored falls in the manufacturing and construction PMIs earlier in the week and pushed the weighted average of the three survey's main balances down to a level consistent with quarter-on-quarter GDP growth of just 0.2% in Q1.
In one line: Core inflation will fall back this month; construction jumped in Q1, but a setback looms in Q2.
The most important number released yesterday was hidden well behind the headline inflation, production and housing construction data. We have been waiting to see how quickly the upturn in the number of rigs in operation would translate into rising oil and gas well-drilling, and now we know: In July, well-drilling jumped by 4.7%
The latest U.K. PMIs were unambiguously dreadful. The manufacturing, construction and services PMIs all fell in April, and their weighted average points to quarter-on-quarter growth in GDP slowing to zero in Q2, from 0.4% in Q1. The U .K.'s composite PMI also undershot the Eurozone's for the second month this year.
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.
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.
German industrial output was off to a sluggish start in the fourth quarter. Production eked out a marginal 0.2% month-to-month gain in October, pushing the year-over-year rate down to 0.0% from a revised 0.4% in September. Manufacturing output rose 0.6%, led by a 2.7% jump in production of capital goods, but the underlying trend in the sector overall is flat. On a more positive note, construction output rose 0.7% month-to-month in October, and leading indicators suggest this could be the beginning of a string of gains, lifting investment spending in coming quarters.
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.
In one line: Homebuilders still wary, but construction activity will rise over the summer.
November's Markit/CIPS surveys for the manufacturing, construction and services sectors suggest that GDP growth is on track to strengthen a touch in Q4.
This week brings home sales data for July, which we expect will be mixed. New home sales likely rose a bit, but we are pretty confident that existing home sales will be reported down, following four straight gains. We're still expecting a clear positive contribution to GDP growth from housing construction in the third quarter, but from the Fed's perspective the more immediate threat comes from the rate of increase of housing rents, rather than the pace of home sales.
Historical evidence suggests that we should be worried about the relative weakness in the Eurozone's manufacturing sector. Industrial production ex-construction has historically been a key indicator of the business cycle, despite accounting for a comparatively modest 19% of total value-added in the euro area. In all three previous major downturns, underperformance in the manufacturing sector sounded the alarm six-to-nine months in advance that the economy was about to slip into recession.
The national accounts look set to show that GDP growth in the fourth quarter was even stronger than previously estimated. Earlier this month, quarter-on-quarter growth in construction output in Q4 was revised up to 1.2%, from 0.2%. As a result, construction's contribution to GDP growth will rise by 0.07 percentage points.
Mexico's financial markets and risk metrics plunged early this week, following the AMLO government's decision to cancel the construction of the new airport in Mexico City, after a public consultation held in the previous four days.
December's Markit/CIPS surveys for the manufacturing, construction and services sectors suggest that the economy ended 2017 on a lacklustre note.
Industrial production in Germany had a decent start to the third quarter. Output rose 0.7% month-to-month in July, less than we and the consensus expected, but the 0.5% upward revision to the June data brings the net headline almost in line with forecasts. Rebounds of 2.8% and 3.2% month-to-month in the capital goods and construction sectors respectively were the key drivers of the gain, following similar falls in June. A 3.2% fall in consumer goods production, however, was a notable drag.
Chief U.S. Economist Ian Shepherdson on U.S. housing starts
Chief U.K. Economist Samuel Tombs on U.K. GDP
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