Search Results: 1182
Pantheon Macroeconomics aims to be the premier provider of unbiased, independent macroeconomic intelligence to financial market professionals around the world.
Sorry, but our website is best viewed on a device with a screen width greater than 320px. You can contact us at: info@pantheonmacro.com.
1182 matches for " economic":
The Eurozone economy finished last week with a horrendous set of economic data.
The Eurozone optimists are out in numbers...But don't expect economic miracles just yet
The EZ economic data have stabilised...But what about tail-risks?
Political certainty is at a premium in the EZ......But Economic data remain resilient
A Fog of Political and External Risks in the EZ...and Recent Economic Data Have Been Soft Too
In one line: Modest inflation pressures amid subpar economic activity.
What should we make of the view of Fed hawks, set out with admirable clarity in the September FOMC minutes, that higher rates "might spur rather than restrain economic activity"? The core story behind this counter-intuitive proposal is the idea that zero rates send a signal to the private sector that the Fed is deeply worried about the state of the economy.
This week economic data highlighted the severity of Brazil's economic recession and the huge challenges it will face next year to return to growth. The recession further deepened in the third quarter with the economic activity index--a monthly proxy for GDP--surprising, once again, to the downside in September. The index fell 0.5% month-to-month, pushing the year-over-year rate down to 6.2%, the steepest fall on record. The series is very volatile on a monthly basis, but the underlying trend remains grim.
Peru's economic recovery gathered strength late last year.
Peru is now in the grip of a severe political storm that is shaking the country's foundations and darkening the already fragile economic outlook.
Financial markets and economic survey data have been sending a downbeat message on the Eurozone economy so far this year. The composite PMI has declined to a 12-month low, consumer sentiment has weakened, and national business surveys have also been poor.
Difficult though it is to tear ourselves away from Britain's political and economic train-wreck, morbid fascination is no substitute for economic analysis. The key point here is that our case for stronger growth in the U.S. over the next year is not much changed by events in Europe.
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.
Growth is too slow to warrant a rate hike...domestically-generated inflation remain weak
The Fed plans to keep on hiking...falling unemployment is the key, not the softer CPI
The Eurozone economy is in fine form...but this is likely as good as it gets
EZ GDP growth is slowing, gently, to 2%...with political uncertainty looming, as ever
Strong and stable growth in the Eurozone...but now comes the increase in yields and inflation
The Fed is fretting over fiscal easing......upside risk to growth, inflation and interest rates
A consumer and investment slowdown beckons...Tighter macro policy will worsen the downturn
The EZ economy powered ahead in 2016...and is so far oblivious to political risks
Growth won't accelerate until next year...but the MPC is set to hike rates in August anyway
Strong growth, rising inflation greet Powel...but is productivity growth finally picking up?
The R-Word is Once Again Being Spoken in the EZ...But it Probably Won't be that Bad, at Least not in H1
Slower Growth This Year Is Invevitable...But That Doesn't Make Zero Hikes Inevitable Too
A Soft Brexit Remains The Most Likely Outcome....So The MPC Soon Up The Pace Of Tightening
No further easing needed, if a trade deal is done...but this is a dovish fed, on a hair-trigger
A no-deal brexit remains an unlikely outcome...An October extension will prodive a rate hike window
Mr. Draghi will end his ECB tenure with a rate cut...but the economy probably doesn't need one
"Gradual" normalization continues, for now...No fourth dot until September
The fed is in a double bind: what to expect, and what to do
Dutch Pro-EU Centrists Carry The Day...But We Can't Assume The Same Will Happen In France
The Fed Is On Course For Four Hikes This Year...And Another Four In 2018
Consumers are buckling under high inflation...but the MPC won't add to their woes by hiking rates
The economy is struggling to rebound in Q2...an August rate hike is far from a done deal
A dovish tightening of Monetary Policy...QE will end this year, nut no rate hike in H1 2019
Households' Spending Will Retain Momentum in H2...Another Brexit Extension Remains Likely in October
Eurozone GDP growth likely slowed in Q2...teeing up a deposit rate cut in September
The Fed Is All-In On The Slowdown Story...But They're Playing With Fire In The Labor Market
The Eurozone Economy Is In Fine Form.. But Don't Believe Everything the ECB is Telling You
The Payroll "Slowdown" Won't Last... The Fed Will Hike This Month, and Again Later This Year
Real wage falls are slowing the economy...Fears of rate hikes this year are overblown
Fed hawks are in the ascendancy,..but they won't be fully in charge until next year
A Consumer slowdown is under way...Policymakers will not provide more stimulus
Fed tightening is deferred, not cancelled...Expected a December hike after robust fall data
Sterling's fall is hurting more than it's helping...Slow GDP and wage growth will keep the MPC inactive
GDP growth won't accelerate until next year...Low inflation will ease pressure to hike rates again
The fed will keep hiking each quarter...they are chasing unemployment, not inflation
GDP Growth will revive in Q3; The MPC won't ease...MPs will block a no-deal Brexit again in October
Q2 slowdown in the EZ economy confirmed...Now we wait for the ECB's response next month
The EZ economy finally stretches its legs...but it won't sustain Q1 and Q2 momentum for long
Don't be Deceived by the Consumer Slowdown...It's a One-Time Transition to Sustainability
The Tightening Labor Market is all that Matters...Expect the Fed to Hike at Each Quarter-End
Rising Inflation is Causing a Sharp Slowdown...Sterling's Depreciation has been Harmful so Far
MPC to delay in May due to Q1 GDP and Inflation...Political risks will resurface later this year
Trade talk and falling stocks are hurting...but the fed is still on course for four hikes this year
Brexit Risk Currently Is Only Depressing Capex...Rates Will Rise Soon To Contain Wage Cost Pressures
The Bifurcated Eurozone Economy: Manufacturing Is Terrible, But Services Look Decent
The domestic business cycle doesn't matter, yet: Global Growth and the Trade War are driving the Fed
The EZ economy will finish 2016 strongly...but political risks continue to simmer
How and when will the Fed respond to Fiscal Easing?
The Eurozone Economy is doing fine...but recent soft data provide a much needed reality check
The EZ economy enters 2018 in fine form...but markets are beginning to look tricky
The MPC is mulling hiking rates again soon...but activity and inflation data imply no need to rush
A Poor Q4 In The EZ, But Not Uniformly Horrible...All Eyes Are Now On The Q1 Numbers For Signs Of A Rebound
Has the wages dam finally burst? If it hasn't, it will soon
The EZ Economy is in a good Cyclical Shape.. But Can It Shrug off Political Changes in 2017?
Brexit Risk Increasingly is Hitting the Economy...But Above-Trend Growth Awaits After a Deal is Done
Brace for the Fed's Pushback...But only when Fiscal Easing is in front of Congress
A Consumer and Investment Slowdown Beckons......Tighter Macro Policy will worsen the downturn
A Christmas present to markets from the ECB...Low core inflation and sizzling GDP growth in 2018
Brexit and fiscal headwinds have lessended...but consumers' spending will struggle in 2018
Has Christmas been Cancelled in the EZ Economy?...Both Survey and Hard Data Point to Another Soft Quarter in Q4
Growth, inflation to challenge the Fed in 2018...faster wage growth will push them too
A No-Deal Brexit Remains an Unlikely Outcome...Growth will Recover in H2, Facilitating Rate Hike
Brexit risk currently is only depressing Capex....Rates need to rise to contain wage cost pressures
Downside risks to our growth forecast for Brazil and Mexico for this year have diminished this week. In Brazil, concerns over the potential impact of the meat scandal on the economy have diminished. Some key global customers, including Hong Kong, have in recent days eased restrictions on imports from Brazil, and other counties have ended their bans.
Bullish money supply data last week added to the evidence that the Eurozone's business cycle is strengthening. Broad money growth--M3--rose to 5.3% year-over-year in October from 4.9% in September. Most of the increase came from a surge in short-term debt issuance, rising 8.4% year-over-year, following an inexplicable 1.4% fall in September.
Argentina's Recession Has Ended, Supporting Mr. Macri's Odds
Colombia's BanRep stuck to the script on Thursday by leaving the policy rate on hold at 4.25%.
We read the same polls, newspapers, and political websites as everyone else, and we're not claiming any special insight into the outcome of the midterm elections today.
Colombia was one of the fastest growing economies in LatAm in 2018, and prospects for this year have improved significantly following June's presidential election, with the market-friendly candidate, Iván Duque, winning.
As things stand, we see little reason to revise down our forecasts for the U.K. economy in response to the tailspin in equity markets
Recently released data in Colombia signal that the economy ended last year quite strongly.
Gilt yields have tumbled, with the 10-year sliding to just 1.0%, from 1.2% a week ago.
An election will not break the brexit deadlock...but the economy won't be weak enough for rate cuts
The ECB is doubling down on its inflation target...QE and negative rates are here to stay
The Fed is Not Nearly Done...Real Rates are Still Far Too Low; No Slowdown in Sight
Serious downside risks to growth are mounting...but the fed can't ignore rising inflation risks
Brazil is back on global investors' radar screens. Financial market metrics capture a relatively robust bullish tone, especially since the presidential election.
India's National Democratic Alliance, led by Prime Minister Narendra Modi's Bharatiya Janata Party,
In broad terms, the euro has followed the EZ economy in the past 12-to-18 months.
In one line: Surprisingly strong, but too soon to cheer.
In one line: An ugly start to the second quarter, despite a modest improvement in sectoral data.
In one line: Consumers are defiantly optimistic, despite the Brexit saga.
In one line: A poor start to the third quarter and downside risks remain.
In one line: A soft headline and a near-term misery looms.
In one line: Still a big gap between business and consumer confidence.
In one line: Business and consumer confidence is diverging.
In one line: Indicative of confidence recovering, if the Withdrawal Agreement is passed quickly.
In one line: Downbeat consumer sentiment casts doubt over the Tories' majority hopes.
In one line: Social unrest puts the economy on its knees.
In one line: A modest rebound, but the trend is improving.
In one line: The economy did very badly in Q1, and risks are still tilted to the downside.
In one line: Better domestic conditions offset by rising external risks.
In one line: The modest uptrend continues.
In one line: A decent improvement, and we expect further good news ahead.
In one line: The recovery continues; risks are titling to the upside.
In one line: Soft start to the third quarter; the trade war is a huge drag.
In one line: A surprising rebound in activity.
The MPC is Back in "Wait and See" Mode...But Two Hikes Likely in 2019, Provided No-Deal Avoided
Harvey and Irma will shred late q3/q4 data... ...if the fed doesn't hike in December, they will in march
The EZ Economy entered Q4 on a solid footing...But the Political Uncertainty Looms
Q1 Growth Is Unsustainable...But The Labor Market Will Continue To Tighten
No end to the brexit paralysis in sight...but growth will remain strong enough for rate hikes
Exports won't offset a Consumer Slowdown...Sterling decline has Constrained Policymakers
More Public Spending and Higher Rates in 2017...Whoever Wins
A year will pass before rates rise again...growth will slow and inflation will fall swiftly
Accelerating GDP growth and low inflation...It's the perfect combination, but will it last?
Markets are still cheering the solid Q1 GDP data...but we are worried about a setback in Q2
The cycle is peaking as higher rates begin to bite...but the next downturn is still some way off
"Cross-Currents" Will Keep the Fed Safe For Now....But The Headwinds Already Are Starting To Ease
Glimmers of Hope in the EZ Macro Data...But the Economy is not out of the Woods Yet
Powell is a growth bull, not an inflation hawk...Interest rate risk is greater for 2019 than 2018
Rising Inflation has ended the consumer boom...Investment and Trade won't fill the void
Don't be distracted by weak first quarter GDP...The Fed doesn't care (much)
A rise in inflation will support an August hike....the MPC likely will tighten at a faster rate next year
The Eurozone economy is slowing...will the ECB care?
Sub -4% Unemployment is coming, and soon...How will the Fed respond?
A Slowing EZ Economy and Treacherous Markets...Neither Probably Will Stop the ECB From Ending QE Next Month
Brace For Grim Q3 GDP Data In The Eurozone....But Don't Miss The Upturn In Real M1 Growth
A Serious Slowdown is Still Some Way Off...So the Fed has to Keep Turning the Screws
Rates On Hold Until After the Brexit Deadline...But Two Hikes Likely in 2019, When Capex Rebounds
An election is imminent; Parliament is gridlocked....But uncertainty has not hamstrung the economy
A Grinding Slowdown Is Now Our Base Case....But Higher Inflation Will Constrain The Fed
The MPC talks up raising bank rate soon...but weak wage growth likely will mean it hesitates
The EZ Economy has rarely been in better from...but external risks and policy uncertainty loom.
Poor Q3 GDP Data and Volatile BTPS Ahead...But Markets Already Have Priced-In A Lot Of Pain
Yellen's inner hawk escapes...Expect a December hike, and four more next year
Growth Has Peaked as the Tax Cut Boost Fades...But the Labor Market is Keeping the Fed on Track
Reviving Capex and Fiscal Policy to Lift Growth...Provided Parliament Averts a No-Deal Brexit
Peak Trade War Likely Has Passed....But Existing Tariffs Are Dampening Growth
Latam activity and markets are improving......but volatility will rise in Q4 due to global factors
The Eurozone economy is in rare good form...So what should investors worry about?
The FOMC is split on everything......but a clear majority will vote to hike in December
Markets think a May rate hike is almost certain...but activity and inflation data point to a delay
The Slowdown Story is Overdone...If a China Deal is Done, the Fed Will Keep Hiking
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.
Yesterday's sole economic report in the EZ showed that consumer sentiment in Germany improved mid-way through the fourth quarter.
Data last week confirmed that Peru's economic growth slowed sharply in the first half of the year, due to the damaging effects of the global trade war hitting exports.
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.
Recent upbeat economic reports have mitigated the downside risks we had been flagging to our growth forecast for Mexico for the current quarter.
This week's economic data for the Mexican economy have been encouraging, especially for Banxico, which left its main interest rate unchanged yesterday at 3.0%. Inflation remained on target for the second consecutive month in the first half of February, and the closely-watched IGAE economic activity index--a monthly proxy for GDP--continued to grow at a relatively solid pace, despite the big hit from lower oil prices.
The ECB kept its cool yesterday, at the headline level, amid crashing stock markets, volatile BTPs and souring economic data.
Mexico's National Institute of Statistics--INEGI-- will release preliminary GDP data for Q1 on Friday. We are expecting good news, despite the tough external and domestic environment. According to the economic activity index--a monthly proxy for GDP-- growth gained further momentum in Q1, based on data up to February.
The slide in global long-term bond yields, and flattening curves, have spooked markets this year, sparking fears among investors of an impending global economic recession.
Argentina's near-term economic outlook remains murky, as recent data has highlighted, hit by tighter financial conditions.
The Mexican economy is recovering gradually, despite many external headwinds. This week, the IGAE economic activity index--a monthly proxy for GDP--rose a solid 2.6% year-over-year in August, up from 2.0% in July. In the first half the economy grew on average 2.4%. The report showed increases in all three sectors, most notably agriculture, up 8.2% year-over-year, followed by services, 3.3%, and industrial activities, with a 1.0% gain.
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.
Yesterday's barrage of economic data in the Eurozone offered a good snapshot of the grand narrative.
Policymakers and macroeconomic forecasters at the ECB will be doing some soul-searching this week. GDP growth in the euro area accelerated to a punchy 2.5% year-over-year in Q3, and unemployment dipped to a cyclical low of 8.9%.
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.
Brazil's macroeconomic scenario is becoming easier to navigate for the central bank. Both actual inflation and expectations are slowing rapidly, as shown in our first chart. And since the March BCB monetary policy meeting, the BRL has appreciated about 10% against the USD, while commodity prices and EM sentiment have also improved markedly.
Inflation in Mexico remains relatively sticky, limiting Banxico's capacity to adopt a more dovish approach, despite the subpar economic recovery.
May's E.C. Economic Sentiment survey was a blow to hopes that the six-month stay of execution on Brexit would facilitate a recovery in confidence.
While we were away, EM growth prospects and risk appetite deteriorated significantly, due mainly to rising geopolitical risks, weaker economic prospects for DM, and, in particular, the most recent chapter of the global trade war.
Brazil's December economic activity index, released last week, showed that the economy ended the year on a relatively soft footing.
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.
In the years before the crash of 2008, if you wanted to know what was likely to happen to the pace of U.S. economic growth, all you needed to know was what happened to corporate bond yields a year earlier. The correlation between movements in BBB industrial yields--not spreads--and the changes in the rate of GDP growth, lagged by a year, was remarkably strong from 1994 through 2008, as our first chart shows. Roughly, a 50 basis point increase in yields could be expected to reduce the pace of year-over-year GDP growth--the second differential, in other words--by about 1.5 percentage points.
Recent economic indicators in Brazil have undershot consensus in recent weeks, but the economy nonetheless continues to recover.
At the end of last year, China's Central Economic Work Conference set out the lay of the land for 2019. Cutting through the rhetoric, we think the readout implies more expansionary fiscal policy, and a looser stance on monetary policy.
Commodity prices have started the year under further downward pressure. This is yet more negative news for LatAm, as most of the countries have failed to diversify, instead relying on oil or copper for a large share of exports and, critically, tax revenue. Venezuela is the biggest loser in the region from the oil hit, and, together with the worsening political and economic crisis, it has pushed the country even closer to the verge of collapse, threatening its debt payments. Venezuela's central bank last week released economic data for the first time since 2014, showing that inflation spiralled to 141% and that the economy shrank 4.5% in the first nine months of last year.
The Fed will do nothing and say little that's new after its meeting today. The data on economic activity have been mixed since the March meeting, when rates were hiked and the economic forecasts were upgraded, largely as a result of the fiscal stimulus.
Argentina's economic and financial situation has deteriorated significantly in recent weeks and the outlook is becoming increasingly bleak.
The FTSE 100 fell further yesterday, briefly to levels not seen since November 2012, but its drop over recent months is not a convincing signal of impending economic disaster. The economic recovery is likely to slow further, but this will reflect the building fiscal squeeze and the sterling-related export hit much more than the wobble in market sentiment.
We have been asked recently why we rarely talk about the signal from the U.S. money supply numbers, in contrast to the emphasis we give to real M1 growth in our forecasts for economic growth in both the Eurozone and China.
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.
Economic activity in Mexico during the past few months has been stronger than most observers expected. Growth has certainly moderated from the relatively strong pace recorded during the second half of last year, but data for January and February show that it is still quite strong.
Neither of the major economic reports due today will be published on schedule.
Yesterday's first batch of Q3 survey data in the Eurozone suggest that economic growth eased further, albeit it slightly, at the start of the quarter.
Peru's April supply-side monthly GDP data confirm that the economic rebound lost momentum at the start of the second quarter.
Brazil economic and political outlook is still opaque, but grim, after a vast array of negative news. Impeachment of President Rousseff remains a possibility; the process of fiscal consolidation is messy and politically bloody; rumors that Finance Minister Levy might leave his post next year have intensified; and the latest data showed that the recession worsened in Q3. As a consequence, the BRL and interest rates have been under pressure and we see no clear signs that the turmoil will ease soon.
Brazil's domestic economic outlook has not changed much recently.
Friday's economic data suggest that the downtrend in German PPI inflation is reversing.
The economic data in Brazil were poor while we were away.
Implied volatility on the euro is now so low that we're compelled to write about it, mainly because we think the macroeconomic data are hinting where the euro goes next.
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.
For more than two years, the BoJ has fretted, in the outlook for economic activity and prices, that "there are items for which prices are not particularly responsive to the output gap."
The imposition of 10% tariffs on $200B-worth of Chinese imports is not a serious threat either to U.S. economic growth--the tariffs amount to 0.1% of GDP--or inflation.
The downturn in equity prices deepened yesterday, with the FTSE 100 index closing at 5,537, 22% below its April 2015 peak. We remain unconvinced, however, that financial market turmoil is set to push the U.K. economy into a recession. We continue to take comfort from the weakness of the past relationship between equity prices and economic activity.
Economic data released yesterday underscored that Brazil emerged from recession in the first quarter, but further rate cuts are needed. Indeed, the monthly economic activity index--the IBC-Br--fell 0.4% monthto- month in March, though this followed a strong 1.4% gain in February.
The second presidency of Chile's conservative Sebastián Piñera, a billionaire turned politician, began on Sunday, March 11, in favourable economic circumstances.
Recent economic indicators in Mexico have been mixed, distorted by temporary factors, including the effect of the natural disasters in late Q3. Private consumption has lost some momentum, hit by the lagged effect of high interest rates and inflation, as well as the earthquakes.
Evidence of accelerating economic activity in Colombia continues to mount, in stark contrast with its regional peers and DM economies.
Chile's inflation outlook remains benign, allowing policymakers to cut interest rates if the economic recovery falters.
Recent economic indicators in Mexico have been relatively positive.
Last week's hard data in Colombia were upbeat, confirming that economic growth accelerated in the first half. Retail sales rose 5.9% year-over-year in May, overshooting consensus.
Data released yesterday from Brazil support our view that the economic recovery continues, but progress has been slow.
While we were out, Brazil's economic, fiscal and political position continued to deteriorate further. The recession deepened in the fourth quarter, with Brazil's economic activity index surprising yet again to the downside in October, falling for the eight consecutive month. The index fell 0.6% month-to-month and 6.4% year-over-year, the biggest contraction since the index began in 2004. And the prospects for first quarter consumption and industrial output have deteriorated substantially. Unemployment increased further in November, and inflation continues to rise, with the mid-month CPI--the IPCA-15 index-- increasing 1.2% month-to-month in November, after a 0.9% increase in October.
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.
Brazil's July economic activity index, released yesterday, showed that the economy started the second half of the year strongly. The IBC-Br index, a monthly proxy for GDP, rose 0.4% month-to-month, pushing the year-over-year rate up to 1.4%, from -0.4% in June.
Brazil's economic activity data have disappointed in recent months, firming expectations that the Q1 GDP report will show another relatively meagre expansion.
The next few months, perhaps the whole of the first quarter, are likely to see a clear split in the U.S. economic data, with numbers from the consumer side of the economy looking much better than the industrial numbers.
Mexican economic growth was subdued during the first half of the year, and we expect it to remain weak over the coming months. The economy has been held back largely by external headwinds, especially low oil prices and disruptions to activity in the US, its main trading partner.
With little reason to doubt that interest rates will remain at 0.50% on Thursday, focus has turned to what signal the MPC will give about future policy, via its economic forecasts and commentary.
Brazil's outlook is still improving at the margin, as positive economic signals mix with relatively encouraging political news.
Data released last week confirmed the strength of the economic recovery in Chile, and we expect further good news in the next three-to-six months.
Consumption remains a serious weak spot in Brazil's economic cycle. High inflation, rising interest rates, surging unemployment, plunging confidence, and the government's belt tightening, have trashed Brazilians' purchasing power. Retail sales surprised to the downside in April, falling 0.4% month-to-month, equivalent to a huge 3.5% contraction year-over-year, down from a revised 0.3% gain in March. The underlying trend is awful, as our first chart shows.
Economic conditions are deteriorating rapidly in Chile, despite the relatively decent Imacec reading for Q3.
Korea's economic data for June largely were poor, and are likely to make more BoK board members anxious ,ahead of their meeting on July 18.
Economic data released on Wednesday underscored that Brazil was struggling at the end of the first quarter, strengthening our case that Q1 GDP fell 0.2% quarter-on-quarter, the first contraction since Q4 2016.
This week's March economic activity reports in Chile have been relatively strong, with the industrial sector expanding briskly and retail sales solid.
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.
Households' decision to reduce their saving rate sharply was the main reason why economic growth exceeded forecasters' expectations in the aftermath of the Brexit vote.
Yesterday's economic data point to a sea of calm in the Eurozone economy. The composite PMI was unchanged at 53.1 in June, a slight upward revision from the initial estimate, 52.8. The index suggests real GDP growth was stable at 1.5%-to-1.6% year-overyear in Q2, though the quarter-on-quarter rate likely slowed markedly, following the jump in Q1.
In recent months we've been thinking more deeply about the themes for the next economic cycle for China, and its impact on the world.
Macroeconomic and financial conditions in Venezuela are deteriorating at an accelerating pace.
Fears of a Chinese hard landing have roiled financial and commodity markets this past year and have constrained the economic recovery of major raw material exporters in LatAm.
Chile's IMACEC economic activity index rose 3.9% year-over-year in January, up from 2.6% in December, and 2.9% on average in Q4, thanks to strong mining output growth and solid commercial, manufacturing and services activity.
News on Mr. Bolsonaro's economic plans and announcements on key names for his government this week are helping the currency and easing risks perception in Brazil.
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.
Increased volatility has given equity investors a torrid start to the year, but economic reports have been strong, and yesterday's PMIs were no exception. The composite index in the Eurozone rose marginally to 54.3 in December from 54.2 in November, slightly higher than the initial estimate of 54.0. This is consistent with a continuing cyclical recovery, and real GDP growth of 0.4%-to-0.5% in Q4, modestly higher than the 0.3% rise in the third quarter.
Chile's economic outlook is still clouded, due mostly to the slowdown in China and low copper prices. But the steady, slow increase in the Imacec index, a monthly proxy for GDP, supports our view of a sustained but modest economic recovery this year. The index increased 1.8% year-over-year in November, marginally up from the meagre 1.5% gain in October, but below the 2.2% average seen during Q3 as a whole. November's gain was driven by an increase in services activity, offsetting weakness in mining. Services have been the key engine of growth in the current cycle and likely will remain so in H1.
Chile's economic indicators for July were unreservedly weak, confirming that the economic recovery remains sluggish. The industrial production index--comprising mining, manufacturing, and utility output--fell by 5.2% year-over-year in August, after a 1.7% contraction in July. Mining production suffered a sharp 9.3% year-over-year contraction, due mainly to an 8.3% fall in copper production, as strikes and maintenance works badly hit the industry.
Economic data in the Eurozone continue to come in soft. Yesterday's final manufacturing PMIs confirmed that the euro area index slipped to an eight-month low of 56.6 in March, from 58.6 in February.
Chile's economic outlook is still positive, but clouds have been gradually gathering since mid-year, due mostly to the slowdown in China, low copper prices and falling consumer and business confidence.
The economic calendar in Mexico was relatively quiet over Christmas, and broadly conformed to our expectations of resilient economic activity in Q4.
Brazil's April economic activity index--a monthly proxy for GDP--surprised to the downside, again. The IBC-BR index was unchanged month-to-month but contracted a dreadful 4.8% year-over-year, down from a revised 3.2% contraction in March. These results imply Q2 GDP of about -1.9% quarter-on-quarter, much worse than the 0.2% contraction in Q1. The release offers no details, but the report signals a continued steep, steady deterioration.
Economic data in the euro area are still slipping and sliding.
Mexico's economy continues to withstand several headwinds, especially the sharp currency depreciation--shown in our first chart--falling commodity prices, and the tough external environment. The country is still one of the economic bright spots in the region, thanks to its resilient domestic demand. June retail sales rose 5.4% year-over-year, well above expectations, and up from 4.1% in May. The underlying trend is positive, averaging 4.8% in the second quarter, well above its 2014 pace.
Colombia started the second quarter strongly, with the ISE economic activity indicator--a monthly proxy for GDP--expanding a solid and surprising 3.6% year-over-year in April, up from 2.9% in March. The rate of growth is well above the 2.8% gain in Q1, con firming the country's resiliency in the face of lower oil prices. Still, growth has slowed sharply since the 4.4% increase in activity in 2014, as our first chart shows.
Economic activity is slowing in Colombia. The ISE activity index--a monthly proxy for GDP--rose only 0.6% year-over-year in April, down from 2.3% in March, and we expect it to rise at this pace over the coming months. During the first quarter, the index rose at an average year-over-year rate of 3.0%.
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.
Economic activity in Mexico during the past few months has been resilient, as external and domestic threats, particularly domestic political risks, appear to have diminished.
Economic sentiment data, which rebounded in March, continue to suggest slight downside risk to EZ GDP growth in Q1. The composite Eurozone PMI in March rose modestly to 53.7 from 53.0 in February, only partially erasing the weakness in recent months. The PMI dipped slightly over the quarter as a whole, although not enough to change the EZ GDP forecast in a statistically meaningful way.
Economic activity in Mexico during the past few months has been relatively resilient, as external and domestic threats appear to have diminished.
To imagine an unstoppable macroeconomic policy disaster and desperate improvisation, just think of Venezuela.
Brazil's recent political and economics news has shifted the near-term outlook from bad to worse. President Rousseff on Friday replaced hawkish Finance Minister Joaquim Levy, appointed just over a year ago, with a close partner, Planning Minister Nelson Barbosa. Mr. Levy resigned after continued conflicts with the government, including frustration by the Congress of his attempts to rein in the fiscal mess. Mr. Barbosa is known to be less market friendly, and will likely defend countercyclical measures, delaying any rapid fiscal consolidation. The appointment will deteriorate investors' confidence even further, placing the markets under enormous strain.
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.
Mr. Draghi was in a slightly more bullish mood yesterday, noting that the significant easing of financial conditions in recent months and improving sentiment show that monetary policy "has worked". Economic risks are tilted to the downside, according to the president, but they have also "diminished".
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.
Colombia was likely the fastest growing economy in LatAm in 2015, but it is set to slow this year as monetary and fiscal policy are tightened, and commodity prices remain under pressure during the first half of the year, at least. Economic activity was surprisingly resilient during 2015, especially during the second half, despite the COP's sell-off, high inflation, and subdued consumer confidence.
Data released yesterday confirmed that economic activity is improving in Brazil.
May's activity data underline the weakness of Colombia's economic growth. Domestic demand still is under pressure due to the lagged effect of the deterioration in the terms of trade and other temporary shocks in 2016, and the VAT increase in January this year.
Weekly economic research from the U.S., Eurozone, Latin America, U.K. and Asia
Daily economic research from the U.S., Eurozone, Latin America, U.K. and Asia
Inflation and Brexit risks will subdue growth.....Policy action won't prevent a slowdown
Julian Emanuel of BTIG and Ian Shepherdson of Pantheon Macroeconomics joins 'Squawk Box' to discuss markets ahead of the open.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, and Conrad Dequadros, senior economist at RDQ Economics, discuss rising real yields and Federal Reserve monetary policy.
Chief Eurozone Economist at Pantheon Macroeconomics Claus Vistesen discusses his views on the path forward for the ECB and Eurozone.
Samuel Tombs, Chief U.K. Economist at Pantheon Macroeconomics crunches the figures from the manifestos and tracks sterling against the latest opinion polls.
After disappointing Italian Industrial Output Data, Pantheon Macroeconomics Chief Eurozone Economist Claus Vistesen discusses the current situation in the Eurozone.
Chief U.K. Economist Samuel Tombs on the U.K. PMI data, April
Chief U.S. Economist Ian Shepherdson on the Fed's growth forecast
Information on the product and services available from Pantheon Macroeconomics. Research is delivered in a variety of forms depending on clients' subscription package.
A closely watched indicator of the German economy has come in weaker than analysts had anticipated, dampening hopes for the country's revival
Chief U.S. Economist Ian Shepherdson on U.S. GDP in Q4
Chief U.K. Economist Samuel Tombs on U.K. GDP
Pantheon Macroeconomics' Chief Economist Dr. Ian Shepherdson provides unbiased, independent economic intelligence to financial market professionals.
Chief U.S. Economist Ian Shepherdson on Q3 GDP
Chief U.S. economist Ian Shepherdson comments on U.S Q4 GDP
Chief U.S. Economist Ian Shepherdson on the latest ISM Non-Manufacturing data release
Kathy Jones, chief fixed income strategist at Schwab Center for Financial Research, and Ian Shepherdson, chief economist at Pantheon Macroeconomics, sit down with "Squawk Box" to discuss what they expect of the Fed's announcement on it's monetary policy plan.
Ian Shepherdson, Pantheon Macroeconomics chief economist, and Vinay Pande, UBS Global Wealth Management head of trading strategies, join "Squawk on the Street" to discuss their forecast for the markets amid strong jobs data.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, and Christian Schulz, economics team director at Citigroup, discuss President Donald Trump's trade tariffs and their impact on the Chinese and U.S. economies.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, explains the issues he sees looming over corporate earnings. He speaks on "Bloomberg Surveillance."
Ian Shepherdson, chief economist at Pantheon Macroeconomics, examines the state of the U.S. economy. He speaks with Bloomberg's Tom Keen on "Bloomberg Surveillance."
Ian Shepherdson, chief economist at Pantheon Macroeconomics, told CNBC's "Squawk Box Europe" on Wednesday that the televised debate between Johnson and Corbyn had been "disappointing."
Ian Shepherdson, chief economist at Pantheon Macroeconomics, joins 'Squawk Box' to discuss how the tensions between the U.S., Iran and China might impact the economy.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, outlines her expectations from the impending Sino-U.S. trade talks.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, discusses how China's economy can influence a U.S. trade agreement and looks forward to U.S.-European trade talks.
Isabelle Mateos Y Lago, official institutions group deputy head at BlackRock, and Freya Beamish, chief Asia economist at Pantheon Macroeconomics, discuss U.S.-China trade concerns and their impact on investing. They speak with Lisa Abramowicz on "Bloomberg Surveillance."
Scott Nations, president and CIO of Nations Shares, and Ian Shepherdson, chief economist at Pantheon Macroeconomics, join "Squawk Box" to give their opinion on the market heading into a new week.
The median of FOMC members' estimates of longer run nominal r-star--the rate which would maintain full employment and 2% inflation--nudged up by a tenth in September to 3.0%, implying real r-star of 1%.
The case for the MPC to hold back from implementing more stimulus was bolstered by September's consumer prices figures.
The outlook for growth in the EZ economy is currently both stable and relatively uncomplicated, at least based on the most widely-watched leading indicators.
The GM strike will make itself felt in the September industrial production data, due today.
The MPC will have to issue fresh, dovish guidance in order to satisfy markets on Thursday, which now think the Committee is more likely to cut than raise Bank Rate within the next six months.
Argentinians are heading to the polls on Sunday October 27 and will likely turn their backs on the current president, Mauricio Macri.
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.
Our colleagues have been telling some unpleasant stories recently.
We'd be very surprised to see anything other than a 25bp rate cut from the Fed today, alongside a repeat of the key language from July, namely, that the Committee "... will act as appropriate to sustain the expansion".
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.
We have revised up our second quarter consumption forecast to a startling 4.0% in the wake of yesterday's strong June retail sales numbers, which were accompanied by upward revisions to prior data.
"Disappointing" is probably the word that most EZ equity investors would use to describe their market so far this year.
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.
We expect May's consumer prices report, released on Wednesday, to show that CPI inflation fell to 2.0% in May, from 2.1% in April.
The Brexit-related slump in corporate confidence finally has taken its toll on hiring.
Brazil's consumer sluggishness in Q3 and early Q4 eased in November.
We expect June's consumer prices report, released on Wednesday, to show that CPI inflation increased to 2.7%, from 2.4% in May, above the consensus, 2.6%, and the Bank of England's forecast, 2.5%.
The IBC-Br index, a monthly proxy for Brazil's GDP--rose 0.5% month-to-month in November, pushing the year-over-year rate down to 2.8%, from an upwardly-revised 3.1% in October.
Central banks in Chile, Peru, and Mexico hogged the market spotlight last week. Chile left its main interest rate at 3.0% on Thursday, for the fourth consecutive meeting.
The account of BanRep's July meeting revealed a significant tug-of-war between the doves and hawks. The majority argued strongly that Colombia's central bank should hike the main interest rate again, by 25bp. Others judged that the benefits of further tightening did not outweigh the costs.
Political risks have returned to the Eurozone with the decision by Greek Prime Minister Samaras to initiate the election of a president, raising the risk of a Greek parliamentary election early next year.
The ramifications of continued disappointing Asian growth, particularly in China, and its impact on global manufacturing, are especially hard-felt in LatAm.
Yesterday's data in the EZ provided a little more evidence on what happened in Q1.
The most eye-catching aspect of December's consumer prices report was the pick-up in core inflation to 1.9%, from 1.8% in November, above the no-change consensus.
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.
Peru's central bank kept the reference rate unchanged at 3.5% at Thursday's meeting, in line with our view and market expectations.
The media abounds with anecdotal evidence of a pickup in domestic and inbound tourism following sterling's sharp depreciation, but the reality is that the weaker pound has not had a tangible positive impact yet.
Tariffs are a tax on imported goods, and higher taxes depress growth, other things equal.
External conditions are becoming more demanding for LatAm economies, with global trade tensions intensifying in recent weeks.
The face-off is intensifying between Madrid and the pro-independent local government in Catalonia. A referendum on independence in the northeastern state has been rejected by the Spanish government and has been declared constitutionally illegal by the high court.
The passage of the House tax cut bill does not guarantee that the Senate will follow suit with its own bill, still less that both chambers will then be able to agree on a single bill which can then b e signed into law. As
Forecasting BoJ policy for this year is trickier than it has been in a long time.
Friday's CPI data for April provided the final piece of evidence for the significant Easter distortions in this year's data.
Local policy drivers have remained in the spotlight in Brazil, against a background of important recent global events.
"Is EZ fiscal stimulus on the way?" is a question that we receive a lot these days.
The tone of Fed Chair Powell's opening comments at the press conference yesterday was much more dovish than the statement, which did little more than most analysts expected.
Household spending has been the sole source of growth in the economy so far this year, amid worsening investment and net trade. Today's official retail sales figures, however, look set to show that consumers suffered the Brexit blues in June.
We've had pushback from readers over our take on the likelihood of a trade deal with China in the near future.
Back-to-back elevated weekly jobless claims numbers prove nothing, but they have grabbed our attention.
Brazil's central bank looked through the recent dip in the BRL and left interest rates at 6.50% at Wednesday's Copom meeting, in line with the consensus.
The euro area's record-high external surplus has prompted commentators to suggest that the zone has room to loosen fiscal policy to support growth, or at least relax the deficit reduction rules.
German 10-year yields have been trading according to a simple rule of thumb since 2017, namely, anything around 0.6% has been a buy, and 0.2%, or below, has been a sell.
In recent client meetings the first and last topic of conversation has been the market implications of the possible departure of President Trump from office.
The euro area's current account surplus stumbled at the end of 2017, falling to €29.9B in December from an upwardly-revised €35.0B in November.
Politics will be the key factor in LatAm over the coming quarters, as presidential and legislative elections take place throughout the region.
It would be easy to characterize the Fed as quite split at the July meeting.
Brazil's economy surprised to the upside in early Q3, despite downbeat data released in recent days.
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.
The Fed will leave rates unchanged today.
Iván Duque, the conservative candidate for the Democratic Centre Party, won the presidential election held in Colombia on Sunday.
Data released last week confirm that the Argentinian economy finally is stabilizing.
The Bank of Korea yesterday laid out its conditions for following July's rate cut with another.
Expectations are running high that the MPC will strike a more hawkish tone today in the minutes of this month's meeting and in the quarterly Inflation Report. Investors are pricing in a 45% chance of the MPC raising interest rates before the end of 2017, up from 30% before the last Report in November.
This week has seen a huge wave of data releases for both January and February, but the calendar today is empty save for the final Michigan consumer sentiment numbers; the preliminary index rose to a very strong 99.9 from 95.7, and we expect no significant change in the final reading.
LatAm assets and currencies had a bad November, due to global trade war concerns, the USD rebound and domestic factors.
Japan's jobless rate was unchanged, at 2.4% in October, as the market took a breather after September's job losses.
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 fall in CPI inflation to 2.6% in June, from 2.9% in May, greatly undershot expectations for an unchanged rate and it has made a vote by the MPC to keep interest rates at 0.25% in August a near certainty.
Under normal circumstances, we can predict movements in the headline NFIB index from shifts in the key labor market components, which are released a day ahead of the official employment report, and, hence, about 10 days before the full NFIB survey appears.
Unless it blinks and delays, the government is on course for a hefty defeat on Tuesday, when it asks parliament to vote to approve the Withdrawal Agreement--WA--and Political Declaration.
Yesterday's CPI report in Mexico showed that inflation remains high, but we are confident that it will start to fall consistently during Q1, thanks chiefly to a favourable base effect.
Official Chinese real GDP growth likely slipped to 6.3% year-over-year in Q1, the lowest on record, from 6.4% in Q4, which matched the trough in the Great Financial Crisis.
The BoJ kept policy unchanged, as expected, at its meeting yesterday.
The Office for Budget Responsibility has decided to press ahead with the publication of new fiscal forecasts on November 7, despite the government's decision to postpone the Budget until after the next election.
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.
Japan's wage growth surprised us with a jump to 2.0% year-over-year in December, up from 1.5% in November.
It has been mostly doom and gloom for euro area investors in equities and credit this year.
Analysts' forecasts for January's consumer prices report, released on Wednesday, are unusually dispersed.
Mexico's inflation rate ended 2018 in line with market expectations, strengthening the case for interest rates to remain on hold in the near term.
Data yesterday suggest that EZ investor sentiment is on track for a modest recovery in Q3.
Gloom and uncertainty are spreading across the global economy as we head into the final stretch of the year.
Interest rate expectations continued to fall sharply last week.
With just over six weeks to go, opinion polls continue to suggest that the E.U. referendum will be extremely close. Noisy interventions in the public debate from the Treasury, independent international bodies, President Obama, and from the Prime Minister again today have had no discernible positive impact on the support for "Bremain" relative to "Brexit"
On the face of it, the timing of the drop in the E.C.'s measure of consumers' confidence, to its lowest level since July 2016 in April, is peculiar.
Experimental figures, released earlier this week, suggest that wages have increased at a faster rate than indicated by the average weekly earnings--AWE--data.
Andres Abadia authors our Latin American service. Andres is a native of Colombia and has many years' experience covering the global economy, with a particular focus on Latin America. In 2017, he won the Thomson Reuters Starmine Top Forecaster Award for Latam FX. Andres's research covers Brazil, Mexico, Argentina, Chile, Colombia, Peru and Venezuela, focusing on economic, political and financial developments. The countries of Latin America differ substantially in terms of structure, business cycle and politics, and Andres' researchhighlights the impact of these differences on currencies, interest rates and equity markets. He believes that most LatAm economies are heavily influenced by cyclical forces in the U.S. and China, as well as domestic policy shocks and local politics. He keeps a close eye on both external and domestic developments to forecast their effects on LatAm economies, monetary policy, and financial markets. Before starting to work at Pantheon Macroeconomics in 2013, Dr. Abadia was the Head of Research for Arcalia/Bancaja (now Bankia) in Madrid, and formerly Chief Economist for the same institution. Previously, he worked at Ahorro Coporacion Financiera, as an Economist. Andres earned a PhD in Applied Economics, and a Masters Degree in Economics and International Business Administration from Universidad Autónoma de Madrid, and a BSc in Economics from the Universidad Externado de Colombia.
Ian Shepherdson's mission is to present complex economic ideas in a clear, understandable and actionable manner to financial market professionals. He has worked in and around financial markets for more than 20 years, developing a strong sense for what is important to investors, traders, salespeople and risk managers.
Samuel Tombs has more than a decade of experience covering the U.K. economy for investors. At Pantheon, Samuel's research is rigorous, free of dogma and jargon, and unafraid to challenge consensus views. His work focuses on what matters to professional investors: The links between the real economy, monetary policy and asset prices. He has a strong track record of getting the big calls right. The Sunday Times ranked Samuel as the most accurate forecaster of the U.K. economy in both 2014 and 2018. In addition, Bloomberg consistently has ranked Samuel as one of the top three U.K. forecasters, out of pool of 35 economists, throughout 2018 and 2019. His in-depth knowledge of market-moving data and his forensic forecasting approach explain why he consistently beats the consensus. Samuel's work on Brexit goes beyond simply reporting developments and is always analytical and unbiased, enabling investors to see through the noise of the daily headlines. While his analysis points to a particular path that politicians will take, he acknowledges the inherent uncertainty and draws out the economic and financial market implications of all plausible Brexit scenarios. Samuel holds an MSc in Economics from Birkbeck College, University of London and an undergraduate degree in History and Economics from the University of Oxford. Prior to joining Pantheon in 2015, he was Senior U.K. Economist at Capital Economics. In 2011, Samuel won the Society of Business Economists' prestigious Rybczynski Prize for an article on quantitative easing in the UK. He is based in London but frequently visits our other offices. Recent key calls include: 2018 - Correctly forecast that GDP growth would slow and inflation would undershoot the MPC's initial forecast, prompting the Committee to shock investors and almost other economists by waiting until August to raise Bank Rate, rather than pressing ahead in May. 2017 - Argued that the MPC was wrong to expect CPI inflation to stay below 3% following sterling's depreciation. He also highlighted that economic indicators pointed to the Conservatives losing their outright majority in the snap general election.
Freya Beamish produces the Asia service at Pantheon. She has several years of experience in covering the global economy, with a particular focus on China, Japan and Korea. Previously, she worked at Lombard Street Research (now TS Lombard), where she delivered research on Asia and the Global economy for over five years, latterly as the manager of the Macroeconomics group.
Privacy policy for the Pantheon Macroeconomics website.
Miguel Chanco helps to produce Pantheon's Asia service, having covered several parts of the region for nearly ten years. He was most recently the Lead Analyst for ASEAN at the Economist Intelligence Unit. Prior to that role, Miguel focused on India and frontier markets in South Asia for Capital Economics and BMI Research, Fitch Group.
Claus Vistesen has several years' experience in the independent macro research space, as a freelancer, consultant and, latterly, as Head of Research of Variant Perception, Inc. He holds Master's degrees in economics and finance from the Copenhagen Business School and the University of Hull.
Monthly publication telling the economic story of each region in roughly 40 charts
Along with just about every other commentator and market participant, we have been wondering in recent months how longer Treasuries would react to the Fed starting to raise rates at the same time the ECB and BoJ are pumping new money into their economies via QE.
Economy-wide confidence deteriorated in November, highlighting that Britain continues to struggle to shake off its malaise.
Yesterday's final February PMI data were slightly stronger than expected, due to upbeat services data. The composite PMI in the Eurozone fell to 53.0, a bit above the initial 52.7 estimate, from 53.6 in January. The PMI likely will dip slightly in Q1 on average, compared to Q4, but it continues to indicate stable GDP growth of about 0.3%-to-0.4% quarter-on-quarter.
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.
Short, punchy analysis of major economic data, emailed within a few minutes of their release
At least some investors clearly were expecting Fed Chair Powell yesterday to offer a degree of resistance to the idea that a rate cut at the end o f this month is a done deal.
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.
January's consumer price report, released today, likely will show that CPI inflation jumped to 1.9%--its highest rate since June 2014--from 1.6% in December. Inflation will continue to take big upward steps over the coming months, as retailers pass on to consumers large increase in import prices and energy companies increase tariffs.
Japan's PPI data yesterday confirmed that October was a turning point for prices--due to the consumption tax hike--despite the surprising stability of CPI inflation in Tokyo for the same month.
The 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.
Another month, another strong set of labour market data which undermine the case for the MPC to cut Bank Rate, provided a no-deal Brexit is avoided.
Chile's market volatility and high political risk continue, despite government efforts to ease the crisis.
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.
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.
Argentina's central bank held interest rates at 60% on Wednesday, as was widely expected.
Treasury Secretary Mnuchin's five-line letter to House Speaker Pelosi on last Friday--copied to other Congressional leaders--which said that "there is a scenario in which we run out of cash in early September, before Congress reconvenes", introduces a new element of uncertainty to the debt ceiling story.
The New York Times called the China trade agreement reached Friday "half a deal", but that's absurdly generous.
Yesterday's preliminary full-year GDP data in Germany tell a cautionary tale of the dangers in taking national accounts at face value. The headline data suggest real GDP growth rose to 1.7% in 2015, up slightly from 1.6% in 2014, but these data are not adjusted for calendar effects. The working-day adjusted measure buried in the press release instead indicates that growth slowed marginally to 1.5% from 1.6% in 2014.
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.
The ECB did its utmost not to say or do anything remotely novel today. The central bank kept its main refinancing and deposit rates unchanged at 0.00% and -0.40%, respectively, and reiterated its plan for QE next year.
A couple of Fed speakers this week have described the economy as being at "full employment". Looking at the headline unemployment rate, it's easy to see why they would reach that conclusion.
May's consumer price figures, released today, will provide the first clean inflation read for three months, following the distortions created by this year's late Easter. Consensus forecasts and the MPC have underestimated CPI inflation regularly since the middle of last year, when the impact of sterling's depreciation began to push into the data.
China's M2 growth stabilised in November, at 8.0% year-over-year, matching the October rate.
Hopes that GDP growth might be boosted soon by a pick-up in net exports continue to be undermined by the latest data.
Markets rightly interpreted yesterday's above consensus GDP report as having little impact on the outlook for monetary policy.
This week, Mexico's government unveiled its 2020 fiscal budget proposal.
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
Recent inflation numbers across the biggest economies in LatAm have surprised to the downside, strengthening the case for further monetary easing.
In yesterday's report we discussed the recent performance of current inflation and inflation expectations in the biggest economies in LatAm, highlighting that risks are tilted to the upside, given the recent FX sell-off and rising political and external risks.
Yesterday marked President AMLO's first 100 days in office, with skyrocketing approval ratings and improving consumer confidence.
Investors will increase their focus on exchange rates as the US presidential election and the Fed's next rate hike approach. Markets are becoming concerned that a surge in the USD could trigger another spike in LatAm currency volatility, depressing the good year- to-date performance of most local market assets.
Over the last few months we have started to see hard evidence of Brazil's deceleration, and, as we have argued in previous Monitors, the slowdown is now set to become more visible. Over the coming weeks, markets will focus on whether Brazil is already in recession, its likely severity, and how the country will get out of this mess.
Data released yesterday support our view that the Brazilian retail sector has gathered strength in recent months, following a weak Q2, when activity was hit by the truckers' strike.
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.
We have downgraded our 2019 and 2020 China GDP forecasts on previous occasions because monetary conditions have been surprisingly unresponsive to lower short-term rates.
Last week, the Bank of Mexico unanimously voted to leave the main rate on hold, at 7.50%, its highest level since early 2009.
CPI inflation in India jumped to 4.6% in October, from 4.0% in September, marking a 16-month high and blasting through the RBI's target.
Data released yesterday confirm that Brazil's recovery has continued over the second half of the year, supported by steady capex growth and rebounding household consumption.
Sterling strengthened last week to its highest tradeweighted level since mid-May, amid hopes that the U.K. government will concede more ground to ensure that the European Council deems, at its December 14 meeting, that "sufficient progress" has been made in Brexit talks for trade discussions to begin
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 recent narrowing of the Conservatives' opinion poll lead suggests that investors, particularly in the gilt market, now must consider other parties' fiscal proposals.
We're maintaining our estimate of Mexico's Q2 GDP growth, due today, namely a 0.2% year- over-year contraction, in line with a recent array of extremely poor data.
The further depreciation of sterling yesterday, to its lowest level against the dollar and euro since March 2017 and September 2017, respectively, signified deepening pessimism among investors about the chances of a no-deal Brexit.
For some economists and political analysts the surprising result of the U.K.'s EU referendum symbolises one of the biggest threats to the structure of the post-war social-liberal market economy. To this school of thought, the vote proved that the discontent of a pressured and disenfranchised working/middle class is rising, threatening to topple economies and political institutions.
January's money supply figures continued the nerve-jangling flow of data on the economy's momentum.
So that happened.
Yesterday's detailed Mexican GDP report confirmed that growth was resilient in Q1, despite external and domestic headwinds. GDP rose 0.7% quarter-on-quarter in Q1, in line with our expectation, but marginally above the first estimate, 0.6%.
Evidence that the U.K. economy has slowed significantly this year is starting to come in thick and fast. Following the Markit/CIPS manufacturing PMI on Monday --which signalled that growth in production declined in March to its lowest rate since July--the construction PMI dropped to 52.2 in March, from 52.5 in February.
The Mexican economy had a decent start to the second half of the year, thanks to resilient domestic demand, amid signs of recovery in industrial activity. GDP rose 0.6% quarter-on-quarter in Q3, a bit faster than in Q2, lifting the year-over-year rate to 2.4% from 2.2% in Q2. This is the first time the statistics office, INEGI, published an advance reading on GDP, reducing the time between the end of the quarter to the report date to 30 days from 52.
Thursday and Friday were busy days for LatAm economy watchers. In Brazil, the data underscored our view that the economy is on the mend, but the recent upturn remains shaky, and external risks are still high.
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%.
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.
Sterling has begun this year on the front foot, rising last week to its highest level against the U.S. dollar since June 2016.
Leaders of the major Eurozone economies were in no mood to give concessions as they met with outgoing U.K. Prime Minister David Cameron this week for the first time since the referendum. German Chancellor Angela Merkel said that she sees "no way back from the Brexit vote." This followed comments that the U.K. couldn't be expected to "cherry-pick" the EU rules that it would like to follow after a new deal.
The Brazilian economy managed to avert a technical recession over the first half of the year.
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.
The fall in the Markit/CIPS manufacturing PMI to 47.4 in August--its lowest level since July 2012--from 48.0 in July suggests that pre-Brexit stockpiling isn't countering the hit to demand from Brexit uncertainty and the global industrial slowdown.
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.
The Conservatives' opinion poll rating has fallen dramatically over the last 10 days or so, pushing sterling down and forcing investors to confront the possibility that Theresa May might not increase her majority much from the current paltry 17 MPs.
The models which generate the ADP measure of private payrolls will benefit in May from the strength of the headline industrial production, business sales and jobless claims numbers.
The news in Brazil on inflation and politics has been relatively positive in recent weeks, allowing policymakers to keep cutting interest rates to boost the stuttering recovery.
Britain looks set for a general election during the week commencing December 9, now that all main parties are pushing for a pre-Christmas poll.
Further political wrangling yesterday distracted from data showing that the risk of no -deal Brexit is placing increasing strain on the economy.
Reporting on the German labour market has been like watching paint dry in this expansion, but yesterday's data were a stark exception to this rule.
Hard data released in Argentina over recent weeks showed that the economy was resilient in Q1 and early Q2.
Support in opinion polls for both the Conservatives and Labour has been increasing steadily.
Recession fears were fanned yesterday by the renewed deterioration of the Markit/CIPS services survey.
Tomorrow, Mexico's INEGI will release its inflation report for the second half of May, which is of key importance for Banxico's monetary policy. The Bank, in particular governor Agustin Carstens, has said on many occasions that it will watch external conditions and their impact on consumer prices closely. We expect inflation to edge down to 2.9% year-over-year in May, thanks to a 0.1% increase in the second half.
LatAm assets have done well in recent weeks on the back of upbeat investor risk sentiment, low volatility in developed markets and a relatively benign USD. A less confrontational approach from the U.S. administration to trade policy has helped too.
Business investment held up surprisingly well last year.
The Brazilian central bank cut its benchmark Selic interest rate by 50bp, to 7.0%, on Thursday night and confirmed our view that the end of the easing cycle is not far off.
Data while we were away have intensified fears that the global, and by extension EZ, economy is slipping into recession.
Last week's manufacturing data in Germany left investors with more questions than answers.
We're looking forward to today's April NFIB survey of activity and sentiment in the small business sector with some trepidation.
Headline inflation in Brazil remained low in October, and even breached the lower bound of the BCB's target range.
The Prime Minister has argued repeatedly during the general election campaign that Britain will prosper under a "strong and stable" Conservative government with a large majority. "Division in Westminster," she argued when calling the election last month, "...will risk our ability to make a success of Brexit and it will cause damaging uncertainty and instability to the country."
We're among a small minority of economists forecasting that GDP rose by 0.1% month-to-month in March.
September PMI surveys in Mexico continued to bolster our argument for a subpar recovery in the second half of the year.
National accounts data released last week rewrote the recent history of households' saving.
The recent slowdown in labour cash earnings growth in Japan halted in September.
Recently released data in Mexico are sending weak signals for the business outlook, and the Texcoco airport saga won't help.
India's PMIs for October were grim, indicating minimal carry-over of energy from the third quarter rebound.
Chilean GDP growth hit bottom in August, but activity is now picking up and will gather speed over the coming quarters. The tailwinds from lower oil prices and fiscal stimulus will soon be visible in the activity data.
Investors have treated the upbeat message of the Markit/CIPS PMIs this week with caution and continue to think that the chance that the MPC will raise interest rates this year is remote. Overnight index swap rates currently are pricing-in just a one-in-four chance of a 25 basis point increase in Bank Rate in 2017.
Yesterday's final PMI data in the euro area for November broadly confirmed the initial estimates.
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%.
The ADP measure of private employment hugely overstated the official measure of payrolls in September, in the wake of Hurricane Irma, but then slightly understated the October number.
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.
China's National People's Congress yesterday laid out its main goals for this year, on the first day of its annual meeting.
Yesterday's minutes of the October 31 COPOM meeting, at which the Central Bank cut the Selic rate unanimously by 50bp at 5.00%, reaffirmed the committee's post-meeting communiqué, which signalled that rates will be cut by the "same magnitude" in December.
As we go to press, equities in the Eurozone are having a bad day following the collapse in U.S. and Asian equities earlier.
At first glance, car sales appear to be staging a strong recovery, mirroring the better news on high street spending in Q2.
January CPI data in Colombia, released on Saturday, confirmed that inflation pressures eased last month, but the details weren't as good as the headline. Inflation fell to 5.5% year-over-year, from 5.8% in December, as a result of falling food inflation-- helped mainly by a favourable base effect--and lower clothing prices.
According to the official data presented in the JOLTS report, the number of job openings across the U.S. rose gently from 2011-to 13, rocketed in 2014, trended upwards much more slowly from 2015-to-17, and then, finally, unexpectedly jumped to record highs in the spring of this year.
Yesterday's Caixin services PMI data complete the set for October.
Industrial companies in the Eurozone are still struggling with low growth, but the outlook is stabilising following the near-recession late last year. The Eurozone manufacturing PMI was unchanged at 51.0 in February, trivially lower than the initial estimate of 51.1.
Activity surveys picked up across the board in April, offering hope that the slowdown in GDP growth--to just 0.3% quarter-on-quarter in Q1-- will be just a blip. The headline indicators of surveys from the CBI, European Commission, Lloyds Bank and Markit all improved in April and all exceeded their 2004-to-2016 averages.
Today's preliminary estimate of Q4 GDP likely will show that the Brexit vote has not caused the economy to slow yet. But growth at the end of last year appears to have relied excessively on household spending, which has been increasingly financed by debt. GDP growth likely will slow decisively in Q1 as the squeeze on households' real incomes intensifies.
Data released in recent days are confirming the story of a struggling economy and falling inflation pressures in Mexico, strengthening our base case of interest rate cuts over the second half of the year.
After many years in which the phrase "twin deficits" was never mentioned, suddenly it is the explanation of choice for the weakening of the dollar and the sudden increase in real Treasury yields since the turn of the year, shortly after the tax cut bill passed Congress.
The ECB will leave its main refinancing and deposit rates at 0.00% and -0.4% unchanged today, and it will also maintain the pace of QE at €30B per month.
Inflation in Mexico surprised to the downside in late Q3, supporting our core view that it will continue to fall gradually over the coming months.
Colombia's economy activity is deteriorating rapidly, suggesting that BanRep will have to cut interest rates on Friday. Incoming data make it clear that the economy has moved into a period of deceleration, painting a starkly different picture than a year ago.
Mexico's final estimate of third quarter GDP, released yesterday, confirmed that the economy is still struggling in the face of domestic and external headwinds.
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
Eurozone bond traders of a bearish persuasion are finding it difficult to make their mark ahead of Italy's parliamentary elections next weekend.
The strengthening EZ economy increasingly looks like the tide that lifts all boats. The Greek economy is still a laggard, but recent news hints at a brightening outlook. Last week, S&P affirmed the country's debt rating, but revised the outlook to "positive" from "stable."
Mexican GDP was unchanged quarter-on-quarter in Q2, according to the final report, a tenth worse than the preliminary reading.
The Chinese Communist Party revealed the new members of its top brass yesterday, with the line-up ensuring policy continuity.
The Conservatives have continued to gain ground over the last week, with support averaging 43% across the 13 opinion polls conducted last week, up from 41% in the previous week.
Argentina's economy continues to recover steadily.
Inflation in Brazil and Mexico is ending Q3 under control, allowing the central banks to keep easing monetary policy.
The U.K.'s unexpected vote for Brexit means a stronger USD for the foreseeable future, pressure on EM currencies and increasing risk premiums. LatAm fundamentals will a sideshow for some time. The focus will be on the currencies, which will be the main shock absorbers.
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.
Data released in recent days confirm the story of a struggling economy and falling inflation pressures in Mexico, strengthening our forecast of interest rate cuts over the second half of the year.
Data released yesterday in Brazil helped to lay the ground for interest rate cuts over the coming months.
Don't write off the outlook for the construction sector purely on the basis of June's grim Markit/CIPS survey.
Colombia's recently-released data signal that the economy started the year quite strongly, following a relatively poor end to Q4.
This week's key data releases in Mexico likely will reaffirm that growth remains below trend, while inflation continues to ease.
Data released yesterday in Mexico strengthened the case for interest rate cuts this year.
Investors think it more likely that the MPC will cut Bank Rate in the first half of next year, following Friday's release of the flash Markit/CIPS PMIs for November.
The PMIs in the Eurozone are still warning that the economy is in much worse shape than implied by remarkably stable GDP growth so far this year.
Inflation in the biggest economies in the region remains close to cyclical lows, allowing central banks to ease even further over the next few months.
The weaker is the economy over the next few months, the more likely it is that Mr. Trump blinks and removes some--perhaps even all--the tariffs on Chinese imports.
The IFO continues to tell a story of a German economy on the ropes.
By the close on Friday, the initial reaction in U.S. markets to the U.K. Brexit vote could be characterized as a bad day at the office, but nothing worse. Not a meltdown, not a catastrophe, no exposure of suddenly dangerous fault lines.That's not to say all danger has passed, but the first hurdle has been overcome.
Idiosyncratic developments have driven market volatility in LatAm in recent weeks.
In the last few weeks markets have been treated to the news that euro area industrial production crashed towards the end of Q4, warning that GDP growth failed to rebound at the end of 2018 from an already weak Q3.
Political uncertainty is starting to dampen housing market activity again.
We learned last week that the U.S. no longer has a coherent dollar policy.
The MPC likely will vote unanimously to keep Bank Rate at 0.75% on Thursday.
MPs will be asked today to approve the PM's motion, proposed in accordance with the Fixed-term Parliaments Act--FTPA--to hold a general election on December 12.
The persistence of no-deal Brexit risk has taken a toll on confidence across the economy over the last month.
The emergence last month of a new E.U. Withdrawal Agreement that has a strong chance of being ratified by MPs appears to have given a small boost to business confidence.
Recent polls suggest that Jair Bolsonaro has comfortably beaten Fernando Haddad, to become Brazil's president.
Data released last week confirm that Brazil's recovery has continued over the second half of the year, supported by steady household consumption and rebounding capex.
Both the E.U. and the U.K. government have been keen to emphasise, since the Withdrawal Agreement was provisionally signed off, that March 29 is a hard deadline for Brexit.
President Trump tweeted yesterday that he wants to re-introduce tariffs on steel and aluminium imports from Brazil and Argentina, after accusing these economies of intentionally devaluing their currencies, hurting the competitiveness of U.S. farmers.
Yesterday's final manufacturing PMIs confirmed that the headline index in the euro area rebounded further last month.
The political momentum in the run-up to the election now lies with Labour.
French consumers remained in great spirits midway through the fourth quarter. The headline INSEE consumer confidence index jumped to a 28-month high in November, from 104 in October, extending its v-shaped recovery from last year's plunge on the back of the yellow vest protests.
The third estimate of first quarter GDP growth, due today, will not be the final word on the subject. Indeed, there never will be a final word, because the numbers are revised indefinitely into the future.
The last time oil prices fell sharply, from mid-2014, when WTI peaked at $107, through early 2016, when the price reached just $26, the U.S. economy slowed dramatically.
The Mexican economy shrank by 0.2% quarter- on-quarter in Q2, according to the final GDP report, a tenth worse than the preliminary reading.
We are happy to report that the laws of gravity have been temporarily suspended in the German survey data.
President Temer seems to be advancing on his reform agenda.
The deadline for registering to vote in the general election passed on Tuesday, with a record 660K people registering on the final day.
Money supply dynamics in the Eurozone continue to signal a solid outlook for the economy. Headline M3 growth eased marginally to 4.9% year-over-year in January, from 5.0% in December; the dip was due to slowing narrow money growth, falling to 8.4% from 8.8% the month before. The details of the M1 data, however, showed that the headline chiefly was hit by slowing growth in deposits by insurance and pension funds.
Banxico cut its policy rate by 25bp to 7.75% yesterday, as was widely expected, following August's 25bp easing.
Wage growth will be crucial in determining how quickly the MPC raises interest rates this year. So far, it hasn't recovered meaningfully.
Yesterday's January EZ money supply data offered support for investors betting on a further dovish shift by the ECB at next month's meeting.
Business surveys coming out of the Eurozone have been remarkably strong recently. The composite PMI for the Eurozone jumped to 56.7 in March--its highest level since April 2011--from 56.1 in February. Germany's IFO business climate index leaped to a 67-month high in March.
The Prime Minister's resignation and the stillborn launch of the Withdrawal Agreement Bill last week has forced us to revise our Brexit base case, from a soft E.U. departure on October 31 to continued paralysis.
The latest E.C. survey shows the gap between firms' and households' confidence levels has remained substantial.
We have no choice but to revise down our forecast for GDP growth in Q2, now that the threat of a no-deal Brexit likely will hang over the economy beyond March, probably for three more months.
Colombia's July activity numbers, released on Friday, portrayed still-strong retail sales and a reviving manufacturing sector, with both indicators stronger than expected.
The Chancellor chose in his Budget to increase the total size of the forthcoming fiscal consolidation, to ensure that the Office for Budget Responsibility continues to forecast that a budget surplus will be obtained in 2019/20.
Final inflation for February in the Eurozone likely will be confirmed today at -0.3% year-over-year, up from -0.6% in January. This bounce was mainly driven by a reduced drag from falling oil and food prices, but it is too early to call a trough in headline inflation.
Legislative and presidential elections in Colombia will be held on March 11 and May 27, respectively, with a run-off presidential election on June 17 if no candidate secures more than half the votes.
Peru's central bank, BCRP, left rates unchanged last week, at 3.25%, a four-year low. Above-target inflation and currency volatility prevented the Board from cutting rates.
The "timing of Easter" will feature prominently in our reports over the coming weeks, starting with yesterday's German inflation data. Inflation rose to 0.3% year-over-year in March, from 0.0% in February, in line with the initial estimate.
Japanese M2 growth slowed sharply in December, to 3.6% year-over-year, from 4.0% in November, with M3 growth weakening similarly. It is tempting to ask if the BoJ's stealth taper finally is damaging broad money growth.
The risk of political change in Venezuela is coming to a boil, following President Maduro's plans for a new constituent assembly that has the power to rewrite the constitution and scrap the existing National Assembly.
Brazil's recovery has been steady in recent months, and Q1 likely will mark the end of the recession. The gradual recovery of the industrial and agricultural sectors has been the highlight, thanks to improving external demand, the lagged effect of the more competitive BRL, and the more stable political situation, which has boosted sentiment.
Chile's activity numbers at the beginning of Q3 were mediocre, suggesting that the economy remains sluggish. The industrial production index--comprising mining, manufacturing, and utility output--fell by 1.7% year-over-year in July, reversing a 1.6% expansion in June. A disappointing 4.5% year-over-year contraction in mining activity depressed the July headline index, following a 1.4% increase in June. The moderation in output growth was due to maintenance-related shutdowns at key processing plants, and disruptions from labor strikes, especially a three-week strike by contract workers at Codelco--the state-owned mining firm--which badly hit production.
Inflation pressures are slowly, but surely, rising in the Eurozone. Advance data indicate that inflation in Germany rose to 0.7% year-over-year in May, up from 0.5% in April. Reduced drag from the non-core components is the main driver, with energy prices rebounding, and food prices now rising steadily at 1.4% year-over-year.
The imposition of tariffs on a further $200B-worth of Chinese imports is not a game-changer on the U.S.
China's National People's Congress this year was the most significant in years and followed 12 months of lightning-speed change in the country.
In a surprise move, Peru's central bank, BCRP, succumbed to the current weakness of the economy and cut interest rates by 25bp to 3.25% last Thursday, for the first time since August last year. The board also lowered the interest rates on lending and deposit operations between the central bank and financial institutions.
Recovery shifting to a lower gear...but price pressures will force rate hikes next year
Chief U.K. Economist Samuel Tombs on the U.K Deficit
Ignore the Chinese deflation panic......The cyclical recovery is on track, and inflation is rising
Focussed on the Macro: The Fed will soon hike, despite soft manufacturing
Worries over China and deflation linger...and will likely push the ECB to extend QE this month
LatAm's economies are gradually rebounding, boosted by easier monetary policy in most countries, falling inflation, and a relatively calm external backdrop.
Focussed on the Macro: The Fed will soon hike, despite soft manufacturing
China and commodities still hurting Latam....But Brazil has severe domestic woes
Fed interrupted? But not for long
Brazil's inflation rate is in double digits for the first time in 12 years. The benchmark IPCA price index rose 1.0% month-to-month in November, lifting the year-over-year rate to 10.5%, the highest since November 2003. The core IPCA increased 0.7% month-to-month, pushing the year-over-year rate in November up to 8.9% from 8.6% in October.
Whatever you might think about the state of the U.S. economy, it is not as volatile as implied by the past few months' payroll numbers. Assuming steady productivity growth in line with the recent trend, the payroll data suggest the economy swung from bust to boom in one month, with not even a pause for breath.
Brazil's March report reinforced recent evidence indicating that inflation is decelerating. The headline CPI surprised to the downside again, slowing to a nine-month low of 9.4% year-over-year from 10.4% in February. The index rose 2.6% quarter-to-quarter in Q1, well below the 3.8% increase in the same period last year.
Yesterday was a nearly perfect day for investors in the Eurozone. The Q3 GDP data were robust, unemployment fell, and core inflation dipped slightly, vindicating markets' dovish outlook for the ECB.
Yesterday's first estimate of Q1 GDP in Mexico confirmed that growth was under severe pressure at the start of the year.
This year, Brazil has been the perfect example of all the problems faced by EM countries over the last few decades. A long and deep recession, high inflation, fiscal crisis, political chaos, a commodity price crunch, sharp currency depreciation and lack of confidence have all worked together to hammer the economy and investor confidence. These factors all contributed to S&P downgrading Brazil to junk status on Wednesday.
Industrial production data yesterday confirmed downside risks to Q4's GDP data in Brazil. Output fell 0.7% month-to-month in October, the fifth consecutive decline, pushing the year-over-year rate down to -11.2%, from -10.9% in September. This was the biggest drop since April 2009, when output collapsed by 14.2% during the global financial crisis. The October details were even worse than the headline, as all three broad-measures fell sharply.
Household sentiment in Mexico continues to improve, consistent with tailwinds from low inflation, accommodative monetary policy, and the improving labor market. The consumers confidence index rose to 94.7 in June from 92.0 in May, with four of the five components improving, especially big-ticket purchasing expectations and expectations for the economy.
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 latest PMIs indicate that the economy remained listless in Q3, undermining the case for a rate rise before the end of this year. The business activity index of the Markit/CIPS services survey rose trivially to 53.6 in September, from 53.2 in August.
Dilma Rousseff was sworn in for a second term as Brazil's president last Thursday, vowing to extend social welfare programmes and promising to investigate the Petrobras corruption scandal.
The week started well for Brazil's President Bolsonaro.
Chief U.S. Economist Ian Shepherdson on the Fed
Chief U.K. Economist Samuel Tombs on U.K. PMI data in November
Chief U.K. Economist Samuel Tombs on U.K. growth data
Chief Eurozone Economist Claus Vistesen discussing the German Zew in April
In one line: A marginal improvement, but poor mining activity remains a drag.
The 15% fall in the FTSE 100 since its May 2018 peak undoubtedly is an unwelcome development for the economy, but past experience suggests we shouldn't rush to revise down our forecasts for GDP growth.
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.
We have argued for some time that the revival in nonoil capex represents clear upside risk for GDP growth next year, but it's now time to make this our base case.
Venezuelan bond markets have been on a rollercoaster ride this year, with yields rising significantly in response to heightened political uncertainty and then declining when the government pays its obligations or when protests ease.
Yesterday's IFO survey in Germany was a nasty downside surprise for markets. The business climate index slipped to 106.2 in August, from 108.3 in July, well below the consensus forecast for a modest rise. In addition, the expectations index slid ominously to 100.1, from a revised 102.1 in July.
Argentina's Q4 GDP report, released last week, underscored the severity of the recession, due to the currency crisis and the subsequent tighter fiscal and monetary policies.
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.
Mexico's central bank, Banxico, will hold its first monetary policy meeting of this year tomorrow. It will break with tradition, holding the meeting on Thursday at 1:00 p.m, local time, instead of the previous 9:00 a.m slot.
Friday's inflation and labour market data in the Eurozone were dovish.
Gilts continued to rally last week, with 10-year yields dropping to their lowest since October 2016, and the gap between two-year and 10-year yields narrowing to the smallest margin since September 2008.
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.
Japan's Q2 Tankan survey wasn't all bad news, but the positives won't last long. The large manufacturers index dropped to 7 in Q2, after the decline to 12 in Q1.
Last week's EU summit was an exercise in political pragmatism rather than the bold step forward on reforms that investors had been hoping for.
Last week's national accounts confirmed that the economy lost momentum abruptly in Q1, with net trade and investment failing to offset weaker growth in households' spending.
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.
We are not bothered by either the drop in real December consumption, all of which was due to a weather-induced plunge in utility spending, or the drop in the ISM manufacturing index, which is mostly a story about hopeless seasonal adjustments.
Venezuela's fundamentals continue to deteriorate, economic chaos is increasing and the social/political situation remains fragile.
Global economic growth continues to fall short of expectations, and the call for aggressive fiscal stimulus is growing in many countries. This is partly a function of the realisation that monetary policy has been stretched to a breaking point. But it is also because of record low interest rates, which offer governments a golden and cheap opportunity to kickstart the economy. One of the main arguments for stronger fiscal stimulus is based on classic Keynesian macroeconomic theory.
We are a bit uneasy about today's data on economic activity. The NFIB index of activity in the small business sector is likely to undershoot consensus expectations, while retail sales are something of a black hole, at least at the core level, where we have no reliable month-to-month advance indicators. Our bullish view on the underlying state of the economy, and its likely second-half performance, hasn't changed, but perceptions count in the short-term and these reports will help set the market mood just ahead of Chair Yellen's Testimony tomorrow.
At the October FOMC meeting, policymakers softened their view on the threat posed by the summer's market turmoil and the slowdown in China, dropping September's stark warning that "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." Instead, the October statement merely said that the committee is "monitoring global economic and financial developments."
After a busy week of data, and a holiday weekend ahead, it's worth stepping back a bit and evaluating the arguments over the timing of the next Fed hike. The first question, though, is whether the data will support action, on the Fed's own terms. The April FOMC minutes said: "Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June".
The April FOMC statement dropped the March assertion that "global economic and financial developments continue to pose risks" to the U.S. economy, even though growth "appears to have slowed". Instead policymakers pointed out that "labor conditions have improved further", perhaps suggesting they don't take the weak-looking March data at face value. We certainly don't.
Data released this week confirmed that economic activity deteriorated sharply in Argentina in Q2.
The uncertainty over the new U.S. administration's economic policies new is clouding the outlook for the Eurozone economy. The combination of loose fiscal policy and tight monetary policy in the U.S. should be positive for the euro area economy, in theory. It points to accelerating U.S. growth--at least in the near term--wider interest rate differentials and a stronger dollar. In a " traditional" global macroeconomic model, this policy mix would lead to a wider U.S. trade deficit, boosting Eurozone exports.
The PBoC probably will start soon to run modestly easier monetary policy, but conditions have been tightening consistently for over a year, so a slowdown in economic growth likely is already locked in.
The Treasury waded in to the Brexit debate yesterday with a 200-page report concluding that U.K. GDP would be 6.2% lower in 2030 than otherwise if Britain left the E.U. and entered into a bilateral trade deal similar to the one recently agreed by Canada. All long-term economic projections should come with health warnings, and the Treasury's precise numbers should be taken with a pinch of salt.
Economic data in the Eurozone are sending an increasingly upbeat message on the economy. Yesterday saw a barrage of numbers, but the most startling of them was the continued acceleration in the money supply.
China's annual "two sessions" conference is due to start on Sunday, with the economic targets for this year set to be made official over the course of the meetings.
Mexico's economy continues to bring good news, despite the tough external environment for all EM economies. According to the economic activity index, a monthly proxy for GDP, growth gained further momentum in Q4. Activity rose 2.7% year-over-year in November, supported by stronger services activities, which expanded 0.3% month-to-month. The services sector has been the main driver of the current cycle, growing 3.8% year-over-year in November, bolstering our optimism about the domestic economy in the near-term.
Recent political and economic developments in Brazil make us more confidence in our forecast of a gradual recovery. On Wednesday, interim President Michel Temer scored his first victory in Congress, winning approval for his request to raise this year's budget target to a more realistic level. Under the new target, Brazil's government plans to run a budget gap, before interest, of about 2.7% of GDP this year.
Yesterday's labour market figures revealed that employment growth has picked up this year, despite the shadow cast over the medium-term economic outlook by Brexit. The 122K, or 0.4%, quarter-on-quarter rise in employment in Q1 was the biggest since Q2 2016.
Mexican economic data was surprisingly benign last week.
We expect today's preliminary estimate of Q4 GDP growth to surprise the consensus to the downside, underscoring our view that the economic recovery has shifted down to a much slower gear.
Taken at face value, the preliminary estimate of Q2 GDP suggests that the economic recovery weathered Brexit risk well. But growth received support from some unsustainable sources, and also probably was boosted by a calendar quirk. Meanwhile, with few firms or consumers expecting a vote for Brexit prior to the referendum, Q2's brisk growth tells us little about how well the economy will cope in the current climate of heightened uncertainty.
The MPC chose not to rock the boat yesterday, deferring any reappraisal of the economic outlook until its next meeting in early February.
Recent data have confirmed that Colombian economic activity is still fragile, and that downside risks increased in Q1 as oil prices hav e slipped. The ISE economic activity index rose just 1.0% year-over-year in January, down from a 1.6% average gain in Q4.
The FOMC flagged recent market developments as a source of risk to the U.S. economy yesterday, unsurprisingly, but didn't go overboard: "The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook."
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.
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.
While Brexit news will dominate the headlines again--see here for why the odds remain against Mrs. May winning the third "meaningful vote"--February's consumer prices report is the highlight in this week's congested economic data calendar.
Today is a busy day in the Eurozone economic calendar, but we suspect that markets mainly will focus on the details of Italy's 2019 budget.
Colombia was the fastest growing economy in LatAm last year but it faces major challenges. The collapse of oil prices--which account for about half of exports--the COP depreciation, rising inflation and Fed's impending monetary policy normalization, are dragging down economic activity and damaging confidence.
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.
A rate hike today would be a surprise of monumental proportions, and the Yellen Fed is not in that business. What matters to markets, then, is the language the Fed uses to describe the soft-looking recent domestic economic data, the upturn in inflation, and, critically, policymakers' views of the extent of global risks.
Mr. Abe yesterday called a snap general election, to be held on October 22nd; more on this in tomorrow's Monitor. For now, note that the election comes at a reasonably good stage of the economic cycle, hot on the heels of very rapid GDP growth in Q2, while the PMIs indicate that the economy remained healthy in Q3.
The state of the Mexican economy is still favorable, despite the slowdown over the last few quarters. This week, the IGAE economic activity index--a monthly proxy for GDP--rose 2.0% year-over-year in July, a relatively solid pace, but down from 3.2% in June, and 2.6% in the first half. All these data suggest that economic activity failed to gather momentum at the beginning of Q3 after a disappointing first half of the year.
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.
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.
Across all the major economic data, perhaps the biggest weather distortions late last year and in the early part of the year were in the retail sales numbers, specifically, the building materials component. Sales rocketed at a 16.5% annualized rate in the first quarter, the biggest gain since the spring of 2014, following a 10.2% increase in the fourth quarter of last year.
Hard economic data for the first quarter will appear over the next few weeks, but the EC sentiment survey later today gives a useful overview of how the euro area economy started the year.
LatAm currencies and stock markets have suffered badly in recent weeks, but Monday turned into a massacre with the MSCI stock index for the region falling close to 4%. Markets rebounded marginally yesterday, but remain substantially lower than their April-May peaks. Each economy has its own story, so the market hit has been uneven, but all have been battered as China's stock market has crashed. The downward spiral in commodity prices--oil hit almost a seven-year low on Monday--is making the economic and financial outlook even worse for LatAm.
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 advance PMI reports in the euro area signal that economic momentum slowed slightly at the start of Q4.
The Colombian economy--the star of the previous economic cycle in LatAm--is now slowing significantly, due mostly to strong external headwinds. Exports plunged by 40% year-over-year in January, down from -29% in December, with all of the main categories contracting in the worst performance since 1980.
To paraphrase recent correspondence: "How can you possibly believe, given the terrible run of economic data and the turmoil in the markets, that the Fed will raise rates in March/June/at all this year?" Well, to state the obvious, if markets are in anything like their current state at the time of the eight Fed meetings this year, they won't hike. That sort of sustained downward pressure and volatility would itself prevent action at the next couple of meetings, as did the turmoil last summer when the Fed met in September. And if markets were to remain in disarray for an extended period we'd expect significant feedback into the real economy, reducing--perhaps even removing--the need for further tightening.
The FOMC minutes confirmed that most FOMC members were not swayed by the weak-looking first quarter GDP numbers or the soft March core CPI. Both are considered likely to prove "transitory", and the underlying economic outlook is little changed from March.
In a relatively light week in terms of economic indicators in Brazil, the inflation numbers and the potential effect of the recent BRL sell-off garnered all the attention.
Yesterday's economic data in Germany confirmed that the economy slowed in Q3, but also added to the evidence that growth will rebound in Q4. The second estimate for Q3 showed that real GDP rose 0.2% quarter-on-quarter, slowing from a 0.4% gain in Q2.
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.
Three of today's economic reports, all for December, could move the needle on fourth quarter GDP growth. Ahead of the data, we're looking for growth of 1.8%, a bit below the consensus, 2.2%, and significantly weaker than the Atlanta Fed's GDPNow model, which projects 2.8%.
The tumultuous political and economic crises in Brazil continue to feed off each other, grabbing most of the LatAm headlines. Sentiment will remain depressed, and volatility and uncertainty will persist, hampering any real signs of stabilization in the near-term. The Pacific Alliance countries, by contrast, managed to grow at relatively solid rates during the first half of this year, after absorbing the hit from falling commodity prices.
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.
Economic news in Europe continues to take a back-seat to volatility in politics. Yesterday's announcement by U.K. Prime Minister Theresa May that she is seeking a snap general election on June 8th cast further doubt over what exactly Brexit will look like.
Economic news in the Eurozone, and virtually everywhere else, has been mostly downbeat in the past few months, but French consumers are doing great.
The bond market has become extremely pessimistic about the long-term economic outlook following Britain's vote to leave the EU. Forward rates imply that the gilt markets' expectation for official interest rates in 20 years' time has shifted down to just 2%, from 3% at the start of 2016.
The Bank of England will be dragged into the political arena on Thursday, when it sends the Treasury Committee its analysis of the economic impact of the Withdrawal Agreement and the Political Declaration, as well as a no-deal, no- transition outcome.
Friday's economic reports delivered more sobering news for the euro area economy.
The verdict from the German business surveys is in; economic growth probably slowed further in Q2.
The core economic narrative in U.S. markets right now seems to run something like this: The pace of growth slowed in Q1, depressing the rate of payroll growth in the spring. As a result, the headline plunge in the unemployment rate is unlikely to persist and, even if it does, the wage pressures aren't a threat to the inflation outlook.
The underlying state of the Mexican economy is still positive, despite recent signs of a modest slowdown. The IGAE economic activity index--a monthly proxy for GDP--rose 2.1% year-over-year in April, a relatively solid pace, but down from 2.8% in March, and 2.6% in Q1.
This morning's second estimate of Q1 GDP likely will restate the preliminary estimate of a 0.4% quarter-on-quarter rise, confirming that the economic recovery has lost momentum since last year. Meanwhile, the new expenditure breakdown is set to show that growth remained extremely dependent on households and will bring more evidence that businesses held back from investing, ostensibly due to Brexit concerns.
The Chancellor used the Autumn Statement to shift the composition of the fiscal consolidation slightly away from spending cuts and towards tax hikes. But in overall macroeconomic terms, he changed little. The fiscal stance is still set to be extremely tight in 2016 and 2017, ensuring that the economic recovery will lose more momentum.
Brazil's economic prospects continue to deteriorate rapidly, due to a combination of rising political uncertainty, the failure of the new government to advance on reforms, and ongoing external threats.
The trade war with China is a macroeconomic event, whose implications for economic growth and inflation can be estimated and measured using straightforward standard macroeconomic tools and data.
The minutes from Banxico's August 11 monetary policy meeting--in which Board members unanimously voted to keep rates on hold at 4.25%--confirmed that the bank's policy guidance remains broadly neutral. Subdued economic activity, favourable inflation and gradual fiscal consolidation explain policymakers' position.
Recently data from Argentina continue to signal a firming cyclical recovery. According to INDEC's EMAE economic activity index, a monthly proxy for GDP, the economy grew 4.0% year-over-year in June, up from an already-solid 3.4% in May.
Today's barrage of data kicks off a couple of busy days in the Eurozone economic calendar.
Economic data in Mexico continue to come in strong.
The downturn in LatAm is finally bottoming out, but the economy of the region as a whole will not return to positive year-over-year economic growth until next year. The domestic side of the region's economy is improving, at the margin, thanks mainly to the improving inflation picture, and relatively healthy labor markets.
Markets will be extremely sensitive to economic data in the run-up to the MPC's next meeting on August 3, following signals from several Committee members that they think the cas e for a rate rise has strengthened.
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.
Yesterday's economic news in the French economy was solid.
This week's main economic data from Korea--the last batch before the BoK meets on the 16th--missed consensus expectations, further fuelling speculation that it will cut rates for a second time, after pausing in August.
Markets are pricing-in just a 10% chance of the MPC cutting interest rates again within the next six months, odds that look too low given the strong likelihood that the economic recovery loses more pace.
Colombia's Central Bank is facing a short-term test. The recent fall in inflation was interrupted in August--data due on Thursday will show another increase in September--while economic growth, particularly consumption, is struggling, at least for now.
We are all for ambitious economic targets, but the ECB's pledge to drive EZ core inflation in the Eurozone up to "below, but close to" 2% is particularly fanciful.
Yesterday's economic numbers in the Eurozone were mixed, but we are inclined to see them through rose-tinted glasses.
We aren't materially changing our U.S. economic forecasts in the wake of the U.K.'s Brexit vote, though we have revised our financial forecasts. The net tightening of financial conditions in the U.S. since the referendum is just not big enough--indeed, it's nothing like big enough--to justify moving our economic forecasts.
BanRep cut Colombia's key interest rate by 25 basis points last Friday, to 6.25%. We were expecting a bolder cut, as economic activity has been under severe pressures in recent months.
The equity market this year has been a story of two halves. Hopes of a sustainable economic recovery pushed the benchmark Eurozone equity index to an 7.5% increase in the first six months of the year.
The most important number, potentially, in today's wave of economic reports is the Employment Costs Index for second quarter.
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.
Today's economic data will add to the evidence that construction in the Eurozone slowed in the first quarter.
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%.
Chair Yellen's final FOMC meeting today will be something of a non-event in economic terms.
Today will be an incredibly busy day for EZ investors with no fewer than eight major economic reports. Overall, we think the data will tell a story of a stable business cycle upturn and rising inflation. Markets will focus on advance Q4 GDP data in France and in the euro area as a whole. Our mo dels, and survey data, indicate that the EZ economy strengthened at the end of 2016, and we expect the headline data to beat the consensus.
The modest overshoot to consensus in September's core PCE deflator won't trouble any lists of great economic surprises, but it did serve to demonstrate that the PCE can diverge from the CPI, in both the short and medium-term.
Business investment has punched above its weight in the economic recovery from the crash of 2008; annual real growth in capex has averaged 5% over the last five years, greatly exceeding GDP growth of 2%. This recovery is unlikely to grind to a halt soon, since profit margins are still high and borrowing costs will remain low. But corporate balance sheets are not quite as robust as they seem, while capex in the investment-intensive oil sector still has a lot further to fall.
Economic data released last week underscored that Brazil's economic recovery is continuing; the effect of recent bold rate cuts and improving domestic fundamentals will further support the gradual recovery of the labour market.
Mexico's data over the last few weeks have confirmed our view that private consumption remains the key driver of the current economic cycle. Solid economic fundamentals, thanks to stimulative monetary policy and structural reforms, have supported the domestic economy in recent quarters. Falling inflation has also been a key driver, slowing to 2.5% by mid-September, a record low, from an average of 4% during 2014.
Today's wave of economic reports are all likely to be strong. The most important single number is the increase in real consumers' spending in July, the first month of the third quarter.
Today brings a raft of January data on both economic activity and prices, but we expect the headline numbers in each report to be distorted by the impact of severe weather or the plunge in oil prices.
Colombia's sluggish growth and near-term economic outlook resembles that of most other LatAm economies. Domestic demand is weak, credit conditions are tight, and confidence is depressed. The medium term outlook, however, is perking up, slowly.
The EZ economic survey data for April were disappointing in our absence.
Mr. Draghi used his introductory statement at the ECON--EU Economic and Monetary Affairs Committee-- hearing last week to assure investors that the central bank is vigilant to downside risks. The president noted the governing council "would not hesitate to act" if it deems growth and inflation to be undershooting expectations. Market volatility has increased the ECB's worries, but economic data continue to tell a story of a firm business cycle upturn.
The terrible scenes from Texas will play out in the economic data over the next few weeks.
Brazil's economic outlook is gradually improving following a challenging Q2, which was hit by political risk, putting business and consumer confidence under pressure.
Volatility in commodities and emerging markets has intensified since the beginning of July, with the stock market drama in China taking centre stage. The bubble in Chinese equities inflated without much ado elsewhere, and can probably deflate in isolation too. But the accelerating economic slowdown in EM is becoming an issue for policy makers in the Eurozone.
Former Treasury Secretary and thwarted would-be Fed Chair Larry Summers has been arguing for some time that the Fed should not raise rates "...until it sees the whites of inflation's eyes". As part of his campaign to persuade actual Fed Chair Yellen of the error of her intended ways, he argued at the World Economic Forum in September that the strong dollar has played no role in depressing inflation. Never one to miss an opportunity to diss the competition, he wrote that Stanley Fischer's view that the dollar has indeed restrained inflation is "substantially weakened" by the hard evidence. Dr. Summers' view is that inflation is being held down by other, longer-lasting factors, principally the slack in the lab or market, rather than the "transitory" influences favored by the Fed.
Data released over the weekend confirm that the Peruvian economy enjoyed a strong second quarter. The economic activity index rose 6.4% year-over-year in May, well above market expectations, and up from 3.2% in Q1.
We argued in the Monitor yesterday that the very low and declining level of jobless claims is a good indicator that businesses were not much bothered by the slowdown in the pace of economic growth in the first quarter. The numbers also help illustrate another key point when thinking about the current state of the economy and, in particular, the rollover in the oil business.
We will be paying special attention today to the EC sentiment survey for Italy, where the headline index has climbed steadily so far this year. It was unchanged at an eight-year high of 106.1 in April, and even if it fell slightly in May--we expect a dip to 105.0--it still points to an upturn in economic growth.
Yesterday's economic data provided further evidence that GDP growth in the EZ economy slowed in Q2.
Today brings a ton of data, as well as an appearance by Fed Chair Powell at the Economic Club of New York, in which we assume he will address the current state of the economy and the Fed's approach to policy.
The second estimate of Q3 GDP last week confirmed that the Brexit vote didn't immediately drain momentum from the economic recovery. But it is extremely difficult to see how growth will remain robust next year, when high inflation will cripple consumers and the impact of the decline in investment intentions will be felt.
Households' saving decisions will play a key role in determining whether the economy slips into recession over the next year. Indeed, all of the last three recessions coincided with sharp rises in the household saving rate, as our first chart shows. Will households save more in response to greater economic uncertainty?
Investors have endured a severe test of their resolve in the last few months. Global equity markets have sunk more than 10%, eclipsing the previous low in September, and credit spreads have widened. The bears have predictably pounced and, as if the torrid price action hasn't been enough, media headlines have been littered with advice to "sell everything" and warnings of a 75% fall in U.S. and global equities. When "price is news" we recognise that views from well-meaning economists--often using lagging and revised economic data to describe the world--are of little value.
Colombia's December activity reports confirmed that quite strong retail sales last year were less accompanied by local production, which became only a minor driver of the economic recovery, as shown in our first chart.
Yesterday's sole economic report in the Eurozone confirmed that the economy slowed further at the end of 2018.
Today brings an array of economic data, including the jobless claims report, brought forward because July 4 falls on Thursday.
In yesterday's Monitor, we laid out the macroeconomic case for moderately higher inflation in the second half of the year. But subdued market based inflation expectations indicate that the ECB will retain its dovish bias for now. The central bank's preferred measure, 5-year/5-year forward inflation expectations, have only increased modestly in response to QE, and have even declined recently on the back of higher market volatility.
Banxico's Quarterly Inflation Report--QIR--for Q4 2016, published this week, confirmed that the monetary authority is concerned about the slowing pace of economic activity and rising inflation pressures. Banxico noted that signs of a recovery have emerged in external demand, but it also pointed out that the Trump administration might impose policies which would hit FDI flows into Mexico.
Short of saying "We're going to hike rates in two weeks' time", Dr. Yellen's view of the immediate economic and policy outlook, set out in her speech yesterday, could hardly have been clearer. Yes, she threw in the usual caveats: "...we take account of both the upside and downside risks around our projections when judging the appropriate stance of monetary policy", and saying the FOMC will have to evaluate the data due ahead of this month's meeting, but her underlying message was straightforward.
Colombia's central bank--Banrep--decided last Friday to leave its benchmark interest rate at 4.5% for the third consecutive month, concerned by the slowdown in oil prices, which is affecting economic activity in the fastest growing economy in the region.
The Fed yesterday toned down its warnings on the potential impact on the U.S. of "global economic and financial developments", and upgraded its view on the domestic economy, pointing out that consumption and fixed investment "have been increasing at solid rates in recent months". In September, they were merely growing "moderately". Policymakers are still "monitoring" global and market developments, but the urgency and fear of September has gone. The statement acknowledged the slower payroll gains of recent months--without offering an explanation--but pointed out, as usual, that "underutilization of labor resources has diminished since early this year" and that it will be appropriate to begin raising rates "some further improvement in the labor market".
Leading economic indicators in the Eurozone continue to send contradictory signals. Most of the headline surveys indicate that a further slowdown, and perhaps even recession, are imminent, while the money supply data suggest that GDP growth is about to re-accelerate.
Economic data released on Friday underscored our view that bolder rate cuts in Brazil are looming. The BCB's latest BCB's inflation report, released on Thursday, showed that policymakers now see conditions in place to increase the pace of easing "moderately" .
The economic data in the Eurozone were mixed while we were away.
It is fair to say that the economic debate on fiscal policy has shifted dramatically in the last 12-to-18 months.
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.
Data released this week in Brazil, coupled with the message from President Bolsonaro at the World Economic Forum, vowing to meet the country's fiscal targets and reduce distortions, support our benign inflation view and monetary policy forecasts for this year.
Germany's exporters just broke another record: The trade surplus for Europe's biggest economy is now at its highest on record.........Here's how Germany's recent export history looks, according to Pantheon Macroeconomics
On Thursday morning, we'll get the best-performing indicator of the US labor market: initial jobless claims. For a while now, Pantheon Macroeconomics' Ian Shepherdson has been stressing that the weekly print is noisy, particularly with the volatility the end-of-year season brings
An unusual factor may have contributed to the German economy's likely fall into a shallow recession at the tail end of 2018, a new report from research house Pantheon Macroeconomics suggests.
Germany's consumer price index fell 0.3% month-over-month in January. It's the first time the inflation rate went negative since September 2009. "Deflation has arrived," Pantheon Macroeconomics' Claus Vistesen said
Pantheon Macroeconomics Founder and Chief Economist Ian Shepherdson discusses his outlook for the economy, equities and European banks. He speaks on "Bloomberg Surveillance."
We think this week's main economic surveys in the Eurozone will take a step back following a steady rise since the end of Q3. Today's composite PMI in the Eurozone likely slipped to 54.0 in February, from 54.4 in January, mainly due to a dip in the manufacturing component. Even if we're right about slightly weaker survey data in February, though, it is unlikely to change the story of a stable and solid cyclical expansion in the EZ.
This is the final report before we dial down for our Christmas break, and we are happy to report that the economic calendar will be almost empty in our absence.
The details of next year's Japanese budget are not yet official and the Chinese budget remains unknown. But the main figures of the Japanese budget are available, while China's Economic Work Conference, which concluded yesterday, has set out the colour of the paint for the budget, if not the actual brush strokes.
Ian Shepherdson, chief economist for Pantheon Macroeconomics is the winner of the MarketWatch Forecaster of the Month award for June.
Retail sales fell sharply in September, highlighting that consumers still are spending only cautiously amid high economic uncertainty and falling real wages.
The Mexican economy had a decent start to the year thanks to resilient domestic demand, but hampered by the rollover in capital spending in the oil sector and the slowdown in manufacturing activity. Economic activity expanded 2.2% year-over-year in the second quarter, down from 2.6% in the first quarter, but the underlying trend remains reasonably solid.
The third quarter national accounts, due to be published on Friday, likely will not alter the picture of economic resilience immediately after the referendum. The latest estimate of GDP growth often is revised in this release, but revisions have not exceeded 0.1 percentage points in either direction in the last four years, as our first chart shows.
Pantheon Macroeconomics Chief Eurozone Economist Claus Vistesen discusses how the ECB will respond to the missed IMF payment yesterday.
Ian Shepherdson, Chief Economist at Pantheon MacroEconomics, on U.S. Consumer spending
Senior International economist Andres Abadia comments on Chile's economic growth
The key detail in Friday's barrage of economic data was the above-consensus increase in EZ inflation.
In our Monitor May 15 we described the initial government program in Italy, drafted by the leadership of the Five-Star Movement and the League parties, as a "macroeconomic fairytale."
Chile's central bank left rates unchanged at 3.5% last Thursday, as expected, and maintained its neutral tone. Inflation pressures are easing, economic activity remains sluggish and global risks have increased.
The conventional wisdom that the U.K. economy will comfortably weather the coming fiscal squeeze is misplaced. The planned adjustment is large, designed to minimise its political, not economic, impact, and based on overly optimistic assumptions. What's more, the economy is in many respects less well-placed to cope with the tightening than when the previous government applied the fiscal brakes. And when the recovery slows, the Chancellor is less likely to change tack and ease the squeeze this time.
ECB growth bears looking for the Fed to move in order to take the sting out of the euro's recent strength were disappointed last week. The FOMC refrained from a hike, referring to the risk that slowing growth in China and emerging markets could "restrain economic activity" and put "downward pressure on inflation in the near term." In doing so, the Fed had an eye on the same global risks as the ECB, highlighting increased fears of deflation risks in China, despite a rosier domestic outlook.
Global current account imbalances are back on the agenda. In the U.S., economic policies threaten to blow out the twin deficit, while external surpluses in the euro area and Asia are rising.
No surprises from Chile's central bank last week, after leaving rates unchanged for the third consecutive month, in the light of recent data confirming the sluggish pace of the economic recovery. In the communiqué accompanying the decision, the BCCh kept their tightening bias, signaling that rates will rise in the near term.
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.
Politics are once again encroaching on the economic story in the Eurozone. At the ECB, this week has so far been a tumultuous one.
Chief U.S. Economist Ian Shepherdson discussing U.S. Q1 GDP
A very light week for U.S. data concludes today with four economic reports, which likely will be mixed, relative to the consensus forecasts. The recent run of clear upside surprises and robust-looking headline numbers is likely over, for the most part.
Swoons in EZ investor sentiment are not always reliable leading indicators for the economic surveys, but it is fair to say that risks for today's advance PMIs are tilted to the downside, following the dreadful Sentix and ZEW headlines earlier this month.
The economic momentum evident late last year carried into 2015, the Labor Department said Friday, with American employers adding 257,000 jobs in January as wage growth rebounded and more people joined the workforce
Apple and Android app now available
The ECB will not make any adjustments to its policy stance today. We think the central bank will keep its main refinancing and deposit rates unchanged at 0.0% and -0.4%, respectively, and also that will maintain the pace of QE purchases at €80B a month. The updated macroeconomic projections likely will include a modest upgrade of this year's GDP forecast to 1.5%, from its 1.4% estimate in March.
In the absence of new economic data today, we want to take the opportunity to expand on the key themes in our latest Chartbook, which was distributed Friday.
Yesterday's economic data in the Eurozone were soft.
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.
Venezuela is on the brink o f economic and social collapse. Looting, food scarcity, power rationing, and other problems have become rampant. This week, Venezuela's government allowed citizens to flock across the Colombian border to shop for food and medicine, for the second time this month. Last year, Venezuela's President Maduro shut the border in a bid to crack down on smuggling of subsidized products.
Brazil's December economic activity index, released yesterday, showed that the economy ended the year in relatively good shape.
Brazil's December economic activity index, released last week, showed that the economy ended the year on a relatively soft footing. The IBC-Br index, a monthly proxy for GDP, fell 0.3% month-to-month, though the year-over-year rate rose to -1.8%, from -2.2% in November.
Brazil's economic data last week were appalling. The IPCA-15 price index rose 1.3% month-to-month, the fastest pace in 12 years, pushing the annual rate to 7.4% in mid-February from 6.7% in mid-January,well above the 6.5% upper bound of the BCB's target range.
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.
One of the most surprising features of the economic recovery has been that households have not responded to the surge in house prices by releasing housing equity to fund consumption. Housing equity rose to 4.2 times annual disposable incomes in 2015, up from 3.7 in 2012. It has more than doubled over the last two decades.
The possibility of a Corbyn-led Labour Government has been highlighted by some analysts as a major economic risk. Mr. Corbyn, however, has little practical chance of being elected soon.
Colombia's oil industry--one of the key drivers of the country's economic growth over the last decade--has been stumbling over recent months, raising concerns about the country's growth prospects. But the recent weakness of the mining sector is in stark contrast with robust internal demand and solid domestic production.
The economic calendar in the euro area was relatively quiet over Christmas, and broadly conformed to our expectations.
Yesterday's economic data added further evidence that GDP growth in the EZ will slow in Q2.
Copom's meeting was the focal point this week in Brazil. The committee eased by 25bp for the second straight meeting, leaving the Selic rate at 13.75%, and it opened the door for larger cuts in Q1. Rates sat at 14.25% for 15 months before the first cut, in October. In this week's post-meeting statement, policymakers identified weak economic activity data, the disinflation process--actual and expectations--and progress on the fiscal front as the forces that prompted the rate cut.
"We know from last year's experience during the polar vortex, when the headline index fell 10 points, that the NAHB survey is extremely susceptible to severe weather, so we can't right now view it as a reliable indicator of the underlying trend in housing market activity," Ian Shepherdson, chief economist for Pantheon Macroeconomics, said in a note to clients.
The Wall Street Journal is pleased to annouce that Ian Shepherdson, of Pantheon Macroeconomics, has won the US Forecaster of 2014 award.
The Chancellor must feel a sense of foreboding before his pre-Autumn Statement meetings with the Office for Budget Responsibility. Even minor revisions to the independent body's economic forecasts could shred into tatters his plans for a budget surplus by the end of the parliament, given the lack of wiggle room in the July Budget borrowing projections. The OBR won't present the Chancellor with disastrous news ahead of next Wednesday's Autumn Statement, but the already slim margin for error he has in meeting his surplus goal likely will be reduced.
Fed Chair Yellen speaks to the Economics Club of Washington, D.C., at 12.25 Eastern today, a day before she appears before the Joint Economic Committee of Congress at 10.00 Eastern. These will be her last public utterances before the FOMC meeting on December 16. Dr. Yellen won't say anything which could be interpreted as seeking to front-run the outcome of the meeting; that's not her style. But we expect her clearly to repeat that the Fed's decision will depend on whether progress has been made since October towards the Fed's twin objectives of maximum employment and 2% inflation.
After a very light week for economic data so far, everything changes today, with an array of reports on both activity and inflation. We expect headline weakness across the board, with downside risks to consensus for the December retail sales and industrial production numbers, and the January Empire State survey and Michigan consumer sentiment. The damage will b e done by a combination of falling oil prices, very warm weather, relative to seasonal norms, and the stock market.
Yesterday's headline economic data in the euro area were solid across the board, though the details were mixed.
For some time, the Fed has been locked in a loop of endless inaction. Every time the economic data improve and the Fed signals it is preparing to raise rates, either markets--both domestic and global-- react badly, and/or a patch of less good data appear. The nervous, cautious Yellen Fed responds by dialling back the talk of tightening, and markets relax again, until the next time.
Brazil's recession carried over into the beginning of Q2, but with diminishing intensity. The IBC-BR economic activity index, a monthly proxy for GDP, fell 5.0% year-over-year in April, up from a revised 6.4% contraction in March. The index's underlying trend has improved in recent months, suggesting that the economy is turning around, slowly.
The global economy is heading towards a new scenario, triggered by the impending start of the monetary policy normalization process in the U.S. In some major economies, notably the Eurozone, the Fed's actions will not derail or even jeopardize the cyclical economic upturn.
The FOMC's statement on April 29 mentioned the winter--"...economic growth slowed during the winter months"--but did not explicitly blame any of the first quarter's weakness on the extended cold and snowy weather. That was a change from the March statement, which made no mention of the weather and gave the distinct impression that policymakers had no firm view on why growth had "moderated".
Prospects for further rate cuts in Brazil, due to the sluggishness of the economic recovery and low inflation, have played against the BRL in recent weeks.
The FOMC's view of the economic outlook and the likely required policy response, set out in yesterday's statement and Chair Yellen's press conference, could not be clearer.
The Fed's strategic view of the economy and policy has not changed since last December, when it first said that "The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.
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.
Now that the holidays are just a distant memory, the distortions they cause in an array of economic data are fading. The problems are particularly acute in the weekly data -- mortgage applications, chainstore sales and jobless claims -- because Christmas Day falls on a different day of the week each year.
Evidence of slowing economic activity in Colombia continues to mount. Retail sales fell 2.0% year- over-rate in April, down from a revised plus 3.0% in March; and the underlying trend is falling. This year's consumption tax increase, low confidence, tight credit conditions, and rising unemployment continue to put private consumption under pressure.
Britain's shock vote to leave the E.U. has unleashed a wave of economic and political uncertainty that likely will drive the U.K. into recession.
Brazil has made a convincing escape from high inflation in the past few months, laying the groundwork for a gradual economic recovery and faster cuts in interest rates. Mid-March CPI data, released this week, confirmed that inflation pressures eased substantially this month.
The economic recovery would have lost more momentum last year had consumers not delved so deeply into their pockets. Real household spending increased by 0.7% and 0.8% quarter-on-quarter in Q3 and Q4 respectively, in contrast to investment and exports, which fell in both quarters.
Brazil's central bank conformed to expectations on Wednesday, cutting the Selic rate by 75 basis points to 12.25%, without bias. Overall, the BCB recognises that the economic signals have been mixed in recent weeks, but the Copom echoed our view that the data are pointing to a gradual stabilisation and, ultimately, a recovery in GDP growth later this year.
Yesterday's sole economic report showed that the EZ trade surplus rebounded slightly at the start of the year, rising to €17.0B in January, from a revised €16.0B in February, lifted by a 0.8% increase in exports, which offset a 0.3% rise in imports.
The April FOMC minutes don't mince words: "Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June".
Should you be feeling in the mood to panic over inflation risks--or more positively, benefit from the markets' underpricing of inflation risks--consider the following scenario. First, assume that the uptick in wages reported in October really does mark the start of the long-awaited sustained acceleration promised by a 5% unemployment rate and employers' difficulty in finding people to hire. Second, assume that the rental property market remains extremely tight. Third, assume that the abrupt upturn in medical costs in the October CPI is a harbinger o f things to come. And finally, assume that the Fed hawks are right in their view that the initial increase in interest rates will--to quote the September FOMC minutes--"...spur, rather than restrain economic activity". Under these conditions, what happens to inflation?
The woes of the manufacturing sector are likely to intensify over the next few months, even if--as we expect--overall economic growth picks up. The core problem is the strong dollar, which is hammering exporters, as our first chart shows. The slowdown in growth in China and other emerging markets is hurting too, but this is part of the reason why the dollar is strong in the first place.
On the face of it, the surge in retail sales volumes in September suggests that the U.K. consumer is in fine fettle and can prevent the economic recovery from losing momentum as exporters struggle and government spending retrenches. But the underlying picture is less encouraging and consumers won't be able to sustain the recent robust growth in real spending when inflation revives next year.
While we were out, Brazil's data were relatively positive, showing that inflation is still falling quickly and economic activity is stabilizing. The country has made a rapid and convincing escape from high inflation over the past year.
The minutes of the May 2/3 FOMC meeting today should add some color to policymakers' blunt assertion that "The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term."
Investors in the Eurozone were faced with a busy economic calendar yesterday, but the message from the plethora of survey data was simple. The economic recovery in the euro area is strengthening, and risks to GDP growth are firmly tilted to the upside in coming quarters.
Weakness in risk assets turned into panic yesterday with the Eurostoxx falling over 6%, taking the accumulated decline to 19% since the beginning of August, and volatility hitting a three-year high. Market crashes of this kind are usually followed by a period of violent ups and downs, and we expect volatile trading in coming weeks. Following an extended bull market in risk assets, the key question investors will be asking is whether the economic cycle is turning.
Mexico's economic and financial outlook is deteriorating rapidly and hopes of a gradual recovery over the next three-to-six months are fading away after AMLO's missteps in recent months.
The bad economic news in Brazil is unstoppable. The mid-month CPI index rose 1.3% month-to-month in February, as education, housing, and transport prices increased. School tuition fees jumped 6% month-to-month in February, reflecting their annual adjustment, and transport costs rose by 2% due to an increase in regulated gasoline prices.
Friday's economic data in Germany left markets with a confused picture of the Eurozone's largest economy.
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.
Today's ZEW investor sentiment report in Germany will kick off a busy week for Eurozone economic survey data, which likely will be tainted by the U.K. referendum result. We think the headline ZEW expectations index fell to about five in July, from 19.2 in June, below the consensus forecast, 9.2. Our forecastis based on the experience from recent "unexpected" shocks to investors' sentiment.
The preliminary estimate of first quarter GDP likely will confirm that the economic recovery lost considerable pace in early 2016. Bedlam in financial markets in January and business fears over the E.U. referendum are partly responsible for the slowdown. The deceleration, however, also reflects tighter fiscal policy, uncompetitive exports, and the economy running into supply-side constraints.
The big difference between economic cycles in developed and emerging markets is that recessions in the former tend to be driven by the unwinding of imbalances only in the private sector, usually in the wake of a tightening of monetary policy.
We believe China is going through a paradigm shift in its economic policy, away from GDPism-- the obsession with GDP growth targeting--to environmentalism, setting widespread environmental targets on everything, from air to water to waste.
Theresa May doubled down on her Brexit stance last week, despite European Council President Donald Tusk stating clearly that her proposed framework for economic cooperation "will not work" because it risks undermining the single market.
Financial market performance and economic survey data on the Brazilian economy have been better than many investors and commentators feared this year. The composite PMI has improved gradually since November last year, consumer sentiment has stabilized, and national business surveys have been less bleak.
Last week's advance PMI data suggest that economic activity in the Eurozone was stable at the beginning of Q2. The composite EZ PMI fell trivially to 53.0 in April, from 53.1 in March, because a dip in manufacturing offset a small rise in the services index.
Yesterday's barrage of economic data in the Eurozone added to the evidence that economic momentum is slowing.
April's retail sales figures, released today, likely will show only a partial reversal of the sharp 1.3% month-to-month fall in sales volumes in March. This would reinforce the impression that the recovery in consumer spending has been becalmed by slower job growth, the intensification of the fiscal squeeze and heightened uncertainty about the economic and political outlook.
Economic survey data this week will give the first clear evidence on whether recent market volatility has dented Eurozone confidence. The key business and consumer surveys dipped in January, and we now expect further declines, starting with today's PMI data. We think the composite index fell slightly to 53.0 in February from 53.6 in January.
This is the final U.S. Economic Monitor of 2017, a year which has seen the economy strengthen, the labor market tighten substantially, and the Fed raise rates three times, with zero deleterious effect on growth.
Yesterday's sole economic report in the Eurozone showed that German producer price inflation edged lower at the end of 2018.
Recent economic weakness in Brazil, particularly in the labor market, has strengthened our view that the central bank is close to the end of its painful, but necessary, tightening cycle. We expect the BCB to increase its policy rate by 50bp to 14.25% at next week's monetary policy meeting, and then leave the rate on hold for the foreseeable future.
Chile's central bank, the BCCh, admitted defeat in the face of the inflationary effects of the CLP's depreciation, increasing interest rates by 25bp to 3.25% last Thursday, the first hike since mid-2011. Chile is the third LatAm economy in a month to increase rates in response to currency weakness, despite sluggish economic growth.
We don't use the index of leading economic indicators as a forecasting tool. If it leads the pace of growth at all, it's not by much, and in recent years it has proved deeply unreliable.
Brazil's economic performance has improved marginally in recent months, with inflation falling and economic activity and sentiment data stabilizing, or even increasing modestly. The latest regional economic activity report, for instance, showed that although overall output declined again on a sequential basis in March-to-May, three of the five regions expanded.
The trend in public borrowing has improved significantly over recent months, but it is far too soon to conclude that the Chancellor is on track to meet his goal of running a budget surplus by the end of this decade. The recent economic slowdown has not impacted the public borrowing numbers, yet.
Brazil's recession stretched into the start of the third quarter, but its intensity has eased. The IBC-Br economic activity index--a monthly proxy for GDP--fell 0.1% month-to-month seasonally adjusted in July, following a 0.4% gain in June. The unadjusted year-over-year rate fell to -5.2%, from an upwardly revised -2.9%.
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.
Economic growth in France has been the key downside surprise in the Eurozone this year.
While we were out, the key economic news in the Eurozone was mostly positive. The main upside surprise came from the advance Q2 German GDP report, which showed that real GDP rose 0.4% quarter-on-quarter, slowing from the 0.7% jump in the first quarter.
The renewed slide in oil prices in recent weeks will crimp capital spending, at the margin, but it is not a macroeconomic threat on the scale of the 2014-to-16 hit.
We can't remember the last time a single economic report was as surprising as the December retail sales numbers, released yesterday.
High inflation and interest rates, coupled with increasing uncertainty, both economic and political, put Mexican consumption under strain last year.
Advance PMI data yesterday supported our suspicion that Q1 economic survey data will paint a picture of slowing growth in the Eurozone economy. The composite PMI in the Eurozone fell to a 13-month low of 52.7 in February from 53.6 in January, driven by declines in both the French and German advance data.
We sympathize greatly with investors' frustration over endless postponements and new "deadlines" in the negotiations between Greece and its creditors. Syriza delivered a proposal for reforms to the EU and the IMF on Monday morning, welcome d as a "positive step in the right direction" by Eurogroup president Dijsselbloem and Economic and Financial Affairs commissioner Moscovici.
2016 has been another terrible year for Venezuela, and we have no hope that the country's economic and political situation will improve in the near-term. Economic mismanagement, authoritarianism, corruption, violent looting and social unrest are the norm.
People across Europe are growing wary over the failure of governments to foster economic security since the 2008 crisis. Their conclusion increasingly is that the EU is to blame, so their support for EU-sceptic, and even right-wing nationalist, parties has increased accordingly.
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.
At the October FOMC meeting, policymakers softened their view on the threat posed by the summer's market turmoil and the slowdown in China, dropping September's stark warning that "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." Instead, the October statement merely said that the committee is "monitoring global economic and financial developments."
Fed policymakers surprised no one with their May 1 statement, which acknowledged the surprisingly "solid " Q1 economic growth--at the time of the March 19-to-20 meeting, the Atlanta Fed's GDPNow model suggested Q1 growth would be just 0.6%--but stuck to its view that low inflation means the FOMC can be "patient".
Today's economic calendar in the Eurozone is filled to the rafters.
The preliminary April PMIs due today will provide the first economic sentiment data for Q2, and likely will point to a continuation of the cyclical recovery. We think the composite PMI was unchanged at 54.0 in April, driven by a small gain in manufacturing offset by a slight decline in services.
New home sales performed better during the winter than any other indicator of economic activity. At least, we think they did. The mar gin of error in the monthly numbers is enormous, typically more than +/-15%.
The plunge in oil prices in recent weeks is not a threat to the overall U.S. economic growth story in the near term--we have always expected growth to slow, but remain decent, once the boost from the tax cuts fades--but it will make a difference, at the margin.
The Chancellor's decision immediately to spend all the proceeds from the OBR's upgrade to its projections for tax receipts appears to leave his plans exposed to future adverse revisions to the economic outlook.
Data from trade body U.K. Finance show that mortgage lending has remained unyielding in the face of heightened economic and political uncertainty.
Mexico's central bank, Banxico, capitulated to the sharp MXN depreciation yesterday and increased interest rates by 50bp, for the second time this year, in a bid to support the currency. Raising rates to 4.25% was a brave step, as the economic recovery remains sluggish, thanks mostly to external headwinds. The hike demonstrates that policymakers are extremely worried about the decline in the MXN and its lagged effect on inflation.
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 economic headlines in the Eurozone were pleasant reading.
The ECB will be satisfied, and a bit relieved, with yesterday's economic data in the Eurozone.
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.
Economic survey data have been upbeat recently, but key Eurozone data releases yesterday suggest the ECB will be under pressure to increase monetary policy stimulus further this month. The advance inflation estimate showed that the euro area slipped back into deflation in September, as inflation fell to -0.1% year-over- year, from +0.1% in August. The fall was mainly due to a 8.9% collapse in energy prices, though, and we are very confident the relapse is temporary.
A mix of political and economic events have triggered outflows of capital from emerging markets this year. Tensions in Europe, due to the "Grexit" saga, together with China's slowdown and concerns about Fed lift-off have weighed on EM flows. In recent months, though, some of the pressure on EM currencies has eased as the markets have come to expect fewer U.S. rate hikes in the near term.
Recent economic weakness in Brazil, particularly in domestic demand, and the ongoing deterioration of confidence indicators, have strengthened the case for interest rate cuts.
After last week's relatively light flow of data, today brings a wave of information on both the pace of economic growth and inflation. The markets' attention likely will fall first on the September retail sales numbers, which will be subject to at least three separate forces. First, the jump in auto sales reported by the manufacturers a couple of weeks ago ought to keep the headline sales numbers above water.
Chile's central bank left rates unchanged on Tuesday for the fourth consecutive month, as recent data confirmed the sluggish pace of the economic recovery and inflation edges down closer to the target range. In the statement accompanying the decision, the BCCh kept its tightening bias, saying that the normalisation of monetary policy needs to continue at a data-dependent pace, in order to achieve its 3% target.
Friday's data deluge suggests that EZ economic growth slowed less than we expected in the second quarter. The advance estimate indicates that real GDP in the euro area rose 0.3% quarter-on-quarter in Q2, down from a 0.6% jump in the first quarter. This was in line with the consensus, but it likely doesn't tell the whole story.
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 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".
The medium-term outlook in most LatAm economies is improving, though economic activity is likely to remain anaemic in the near term. The gradual recovery in commodity prices is supporting resource economies, while the post-election surge in global stock prices has boosted confidence. But country-specific domestic considerations are equally relevant; the growth stories differ across the region.
Banxico's Quarterly Inflation Report--QIR--for Q2 2017, published this week, confirmed that the central bank has become more upbeat about the economic recovery and the outlook for inflation. Banxico believes that the balance of risks to inflation and growth are neutral.
A reader sent us last week a series of five simple feedback loops, all of which ended with the Fed remaining "cautious". For example, in a scenario in which the dollar strengthens--perhaps because of stronger U.S. economic data--markets see an increased risk of a Chinese devaluation, which then pummels EM assets, making the Fed nervous about global growth risks to the domestic economy.
Lacklustre economic data and persistent no deal Brexit risk mean that the MPC won't rock the boat at this week's meeting.
Nowhere is the gap between sentiment and activity wider than in the NFIB survey of small businesses. The economic expectations component leaped by an astonishing 57 points between October and December, but the capex intentions index rose by only two points over the same period, and it has since slipped back. In February, the capex intentions index stood at 26, compared to an average of 27.3 in the three months to October.
This week's economic activity data for Brazil have been upbeat, indicating that the economy is recovering after a recession in the first half of 2014, but at a very gradual pace.
Industrial production and trade data on Friday ended last week on a downbeat note, amid otherwise solid economic reports. In Germany, industrial output fell 0.3% month-to-month in November, pushing the year-over-year rate down to 0.1% from a revised 0.4% in October. The details, however, were better than the headline. Production was hit by a 3.3% plunge in capital goods output, offsetting gains in all other key sectors, and net revisions added 0.3% to the October data.
Friday's economic data confirmed that inflation in Germany rebounded last month, and leading indicators suggest that it is headed higher in coming months.
Note: This updates our initial post-election thoughts, adding more detail to the fiscal policy discussion. Apologies for the density of the text, but there's a lot to say. Our core conclusions have not changed since the election result emerged. The biggest single economic policy change, by far, will be on the fiscal front.
Today's huge wall of data will add significantly to our understanding of third quarter economic growth, with new information on consumers' spending, industrial activity, inflation and business sentiment. In light of the unexpected drop in the ISM surveys in August, we are very keen to see the Empire State and Philly Fed surveys for September.
Yesterday's aggregate economic data for the euro area showed that inflation rose slightly in August. The headline rate rose to a four-month high of 1.5% in August from 1.3% in July. The rate was lifted mainly by energy inflation, rising to 4.6% from 2.2% in July, but we think the rebound will be short-lived.
Yesterday's economic data in Germany were stellar, but base effects mean that the story for Q4 as a whole is less upbeat.
Brazil's central bank has ignored, so far, the severe economic downturn and has continued its aggressive monetary tightening in order to regain credibility and curb stubbornly high inflation. In contrast, Mexico's central bank is in an enviable position, with inflation below target and under control. Its monetary policy is mainly dependent on the Fed's rate normalization.
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.
We're inclined to place little weight on July's E.C. Economic Sentiment Survey, which showed that consumers' confidence has picked up to its highest level since October 2016; see our first chart.
In one line: Another signal of feeble economic activity
Brazil's economic news this week remained bleak at the headline level, but some of the details were less terrible in than in recent months. Industrial production fell by a worse-than-expected 11.9% year-over-year in December, marginally up from the 12.4% drop in November.
Economic theory tells us that government spending should be counter-cyclical, but recent experience in the Eurozone tells a slightly different story. The contribution to GDP growth from government spending rose during the boom from 2004 to 2007, and remained expansionary as the economy fell off the cliff in 2008. As the economy slowed again following the initial recovery, the sovereign debt crisis hit, driving a severe pro-cyclical fiscal hit to the economy.
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.
Politics remain centre-stage in Brazil, despite positive news on the economic front. President Michel Temer's government continues to advance pension reform, despite the tight calendar and concerns about his political capital. But volatility is on the rise.
Strong real M1 growth suggests the cyclical recovery is in good shape. But recent economic data indicate GDP growth slowed in Q4, and survey evidence deteriorated in January. This slightly downbeat message, however, is a far cry from the horror story told by financial markets. The recent collapse in stock-to-bond returns extends the decline which began in Q2 last year, signalling the Eurozone is on the brink of recession.
The major Andean economies had a very challenging first quarter. In Colombia, the effect of the sharp fall in oil prices has become more evident in the last few months. The ISE economic activity index--a monthly proxy for GDP--fell considerably during 2014, with a significant deceleration over the last half of the year.
In one line: On hold, but ready to cut if the economic recovery falters.
Pantheon Macroeconomics is pleased to make available to you our Outlooks for the second half of 2017 for the US, Eurozone, UK, Asia, and Latin America. These reports present our key views, giving you a concise summary of our economic and policy expectations. If you are interested in seeing publications which you don't already receive, please request a complimentary trial
Pantheon Macroeconomics is pleased to make available to you our Outlooks for the second half of 2017 for the US, Eurozone, UK, Asia, and Latin America. These reports present our key views, giving you a concise summary of our economic and policy expectations. If you are interested in seeing publications which you don't already receive, please request a complimentary trial
In one line: Looks great, but does it matter for the economic surveys?
Pantheon Macroeconomics is pleased to make available to you our Outlooks for the second half of 2017 for the US, Eurozone, UK, Asia, and Latin America. These reports present our key views, giving you a concise summary of our economic and policy expectations. If you are interested in seeing publications which you don't already receive, please request a complimentary trial
Pantheon Macroeconomics is pleased to make available to you our Outlooks for the second half of 2017 for the US, Eurozone, UK, Asia, and Latin America. These reports present our key views, giving you a concise summary of our economic and policy expectations. If you are interested in seeing publications which you don't already receive, please request a complimentary trial
Pantheon Macroeconomics is pleased to make available to you our Outlooks for the second half of 2017 for the US, Eurozone, UK, Asia, and Latin America. These reports present our key views, giving you a concise summary of our economic and policy expectations. If you are interested in seeing publications which you don't already receive, please request a complimentary trial
November's money and credit figures brought welcome news that the recovery in bank lending is strengthening. This revival should continue, now that banks have completed most of the work required to improve their capital positions. But we doubt lending will recover quickly enough to prevent the economic recovery slowing in 2016, as the downward pressure on growth from the fiscal squeeze and the strong pound builds.
None of today's four monthly economic reports will tell us much new about the outlook, and one of them--ADP employment--will tell us more about the past, but that won't stop markets obsessing over it. We have set out the problems with the ADP number in numerous previous Monitors, but, briefly, the key point is that it is generated from regression models which are heavily influenced by the previous month's official payroll numbers and other lagging data like industrial production, personal incomes, retail and trade sales, and even GDP growth. It is not based solely on the employment data taken from companies which use ADP for payroll processing, and it tends to lag the official numbers.
Economic growth in Colombia and--especially-- Chile, braked in the fourth quarter and at the start of this year as the strong USD drove up imported good prices and tepid global demand weighed on exports. Colombia's January exports plunged 36.6% year-over-year, even worse than the 35% average drop in Q4.
The Chancellor argued in a speech on Thursday that the U.K.'s economic recovery is threatened by a "dangerous cocktail" of overseas risks, including slowing growth in the BRICs--Brazil, Russia, India, and China--and escalating tensions in the Middle East. Exports are set to struggle this year, but the strong pound, not weakness in emerging markets, will be the main drag.
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.
Chile's economic sector survey, released on Monday, provides further evidence that the cyclical recovery in the economy continues, albeit at a moderate pace. On the demand side, the rebound is still in place, with retail sales jumping 2.0% month-to-month in February and the underlying trend firm.
Friday's economic data added to the evidence of a Q1 rebound in EZ consumption growth.
Based on key economic indicators, the Eurozone economy is doing splendidly, relative to its performance in recent years. Real GDP has been growing at 1.6%-to-1.7% year-over-year since the first quarter of last year, bank credit has expanded, and the unemployment rate is declining.
Brazil's economic news remained grim at the headline level last week, but some of the details were less bad than in recent months. Industrial production fell by 13.8% year-over-year in January, down from the 12.1% drop in December and the worst performance on this basis since mid-2009.
In one line: Inflation falls sharply helped, by a favourable base effect and a sluggish economic recovery.
Today brings an astonishing eight economic reports, so by the end of the wave of numbers we'll have a pretty good idea of how the economy performed in the first month of the third quarter.
In one line: A bold cut to help the economic recovery, more to come.
The headline CPI inflation rate almost certainly dipped below zero in September, barring a startling and deeply improbable surge in the core. We look for a 0.4% month-to-month headline drop, driven by an 11% plunge in gasoline prices, pushing the year-over-year rate to -0.3%. This is of no real economic significance, not least because hugely unfavorable base effects mean the year-over-year rate almost certainly will rise sharply over the next few months, reaching about 1¾% as soon as January.
Today's retail sales figures for August likely will rebut the widespread view that spendthrift consumers will prevent a sharp economic slowdown. We look for a 1% month-to-month decline in retail sales volumes in August, well below the -0.4% consensus forecast.
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.
Financial markets and economic data don't always go hand-in-hand, but it is rare to find the divergence presently on display in Italy.
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.
Claims abound that sterling's sharp depreciation since the start of the year--to its lowest level against the dollar since May 2010--partly reflects the growing risk that the U.K. will vote to leave the European Union in the forthcoming referendum. We see little evidence to support this assertion. Sterling's decline to date can be explained by the weakness of the economic data, meaning that scope remains for Brexit fears to push the currency even lower this year.
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.
When Park Geun-hye came to power in Korea 2013, it was to cheers of "economic democratisation". At the time, I wrote a report with a list of reforms that would be needed for Korea to "economically democratise".
We often hear that the large gap between the slowing rising path for interest rates anticipated by the MPC and the flat profile expected by markets is justified because markets have to price-in all of the downside risks to the economic outlook posed by Brexit.
Mr. Macron will be in Berlin today with the message that France wants a strong Eurozone and a tight relationship with Germany. Friendly overtures between Paris and Berlin are good news for investors; they reduce political uncertainty while increasing the chance that the economic recovery will continue. But it is too early to get excited about closer fiscal coordination, let alone a common EZ fiscal policy and bond issuance.
Population ageing is, arguably, the most important long-term socioeconomic trend in the Eurozone. The demographic transition did not end in the 1970s as fertility hit replacement levels, contrary to the prediction by the stylised models of population change.
Brexiteers have downplayed the economic consequences of a no-deal exit by arguing that a further depreciation of sterling would cushion the blow.
Friday's economic data added to the evidence that the German economy stumbled in July. The seasonally adjusted trade surplus slipped to €19.4B, from a revised €21.4B in June.
The new fiscal projections in the Budget today likely will be based on implausible economic projections, which assume that wage growth will accelerate soon, lifting inflation, but that interest rates won't rise for three more years. You can coherently forecast one or the other, but not both.
Yesterday's labour market data showed that growth in households' income has slowed significantly in recent months. Firms are both hiring cautiously and restraining wage increases, due to heightened uncertainty about the economic outlook and rising raw material and non-wage labour costs. Consumers' spending, therefore, will support GDP growth to a far smaller extent this year than last.
While we were out, most of the action was on the political front, while the economic data mostly were unexciting.
Chile's Central Bank's monetary policy meeting, scheduled for tomorrow, likely will be one of the most difficult in recent months. Economic activity remains soft, and GDP likely contracted in Q4, due to weakness in mining output and investment.
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 collapse in gilt yields last week--including a drop to a record low at the 10-year maturity--appears to be an ominous sign for the economic outlook. For now, though, the yield curve signals a further easing of GDP growth, rather than a spiral into recession. Low liquidity also means modest changes in demand are generating large movements in yields, undermining gilts' usefulness as a leading indicator.
We have no argument with the consensus view that the language accompanying Wednesday's rate hike will be emollient. The FOMC likely will point out that the policy stance remains very accommodative, and seek to reinforce the idea that it intends to raise rates slowly. That said, recent FOMC statements have not offered any specific guidance on the pace of tightening, saying instead that the Fed "...will take a balanced approach consistent with its longer-run goals... even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."
Peru's central bank, the BCRP, admitted defeat again in the face of the inflationary effects of the PEN's depreciation and El Niño, increasing interest rates by 25bp to 3.75% last Thursday, following its 25bp increase in September. Peru is the third LatAm economy in the last few months to raise rates in response to currency weakness, despite sluggish economic growth. The key problem for Peru is that inflation has been trending higher since early 2013 and has remained stubbornly high, above 2.8% all this year. "Temporary" factors just keep on coming.
Today's labour market figures likely will bring further signs that firms are recruiting more cautiously and limiting pay awards, due to still-elevated economic uncertainty.
More evidence indicating that the recovery in global industrial activity is underway and gaining momentum- has poured in. In particular, trade data from China, one of LatAm's biggest trading partners, was stronger than the market expected last month. Both commodity import and export volumes increased sharply in January, and this suggests better economic conditions for China's key trading partners.
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.
Eurozone industrial production data today will confirm that economic growth likely accelerated in the first quarter. We think output rose 0.7% month-to-month in February, equivalent to a 0.8% increase year-over-year.
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.
Macroeconomic data in the euro area were mixed in our absence.
Yesterday's economic reports mainly were backward-looking, but provided further evidence that the Eurozone economy hit the skids at the start of the year.
Many commentators have assumed that the new Chancellor's pledge to "reset" fiscal policy and to stop targeting a budget surplus in this parliament means that fiscal policy will support growth in economic activity next year.
Mexico's domestic conditions don't warrant an imminent rate hike in the near term. Headline inflation continues to fall, reaching an all-time low of 2.5% in October. It should remain below 3% in the coming months. And core prices remain wellbehaved, increasing at a modest pace, signalling very little pass-through of the MXN's depreciation. Economic activity gained some momentum in Q3-- this will be confirmed on Friday's GDP report--but demand pressures on inflation are absent and the output gap is still ample. Under these conditions, policymakers should not be in a rush to hike, but they have signalled once again that they will act immediately after the Fed.
We are easily excitable when it comes to monetary policy and macroeconomics, but we are not expecting fireworks at today's ECB meetings.
It often is argued that the MPC will raise interest rates in November--even if the economic data are not pressuring the Committee to tighten--because markets would go into a tailspin if the MPC failed to meet their expectations.
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.
With less than a month before the first round of votes on October 7 in Brazil's presidential election, markets are dissecting both the polls and speeches of the candidates and their economic advisors.
Peru's central bank likely will cut its main interest rate by 25bp to 3.25% on Thursday. Inflation dipped in September and likely will increase only marginally in October, while economic growth was relatively sluggish at the start of Q3.
If you had only the NFIB survey of small businesses as your guide to the state of the business sector, you'd be blissfully unaware that the economic commentariat right now is obsessed with the potential hit from the trade tariffs, actual and threatened.
Another day, another downbeat survey. The British Chamber of Commerce's comprehensive and long-running Quarterly Economic Survey was published yesterday, and it added to evidence of a Q1 slowdown.
The escalation in the U.S.-Chinese trade wars has understandably pushed EZ economic data firmly into the background while we have been resting on the beach.
Yesterday's economic reports in the Eurozone were ugly.
Uncertainty about the U.S. economic and political outlook, following Donald Trump's presidential win, likely will cast a long shadow over EM in general and LatAm in particular. On the campaign trail, Mr. Trump argued for tearing up NAFTA and building a border wall.
The German trade data on Friday completed a poor week for economic reports in the Eurozone's largest economy. The seasonally adjusted trade surplus fell to €22.1B in May, from €24.1B in April, mainly due to a 1.8% month-to-month fall in exports. Imports, on the other hand, were little changed.
The MPC almost certainly will keep interest rates on hold today and likely won't give a strong steer on the outlook for policy in the minutes of its meeting, which are released at mid-day. On the whole, surveys of economic activity have been weak, indicating that GDP growth has slowed sharply in the second quarter.
The latest evidence of firming economic momentum comes from France, where industrial production rose 0.4% month-to-month in January, equivalent to a 0.6% increase year-over-year. Combined with strong consumer spending data in January, this points to a solid first quarter for the French economy.
This week's data confirmed Mexico's strong economic performance over the first few months of this year.
The large unexpected surge in oil and gas output this year has boosted the overall economic recovery significantly. But this looks like the last hurrah for a sector of the U.K. economy in terminal decline.
While we were out, the economic news in LatAm was mostly positive. The main upside surprise came from Mexico, with the IGAE activity index--a monthly proxy for GDP--rising 2.9% year-over-year in August, up from 1.2% in July, and an average of 2.4% in Q2. A modest rebound was anticipated, but the headline was much better than we and the markets expected.
It appears to be something of an article of faith among economic advisors to President-elect Trump that substantial fiscal stimulus will generate faster growth without boosting inflation, because both labor participation and productivity growth will rise.
Markets are looking for the BCCh to remain on hold and the BCRP to ease on Thursday; we think they will be right. In Chile, the BCCh will hold rates because inflation pressures are absent and economic activity is stabilizing following temporary hits in Q1 and early Q2.
Inflation in Brazil ended 2017 well under control, despite December's modest overshoot. This will allow the BCB to cut rates further in Q1 to underpin the economic recovery.
Britain's general election has led to another major step-up in political uncertainty, which conventional wisdom assumes will harm the economy. Perhaps surprisingly, however, the government's enfeebled state brings with it some major positives for the U.K.'s economic outlook.
Brazil's April CPI data this week showed that inflation pressures remain weak, supporting the BCB's focus on the downside risks to economic activity. Wednesday's report revealed that the benchmark IPCA inflation index rose 0.1% unadjusted month-to-month in April, marginally below market expectations.
LatAm economies this year have faced a tough external environment of subdued commodity prices, weaker Chinese growth, the rising USD, and the impending Fed lift-off. At the domestic level, lower public spending, low confidence, and economic policy reform have clashed with above-target inflation, which has prevented central bankers from loosening monetary policy in order to mitigate the external and domestic headwinds. In these challenging circumstances, LatAm growth generally continues to disappoint, though performance is mixed.
Economic data in the German economy have been record-breaking in the past 12 months, and yesterday's preliminary full-year GDP report for 2017 was no exception.
November's industrial production figures, released today, look set to surprise the consensus to the downside, underscoring our view that the economic recovery is continuing to lose momentum. Moreover, with sterling remaining uncompetitive, despite depreciating over recent weeks, and lower oil prices making extracting oil from the North Sea unprofitable, the industrial sector likely will impede the economic recovery further in 2016.
Outside the battered energy sector, the most consistently disconcerting economic numbers last year, in the eyes of the markets, were the monthly retail sales data. Non-auto sales undershot consensus forecasts in nine of the 12 months in 2015, with a median shortfall of 0.3%.
The further improvement in labor market conditions and the jump in core inflation means that the economic data have given the Fed all the excuse it needs to raise rates today. But the chance of a hike is very small, not least because the fed funds future puts the odds of an action today at just 4%, and the Fed has proved itself very reluctant to surprise investors-- at least, in a bad way--in the past.
Apart from a slew of economic data--see here and here--two important things happened in Germany last week.
It's hard to know what will stop the correction in the stock market, but we're pretty sure that robust economic data--growth, prices and/or wages--over the next few weeks would make things worse.
Economic growth in Brazil is not likely to improve significantly this year. Our pessimism was underscored by the November industrial production data last week, showing a contraction of 0.7%, and pushing output to its lowest level since June.
The Economic Slowdown in the EZ: Temporary or Something More Sinister?
China's 1.8% downshift in the RMB/dollar reference rate will make only a microscopic difference to the pace of U.S. economic growth and inflation. It will not deter the Fed from raising rates if the domestic labor market continues to tighten, as all the data suggest. The drop in the RMB merely restores the nominal exchange rate to its fall 2012 level, since which time the real exchange rate has risen by some 20%, according to the BIS.
The run of above-consensus news on the U.K. economy came to an abrupt end last week, as a series of survey indicators for January took a turn for the worse. After six months of breathing space, the economic consequences of the Brexit vote are increasingly being felt.
We aren't much interested in the headline ISM non- manufacturing index, which tends to track the rate of growth of nominal retail sales. In other words, it is not a leading indicator of broad economic activity. We were happy to see the November index rise yesterday, to 57.2 from 54.8, but it doesn't change our core views about anything.
Chile's Imacec index confirmed that economic growth ended the year on a soft note, due mainly to weakness in the mining sector.
May's activity data underline the gradual recovery in Colombia's economic growth, following signs of weakness at the start of the year.
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.
Monday's economic activity data from Peru signalled that the gradual recovery continues, despite November's undershoot, which was chiefly driven by temporary factors.
Chile's Imacec index confirmed that economic growth is slowing. The Imacec, a monthly proxy for GDP, fell 1.1 month-to-month in October, pushing the year-over-year rate down to -0.4% from an already soft 1.4% in September. This marks the first annual contraction since October 2009, underscoring Chile's fragility. Mining activity plunged 7.1% year-over-year in October, while the non-mining sector rose just 0.3%, supported by services.
We don't directly plug the ADP employment data into our model for the official payroll number. ADP's estimate is derived itself from a model which incorporates lagged official payroll data, because payrolls tend to mean-revert, as well as macroeconomic variables including oil prices, industrial production and jobless claims -- and actual employment data from firms which use ADP's payroll processing services.
Markets tend to take an eclectic view on macroeconomic data in the Eurozone.
Yesterday's economic reports in the Eurozone will rekindle the debate on hard versus soft data. The final composite PMI rose to 56.7 in September, from 55.7 in August, in line with the first estimate.
Both China and U.S. look for good will on opposite side and find none; political and economic constraints will soon kick in. BoJ QE remains neutralised by negative yields
The final Eurozone PMIs indicate that the cyclical recovery continued in Q1, but downside risks are rising. The composite index rose marginally to 53.0 in March, from 53.1 in February, below the initial estimate 53.7. Over the quarter as a whole, though, the index fell to 53.2 from 54.1 in Q4, indicating that economic momentum moderated in the first quarter.
The latest PMIs have added to the weight of evidence that the economic recovery has lost momentum this year. The prevailing view in markets, however, that the Monetary Policy Committee is more likely to cut--rather than raise--interest rates this year continues to look misplaced because inflation pressure is building.
The recent deal between Greece and the EU shows that the appetite for a repeat of last year's chaos is low. But investors' attention has turned to whether Portugal is waiting in the wings to reignite the sovereign debt crisis. Complacency is dangerous, but economic data suggest that a Portuguese shock to the Eurozone economy and financial markets is unlikely this year.
Colombia is one of the fastest growing economy in LatAm but over the last few quarters the collapse in oil prices, the depreciating currency--fearing higher U.S. interest rates--and rising inflation, have depressed confidence and dragged down economic activity.
Consumer spending has been the main locomotive of the economic recovery over the last couple of quarters, as investment and net trade have dragged on growth. Signs are emerging, however, that consumption is slowing too.
We have been quite bullish on U.S. economic growth this year.
In our recent Monitors, we stressed that some leading indicators in Brazil, particularly business and consumer confidence, are still pointing to a gradual economic recovery.
We have long argued that the U.S. and China will reach a trade deal this spring, because it is in the interests of both sides, economically and politically, to do so.
Yesterday's economic reports in the Eurozone were mostly positive.
Chile's economic outlook remains challenging. Overall, 2015 will likely mark the second consecutive year of disappointing growth, but it will be better than 2014, a year to forget.
While we were out, Brazil's economic and political situation continued to improve, allowing the BCB to cut the Selic rate by 100bp to 9.25% at its July 26th meeting, matching expectations.
Chile's IMACEC economic activity index rose 2.4% year-over-year in January, down from 2.6% in December, and 3.3% on average in Q4, thanks mostly to weak mining production.
On the face of it, recent retail spending surveys have been puzzlingly weak in light of the pick-up in employment growth, still-robust real wage gains and renewed momentum in the housing market. We think those surveys are a genuine signal that retail sales growth is slowing, and expect today's official figures to surprise to the downside. But retail sales account for just one-third of household spending, and, in contrast to the early stages of the economic recovery, consumers now are prioritising spending on services rather than goods.
The main story to emerge from China's Economic Work Report is the extent of tax cuts, which on our calculations will leave a large funding hole.
Economic growth in Chile picked up in Q1, but the recovery remains disappointingly weak, due to both global and domestic headwinds. The latest Imacec index, a proxy for GDP, rose just 2.1% year-over-year in March, slowing from a 2.8% gain in February. Assuming no revisions next month, economic activity rose 1.2% quarter-on-quarter in Q1, better than the 0.9% increase in Q4. These data points to a modest pick-up in GDP growth in Q1, to 1.8% year-over-year, from 1.3% in Q4.
Economic data are telling a story of a strengthening recovery, but downbeat investor sentiment points to a more difficult environment. The headline ZEW expectations index fell to a ten-month low of 12.1 in September, from 25.0 in August. This takes sentiment back to levels not seen before QE was announced, highlighting the increasing worry that deflation risks and low growth in China will derail the recovery. We don't agree, but we can't be sure the ECB thinks the same, and risks of additional stimulus this year have increased.
Brazil's economic and fiscal outlook has worsened in recent months, and economic activity will likely contract even further in the short-term. Some of last week's economic reports, however, were a bit less bad than of late. The latest industrial production data were less bad than expected in August, but the picture is still very grim. Industrial output plunged 1.2% month-to-month, above the consensus, and allowing the annual rate to stabilize at -9% year-over-year.
China's activity data for May were a mixed bag, but they broadly paint a consistent picture of a slowdown in economic growth from the first quarter.
Consumption remains an important source of economic growth in LatAm.
British firms have adopted a cautious mindset since the Brexit vote and are saving a huge share of their earnings, even though high profit margins make a strong case for investing more. Firms likely will run down their cash stockpiles when they become more confident about the medium-term economic outlook, potentially boosting GDP growth powerfully.
Economic prospects in the Andes have deteriorated significantly in recent weeks, due mainly to the escalation of the trade war.
Yesterday's sole economic report showed that the Eurozone's external surplus recovered ground over the summer, but we don't think the rebound will last long.
The FTSE 100 has fallen by 4% over the last two weeks, exceeding the 1-to-3% declines in the main US, European and Japanese markets. The FTSE's latest drop builds on an underperformance which began in early 2014. The index has fallen by 10% since then--compared to rises of between 10% and 20% in the main overseas benchmarks--and has dropped by nearly 15% since its April 2015 peak. We doubt, however, that the collapse in U.K. equity prices signals impending economic misery. The economy is likely to struggle next year, but this will have little to do with the stock market's travails.
BanRep accelerated the pace of easing last Friday, cutting Colombia's key interest rate by a bold 50 basis points, to 5.75%. Economic activity has been under severe pressure in recent months. The economy expanded by only 1.1% year-over-year in Q1, following an already weak 1.6% in Q4.
From a macroeconomic perspective, the main shift in the ECB's policy stance last week was the change in forward guidance.
One of the most eye-catching features of the U.K.'s economic recovery has been the strength of job creation. It took seven-to-eight years for employment to return to its pre-recession peaks after the recessions of the early 1980s and 1990s. By contrast, employment rescaled its 2008 peak in mid-2012, and it has risen by a further 6% since.
The clear message from the fourth quarter's national accounts, released last week, is that the economic recovery rests on unsustainable foundations. The U.K. has returned to bad habits and is financing expenditure today by borrowing. As this undermines future spending, it is only a matter of time before the U.K.'s recovery loses steam.
Yesterday's economic reports added to the evidence the euro area economy as a whole is showing signs of resilience in the face of still-terrible conditions in manufacturing.
Colombia's economic activity surprised to the upside in February, despite the challenging domestic environment. Private spending rose more than expected, but leading indicators suggest that household consumption will remain weak in Q2. Retail sales jumped 4.6% year-over-year in February, up from a 2.1% increase in January, and the fastest pace since August 2015.
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.
We have set out in recent Monitors the differences in the economic and political environment across Latin America, but the plunge in oil prices adds a new element to the analysis.
We have argued for some time that much of the early phase of the downturn in global manufacturing was due to the weakening of China's economic cycle, rather than the trade war.
The apparently imminent imposition of 25% tariffs on imported steel and 10% on aluminum does not per se constitute a serious macroeconomic shock.
Friday's economic data in Germany suggest that households had a slow start to the year.
Global economic conditions have been improving for LatAm over recent quarters.
The economic slowdown in China is old news for Eurozone investors.
When economic historians look back at the bizarre trade war of 2018-to-19, we think they will see Tuesday June 4 as the turning point, after which the threats of fire and brimstone were taken much less seriously, and markets began to ponder life after tariffs.
Fed Chair Powell yesterday said about as little as he could without appearing to ignore the turmoil in markets since the President announced his intention to apply tariffs to imports from Mexico: "We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective."
The tone of today's FOMC statement likely will be different to the gloomy April missive, which began with a list of bad news: "...economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated... underutilization of labor resources was little changed. Growth in household spending declined... Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined."
While we were out, most of the core domestic economic data were quite strong, with the exception of the soft July home sales numbers and the Michigan consumer sentiment survey.
Japan's economic data have been very volatile in the last 18 months.
Brazil's key data flow started Q4 on a soft note, but we still believe that the economic recovery will gather strength over the next three-to-six months.
Yesterday's economic reports confirmed that the Eurozone economy had a strong start to 2017. Real GDP rose 0.5% quarter-on-quarter in Q1, similar to the pace in Q4, and consistent with the first estimate. The year-over-year rate fell marginally to 1.7%, from 1.8% in Q4, mainly due to base effects.
The economic recovery disappointed in Chile during most of the first half of the year, despite relatively healthy fundamentals, including low interest rates, low inflation and stable financial metrics.
The economic data calendar for next week is so congested that we need to preview early September's GDP report, released on Monday.
Colombia's Central Bank is about to face a short-term dilemma. The recent fall in inflation will be interrupted while economic growth, particularly private spending, will struggle to build momentum over the second half.
Economic growth in Chile slowed in Q1, despite a relatively strong end to the quarter, and the chances of an accelerating recovery remains disappointingly low, due to both global and domestic headwinds.
The sovereign debt crisis in the euro area was a macroeconomic horror story
Brazil's improving economic and political situation allowed the BCB to cut the Selic rate by 100bp to 8.25% at its Wednesday meeting, matching expectations.
The trade-off between the timeliness and accuracy of the data is fundamental to macroeconomic analysis. Coincident data such as GDP, industrial production and retail sales are the most direct measures of economic activity, but their first estimates don't always tell the full story.
It would be a mistake to conclude much about the economic impact of the Brexit vote from today's official industrial production figures for September, and the British Retail Consortium's figures for retail sales in October.
Yesterday's economic reports showed that the German economy firmed at the end of Q1, but this doesn't change the story for a poor quarter overall.
March economic activity in Chile expanded by a solid 4.6% year-over-year, pointing to Q1 real GDP growth of 4.0%, the fastest pace since Q3 2013, up from 3.3% in Q4.
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
Brazil's March industrial production report, released on Thursday last week, was weaker than we and the markets were expecting, while the recent deterioration in sentiment surveys highlights the downside risks to the rather fragile economic recovery.
Brazil's recent data show that inflation is still falling, allowing the central bank to ease further next month, while economic activity is improving, though the rate of growth has slowed.
With financial markets still turbulent and the Governor stating only two weeks ago that economic conditions do not yet justify a rate hike, the Inflation Report on Thursday will not signal imminent action. Nonetheless, higher medium-term forecasts for inflation are likely to imply that the Committee still envisions raising interest rates this year.
German 10-year government bond yields jumped at the end of 2016, but have since been locked in a tight range around 0.4%, despite a steady inflow of strong economic data.
As it became clear that Donald Trump would beat Hillary Clinton to win the U.S. presidency, EM currencies came under severe pressure, fearing his economic and immigration policies. Some of the initial pressure is easing as markets digest the news and following Mr. Trump's conciliatory tone in his victory speech. But the proposals have been made and the MXN and other key LatAm assets likely will remain very stressed in the near term.
The FOMC minutes showed both sides of the hike debate are digging in their heels. As the doves are a majority--rates haven't been hiked--the tone of the minutes is, well, a bit do vish. But don't let that detract from the key point that, "Most participants continued to anticipate that, based on their assessment of current economic conditions and their outlook for economic activity, the labor market, and inflation, the conditions for policy firming had been met or would likely be met by the end of the year." Confidence in this view has diminished among "some" participants, however, worried about the impact of the strong dollar, falling stock prices and weaker growth in China on U.S. net exports and inflation.
Economic activity in Mexico during the past few months has been improving gradually, as external and domestic threats appear to have diminished.
Political developments are clouding the horizon in Mexico, at least temporarily. Mexico's Finance Minister Luis Videgaray, the mastermind behind President Enrique Peña Nieto's most important economic reforms, resigned on Wednesday. José Antonio Meade, a former finance chief, has been tapped to replace him.
Latam Economic Prospects Are Improving...A Trade Deal Between The U.S. And China Will Help
Economic data in the Eurozone auto sector remain under the influence of the aftershock from the EU's new emissions regulation--WLTP-- introduced in September.
LatAm economic activity is stabilizing...but the recovery will be modest in Q3.
Economic Activity Remains Sub-Par... But Downside Risks are Gradually Easing
Economic activity remains sluggish...and prospects are grim, due to the trade war
Mexico's economy lost some momentum in Q4, due mainly to weakness in industrial and agricultural activity, but this was partly offset by the strength of the services sector as consumers' spending again carried the economic recovery. Real GDP rose 0.6% quarter-on-quarter in Q4, after a 0.8% expansion in Q3, the tenth consecutive increase. Year-over-year growth dipped marginally to 2.5% from 2.6% in Q3, but the underlying trend remains stable. In 2015 as a whole the economy expanded by 2.5%, up from 2.3% in 2014.
The strength of the economic recovery next year and the MPC's scope to leave interest rates at ultra-low levels will hinge on whether wage growth picks up in response to rising inflation.
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.
Friday's industrial production report in Germany capped a miserable week for economic data in the Eurozone's largest economy.
The Fed yesterday acknowledged clearly the new economic information of recent months, namely, that first quarter GDP growth was "solid", with Chair Powell noting that it was stronger than most forecasters expected.
Last week's data supported our view that monetary policy across LatAm will continue to diverge in the short term. Brazil will have to prolong its monetary tightening cycle, while economies such as Colombia and Chile will remain on hold despite the recent slowdowns in their economic cycle.
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.
Following the summer recess, the U.K. Government has turned to the unenviable task of weighing up how much economic pain to endure in order to reduce immigration. The Government's insistence that Brexit "must mean controls on the numbers of people who come to Britain from Europe" suggests it is prepared to sacrifice access to the single market in order to appease public opinion.
It's always easy to find reasons to doubt single monthly observations of any economic time series, but our first chart makes it very clear that the labor market has strengthened markedly over the past few months. The underlying trend rate of growth in private payrolls is now above 300K for the first time in exactly 20 years, and we seen no reason to expect much change over the next few months.
Mexico's economic outlook has dimmed recently, a point driven home by sentiment data released last week. Still, we think GDP growth will slow only marginally in Q4, to about 11⁄2% year-over-year. Consumers' spending likely will remain strong in the near term, thanks mainly to rising remittances from the U.S., driven by fear of policy changes under the Trump administration.
Economic activity data in Chile have been soft and uneven this year, due mainly to the hit from low commodity prices and uncertainty surrounding the reform agenda, which has badly damaged consumer and investor sentiment. The latest Imacec index, a proxy for GDP, increased just 1.7% year-over-year in October, down from the 2.7% gain in September, and below the 2.2% average seen during Q3 as a whole.
The two major EZ economic reports released while we were away conformed to the consensus. Advance data suggest that real GDP in the euro area rose 0.3% quarter-on-quarter in Q3, the same pace as in Q2, and the year-over-year rate was similarly unchanged at 1.6%.
Growth momentum in Mexico has improved marginally over the last few months after the soft patch during the first quarter, with business and households gaining confidence in the economic recovery. But the upswing has been rather modest, due to the volatility in global financial markets and the challenging external environment. The outlook for the global economy has deteriorated over recent months due to China's problems, and commodity prices remain under pressure. All these factors are now weighing on investors' confidence and hurting EM across asset classes.
Economic Activity Was Poor In Q1...But We See Encouraging Signs Of Gradual Rebound
Last week's policy announcement by the ECB and Mr. Draghi's plea to EU politicians to deliver a fiscal boost, indicate that we're living in extraordinary economic times.
The disappointing German factory orders ended the run of strong economic data last week. New orders fell 1.4% month-to-month in July, pushing the year-over-year rate down to a 0.6% fall from a 7.0% increase in June. This is a poor headline, but it partly reflects mean-reversion from last month's revised 1.8% jump. We expect a rebound next month, and the details also offer a useful reminder that these data are extremely volatile on a month-to-month basis.
Economic reports released yesterday indicate that the German economy was off to a solid start early in the second quarter. Industrial production rose 0.9% month-to-month in April, equivalent to a 1.4% increase year-over-year, up from a revised tiny 0.2% gain in March. This is the biggest annual jump in production since July last year, but the underlying trend is turning up only slowly, in line with the moderate improvement in survey data this year.
Colombian inflation ended 2017 slightly above the central bank's 2-to-4% target range, after a year in which policymakers cut interest rates to boost economic growth.
The latest round of Fed analysis on the weakness of first quarter growth, from the New York Fed, completely contradicts the conclusions of the San Fran Fed's work published a couple of weeks ago. The NY Fed found no statistically significant residual seasonality in the GDP numbers, and argued that the reported decline in economic activity was due entirely to the severe weather, which subtracted about two percentage points from headline growth.
Mr. Macron's victory in France answers two questions for markets, at least in the short run. Firstly, France will stay in the Eurozone, and Mr. Macron will not call a referendum on EU membership. Mr. Macron has come to power with a mandate to strengthen economic integration and co-operation between Eurozone economies.
The scars from previous economic crises have not healed fully in the Eurozone, and we think the ECB will extend QE today, by six months to Q3 2017. We expect Mr. Draghi to retain his dovish bias in the opening statement, and to repeat the emphasis on downside risks, due to the weak external environment and political fears.
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.
While we were out, Brazil's economic and political position continued to improve. The recession eased in the second quarter and into July. Industrial production, for example, increased in June for the fourth consecutive month, rising by 1.1% month-to-month.
Investors were presented with a barrage of mixed EZ economic data on Friday, fighting for attention amid markets celebrating the arrival of negative interest rates in Japan. Advance Eurozone CPI data gave some respite to the ECB, with inflation rising to 0.4% year-over-year in January from 0.2% in December.
Brazil's industrial sector is still struggling, despite recent signs of better economic and financial conditions.
Welcome to Pantheon Macroeconomics, leading provider of Independent Macroeconomic Research
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, discusses the lack of inflation in Asia, PBOC policy and China's economy.
Pantheon Macroeconomics Founder Ian Shepherdson discusses Fed policy. He speaks on "Bloomberg Surveillance."
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the dollar's impact on inflation and markets "overdoing" inflation and recession fears. He speaks on "Bloomberg Surveillance."
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, discusses U.S.-China trade talks and the domestic state of the Chinese economy. She speaks with Francine Lacqua on Tom Keene on "Bloomberg Surveillance."
Privacy policy for the Pantheon Macroeconomics website.
Early results project that Andrés Manuel López Obrador--AMLO--will become the new Mexican president with 53.4% of the votes, against Ricardo Anaya's 22.6%, and José Antonio Meade's 15.7%. AMLO has declared victory and thanked his opponents, who recognized his triumph.
Ian Shepherdson, founder at Pantheon Macroeconomics Ltd., discusses the Federal Reserve's rate hike pattern and how it can provide a summer surprise to markets. He speaks with Bloomberg's Mark Barton on "Bloomberg Surveillance."
EU-Japan free trade: Japan and the European Union agreed on an outline for a massive trade deal this week that will rival the size of NAFTA, the free trade accord that the United States has with Canada and Mexico, currently the largest one in the world. Claus Vistesen, the chief eurozone economist with Pantheon Macroeconomics, assesses what's in the agreement and why it matters (19mins 10 secs).
Freya Beamish, Chief Asia economist at Pantheon Macroeconomics, discussing US-China Trade Talks with Philippa Thomas on BBC World
Freya Beamish, Chief Asia economist at Pantheon Macroeconomics, discusses the Chinese government's ability to provide economic stimulus. She speaks on "Bloomberg Surveillance."
Ian Shepherdson, Pantheon Macroeconomics founder and chief U.S. economist, joins "Squawk Box" to discuss how the partial government shutdown is impacting the economy.
Discussing the dangers if Greece defaults on its debt, with Ian Shepherdson, Pantheon Macroeconomics.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the possibility of 4 interest rate hikes in 2017
Ian Shepherdson, Pantheon Macroeconomics chief economist, discusses the economic impact of falling oil prices with Bloomberg's Joe Weisenthal and Scarlet Fu
Ian Shepherdson, Pantheon Macroeconomics founder and chief U.S. economist, provide insight to the broader markets and interest rates ahead of the FOMC meeting.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, speaks about how the U.S. Federal Reserve will react to the latest jobs data.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, discusses the Chinese economy.
Ian Shepherdson, Pantheon Macroeconomics, provides insight to the European Central Bank's path and whether to expect Mario Draghi to announce additional stimulus.
Ryan Payne, Payne Capital Management president, and Ian Shepherdson, Pantheon Macroeconomics founder and chief U.S. economist, discuss what to expect for the markets and economy after a shaky October.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, analyses the latest monetary policy moves from the Bank of Japan.
Ian Shepherdson, Pantheon Macroeconomics, and Said Haidar, Haidar Capital Management, discuss the market, economic and geopolitical impacts of the Trump administration's trade actions.
Careers at Pantheon Macroeconomics
Terms and conditions and privacy policy for browsing the Pantheon Macroeconomics website.
Terms and conditions and privacy policy for browsing the Pantheon Macroeconomics website.
Pantheon Macroeconomics Chief Eurozone economist Claus Vistesen discusses the latest survey data and political developments in the Eurozone economy.
Ian Shepherdson, chief economist at Pantheon Macroeconomics pulls back the curtain on the economy with POLITICO's Ben White.
Chief Eurozone Economist Claus Vistesen discussing key current economic issues
Provocative notes from Ian Shepherdson, the Chief Economist at Pantheon Macroeconomics
Dr Ian Shepherdson, chief economist at Pantheon Macroeconomics, says that while US rates will rise by 0.25% on 14th December, the central bank needs to continue to move rates up or wages will spiral up out of control.
Ian Shepherdson, Pantheon Macroeconomics chief economist, discusses his outlook on the U.S. economy and the long-lasting bull market.
Ian Shepherdson, Pantheon Macroeconomics, shares his economic view of markets around the world.
Claus Vistesen, Pantheon Macroeconomics chief euro zone economist, discusses how volatility has impacted the bond market.
Claus Vistesen, Pantheon Macroeconomics chief euro zone economist, discusses the outlook for the euro-zone economy in 2018 with Bloomberg's Scarlet Fu and Joe Weisenthal on "What'd You Miss?"
Ian Shepherdson, chief economist at Pantheon Macroeconomics, and Krishna Memani, chief investment officer at OppenheimerFunds, discuss the impact of low inflation on the Federal Reserve's rate path.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the impact of improving wage growth and inflation on the Federal Reserve ahead of today's February jobs report. He speaks on "Bloomberg Surveillance."
Ian Shepherdson, founder at Pantheon Macroeconomics, and Jeff Saut, chief investment strategist at Raymond James, look forward to a potential Federal Reserve rate hike on December 16 and how markets and the U.S. economy may react in the year ahead.
Ian Shepherdson, founder and chief economist at Pantheon Macroeconomics, and Paul De Grauwe, London School of Economics professor and former Belgian MP, talk about confusion surrounding the Trump administration's approach to the U.S. dollar.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses Italy's budget and deficit and the potential for the nation to leave the Eurozone.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, examines the French government's move to suspend a planned fuel-tax hike that sparked three weeks of protests.
Pantheon Macroeconomics Founder Ian Shepherdson discusses the price of oil, the U.S. economy and the Greek crisis. He speaks on "Bloomberg Surveillance."
Banca Monte dei Paschi di Siena SpA will step up efforts to win investors for an expanded debt-to-equity swap over the coming days, pressing ahead with a 5 billion-euro ($5.3- billion) capital increase as its options to avoid a state rescue dwindle. Pantheon Macroeconomics Chief Euro Zone Economist Claus Vistesen weighs in on "Bloomberg Daybreak: Americas."
Ian Shepherdson, Pantheon Macroeconomics founder and chief economist, discusses the outlook for the global economy with Bloomberg's Julie Hyman, Joe Weisenthal and Scarlet Fu on "What'd You Miss?"
August could be the month to break the mold with regards to payroll figures, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, analyses the latest monetary policy moves from the Bank of Japan.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the impact of recent market volatility and fiscal reform in the U.S.
Ian Shepherdson, Pantheon Macroeconomics, and Erik Knutzen, Neuberger Berman, provide insight to the markets ahead of the FOMC meeting.
Ian Shepherdson, founder and chief economist at Pantheon Macroeconomics, discusses low job growth, the continuing recovery from the financial crisis and the state of the U.S. economy. He speaks on "Bloomberg Surveillance."
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the outlook for U.S. inflation and labor market with Bloomberg's Joe Weisenthal and Julia Chatterley on "What'd You Miss?"
Ian Shepherdson, founder at Pantheon Economics, discusses rising U.S. inflation expectations and his outlook for the Federal Reserve in response to President-Elect Donald Trump's economic plan. He speaks on "Bloomberg Surveillance."
Sitemap of the Pantheon Macroeconomics website.
Chief U.K. economist Samuel Tombs comments on today's retail data release
Chief U.K. Economist Samuel Tombs on U.K. inflation
Chief Eurozone Economist Claus Vistesen on the Eurozone recovery
Chief U.K. Economist Samuel Tombs on U.K. employment
Chief US economist Ian Shepherdson on US Consumer Spending
Why is the EZ current account surplus rising and net exports falling at the same time?
Chief U.K. Economist Samuel Tombs on U.K. construction
Chief Eurozone Economist Claus Vistesen on Eurozone Growth
Chief Eurozone Economist Claus Vistesen on the Eurozone Inflation
Chief US economist Ian Shepherdson on the latest ISM nonmanufacturing data
Chief US economist Ian Shepherdson on the latest Jobs report
Chief US economist Ian Shepherdson on the latest Jobs report
Chief US Economist Ian Shepherdson on today's Inital Jobless Claims data
Ian Shepherdson comments on strong construction data
Chief US economist Ian Shepherdson on the latest Jobs report
The Federal Reserve said Wednesday it would keep short-term interest rates near zero until at least the middle of the year. The central bank's policy committee also signaled caution about low inflation and nodded to overseas uncertainty by including new language that it would monitor international developments. Here's how economists reacted
U.S. inflation gauges are sliding toward negative territory for the first time in more than five years. But the oil-fueled tumble in prices is far from the kind of growth-sapping episodes of deflation that tend to worry economists
Chief U.S. Economist Ian Shepherdson on U.S. Q1 GDP
Chief U.S. Economist Ian Shepherdson on US Retail Sales
Chief U.K. Economist Samuel Tombs discussing sterling in 2018
Chief U.K. Economist Samuel Tombs on the U.K. Economy in 2018
Claus Vistesen comments on the aftermath of the Greek referendum
Claus Vistesen on the Greek election results impact on the Eurozone
Ian Shepherdsonon why the ADP report is simply not a reliable indicator
Chief U.S. Economist Ian Shepherdson on the latest from the U.S. Economy
Chief U.K. Economist Samuel Tombs discussing the effect the general election will have on the pound,
Chief U.K. Economist Samuel Tombs discussing the General Election in June
Chief U.S. Economist Ian Shepherdson with the latest on the trade war
Chief Eurozone Economist Claus Vistesen comments on Eurozone Consumer Confidence
Chief Eurozone economist Claus Vistesen comments on the Eurozone PMIs
Chief Eurozone Economist Claus Vistesen on Greece
Chief US Economist Ian Shepherdson on US Personal Income, February
Ian Shepherdson on December's low US retail sales.
Chief U.K. Economist Ian Shepherdson on Brexit risk to a June rate hike
Chief Eurozone Economist Claus Vistesen comments on ECB speech changes
Chief Eurozone Economist Claus Vistesen comments on the Eurozone's Money Supply
Chief LatAm Economist Andres Abadia on the Argentina Election
Chief Eurozone Economist Claus Vistesen on the latest German consumer figures
Chief U.K. Economist Samuel Tombs on the impact of the Referendum
Chief U.K. Economist Samuel Tombs on the chances of a second Brexit Referendum
Chief U.S. Economist Ian Shepherdson on Bloomberg Surveillance
Chief Eurozone Economist Claus Vistesen discussing the meeting between Angela Merkel and Donald Trump
Chief U.S. Economist Ian Shepherdson on Bloomberg Surveillance
Chief U.S. Economist Ian Shepherdson discussing U.S. Economy
Senior International Economist Andres Abadia on Chile GDP.
Senior International Economist Andres Abadia comments on the latest Inflation data for Chile
Chief U.S. Economist Ian Shepherdson speaking about Donald Trump's plans for sweeping tax cuts
Chief Eurozone Economist Claus Vistesen on the ECB
Chief U.S. Economist Ian Shepherdson on Bloomberg Surveillance
Chief U.K. Economist Samuel Tombs on the government's fiscal policy
Chief U.K. Economist Samuel Tombs on U.K. Money Supply
Chief Eurozone Economist Samuel Tombs on Brexit
Chief US Economist Ian Shepherdson on Retail Sales figures, March
Chief US Economist Ian Shepherdson attributes bad weather to February US Retail Sales
Chief U.K. Economist Samuel Tombs discussing U.K. GDP
Chief US Economist Ian Shepherdson on "Remarkable" New Home Sales Data for February
Ian Shepherdson comments on Retail Sales data for June
Chief Eurozone Economist Claus Vistesen on European Car Sales
Chief U.S. Economist Ian Shepherdson on U.S. Employment
Chief US Economist Ian Shepherdson comments on disappointing Homebuilder Confidence data
Chief Eurozone Economist Claus Vistesen on Q1 growth in the Eurozone
Claus Vistesen comments on Eurozone deflation
With the Mexican Elections on July 1st, our Chief Latam Economist Andres Abadia has received many questions about the possible outcomes and how this will affect the Mexican economy going forward.
Eurozone surveys make for 'grim reading' as region stutters
What do the protests mean for Chile's economy?
Why is the EZ current account surplus rising and net exports falling at the same time?
Chief US Economist Ian Shepherdson on Durable Goods Orders, February
Chief US economist Ian Shepherdson on the latest Jobs report
Chief U.S. Economist Ian Shepherdson on U.S. hiring
Chief U.S. Economist Ian Shepherdson discussing U.S. Durable Goods Orders
Chief Latam Economist Andres Abadia on Argentina
Chief US Economist Ian Shepherdson on Consumer Confidence figures for April
Chief Eurozone economist Claus Vistesen comments on the latest GDP figures from France
Ian Shepherdson on strong non-farm payroll numbers for February
Chief U.S. Economist Ian Shepherdson on the U.S. Economy
pantheon macroeconomics, pantheon, macroeconomic, macroeconomics, independent analysis, independent macroeconomic research, independent, analysis, research, economic intelligence, economy, economic, economics, economists, , Ian Shepherdson, financial market, macro research, independent macro research
