Search Results: 963
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: firstname.lastname@example.org.
963 matches for " government":
Some analysts argue that sterling won't recover materially even if MPs wave through Brexit legislation, because the threat of a Labour government worries investors more than a messy departure from the EU.
Signs that the government is softening its Brexit plans, in response to its substantial defeat in the Commons last week, has enabled sterling to recover most of the ground lost against the dollar and euro in the fourth quarter of last year.
China's government overshot its deficit target last year, and probably will overshoot it by at least as much this year
The weekly jobless claims numbers tend to be choppy around the turn of the year, and our take on the seasonal adjustments points to a clear increase in today's report, for the week ended January 11, even without the impact of the government shutdown.
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."
Consumption and investment spending by state and local government accounts for just over 10% of the U.S. economy, making it more important than exports or consumers' spending on durable goods, and roughly equal to all business investment in equipment and intellectual property.
When you read between the lines of its public statements on Brexit, the Government appears to be prioritising controlling immigration over maintaining unfettered access to the single market, much to the chagrin of the financial sector.
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.
With just days to go until the Government triggers Article 50, the consensus view remains that Britain is heading for a "hard" Brexit, which will leave it without unrestricted access to the single market and outside the customs union. We think this view overlooks how political pressures likely will change over the next two years.
As we reach our Sunday afternoon deadline, no deal has been reached to re-open the federal government.
In the yesterday's Monitor, we presented an exagerated upper-bound for China's bad debt problem, at 61% of GDP. The limitations of the data meant that we double-counted a significant portion of non-financial corporate--NFC--debt with financial corporations and government.
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.
For now, the U.K. government still insists that the Brexit transition period will end in December, regardless of whether a new trade deal has been negotiated with the E.U. or not.
China will have to issue a lot of government debt in the next few years. The government will need to continue migrating to its balance sheet, all the debt that should have been registered there in the first place. This will mean a rapid expansion of liabilities, but if handled correctly, the government will also gain valuable assets in the process.
The chance of a zero GDP print for the first quarter diminished--but did not die--last week when the president signed a bill granting full back pay to about 300K government workers currently furloughed.
We expect the Budget today to underwhelm investors who are eager to see a quick and powerful government response to the coronavirus outbreak.
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.
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.
We struggle to see how the pro-separatist movement in Catalonia can move forward from here.
Was this an isolated occurrence, connected to the graft investigation into Chinese billionaire Xiao Jianhua, and his financial conglomerate?
Bond markets didn't panic when the ECB announced its intention further to reduce the pace of QE this year, to €30B per month from €60B in 2017.
Eurozone bond traders of a bearish persuasion are finding it difficult to make their mark ahead of Italy's parliamentary elections next weekend.
The duration and future scope of the current lockdown is the main uncertainty that U.K economic forecasters have to grapple with at present.
It has become pretty clear over the past couple of weeks that Hillary Clinton will be the next president, so it's now worth thinking about how fiscal policy will evolve over the next couple of years.
The lockdown in Britain that began two-and-a half weeks ago is starting to stem the number of new infections.
Markets reacted strongly to yesterday's consensus-beating data, with the ISM manufacturing survey drawing most of the attention as the industrial recession thesis took another body blow. But we are more interested in the strong construction spending data for January, which set the first quarter off on a very strong note.
Base effects were the key driver of yesterday's upbeat industrial production headline in Italy.
"Is EZ fiscal stimulus on the way?" is a question that we receive a lot these days.
Friday's sole economic report showed that wage growth in France remained robust mid-way through the year. The non-seasonally adjusted private wage index, ex-agriculture and public sector workers, published by the Labour Ministry, rose by 0.3% quarter-on-quarter in Q3.
The Eurozone's sovereign bond markets are dying, and this is a good thing, by and large.
In our daily Monitors we've talked about the four paths that we see for the Chinese economy over the medium-to-long term. First, China could make history and actively transition to private consumption-led growth.
The risk of a snap general election has jumped following Theresa May's resignation and the widespread opposition within the Conservative party to the compromises she proposed last week, which might have paved the way to a soft Brexit.
If Japan's flash PMIs for March are a sign of things to come, then the government really should get moving on fiscal stimulus.
need to add docMea culpa: We failed to spot the press release from the Commerce Department announcing the delay of the release of the advance December trade and inventory data, due to the government shutdown.
In yesterday's Monitor, we outlined how the government's plans to allow more migrants to register in cities could help counterbalance the effects of aging and put a floor under medium-term property prices.
S&P downgraded Chinese government debt last week to A+ from AA- yesterday, following a Moody's downgrade last May.
Japan's CPI inflation was stable at 0.2% in October, despite the sales tax hike, thanks to a combination of offsetting measures from the government and a deepening of energy deflation.
Venezuela's beleaguered government announced on Tuesday that it had begun the pre-sale of 82.4M coins of a virtual currency, called the "petro", backed by the nation's vast petroleum reserves.
India's government imposed a three-week nationwide lockdown on March 25 to combat the increasingly rapid spread of Covid-19.
Our long-standing forecast for GDP to be about 5% below its pre-Covid level at the end of this year assumes that the government will not need to impose new nationwide restrictions on businesses.
The EU Commission and Italy's government remain at loggerheads over the country's fiscal plans next year.
Complacency and wishful thinking seem to be creeping back into the government's approach to containing Covid-19.
Policymakers and governments are gradually deploying major fiscal and monetary policy measures to ease the hit from Covid-19 and the related financial crisis.
As we write, the Commons appears to be on the verge of voting for the Withdrawal Agreement Bill--WAB--at its second reading but then voting against the government's "Programme Motion", which sets out a very tight timetable for its passage through parliament, in a bid to meet the October 31 deadline and to minimise parliamentary scrutiny.
Yesterday's March PMIs confirmed that governments' actions to contain the Covid-19 outbreak dealt a hammer blow to the economy at the end of Q1.
Support for the Conservatives has shown no sign of flagging in recent weeks, despite the setbacks in the Commons earlier this month and the government's failure so far to secure a revised Brexit deal.
The MPC must be very disappointed by the impact of its £60B government bond purchase programme. Gilt yields initially fell, but they now have returned to the levels seen shortly before the MPC's August meeting, when the purchases were announced.
The gap between U.K. and U.S. government bond yields has continued to grow this year and is approaching a record.
LatAm governments and central banks have been busy implementing additional measures to contain the spread of the virus, and acting rapidly to ease the effect on the economy.
The downside surprise in April payrolls reflected weakness in just three components--retail, construction, and government--compared to their prior trends. Of these, we think only the construction numbers are likely to remain soft in May. Had it not been for the Verizon strike, then, we would have expected payrolls to rise by just over 200K in May, but the 35K strike hit means our forecast is 170K.
On all accounts, the ECB announced a significant addition to its stimulus program yesterday. The central bank cut the deposit rate by 0.1%, to -0.3%, and extended the duration of QE until March 2017. The ECB also increased the scope of eligible assets to include regional and local government debt; decided to re-invest principal bond payments; and affirmed its commitment to long-term refinancing operations in the financial sector for as long as necessary. The measures were not agreed upon unanimously, but the majority was, according to Mr. Draghi, "very large".
We look for a 150K increase in September payrolls, rather better than the August 130K headline number, which was flattered by a 28K increase in federal government jobs, likely due to hiring for the 2020 Census.
In yesterday's Monitor we set out how government will have to prepare for an increase in debt issuance both to bring debts on-balance sheet and also to issue new debt as government is obliged to run deficits while the corporate sector deleverages.
As we showed in yesterday's Monitor--see here--EZ governments and the ECB have thrown caution to the wind in their efforts to limit the pain from the Covid-19 crisis.
The only significant surprise in the terrible second quarter GDP numbers was the 2.7% increase in government spending, led by near-40% leap in the federal nondefense component.
The Budget on March 11 will be the first time that the new government's ambition and bluster collide with reality.
We have consistently flagged the likelihood that Japan's government would boost spending after the consumption tax hike was implemented.
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.
In Friday's Monitor we analysed the draft Japanese budget, as reported by Bloomberg. We suggested that the GDP bang-for-government-expenditure- buck is likely to be less than that implied by the authorities' forecasts.
According to Shadow Chancellor John McDonnell, it is "almost inevitable" that Labour will table a no-confidence motion in the government next month, shortly after MPs return from the summer recess on September 3.
Would the U.K. inevitably leave the E.U. if a majority of the electorate voted for Brexit on June 23? Repeatedly, the Government has quelled speculation that it will call for a second referendum on an improved package of E.U. reforms after a Brexit vote on June 23. But unsuccessful referendums have been followed up with second plebiscites elsewhere in Europe.
This Budget will be remembered as the moment when the Government finally threw in the towel on plans to run sustainable public finances.
The coronavirus outbreak, by definition, will fade eventually, but we suspect the measures to combat it will be more long-lasting. In terms of sheer scale, EZ governments and the ECB are throwing the kitchen sink at the virus, but that's only half the story.
Investors active in the government bond market will be awaiting today, at 07:30 BST, the publication by the Debt Management Office of its updated Financing Remit for the upcoming three months. The new Remit will show that gilt sales, net of redemptions, will be lower in Q3 than in Q2.
Korea's government is mulling a further tightening of borrowing rules to mitigate the risks of an overheated property market.
The end of the government shutdown--for three weeks, at least-- means that the data backlog will start to clear this week.
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.
We have to hand it to Italy's politicians. In an economy with a current account surplus of 3% of GDP, a nearly balanced net foreign asset position and with the majority of government debt held by domestic investors, the leading parties have managed to prompt markets to flatten the yield curve via a jump in shortterm interest rates.
We were expecting the pandemic in the Andes to reach a plateau over the coming weeks, given the quick response of regional governments to fight the virus.
Retail sales in Japan rose modestly in May, after collapsing in March and April, as the government tried to put a lid on the country's Covid-19 outbreak.
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.
The end of Korea's first Covid-19 wave, coupled with the government's economic support measures, has been a boon for the retail industry.
The limited data available on the state of the labour market, since the government forced businesses to close two weeks ago, paint a disconcerting picture.
Korean real GDP growth rebounded to 1.4% quarter-on-quarter in Q3, from 0.6% in Q2. The main driver was exports, with government consumption also popping, and private consumption was a little faster than we were expecting.
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.
This week, Mexico's government unveiled its 2020 fiscal budget proposal.
China's State Administration of Foreign Exchange-- SAFE--yesterday refuted claims, made earlier in the week, that senior government officials had recommended slowing or halting purchases of U.S. Treasuries.
Italy is edging closer to a coalition government with the Five-Star Movement, the Northern League, and Forza Italia at the helm.
Italy's economy was in trouble before the Covid-19 hammer-blow. The new government's ill-fated threat in 2018 to leave the Eurozone, unless Brussels allowed a looser budget, threw the economy into a technical recession, from which it never made a convinicing recovery.
The government remains on course to lose next Tuesday's Commons vote on the Withdrawal Agreement--WA--by a huge margin.
The most important retail sales report of the year, for December, won't be published today, unless some overnight miracle means that the government has re-opened.
Bond investors in Italy voted with their feet on Friday with news that the government has agreed a 2019 budget deficit of 2.4%.
The government's decision to shelve plans to reopen primary schools fully later this month will ensure that GDP remains greatly below its precoronavirus level throughout the summer months.
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.
The costs of the government's failure to lock down quickly in response to the Covid-19 pandemic, ultimately necessitating long-lasting restrictions, were visible in May's GDP figures.
Negotiations between the Italian government and the EU on how to fix the problem of non-performing loans in the banking sector have been predictably slow. Earlier this year the government announced that it will provide a first-loss guarantee on securitised loans sold to private investors.
Chile's market volatility and high political risk continue, despite government efforts to ease the crisis.
Gilt yields have risen sharply over the last month, even though the Monetary Policy Committee is just one-third of the way through the £60B bond purchase programme announced in August. Government bond yields in other G7 economies also have increased, but not as much as in Britain.
LatAm governments and policymakers are bracing for a more dramatic and longer virus-led downturn than initially expected.
All major EZ governments are now in the process of lifting lockdowns, but investors should expect less a grand opening, more of a careful tip-toeing.
The BoE announced on Thursday that it had agreed the Treasury could increase its usage of its Ways and Means facility--effectively the government's overdraft at the central bank--without limit.
China faces three possible macro outcomes over the next few years. First, the economy could pull off an active transition to consumer-led growth. Second, it could gradually slide into Japan-style growth and inflation, with government debt spiralling up. Third, it could face a full blown debt crisis, where the authorities lose control and China drags the global economy down too
The partial government shutdown is now the longest on record, with little chance of a near-term resolution.
Chancellor Javid's resignation, only eight months after assuming the role, is the clearest sign yet that the Johnson-led government wants fiscal policy to play a bigger part in stimulating the economy over the next couple of years.
The monthly industrial production numbers are collected and released by the Fed, rather than the BEA, so today's December report will not be delayed by the government shutdown.
The plunge in Russia's financial markets, in response to targeted U.S. sanctions--see here--against Russian oligarchs and government officials, was the main EU news story yesterday.
Argentina's government continues to show signs of reining in fiscal policy, with the primary budget balance improving steadily over the last year.
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.
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."
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.
A no-deal Brexit is a remote possibility. The U.K. government and EU are closing in on a deal and Brexiteers within the Conservative party have failed, so far, to trigger a confidence vote on Mrs. May's leadership.
The government now has a 50:50 chance of getting the Withdrawal Agreement Bill--WAB--through parliament in the coming weeks, despite Letwin's successful amendment and the extension request.
The first exit poll published at 18.00 CET on Sunday evening points to a landslide victory for Syriza, and the real possibility that the party could form a majority government. Counter-intuitively, the prospects for Syriza here depend upon how the smaller parties do.
Chief U.K. Economist Samuel Tombs on U.K. Government Borrowing
Chief U.K. Economist Samuel Tombs on the government's fiscal policy
Chief U.K. Economist Samuel Tombs on Government borrowing
Political turmoil in Brazil continues to undermine President Dilma Rousseff's leverage over the economy. On Friday, the Lower House of Congress voted to start impeachment proceeding against Ms. Rousseff. She has until early April to present her defense against charges that she doctored government accounts and used graft proceeds to fund the 2014 electoral campaign.
The EZ government bond market has been in a holding pattern for most of 2017. The euro area 10- year yield--German and French benchmark--is little changed from a year ago, though it is at the lower end of its range.
Chief U.K. Economist Samuel Tombs on Government Borrowing
Is Japan's pending 15-month anything to write home about?
What do the protests mean for Chile's economy?
Samuel Tombs on U.K. Public Sector borrowing
In the latest Invesco Podcast Ben Gutteridge, Director of Model Portfolio Services , speaks to Ian Shepherdson, the founder and Chief US Economist of Pantheon Economics
Chief U.S. Economist Ian Shepherdson discussing Global debt
David Bahnsen, managing partner and chief investment officer of the Bahnsen Group, and Ian Shepherdson, chief economist at Pantheon Macroeconomics, join "Squawk Box" to discuss the markets and the government measures being taken to stimulate the economy amid the coronavirus outbreak.
The second estimate of GDP left the estimate of quarter-on-quarter growth unrevised at 0.3%, a trivial improvement on Q1's 0.2% gain.
Yesterday was a watershed moment for investors.
Yesterday's IFO report reinforced the message from the PMIs that the Eurozone economy stumbled slightly at the beginning of the first quarter. The headline business climate index fell to an 11-month low of 107.3 in January, from a revised 108.6 in December, hit mainly by a drop in the expectations component. Intensified market volatility and worries over further weakness in the Chinese economy likely were the main drivers. Last week's dovish message from Mr. Draghi, however, came after the survey's cut-off date, leaving us cautiously optimistic for a rebound next month.
We find it remarkable, after the market volatility induced by the two Brexit deadlines in 2019, that investors do not foresee another bump in the road at the end of this ye ar, when the Brexit transition period is due to end.
The Monetary Policy Board of the Bank of Korea is likely to keep its benchmark base rate unchanged, at 1.25%, at its meeting this week.
Over the next 18 months we expect to see interest rates break out further on the upside. Initially, we expect developed market growth to be resilient to that.
Sterling's rough first half of this year--cable has depreciated to $1.24, from $1.33 at the end of 2019--is hard to reconcile with its normal macroeconomic determinants.
Everyone needs to take a deep breath: This is not 1930, and Smoot-Hawley all over again.
Speculation that another general election is imminent has intensified in recent weeks.
We've suspected that China's GDP targeting system was on its last legs for some time now.
A decade of public deficit reduction was fully reversed in April, as the coronavirus tore through the economy.
The run of better-than-expected public borrowing figures ended abruptly with the publication of March data yesterday.
Analysing the EZ sentiment data at the moment is a bit like a surveyor being called out to assess the damage on a property after a flood.
The verdict from the German business surveys is in; economic growth probably slowed further in Q2.
The final numbers for China's balance of payments in the first quarter showed that the current account descended to a $34B deficit, from a surplus of $30B a year earlier.
Data released yesterday confirmed that the Mexican economy ended Q4 poorly; policymakers will take note.
Japan's advance PMI numbers for August suggest that the economy dodged most of the bullets fired by the second wave of Covid-19.
We're nudging down our estimate of Q2 GDP growth, due today, by 0.3 percentage points to 1.8%, in the wake of yesterday's array of data.
Yesterday's detailed Q2 GDP report in Germany confirmed that economic output nosedived during lockdown, but also showed that the economy was resilient compared to the rest of the EZ.
The mortgage market is continuing to hold up surprisingly well, given the calamitous political backdrop.
Inflation in Brazil and Mexico is ending Q3 under control, allowing the central banks to keep easing monetary policy.
Britain's Covid-19 data have continued to improve, despite the partial reopening of the economy.
As the dust settles from Wednesday's budget proposal by the EU Commission--see here--economists and investors are left with a myriad of questions.
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 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.
Even the record-breaking slump in Markit's composite PMI probably understates the hit to economic activity from Covid-19 and the emergency measures to slow its spread.
The headline in yesterday's detailed Q1 German GDP data was old news, confirming that growth in the euro area's largest economy slowed at the start of the year.
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.
Some normality has returned in India, more than three weeks from the end of the nationwide lockdown and the start of "Unlock 1.0" on June 1.
The IFO continues to tell a story of a German economy on the ropes.
News that the Covid-19 virus has spread to more countries frayed investors' nerves further yesterday, with the FTSE 100 eventually residing 5.3% below its Friday close.
The German economy finished last year on the back foot.
On the face of it, the potential for a tangible boost to GDP growth from a revival in business investment after a no-deal Brexit has been averted appears modest.
Japan's CPI inflation has risen sharply in recent months, driven by non-core elements. The headline faces cross-currents in coming months, but should remain high, posing problems for BoJ policy.
Inflation pressures in Brazil are well under control, with the August mid-month reading falling more than expected, allowing the BCB to cut interest rates in the near term if needed.
The latest public finance figures make it virtually inevitable that the Chancellor will scrap the existing fiscal rules when he delivers his first Budget.
The MPC's meeting last week was notable not just for its glass half-full interpretation of the latest data, but also for its updated guidance on when it likely will begin to shrink its bloated balance sheet.
Yesterday's business confidence data in the EZ core were mixed.
Neither of the major economic reports due today will be published on schedule.
Nothing is done until it's done, and, in the case of Sino-U.S. trade talks, even if a deal is reached, the new normal is that tensions will be bubbling in the background.
After the disruption in repo markets last week, theories are flying as to what's going on.
Recent export performance has been poor, but the export orders index in the ISM manufacturing survey-- the most reliable short-term leading indicator--strongly suggests that it will be terrible in the fourth quarter.
In yesterday's Monitor, we laid out how conditions last year were conducive to Chinese deleveraging, and how the debt ratio fell for the first time since the financial crisis.
After falling close to 5% last week, the Ibovespa rallied about 3.5% yesterday. Investors reacted positively to President Bolsonaro's expression of support for his Economy Minister, Paulo Guedes, after market concerns about tensions between them.
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.
Unconventional indicators of economic activity suggest that the recovery from the Covid-19 shock is gathering momentum.
The resilience of the banking system will be in focus today when the results of this year's Bank of England stress test are published alongside its Financial Stability Report.
We expect to learn today that first quarter GDP fell at a 4.3% annualized rate, but the margin of error here is bigger than usual. Under normal circumstances we're disappointed if our quarterly GDP estimate is out by more than a few tenths, but this time around, the uncertainties are huge. Anywhere between -2% and -6% wouldn't be a big surprise.
The Prime Minister's refusal last week to reaffirm her party's 2015 election pledge not to raise income tax, National Insurance or VAT has fuelled speculation that taxes will rise if the Conservatives are re-elected on June 8. Admittedly, Mrs. May asserted that her party "believes in lower taxes", and the tax pledge s till might appear in the Conservatives' manifesto, which won't be published for a few weeks.
Japan's retail sales data--due out on Thursday-- have been badly affected by the October tax hike.
This week's detailed Q1 GDP data confirmed that the German economy is in dire straits, alongside its euro area peers, but there's a silver lining.
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.
The extent of shut downs within China is now reaching extreme levels, going far beyond services and threatening demand for commodities, as well as posing a severe risk to the nascent upturn in the tech cycle.
Concern over individual freedoms was the spark for Hong Kong's recent demonstrations and troubles, and protesters' demands continue to be political in nature.
Net foreign trade was a drag on GDP growth in the second quarter, subtracting 0.7 percentage points from the headline number.
The early damage in India from Covid-19 and the nationwide lockdown likely was significant enough to hammer the GDP report for the first quarter, due tomorrow.
Fourth quarter GDP growth is likely to be revised down today.
The BoK surprised markets and commentators by keeping rates unchanged at 1.25% yesterday, rather than cutting to 1.0%.
The Covid-19 outbreak has rattled equity markets, but has not had a major bearing on DM currencies, yet.
Mexican economic data was surprisingly benign last week.
Retail sales in Mexico fell in Q4, but we think households' spending will continue to contribute to GDP growth in the first quarter, at the margin.
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.
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.
Friday's detailed GDP data in Germany confirm that the euro area's largest economy performed strongly in the second quarter.
China's finance minister Liu Kun provided his report on China's current fiscal situation to the legislature last Friday.
This week's data will offer the first clear hard evidence of the Covid-19 shock to the EZ economy. Thursday's calendar is the main event, with advance Q1 GDP data, March EZ unemployment numbers, and the April CPI report.
China's industrial profits tanked in January/ February, falling 14.0% year-to-date year-over-year, after a 1.9% drop year-over-year in December.
Mexican policymakers voted to leave the main rate on hold at 8.25% yesterday, as inflation remains high--though falling--and the economy is stuttering.
Whatever number the BEA publishes this morning for first quarter GDP growth -- we expect zero -- you probably should add about one percentage point to correct for the persistent seasonal adjustment problem which has plagued the data for many years. Reported first quarter growth has been weaker than the average for the preceding three quarters in 21 of the 31 years since 1985 -- and in eight of the past 10 years.
Data released yesterday in Mexico highlighted the volatility in international trade resulting from the pandemic.
The coronavirus pandemic looks set to spread rapidly throughout LatAm.
China's industrial profits data for December showed continued weakness in the sector, with no clear signs that a turnaround is in the offing.
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.
If we're right with our forecast that real consumers' spending rose by just 0.1% month-to-month in February -- enough only to reverse January's decline -- then it would be reasonable to expect consumption across the first quarter as a whole to climb at a mere 1.2% annualized rate.
Sterling found its feet yesterday, rising to $1.33 from Monday's 31-year low of 1.32, but it would be the height of folly to rule out a further short-term decline. By the end of this year, however, we think that sterling likely will have appreciated to around $1.38.
Yesterday's IFO survey in Germany sent a marginally more downbeat message than the strong PMIs last week. The IFO business climate index fell to 115.2 in September, from 115.9 in August, its second straight monthly dip.
Brazilian financial assets lately appear to be responding only to developments in the presidential election race and external jitters.
Data released on Friday in Mexico strengthened the case for further interest rate cuts in Q3. The monthly IGAE economic indicator for April, a proxy for GDP, plunged 19.9% year-over-year, a record drop since the series started in 1993, and down from -2.3% in March.
Banxico yesterday left its policy rate unchanged at 3%, the highest level in a decade.
In the absence of reliable advance indicators, forecasting the monthly movements in the trade deficit is difficult.
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.
Last week's second estimate of GDP reaffirmed that quarter-on-quarter growth declined to 0.1% in Q1--the lowest rate since Q4 2012--from 0.4% in Q4.
The 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
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.
The past year has been difficult for Asian economies, with trade wars, natural disasters, and misguided policies, to name a few, putting a dampener on growth.
It's impossible to overstate the potential importance of last week's announcement by N.Y. Governor Cuomo that antibody testing suggests about one in five people in New York City have already been infected with Covid-19.
The stagnation in business investment since 2016 has been key to the slowdown in the overall economy since the E.U. referendum.
Industrial profits in China continued to strengthen in June, rising by 11.5% year-over-year, marking an acceleration from 6.0% in the previous month.
Data released on Friday in Brazil and recent political events helped to open the door further to a final rate cut in August. The IPCA-15--which previews the full CPI-- rose 0.3% month-to-month in July, well below market expectations, 0.5%.
The strengthening recovery in the euro area is proving to be a poisoned chalice for some of the region's most vulnerable banks. Earlier this month-- see our Monitor of June 8--Spain's Banco Populare was acquired by Banco Santander, and the bank's equity and junior credit holders were bailed-in as part of the deal.
February's retail sales figures highlighted that consumers' spending was flagging even before the Covid-19 outbreak.
China's Q2 real GDP growth officially slowed to 6.2% year-over-year, from 6.4% in Q1, which already matched the trough in the financial crisis.
The EZ economy's liquidity gears were well-oiled coming into the crisis.
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.
China's total debt stock is high for a country at its stage of development, relative to GDP, but it is sustainable for country with excess savings. China was never going to be a typical EM, where external debtors can trigger a crisis by demanding payment.
Yesterday's State Council meeting significantly expanded support to the economy, through a number of channels.
Friday's money supply data in the euro area show that liquidity support for the economy remained firm mid-way through Q2. Headline M3 rose by 8.9% year-over-year in May, accelerating from a revised 8.2% increase in April, and extending its ascent from around 5% before the Covid-19 shock.
Money supply dynamics in the Eurozone were broadly stable last month. M3 rose 5.0% year-over-year in May, accelerating slightly from a 4.9% increase in April, in line with the trend since the middle of 2015.
Brazil's inflation rate remained well under control over the first half of February. We see no threats in the near term, indicating that more stimulus will be forthcoming from the BCB.
Brazil's external accounts are well under control, despite the wider deficit in January, mainly driven by seasonal deterioration on the trade account.
Hong Kong delivered a resounding landslide victory to pro-Democracy parties in district council elections over the weekend.
The big talking point over the weekend was the report from Germany's Robert Koch Institute, RKI, that the Covid-19 reproductive rate jumped to 2.88 at the end of last week, driving the seven-day average up to 2.07.
Yesterday's Japanese activity data were grim.
Brazil's inflation rate remained well under control over the first half of February.
November's labour market report provided timely reassurance, after last week's downside data surprises, that the economy did not grind to a halt at the end of last year.
On the face of it, the latest public finance data suggest that the economy has lost momentum.
Economic activity is rebounding in LatAm, but the recovery will be slow and uneven.
Colombia's central bank, BanRep, increased the monetary policy rate by 25bp to 6.25% on Friday, as expected, and also announced budget cuts and a new FX strategy to try to protect the COP. These measures are similar to those taken by Banxico on Wednesday. The press release, and the tone of the conference after the decision, suggest that more hikes are coming.
Gilt yields slid to record lows at many maturities in mid-February, and while equity prices have since rebounded, gilt yields have remained anchored at rock-bottom levels. But with political risks rising and deficit reduction still very slow, gilt yields look primed to spring back soon.
The Argentinian economic recovery continues, from very depressed levels, and the rebound is confronting many setbacks.
Tomorrow's Q1 GDP report for Korea has a wider spread of forecasts than usual, reflecting Covid-19's uneven hit to the economy.
Sterling's renewed depreciation to just €1.10--just below last year's nadir--has fuelled speculation that it could reach parity against the euro within the next year.
The Chancellor can go on his Christmas vacation content that the public finances have weathered the economy's slowdown relatively well this year.
Economic activity in Chile in the first half of the year is now a write-off, due to Covid-19. The country is in a deep recession, and the impact of lockdowns on labour markets and businesses will cause long-lasting economic damage, which will hold back the recovery.
We advise strongly against concluding from the above-consensus rebound in retail sales in May that the economy is embarking on a healthy, V-shaped recovery, from Covid-19.
The public finances are in better shape than October's figures suggest in isolation. Public sector net borrowing excluding public sector banks--PSNB ex.--leapt to £11.2B, from £8.9B a year earlier.
We're placing less weight than usual on conventional business surveys at the moment, as they are ill-suited to charting the economy's turnaround from the Covid-19 slump.
Most LatAm currencies have been under pressure recently, with the Brazilian real and the Chilean peso breaking all-time lows versus the USD in recent weeks.
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.
October's surprise jump in public borrowing is not a material setback for the Chancellor, who will stick to his new Budget plans for modest fiscal stimulus next year.
The coronavirus pandemic is wreaking havoc in Brazil.
China's growth can be decomposed into the structural story and the mini-cycle, which is policy- driven.
The newest cluster of Covid-19 in China has reignited concerns over a second wave. On June 11, Beijing confirmed its first infection in nearly 60 days, originating reportedly from Xinfadi market, a wholesaler which supplies about 80% of the capital's produce.
Last week's enormous €1.3T take-up in the ECB's first post-virus TLTRO auction was hardly a blip for financial markets, consistent with the reactions to previous auctions.
Financial markets 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.
Another deadline has come and gone in the negotiations between Greece and its creditors. This week's meeting between EU finance ministers revealed that the creditors have not seen enough commitments unlock the €7B Greece needs to repay in July. Mr. Tsipras has agreed to energy sector privatizations, and to increase the threshold for income tax exemption.
Gilt yields have shot up over the last couple of months, despite ongoing bond purchases authorised by the MPC in August. Ten-year yields closed last week at 1.47%, in line with the average in the first half of 2016.
Political uncertainty in the Eurozone is the story that won't die. Coalition talks in Germany collapsed yesterday when the centre-right FDP walked out of the negotiations.
Economists refer to two different types of forward rate guidance by central banks: Delphic and Odyssean. The former describes a "normal" situation, in which the central bank follows a transparent rate-setting rule allowing markets to forecast what it will do, based on the flow of economic data.
With a no-deal Brexit still a potential outcome and just over five weeks to go until the U.K. is scheduled to leave, it's about time we put some numbers on how high inflation could get in this worst-case scenario.
Data released on Friday confirmed that Colombian activity lost momentum in Q4, following an impressive performance in late Q2 and Q3. Retail sales rose 4.4% in November, down from 7.4% in October and 8.3% in Q3.
As we write, markets see a 70% chance that the MPC will cut Bank Rate on January 30.
By any yardstick, progress in reducing public sector borrowing so far this fiscal year has been poor. While the borrowing trend should improve in the final four months of this year--including December's figures, published Friday--the Chancellor has only a slim chance of meeting the forecasts set out in the Autumn Statement.
Once again, Chinese January data released so far suggest that the Phase One trade deal was the dominant factor dictating activity for the first two- thirds of the month, with the virus becoming a real consideration only in the last third.
Sterling has recovered virtually all of the ground it lost against the U.S. dollar in the spring, rising to $1.31 in recent days, from just $1.26 a month ago and a low of $1.15 in March.
It was widely assumed that the MPC simply would regurgitate its key messages from August in the minutes of September's meeting, released yesterday alongside its unanimous no-change policy decision.
In Friday's Monitor, we warned that Moody's would soon cut Mexico's credit rating; in a matter of hours, it was a done deal.
We have argued for some time that the plunge in gasoline prices will constrain core inflation over the course of this year, by reducing production and distribution costs for a broad array of goods.
The Andean economies haven't been immune to the turmoil roiling the global economy in the past few weeks.
The coronavirus ordeal continues in LatAm as a whole.
Abenomics has had its successes in changing the structure of Japan. Notably, large numbers of women have gone back to work and corporations have started paying dividends. These are by no means small victories. But overall, the macroeconomy is essentially the same as when Shinzo Abe became prime minister.
Yesterday's final CPI report for April confirmed that the Eurozone is edging towards deflation.
CPI inflation took a big step in April towards the near-zero rate we anticipate by the summer.
The year so far in EZ equities has been just as odd as in the global market as a whole.
Borrowing by local authorities from the Public Works Loan Board, used to finance capital projects-- and arguably dubious commercial property acquisitions--has surged this year.
Core machine orders in Japan held up surprisingly well in March, slipping by just 0.4% month-on-month, erasing only part of the 2.3% increase in February.
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.
It is looking increasingly likely that core inflation, which already has fallen to 2.1% in May, from a peak of 2.7% last year, will slip below 2% next year.
Last week's ECB meeting--see here--made it clear that the central bank does not intend to jump the gun on rate hikes next year, even as QE is scheduled to end in Q4 2018.
The Brazilian Central Bank's policy board, COPOM, left the Selic rate at 6.50% on Wednesday, as widely expected.
Premier Li Keqiang rounded out the National People's Congress with his press conference yesterday.
Sterling briefly touched $1.30 yesterday, in response to signs that a very small majority in the Commons stands ready to vote for an unamended version of the Withdrawal Agreement Bill--WAB-- on Tuesday.
Our forecast for LatAm envisions a gradual pickup in growth, following a terrible first half.
The public finances are in better health than appeared to be the case a few months ago.
Yesterday's detailed German GDP report raised more questions than it answered. The headline confirmed that growth accelerated to 0.4% quarteron- quarter in Q4, from 0.1% in Q3, leaving the year-over- year rate unchanged at 1.7%.
The main measure of public borrowing--PSNB excluding public sector banks--came in at £2.6B in December, well below the £5.1B in December 2016 and lower than in any other December since 2000.
On the face of it, the trend in public borrowing deteriorated sharply late last year. In the three months to December, borrowing on the main "PSNB ex ." measure, which excludes banks owned by the public sector, was a trivial £0.3B, or 1.6%, lower than in the same months of 2017.
Korea's GDP report for the second quarter was a huge let-down.
While we were out last week, market nervousness over the Covid-19 outbreak intensified, though most key indicators of the spread of the infection continued to improve.
The flash readings of the Markit/CIPS surveys in February provide reassurance that GDP is on track to rebound in Q1, despite disruption to the global economy caused by the COVID-19 outbreak and bad weather in the U.K. this month.
One way or another, the preliminary estimate of Q1 GDP--due Friday--will have a big market impact, following Mark Carney's warning last week that a May rate hike is not a done deal.
We are currently operating with a very simply rule-of- thumb for interpreting the PMIs.
While we were on holiday, the data confirmed that economies have been badly hit by the pandemic in Q2, and that the upturn will be gradual.
Yesterday's advance EZ PMI data were virtually unchanged from previous months, yet again. The composite PMI rose trivially to 53.3 in August from 53.2 in July; this means that the index has been almost stable since February. The headline was lifted by a small increase in services, which offset a slight decline in manufacturing.
U.K. equities are falling ever further out of favour.
If Congress passes another Covid relief bill early next month, as we fully expect, it will have to be financed quickly via increased debt issuance.
The Chancellor's Autumn Statement dashed hopes that the fiscal consolidation will be paused while the economy struggles to adjust to the implications of Brexit. Admittedly, Mr. Hammond has another opportunity in the Spring Budget to reduce next year's fiscal tightening.
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.
The PM now is at a fork in the road and will have to decide in the coming days whether to risk all and seek a general election, or restart the process of trying to get the Withdrawal Agreement Bill--WAB--through parliament.
India's Finance Minister Nirmala Sitharaman finally brought out the big guns on September 20, announcing significant cuts to corporate tax rates.
India's National Democratic Alliance, led by Prime Minister Narendra Modi's Bharatiya Janata Party,
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.
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.
Friday's advance PMI data for the Eurozone added further evidence of stabilisation in the economy after the sharp slowdown in GDP growth since the beginning of last year.
Both business surveys and unconventional activity indicators suggest that the recovery from the Covid-19 shock has sped up in June, after a shaky start in May.
Mexican policymakers likely will stick to the script tomorrow and vote by a majority to cut the main rate by 50bp to 5.00%, which would be its lowest level since late 2016.
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 sharp decline in Mexico's leading indicators highlights the dramatic scale of the economic and financial hit from the coronavirus. High frequency data and the PMIs are the first numbers to capture the lockdown, and they signal that the services activity-- the bulk of Mexico's GDP--dropped sharply.
We expect the Mexican economy to continue growing close to 2% year-over-year in 2019, driven mainly by consumption, but constrained by weak investment, due to prolonged uncertainty related to trade.
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.
Back on May 14, we argued--see here--that the stars were aligned to generate very strong second quarter GDP growth, perhaps even reaching 5%.
The spectre of a general election relentlessly will haunt the new Prime Minister--due to be announced as Tory party leader today before moving into Downing Street tomorrow--but our base case remains that a poll won't happen this year.
Recent data in Colombia have confirmed that virus containment measures caused much bigger declines in activity in early Q2 than initially expected.
Korea's preliminary Q4 GDP report was stronger than nearly all forecasters, including ourselves, expected.
Brazil's central bank is finally decisively facing its demon, persistently high inflation. The eight-member policy board, known as Copom, decided unanimously on Wednesday to increase the Selic rate by 50bp to 12.25%, the highest level in more than three years, in line with the consensus.
A Financial Times report over the weekend--see here--added to the speculation that the ECB is not going to lift the amount of asset purchases pledged under its Pandemic Emergency Purchase Program--PEPP-- anytime soon.
Yesterday's economic data provided the first glimpse of the crash in EZ sentiment at the start of Q2, ahead of today's more substantial barrage of numbers, including French INSEE data, GfK confidence numbers in Germany and the advance PMIs.
The economic data in Brazil were poor while we were away.
GDP growth in Korea surprised to the upside in the fourth quarter, with the economy expanding by 1.2% quarter-on-quarter, three times as fast as in Q3, and the biggest increase in nine quarters.
Retail sales values in Japan plunged by 14.4% month-on-month in October, reversing September's 7.2% spike twice over.
Chancellor Sunak looks set to announce more fiscal stimulus next month to reinforce the economic recovery, despite recent record levels of public borrowing.
Two major themes emerged from the Chinese Party Congress last week, namely, further opening of the financial sector to foreigners, and the threat of a Minsky moment.
At the halfway mark of the fiscal year, public borrowing has been significantly lower than the OBR forecast in the March Budget.
Sterling rallied to $1.25 last week--its highest level against the dollar since Boris Johnson became PM in mid-July--amid growing speculation that a Brexit deal still was possible in the next couple of weeks, enabling the U.K. to leave the E.U. on October 31.
Yesterday's PMI data in the euro area were a horror show. The composite EZ index cratered to 13.5 in April, from 29.7 in March, dragged down by a collapse in the services index to 11.7, from 26.4 last month.
The prospect of fiscal stimulus in the euro area-- ostensibly to "help" the ECB reach its inflation target-- remains a hot topic for investors and economists.
Today's EZ calendar is a busy one.
The Covid-19 shock to the real economy in China, and now the world, is colossal. Asia is leading the downturn, both because the outbreak started in China, but also because of its place in the supply chain.
The rate of growth of new coronavirus infections across Europe slowed yesterday, in some cases quite markedly. We can quibble about the reliability of the data in individual countries, given variations in testing regimes, but the picture is strikingly uniform.
Economists' forecasts are changing almost as quickly as market prices these days, and not for the better.
The drop in the flash composite PMI in March will be one for the record books, unfortunately. We look for an unprecedented drop to 43.0, from 53.3 in February, which would undershoot the 45.0 consensus and signal clearly that a deep recession is underway.
The 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.
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.
Many analysts were alarmed earlier this week by news from across the pond that the U.S. treasury is planning to break the bank in the fight against Covid-19.
China's National People's Congress yesterday laid out its main goals for this year, on the first day of its annual meeting.
Emerging evidence suggests that the economy has passed the period of peak Covid-19 pain.
Judging by interactions with readers in the past few weeks, fiscal policy is one of the most important topics for EZ investors as we move into the final stretch of the year.
Macroeconomic and financial conditions in Venezuela are deteriorating at an accelerating pace.
The results of Sunday's parliamentary elections in Italy carry two key messages.
Chancellor Sunak faces a tough first gig on Wednesday, when he delivers the long-awaited Budget.
The private sector in China has finally joined the party, boosting the durability of the economic recovery.
In today's Monitor, we'll let the economy be, and focus instead on what are fast becoming the two defining political issues for the EU and its new Commission, namely migration and climate change.
The rapid escalation of Covid-19 cases in Korea in recent weeks has broadened the likely damage to the economy this quarter.
Data released on Wednesday, along with the BCB's press release on Tuesday, supported our longstanding forecast of further rate cuts in Brazil in the very near term.
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.
We've written in previous Monitors about the stabilisation of China's debt ratio. In this Monitor we look at whether this stabilisation is cyclical or a sign that China really has managed to change the structure of its economy to be less reliant on debt.
As we go to press, equities in the Eurozone are having a bad day following the collapse in U.S. and Asian equities earlier.
Our hope for a year-end jump in German factory orders was laughably optimistic.
Our chief economist, Ian Shepherdson, set out our initial thoughts on the rising tensions between U.S. and Iran here.
This week's uproar over the ECB's purchases of Italian debt in May--or lack thereof--shows that monetary policy in the euro is never far removed from the political sphere.
We've been hearing a good deal about the slowdown in the rate of growth of consumer credit in recent months, and with the April data due for release today, it makes sense now to reiterate our view that the recent numbers are no cause for alarm.
Brexit talks have hit an impasse over the Irish border. The Republic of Ireland will veto any deal that creates a hard border with Northern Ireland. This means that Northern Ireland must remain in the EU's customs union.
Demand in German manufacturing rebounded powerfully at the end of the second quarter, accelerating from an initially modest rebound when lockdowns were lifted.
We're nudging up our forecast for today's August payroll number to 180K, in the wake of the ADP report.
Sterling recovered to $1.23 yesterday, its highest level since late July, in response to the sharp decline in the risk of a no -deal Brexit at the end of October, triggered by MPs' actions.
There are only two stories that matter for EZ investors at the moment, and neither of them is related to the economic data.
Markets were jolted yesterday by news that the U.S. Fed is mulling ending, or at least slowing, the reinvestment of Treasuries and mortgage-backed securities later this year. Such a move would reduce liquidity in global markets that has underpinned soaring equity prices in recent years.
Governor Bailey signalled a potential shift in the Bank of England's approach to withdrawing monetary stimulus--whenever the time comes--last month in an article for Bloomberg Opinion.
November's monetary indicators provide an upbeat rebuttal to the swathe of downbeat business surveys. Year-over-year growth in the MPC's preferred measure of broad money--M4 excluding intermediate other financial corporations--rose to a 19-month high of 4.0% in November, from 3.5% in October.
Services will bear the brunt of the Covid-19 shock in the euro area, but manufacturing is not far behind.
The recent March economic activity reports for Chile have been terrible, showing the first signs of the Covid-19 shock, and worse is to come.
The surge in the broad money supply in March, as the U.K.'s lockdown began, suggests that businesses are in relatively good shape to survive a multi-month period of greatly depressed demand.
China is facing a nasty mix of spiking CPI inflation and ongoing PPI deflation.
Support in opinion polls for both the Conservatives and Labour has been increasing steadily.
Japan's monetary base growth slowed to just 4.6% year-over-year in February, from 4.7% in January, well below the 17% rate needed to keep the base expanding at a pace consistent with the BoJ's JGB quantity target.
Global economic conditions have been improving for LatAm over recent quarters.
The Fed's unscheduled 50bp cut on Tuesday opens up some space for Asian central banks to follow suit.
It will take a while for the economic data in the euro area fully to reflect the Covid-19 shock, but the incoming numbers paint an increasingly clear picture of an improving economy going into the outbreak.
Speculation mounted yesterday that the MPC will follow the U.S. Fed and cut interest rates before its next meeting on March 26.
China's National People's Congress is set to convene its annual meeting next week.
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.
Recession fears were fanned yesterday by the renewed deterioration of the Markit/CIPS services survey.
Argentina's economy was improving late last year, albeit slowing at the margin, according to the latest published indicators. GDP data confirmed that the revival continued during most of Q4, with the economy growing 0.4% month-to-month in November.
The Nikkei services PMI for Japan partly rebounded in January, to 51.6, after it fell sharply to 51.0 in December.
It's hard to overstate the geopolitical importance of Friday's assassination of Qassim Soleimani, architect of Iran's external military activity for more than 20 years and perhaps the most powerful man in the country, after the Supreme Leader.
The economic calendar in Mexico was relatively quiet over Christmas, and broadly conformed to our expectations of poor economic activity in Q4.
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.
Yesterday's detailed Q3 growth data in the Eurozone offered no surprises in terms of the headline.
The U.K. services sector has vanished overnight, following the introduction of tough restrictions on everyday life to stem the spread of Covid-19.
Friday's final PMI data for March were even more terrifying than the advance numbers. The composite index in the euro area collapsed to 29.7, from 51.6 in February, lower than the consensus 31.4. A downward revision was coming.
The rise in the Markit/CIPS services PMI to a nine-month high of 51.4 in July, from 50.2 in June, isn't a game-changer, though it does provide some reassurance that the economy isn't on a downward spiral.
A range of indicators show that the pace of the economic recovery shifted up a gear in July, when all shops were open for the entire month, and most consumer services providers finally were permitted to reopen.
The Monetary Policy Committee of the Reserve Bank of India voted yesterday to cut the benchmark repo rate by a further 25 basis points, to 5.75%, a nine-year low.
One bad month proves nothing, but our first chart shows that October's auto sales numbers were awful, dropping unexpectedly to a six-month low.
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.
Data released on Friday showed that November inflation was in line with, or below, expectations in Brazil, Colombia and Chile.
If you had predicted at the start of the year that the ECB balance sheet would leap by just over €1.5T in H1, you would have been laughed out of the room.
China's GDP report for the second quarter is due a week from today, and the prevailing wisdom is that the bounce-back was strong enough for headline growth to return to the black.
The Chancellor's Summer Statement contained a targeted package of measures aiming to sustain employment and support the ailing hospitality sector. In total, these measures could inject up to £30B into the economy, depending on take-up by households and firms.
Financial markets have gone into another tailspin over the last fortnight, triggered by rising concern about the possibility of a no-deal Brexit and President Trump's threat of further tariffs on Chinese goods.
The tiny headline consensus beat in the August payrolls numbers is nothing to get excited about, and neither is the unexpected drop in the headline unemployment rate.
Headline inflation in Brazil remained low in October, and even breached the lower bound of the BCB's target range.
The RMB has been on a tear, as expectations for a "Phase One" trade deal have firmed.
CPI data in Colombia released on Saturday confirmed that inflation is well under control, due to plunging domestic demand on the back of Covid, and despite the lagged effect of the COP depreciation earlier this year.
Yesterday's German manufacturing data were a damp squib. Industrial production, including construction, rose by 1.2% month-to-month in July, lifting the year- over-year rate by 1.4pp, to -10.0%, undershooting the consensus and our own expectation of a rise of 5%.
April's GDP report probably will be the worst any of us will see in our lifetime.
Resistance is futile.
After three years, we think the level of the CPI would be about 2% higher if the U.K. falls back on WTO terms for trade with the E .U. than if a deep Free Trade Agreement is signed.
Friday's detailed Q2 growth data in the EZ broadly confirmed the advance numbers.
The escalation of the second wave of Covid-19 in Japan in July did little to stop the recovery in labour cash earnings growth.
Before we cover yesterday's economic news, we regret to inform our readers that the Brexit negotiations remain bizarre as ever.
April's RICS Residential Market survey confirmed that housing market activity collapsed to negligible levels during the lockdown, which prohibited property viewings, depleted the work forces of lenders and prompted many people to defer big financial decisions.
After last week's drama, the pace of political developments should slow down this week.
China's official, unadjusted trade data for October grabbed the headlines, as they look great at first glance.
China's trade surplus jumped to a record high in May, defying expectations for a fall by spiking to $69.2B.
A third wave of Covid-19 outbreaks is now underway. The first, in China, is now under control, and the rate of increase of cases in South Korea has dropped sharply. The other second wave countries, Italy and Iran, are still struggling.
Leave it to an economist to tell contradictory stories; German manufacturing orders, at the start of the year, rose at their fastest pace since 2014, but it doesn't mean anything.
The Fed's 50bp rate cut last week, aiming to shield the U.S. economy against Covid-19, has opened the door for some central banks in LatAm to emulate the move.
In our Friday Monitor, we came to the conclusion that prescriptions arising from Modern Money Theory have been designed primarily with the U.S. in mind.
The 10.3% year-over-year decline in private new car registrations in April likely is not a sign that the trend in either vehic le sales or consumers' overall spending is taking a turn f or the worse.
The point when businesses and households can breathe a sigh of relief about Brexit looks set to be delayed again this week.
China's authorities recognised, around the middle of this year, that activity was slowing and that monetary conditions had become overly tight.
We hadn't expected the scorching 3.6% year-over- year growth rate in Japan's June average wages
The verdict is in.
Two fiscal deadlines are on the near-horizon.
Data on Friday showed that manufacturing in Germany improved further at the start of Q3. Factory orders increased by 2.8% month-to-month in July, lifting the year-over-year rate to -7.3% from a revised -10.6% in June.
Data released during our summer break have strengthened the case for expecting the economic recovery to decelerate sharply in the autumn, well before GDP has returned to pre-Covid levels.
China's unadjusted current account surplus widened to $16.0B in the preliminary report for Q3, from $5.3B in Q2.
Speculation that another general election is imminent is rarely out of the news. At present, betting markets see about a 35% chance of another election in 2019, broadly the same chance as one in 2022, when it is currently scheduled to be held.
The Monetary Policy Committee of the Reserve Bank of India voted unanimously on Friday to cut interest rates at a fifth straight meeting, as expected.
Brazilian industrial production data released last week were upbeat. Output rose 8.0% month-to-month in July, much better than the consensus forecast for a 5.9% increase.
The Monetary Policy Committee of the Reserve Bank of India shocked most forecasters yesterday, including us, with a 4-to-2 majority voting in favour of a 25-basis point rate cut.
Colombia was the fastest growing LatAm economy in 2019, due mostly to strong domestic demand, offsetting a sharp fall in key exports.
China's FX reserves fell to $3,134B in February, from $3,161B in January, after a year of gains.
Mr. Draghi and his colleagues erred on the side of maximum dovishness yesterday.
India's prime minister, Narendra Modi, yesterday held his last cabinet meeting before the general election.
Our below-consensus 125K forecast for today's February payroll number is predicated on two ideas.
The build-up to today's ECB meeting has drowned in the focus on Italy's new political situation and the rising risk of a global trade war.
China's post-Covid-19 economic recovery is becoming increasingly undeniable. But the more relevant questions now are the speed of its revival, and whether there are still any low-hanging fruit to pick.
Speculation has mounted in the press that the Chancellor will raise the threshold for Stamp Duty Land Tax temporarily to £500K, from £125K, in today's Summer Statement.
The rate of increase of Covid-19 new cases in the Andes is still rapid, but it seems to have peaked in recent days in most countries.
China's FX reserves data pointed to an about-turn in net capital flows in May, with capital leaving the country again after two months of net inflows, and a current account deficit in Q1.
Friday's manufacturing data in Germany weren't pretty, but fortunately, the report is old news. Factory orders crashed by 25.8% month-to-month in April, extending the slide from a revised 15.4% fall in March.
Our judgement that April was the low point for economic activity was challenged yesterday by the publication of results of the fifth wave of the Business Impact of COVID-19 Survey, conducted by the ONS between May 4 and 17.
China's official non-manufacturing PMI rose further in May, hitting a four-month high of 53.6.
It's pretty easy to spin a story that the recent core PCE numbers represent a sharp and alarming turn south.
The deterioration of global risk appetite and, in particular, domestic politics have put the Brazilian real under severe pressure in recent weeks.
The recent spate of manufacturing business survey indices from Korea show that sentiment is deteriorating in the wake of its trade spat with Japan and the re-intensification of U.S.-China tensions.
Japan is one of the countries most exposed to economic damage from the coronavirus.
Yesterday's FOMC , announcing a unanimous vote for no change in the funds rate, is almost identical to December's.
The Fed's statement yesterday was unsurprising, acknowledging a "sharp" decline in economic activity and a significant tightening of financial conditions, which has "impaired the flow of credit to U.S. households and businesses."
Google's Covid-19 Community Mobility Reports have come raging into fashion in recent weeks, providing a glimpse of the damage done by lockdowns across the world.
Japan's unemployment rate has been remarkably steady over the past few months.
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.
China's PMIs show no sign of a recovery yet, but the authorities are sticking to the playbook; they've done the bulk of the stimulus and are waiting for the effects to kick in, but are recognising that they need to make some adjustments.
China's official PMIs were little changed in August, with the manufacturing gauge up trivially to 51.3, from 51.2 in July and the non-manufacturing gauge up to 54.2, from 54.0.
Chancellor Javid told the Financial Times earlier this month that he wants to lift the rate of GDP growth to between 2.7% and 2.8%, the average rate in the 50 years following the Second World War.
The recovery of consumer confidence in Korea remains undeterred by the lingering risk of a second wave.
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.
Further political wrangling yesterday distracted from data showing that the risk of no -deal Brexit is placing increasing strain on the economy.
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.
The key message of the minutes of the Copom meeting, released yesterday, is that policymakers remain worried about the inflation outlook and, in particular, about uncertainties surrounding fiscal tightening. But the Committee reinforced the signal that the Selic rate is likely to remain at the current level, 14.25%, for a "sufficiently prolonged period". The economy is in a severe recession and the rebalancing process has been longer and more painful than the Central Bank anticipated.
Yesterday's first estimate of full-year 2019 GDP in Mexico confirmed that growth was extremely poor, due to domestic and external shocks.
The economic downturn and the Chancellor's unprecedented fiscal measures mean that public borrowing likely will be about four times higher, in the forthcoming fiscal year, than anticipated in the Budget just over two weeks ago.
Industrial profits in China collapsed by 38.3% year- over-year in the first two months of 2020, making December's 6.3% fall look like a minor blip.
June's money and credit data show that firms have accumulated a large cash pile since the start of the Covid-19 outbreak, despite sales falling through the floor.
Data released last week confirm that Argentina's economy remains a mess.
May's money and credit data show that Covid-19 has not pushed many businesses immediately over the edge.
The massive hit from low oil prices, Covid-19 and President AMLO's willingness to call snap referendums on projects already under construction is putting pressure on Mexico's sovereign credit fundamentals and ratings.
Modern Money Theory has come up at two consecutive BoJ press conferences.
Inflation pressures in the Eurozone are building rapidly, setting up an "interesting" ECB meeting next week. Yesterday's advance CPI report showed that inflation edged up further in February to 2.0%, from 1.8% in January. The headline rate is now in line with the ECB's target, and up sharply from the average of 0.2% last year.
It is fair to say that the economic debate on fiscal policy has shifted dramatically in the last 12-to-18 months.
China's economic targets are AWOL this year, thanks to Covid-19 disruptions to the legislative calendar... and because policymakers seem unsure of what targets to set in such uncertain times.
We see no reason to think that the recent volatility in payrolls--the 311K leap in January, followed by the 20K February gain--will continue.
The broadly flat trend in the near-real-time indicators of economic activity shows few signs of ending.
Yesterday's final manufacturing PMIs confirmed that the headline index in the euro area rebounded further last month.
Market-based measures of uncertainty and volatility remain elevated, but if we look beyond the headlines, two overall assumptions still inform forecasters' analysis of the economy and Covid-19.
LatAm financial and FX markets have behaved relatively well in recent sessions, thanks to the array of monetary and fiscal measures taken to counter the severe risk-off environment.
BoJ Governor Kuroda has piqued interest with his recent comments on the "reversal rate", the rate at which easy monetary policy becomes counterproductive, due to the negative impact on financial intermediation.
We aren't convinced by the idea that consumers' confidence will be depressed as a direct result of the rollover in most of the regular surveys of business sentiment and activity.
Recent polls suggest that Jair Bolsonaro has comfortably beaten Fernando Haddad, to become Brazil's president.
Later today, the Chancellor likely will take the first step towards abandoning plans for further fiscal tightening. In
China's manufacturing PMIs put in a better performance in November, with the official gauge ticking up to 50.2 in November, from 49.3 in October, and the Caixin measure little changed, at 51.8, up from 51.7.
The number of coronavirus cases continues to increase, but we're expecting to see signs that the number of new cases is peaking within the next two to three weeks.
April's money and credit figures show that relatively few firms suffered from a lack of liquidity at the beginning of the Covid-19 crisis.
Chile's near-term economic outlook is still negative after a sharp resurgence of coronavirus cases.
French finance minister Bruno Le Maire had bad news for his compatriots yesterday.
Last week we made a big call and further downgraded our China GDP forecasts for Q1; daily data and survey evidence suggested that our initial take, though grim, had not been grim enough.
President Trump's volatile diplomatic style is one of the biggest risks facing the Mexican economy in the near term, as we have discussed in previous Monitors.
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.
CPI inflation looks set to remain below the 2% target this year, driven by sterling's recent appreciation and lower energy prices.
The substantial gap between the key manufacturing surveys for the U.S. and China, relative to their long-term relationship, likely narrowed a bit in December.
The startling jump in supplier delivery times in the June ISM manufacturing survey, to a 14-year high, was due--according to the ISM press release--to disruptions to steel and aluminum supplies, transportation problems and "supplier labor issues".
Don't write off the outlook for the construction sector purely on the basis of June's grim Markit/CIPS survey.
It's a myth that the 10-ye ar decline in the unemployment rate has not driven up the pace of wage growth.
Yesterday's first estimate of Q2 GDP in Mexico confirmed that the economy has been under severe stress in recent months.
We sympathise if readers are sceptical of our opening gambit in this Monitor.
Two approaches to forecasting payrolls have been the most useful in recent months, and both point to August payrolls rising by less than the 1,350K consensus; our forecast is 750K.
So that happened.
Data released this week in Brazil underscored that the Covid-related shock on the industrial sector is finally easing, as the economy gradually reopens.
The economy will endure a sluggish recovery from Covid-19 this year, even if a second wave of the virus is avoided, partly because monetary stimulus is not filtering through powerfully to households.
Yesterday's final PMI data for August confirmed that the composite index in the EZ fell to 51.9, from 54.9 in July, slightly higher than the first estimate, 51.6.
We continue to distrust the suggestion from the Markit/CIPS PMIs that the economy is in recession.
We were surprised to see Japan's services PMI edging up to 51.9 in June, from 51.7 in May. We attributed apparent service sector resilience in April and May to the abnormally long holiday this year.
India's consensus-beating GDP report for the first quarter wasn't much to write home about.
We are revising down our forecasts for quarteron-quarter GDP growth in Q1 and Q2 to 0.3% and 0.2%, respectively, from 0.4% in both quarters previously, to account for the likely impact of the coronavirus outbreak.
India's GDP report for the fourth quarter surprised to the upside, with the economy growing by 4.7% year-over-year, against the Bloomberg median forecast of 4.5%.
Yesterday's data provided further evidence of the rising costs of supporting the EZ economy through the Covid-19 shock.
The advance indicators of July payrolls are wildly contradictory, so you should be prepared for anything from a consensus-busting jump to a renewed outright drop, in both Friday's official numbers and today's ADP report.
The Conservatives' opinion poll lead continued to decline over the last week, suggesting that a landslide victory on Thursday no longer is likely. Indeed, the Tories' average lead over Labour in the 10 most recent opinion polls has fallen to just 6%, down from a peak of nearly 20% a month ago.
Japan's monetary base growth showed further signs of stabilisation in May, at 8.1% year-over-year, edging up trivially from 7.8% in April.
If you were looking just at investor sentiment in the Eurozone, you would conclude that the economy is in recession.
Wednesday's industrial production report in Brazil was terrible, despite overshooting market expectations.
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.
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.
Yesterday's data showed that the euro area PMIs were a bit stronger than initially estimated in November.
India's headline GDP print for the third quarter was damning, with growth slowing further, to 4.5% year- over-year, from 5.0% in Q2.
Over the summer, both Chancellor Javid and PM Johnson appeared to be repositioning the Conservatives, claiming that the era of austerity was over and that higher levels of spending and investment were justified.
Japan's monetary base growth has continued to slow, to 13.2% year-over-year in November from 14.5% in October.
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.
Money supply growth in the euro area eased further towards the end of Q4.
The Japanese unemployment rate fell again in September, to 2.3% from 2.4%. In the same vein, the job-to-applicant ratio rose to 1.64, from 1.63.
The recent narrowing of the Conservatives' opinion poll lead suggests that investors, particularly in the gilt market, now must consider other parties' fiscal proposals.
The 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.
All the main surveys of business activity in Q1 now have been released and they present a uniformly downbeat picture.
Data released in recent days confirmed the intensity of the Covid-related shock to the Chilean economy in Q2.
As we write, 25 Conservative MPs have confirmed publicly that they have submitted no-confidence letters to the Chairman of the 1922 Committee. That's 23 short of the 48 required to trigger a leadership contest, though some MPs might have submitted letters without making it public.
Covid-19 has cut short a nascent recovery in housing market activity.
We remain concerned that huge job losses are imminent, slowing the economic recovery after a mid-summer spurt.
The release of pent-up Japanese consumer demand in June was emphatic, with retail sales values jumping by 13.1% month-on-month.
The virus outbreak has been relatively limited so far in Argentina, with 820 confirmed cases, but the numbers are rising rapidly.
The PBoC cut its seven-day reverse repo rate to 2.20%, from 2.40%, while making a token injection; the Bank only moves these rates when it injects funds.
Yesterday's final EZ manufacturing PMIs for July extended the run of gains since the nadir during lockdown.
Under normal circumstances, sustained ISM manufacturing readings around the July level, 54.2, would be consistent with GDP growth of about 2% year-over-year.
January's Markit/CIPS manufacturing survey suggests that the outcome of the general election has brought manufacturers some momentary relief.
The PBoC yesterday cut its 7-day and 14-day reverse repo rate by 10bp, to 2.40% and 2.55% respectively, while injecting RMB 1.2T through open market operations.
Where to start with the January employment report, where all the key numbers were off-kilter in one way or another?
Today's ADP employment report for December ought to show private payrolls continue to rise at a very solid pace
Following the much-anticipated meeting between Presidents Xi and Trump over the weekend, the U.S. will now leave existing tariffs on $200B of Chinese goods at 10%, rather than increasing the rate to 25% in January, as previously slated.
It's not our job to pontificate on the merits, or otherwise, of the tax cut bill from a political perspective.
The continued gradual rise in new confirmed cases of Covid-19 lends more weight to the idea that the economy already has reopened as much as possible while containing the virus.
2019 is a year many in the construction sector would prefer to forget.
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.
Korea's final GDP report for the third quarter confirmed the economy's growth slowdown to 0.4% quarter-on-quarter, following the 1.0% bounce-back in Q2.
The 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.
Colombian policymakers on Friday cut the reference rate by 50bp, for a third straight month, to 2.75%.
Japan's tertiary index fell further in December,by 0.3% month-on-month, after the downwardly- revised 0.4% drop in November.
China's GDP report for the fourth quarter, due on Friday, is likely to show that economic growth has stabilised, on the surface.
Thursday's CPI report in Mexico showed that inflation is edging lower. We are confident that it will continue to fall consistently during Q1, thanks chiefly to the subpar economic recovery, low inertia and the effect of the recent MXN rebound.
Storm clouds gathered over Eurozone financial markets last week. The sell-off in equities accelerated, pushing the MSCI EU ex-UK to an 11-month low.
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.
China's October activity data showed signs of the infrastructure stimulus machine sputtering into life. Consensus expectations appear to hold out for a continuation into November, but we think the numbers will be disappointing.
The fact that Italy's economy is in poor shape will not surprise anyone following the euro area, but the advance Q4 GDP headline was astonishingly poor all the same.
Japan's money and credit data have shown signs of life in recent months, but that's all set to change quickly, due to the disruptions caused by the outbreak of the coronavirus.
Japan's second wave of Covid-19 is in its early phase, though the virus appears to be spreading rapidly.
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".
Yesterday's ECB meeting was a tragedy in two acts. Markets were initially underwhelmed by the concrete measures unveiled, and they were then shell-shocked by Ms. Lagarde's performance in the press conference.
Analysts have fiercely debated the consequences of the U.S. Treasury's plan to break the bank in Q2 with a whopping €3T issuance of new debt to cover the initial costs of Covid-19.
More depressing economic numbers in LatAm have been released in recent days, and high frequency data continue to show a near-term bleak outlook.
The measures to support the economy through the coronavirus crisis, unveiled by policymakers on Budget day, exceeded expectations.
The effects of Covid-19--both negative and positive--on Korea's labour market certainly were felt in February.
We held our breath this month.
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.
On all accounts, growth in France has been modest in the past six-to-12 months, but in relative terms, the French economy is slowly but surely asserting itself as one of the key engines of growth in the EZ.
The Brazilian central bank cut its benchmark Selic interest rate by 50bp to 4.50% on Wednesday night.
The U.K. economy underperformed its peers to an extraordinary degree in Q2.
The U.S. Federal Reserve didn't quite deliver the shock-and-awe yield curve control this week which some observers had been expecting, but the message was clear enough.
China's money and credit data for February were reassuring, at least when compared with the doomsday scenario painted, so far, by other key indicators for last month.
Chancellor Sunak's "temporary, timely and targeted" fiscal response to the Covid-19 outbreak, and the BoE's accompanying stimulus measures, won't prevent GDP from falling over the next couple of months.
Core machine orders in Japan collapsed in April, as expected, falling by 12.0% month-on-month, worse than the minor 0.4% slip in March.
Brazilian political risk remains high, due mainly to President Bolsonaro's gross mismanagement of the Covid-19 crisis, but, as we have argued in previous Monitors, it is unlikely to deter policymakers from further near-term monetary easing.
In previous Monitors--see here--we've suggested that, thanks to the coronavirus, China simply will lose some of the spending that would have gone on during the holiday this year.
We're very interested in the detail of today's January NFIB survey; the headline index, not so much.
China's Q2 official GDP growth, to be released on Monday, likely slowed to 6.2% year-over-year, from 6.4% in Q1.
The Fed paved the way with a 50bp emergency rate cut on March 3, with more to come.
Mrs. May looks set to lose the second "meaningful vote" on the Withdrawal Agreement-- WA--today, whether she decides on a straightforward vote or one asking MPs to b ack it if some hypothetical concessions are achieved.
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.
Chile's Q3 GDP report, released yesterday, confirmed that the economy lost momentum in the last quarter.
Mexico has been one of LatAm's highlights in terms of financial markets and currency performance in recent months.
India's shocking PMIs for April leave little doubt that the second quarter will be bad enough to result in a full-year contraction in 2020 GDP, even if economic activity recovers strongly in the second half.
The Q1 GDP figures, released on Wednesday, likely will show that the quarter-on-quarter decline in economic activity eclipsed the biggest decline in the 2008-to-09 recession--2.1% in Q4 2008--even though the U.K. went into lockdown towards the very end of the quarter.
Monetary policy loosening over the last year implies that China's M1 growth already should be picking up.
Yesterday marked President AMLO's first 100 days in office, with skyrocketing approval ratings and improving consumer confidence.
The Andean countries were quick to implement significant measures in response to the initial stage of the pandemic, adopting a broad range of economic and social policies to ease the effects.
PM Abe last week asked the cabinet to put together a package of measures in a 15-month budget aimed at bolstering GDP growth through productivity enhancement, in addition to the shorter-term goal of disaster recovery.
The rate of deterioration in the labour market remains gradual enough for the MPC to hold back from cutting Bank Rate over the coming months.
China's economic recovery over the next twelve months remains secure, barring another major outbreak of Covid-19 domestically, or another synchronised lockdown globally.
Economic news last week in Mexico was net positive, as industrial production rose by a solid 6.9% month-to-month, following a 17.9% rebound in June, but the bigger picture is less encouraging.
The hard economic data in Brazil were relatively solid while we were off last week, supporting our view that the economy was experiencing a good spell at the start of the year just before the coronavirus hit.
Expectations are running high that the Autumn Statement on November 23 will mark the beginning of a more active role for fiscal policy in stimulating the economy. The MPC's abandonment of its former easing bias earlier this month has put the stimulus ball firmly in the new Chancellor's court.
September's labour market report suggests that wage growth won't continue to rise for much longer.
Soft September data in Germany and Italy suggest that today's industrial production report in the Eurozone will be poor. Our first chart shows that data from the major EZ economies point to a 0.8% month-to- month fall in September.
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.
Credit to the Chinese authorities for sticking it out with the marginal approach to easing for so long... at least two quarters.
China's unadjusted March trade balance rebounded to a surplus of $20B, from a combined deficit of -$7B in the first two months of the year.
Yesterday's data showed that growth in the EZ slowed in the second quarter.
Members of the Monetary Policy Committee have signalled that January's flash Markit/CIPS composite PMI, released on Friday 24, will have a major bearing on their policy decision the following week.
Upbeat survey data, a competitive MXN, and the strong U.S. manufacturing sector indicate that Mexican industry should be rebounding.
Economists are evenly split on December's consumer prices report, due on Wednesday, with half expecting CPI inflation to fall to 2.1%, from 2.3% in November, and the other half expecting a 2.2% print.
Eurozone investors should by now be accustomed to direct intervention in private financial markets by policymakers.
Inflation in the Andean economies ended 2019 well within central banks' objectives, despite many domestic and external challenges.
Nobody has a monopoly on "the truth".
The EZ Q4 GDP data narrowly avoided a downward revision in yesterday's second estimate.
China's trade surplus jumped to a six-month high of $46.8B in December, from $37.6B in November, on the back of a strong increase in exports.
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 fall in CPI inflation to just 1.5% in October-- its lowest rate since November 2016--from 1.7% in September, isn't a game-changer for the monetary policy outlook.
We're doing a wrap-up of the data that were released last week while we were away, and the Chinese numbers were both a hit and a miss.
Japan's GDP likely dropped by a huge 0.9% quarter-on-quarter in Q4, after the 0.5% increase in Q3, with risks skewed firmly to the downside.
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.
Last week, while we were taking our spring break at home, markets behaved relatively well in LatAm.
China's M2 growth slowed to 8.2% year-over-year in August, from 8.5% in July
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.
Data released yesterday in Brazil are consistent with our view that private consumption will continue to drive the recovery over the second half, offsetting the ongoing weakness in private investment.
Sterling held on to its recent gains yesterday despite mounting speculation that Eurosceptic Conservative MPs are plotting a leadership challenge.
Industrial production in India turned around sharply in November, rising by 1.8% year-over-year, following October's 4.0% plunge and beating the consensus forecast for a trivial 0.3% uptick.
The year-over-year collapse of industrial production in India eased substantially in May, to -35%, from -58% in April, close to our -32% forecast.
As expected, the Chancellor kept his powder dry in the Spring Statement, preferring instead to wait for the Budget in the autumn to deploy the funds technically available to him to support the economy.
Germany's newly-appointed finance minister, Olaf Scholz, proudly announced earlier this month that his country would be running a budget surplus of €63B over the next four years--about 1.9% of GDP between now and 2022--some €14B more than initially estimated.
We take little comfort from the fact that the 2.0% quarter-on-quarter drop in Q1 GDP was a bit smaller than the consensus forecast, 2.5%, and the 3.0% fall pencilled-in by the MPC in its Monetary Policy Report.
The National People's Congress yesterday announced a sweeping restructuring of Party/State architecture.
The Chancellor kept his word and made only trivial policy changes in the Spring Statement, but he hinted at higher spending plans in the Autumn Budget.
We're bracing for another ugly set of labour market data on Thursday, showing that both employment and earnings fell sharply in May and June.
The Johns Hopkins database shows a mixed coronavirus picture in the Andes, with the trend in new cases still rising in Argentina and Colombia, but relatively flat for about the past two weeks in Peru.
Peru's central bank, the BCRP, kept borrowing costs at 3.25% last week, surprising the consensus forecast for a 25bp increase. This was an unexpected move because inflation risks have not abated much since the previous meeting, when policymakers lifted rates for the third straight month.
The latest GDP data confirm that the economy ended last year on a very weak note.
China's M2 growth stabilised in November, at 8.0% year-over-year, matching the October rate.
The ECB will be satisfied, and a bit relieved, with yesterday's economic data in the Eurozone.
The latest national accounts show that the economy is holding up much better in the face of heightened Brexit uncertainty than previously thought.
China's official and Caixin manufacturing PMIs have diverged in the last couple of months.
The BoJ yesterday kept the policy balance rate at -0.1%, and the 10-year yield target at "around zero", in line with the consensus.
The Brazilian Central Bank's policy board-- COPOM--voted unanimously on Wednesday to cut the Selic rate by 50bp to 5.00%, as expected.
A quick rebound in growth, after the slowdown to a reported 2.6% in the fourth quarter, is unlikely.
China's official manufacturing PMI edged down to 50.8 in April, from 52.0 in March. The output sub- index stayed relatively high, inching down only to 53.7 from 54.1, and chiming with our initial take on the industrial production data for March.
Yesterday's ECB meeting was a much more assured affair, compared to the March calamity. The central bank left its key refinancing and deposit rates unchanged, at 0.00% and -0.5%, respectively, and also maintained the pace and guidance on its two asset purchase programs.
The momentum in Chinese manufacturing waned in August, with the official manufacturing PMI slipping marginally to 51.0, from 51.1 in July,
The worst of the pandemic seems to be over in many countries in LatAm, allowing a gradual reopening of their economies.
History is repeating itself in France. When the Republican Nicolas Sarkozy defeated the Socialist candidate Ségolène Royal in April 2007, consumer sentiment briefly soared to a six-year high, before plunging to an all-time low a year later.
This week real data in Brazil supported the idea that the worst of the recession is likely over, but a V-shaped rebound is not in the cards.
We expect May's GDP report, released on Tuesday, to provide an early blow to hopes that the economy will embark on a V-shaped recovery this year.
The year-long surge in CPI inflation in China will soon end.
Japan's GDP growth was revised up, to 0.4% quarter-on-quarter in Q3, from 0.1% in the preliminary reading.
Advance country data suggest that EZ inflation fell less than we expected last month, though we are still looking for a significant undershoot in the August core rate.
China's FX reserves were relatively stable in March, with the minimal increase driven by currency valuation effects.
This week's labour market data likely will show that the Coronavirus Job Retention Scheme did not prevent a rising tide of redundancies in response to Covid-19.
Data released in recent days have started to reveal a story of horror and misery in the Brazilian economy.
Friday's economic data in the euro area provided the first piece of evidence of the slump in Q2 GDP, but added to the picture of a relatively resilient German economy.
China's official PMIs for March surprised well to the upside, cheering markets across Asia.
Yesterday's March labour market data in Germany were surprisingly strong
Trade talks between the U.S. and China officially resumed this week, with the first face-to-face meeting of the main negotiators taking place yesterday in Shanghai.
The Q4 national accounts show that the economy lost further momentum at the end of last year, in the face of unprecedented levels of political uncertainty.
Data released this week in LatAm are the last calm before the coronavirus storm.
The substantial, though incomplete, rebound in the September ISM manufacturing survey is consistent with our view that the outlook for the industrial economy right now is better than at any time since before the crash in oil prices
Unanticipated movements in the Markit/CIPS services PMI often provoke big market reactions, despite its shortcomings as an indicator of the pace of growth. We suspect December's PMI, released today, could surprise to the downside, reversing most of its rise in November to 55.9 from 54.9 in October. Regardless, we place more weight on the official data, which is more comprehensive and shows clearly the recovery is slowing.
Banxico left Mexico's benchmark interest rate at 3.25% last week, after increasing it by 25bp in December, when the U.S. Fed raised rates. Banxico's board maintained its neutral tone and indicated that the balance of risks has deteriorated for growth and short-term inflation. As usual, policymakers reiterated the importance of following the Fed closely to avoid financial instability, which in turn could spill over to inflation.
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.
Yesterday's advance Q4 GDP data in the Eurozone confirmed that growth slowed significantly in the second half of 2018.
The political limbo in Italy currently appears to have three possible solutions, in the short term. The 5SM and Lega can try to form a coalition, again.
Japan's main activity data for April were massively disappointing, presaging the sharper GDP contraction we expect in Q2, compared with Q1.
Today's tentative reopening of schools in England marks the biggest step forward for the economy since the lockdown was imposed on March 23.
Yesterday's national accounts showed that the downturn in the economy on the eve of the Covid-19 outbreak was sharper than first estimated.
China's economy looks to have shrugged off the supposed "second wave" of Covid-19, sparked by a cluster in Beijing's largest wholesale market for fruit and veg, looking at June's PMIs.
Wednesday's first estimate of full-year 2018 GDP in Mexico indicates that growth lost momentum in Q4.
The outcome of the Trump-Xi meeting at the G20 summit was as good as we expected.
It's probably safe to assume that Q1's 0.5% quarter-on-quarter increase in GDP will be as good as it gets this year.
Yesterday's third and detailed EZ GDP data confirmed the economy hit the wall in Q1.
This week's data have offered further clear hard evidence of the Covid-19 shock to the Mexican economy, supporting our base case of further interest rate cuts in the coming monetary policy meetings.
The MPC's pause for breath last week disappointed a majority of investors, who thought that it would at least tweak aspects of the support programmes put in place in March.
Last week finished as it started, with more depressing economic numbers in the Eurozone, this time from manufacturing in the core economies.
Hideous though the official April payroll numbers were, the chances are that they'll be revised down.
Economic conditions in Brazil are deteriorating rapidly.
China's unadjusted trade surplus collapsed in February, to just $4.1B, from $39.2B in January.
Many investors probably will be scratching their heads in the wake of next week's labour market report, which will reveal the Covid-19 hit to employment and wages in April, as well as showing how much further the claimant count soared in May.
This has been a very complicated week for LatAm policymakers, who are particularly uneasy about the performance of the FX market.
It's still unclear how exactly Covid-19 will impact the euro area as a whole, but little doubt now remains that Italy's economy is in for a rough ride.
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.
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
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.
CPI inflation in China surged to a five-month high of 2.3% in March, from 1.5% in February.
Investors in euro-denominated corporate debt will be listening closely to Mr. Draghi this week for hints on how the ECB intends to balance QE between public and private debt next year.
The MPC likely will steer clear of providing strong signals on the outlook for monetary policy at next week's meeting.
Data released in recent days have confirmed that private spending is on the mend in the biggest LatAm economies.
We have recently looked at China's capacity to grow its way out of the debt overhang--see here--and whether last year's deleveraging can be sustained; see here.
China's PPI deflation deepened in August, with prices dropping 0.8% year-over-year, after a 0.3% decline in July.
A cursory glance at July's labour market report gives no cause for alarm. The headline, three-month average, unemployment rate returned to 3.8% in July, after edging up to 3.9% in June.
Yesterday's sole economic report in the Eurozone closed the book on the initial Covid-19 shock in French manufacturing.
Recent economic indicators in Mexico have been relatively positive.
The French manufacturing sector slowed more than we expected in Q1.
Brazil's economy remains mired in a renewed slowdown, and low--albeit temporarily rising-- inflation, which is allowing the BCB to keep interest rates on hold, at historic lows.
China's money and credit numbers for April were a mixed bag. M2 growth merely inched down, to 8.5% year-over-year, from 8.6% in March, keeping its gradual uptrend intact.
We're now starting to see clear signs in unofficial data that households are slashing their expenditure on discretionary services, in order to minimise their chances of catching the coronavirus.
The collapse in oil prices was the immediate trigger for the 7.6% plunge in the S&P 500 yesterday, but the underlying reason is the Covid-19 epidemic.
We would be surprised, but not astonished, if the Fed were to announce a shift to explicit yield curve control at today's meeting.
Most countries in LatAm are now fighting a complex global environment; a viral outbreak of biblical proportions and plunging oil prices, after last week's OPEC fiasco.
In this Monitor we'll let the data be, and try to make some sense of the recent market volatility from a Eurozone perspective, with an eye to the implications for the economy and policymakers' actions.
Since the protests in Hong Kong began, we've become increasingly convinced that China is backing away from a comprehensive trade deal with Mr. Trump.
The pick-up in GDP in July is a re assuring sign that the economy is on course to grow at a solid rate in Q3, thereby substantially weakening the case for the MPC to cut Bank Rate before Britain's Brexit path is known.
The MPC was a little irked by the markets' reaction to its November meeting.
The combination of sluggish GDP growth in October and news that the Prime Minister will attempt to renegotiate the terms of the Brexit backstop, most likely pushing back the key vote in parliament until January, has extinguished any lingering chance that the MPC might be in a position to raise Bank Rate at its February meeting.
Mexico's latest forward-looking indicators are showing tentative signs of stabilisation in the wake of recent evidence that growth slowed quicker than markets have been expecting.
Recent activity data in Mexico have been soft and leading indicators still point to challenging near-term prospects, due mainly to relatively high domestic political risk, stifling interest rates and difficult external conditions.
Manufacturing in France remained on the front foot at the start of Q4.
We expect June's GDP data, released on Wednesday, to show that the economic recovery gathered momentum in June, having got off to a faltering start in May.
Markets tend to look to Italy as the canary in the coalmine for signs of stress in the EZ economy and financial markets, but we recommend keeping a close eye on Spain too.
Brazil's recession carried over into the middle of Q2, but with diminishing intensity in some economic sectors.
The headline figures from yesterday's GDP report gave a bad impression. September's 0.1% month-to- month decline in GDP matched the consensus and primarily reflected mean-reversion in car production and car sales, which both picked up in August.
Chile's Q4 GDP report, released yesterday, confirmed that the economy accelerated at the end of last year, supported by rising capex and solid consumption.
The uncertainty over the strength and speed of the economic rebound is still a concern for investors in terms of putting money to work.
The Chilean economy was emerging in early Q1 from the self-inflicted shock from the social unrest in October, but the upturn was interrupted in early- March by the restrictive measures introduced to contain Covid-19.
Chancellor Sunak announced further emergency support measures for the economy on Tuesday and pledged to do more soon.
Japan's February trade data were a shocker, but not for the reasons we expected, given the signal from the Chinese numbers.
Policymakers in Brazil and Chile took another big step this week in assuring markets that they won't hesitate to act in the fight against the virus.
The first real glimpse of India's economic performance early this quarter is grim, adding weight to our below-consensus GDP forecast.
The gradual reopening of the major EZ economies continues, a process which is now accompanied by the inevitable concern that the virus is regaining a foothold.
Japan's economy contracted by 0.9% quarter-on- quarter in Q1, following a downwardly-revised 1.9% plunge in the previous quarter.
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 key detail in Friday's barrage of economic data was the above-consensus increase in EZ inflation.
The 2010s were the first decade since reliable records begin--in the 1700s--in which a recession was completely avoided
China's official manufacturing PMI was unchanged at 50.2 in December, marking a weak end to the year. But it could have been worse; we had been worried that the return to above-50 territory in November had been boosted by temporary factors. December's print allays some of those fears.
The Q1 Tankan survey headlines were close to our expectations, chiming with our call for year-over-year contraction in Japanese GDP of at least 2%, after the 0.7% decline in Q4.
Within the space of two months, investors have gone from wondering whether the slowdown in manufacturing would spill-over into the rest of the EZ economy, to the realisation that the crunch in services is now driving the overall story on the economy.
Investors have welcomed the flurry of encouraging opinion polls for the Conservatives that were published over the weekend, with cable rising nearly to $1.30 on Monday, a level last seen on a sustained basis six months ago.
Mexican policymakers voted last Thursday to hike the main rate by 25bp to 8.0%, the highest since early 2009.
Sunday 28th will bring closure to an extraordinary presidential election campaign in Brazil.
Iván Duque, the conservative candidate for the Democratic Centre Party, won the presidential election held in Colombia on Sunday.
The RICS Residential Market Survey caught our eye last week for reporting that new sale instructions to estate agents rose in May for the first month since February 2016.
Recent economic activity, labour market and inflation data all have surprised Brazilian policymakers' expectations, to the upside.
The near-real-time economic data have been hard to read recently, because of distortions caused by the Labor Day holiday.
Yesterday's detailed EZ inflation data for August kick ed-off a period in which the numbers will be scrutinised more closely than usual.
The Portuguese economy has faltered recently. In the year to Q2, real GDP rose only 0.8%, down from a 1.5% increase in the preceding year. Slowing growth in investment has been the key driver, but consumers' spending has weakened too.
China's monetary and credit data--released yesterday, two days behind schedule--suggest that monetary conditions are loosening at the margin, while credit conditions have remained stable, but easier than in the first half.
Rapidly increasing food inflation is creating all sorts of dilemmas for policymakers in Asia's giants.
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 first impression of the proposed Brexit deal between the EU and the U.K. is that it is sufficiently opaque for both sides to claim that they have stuck to their guns, even if in reality, they have both made concessions.
China's economy got off to an uneasy start in the third quarter.
Recession, rising unemployment and disinflation remain the main themes for economists in the context of charting the course of the Covid-19 crisis.
NAFTA-related news has been mixed over the last few weeks.
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 BoJ left its policy levers unchanged at the Monetary Policy Committee meeting on Friday. At the press conference, Governor Kuroda was repeatedly asked about the status of the ¥80T annual asset purchase target and what the exit strategy would be.
The headline employment numbers masked an otherwise sub-par December labour market report.
India's industrial production data last week are the last set of key economic indicators for the fourth quarter, before next week's Q4 GDP report.
The Covid-19 downturn has been more severe in the U.K. than in most other advanced economies this year.
Brazil is back on global investors' radar screens. Financial market metrics capture a relatively robust bullish tone, especially since the presidential election.
A PBoC rate cut is looking increasingly likely. Policy is already on the loosest setting possible without cutting rates, but the Bank has little to show for its marginal approach to easing, with M1 growth still languishing.
A sharp ARS sell-off was the key highlight while we were away over the holidays.
The economy's fragility was underlined by the Q3 national accounts, released just before the Christmas break.
We have been on the ECB's case recently. The action taken at last week's official meeting--see here--fell short of market expectations, but more importantly, Ms. Lagarde's communication around the decisions was disastrous.
The Fed's announcement, at 11.30pm Wednesday, that it will establish a Money Market Mutual Fund Liquidity Facility--MMLF--to support prime money market funds, is another step to limit the emerging credit crunch triggered by the virus.
The MPC has wasted no time in seeking to counter this week's undesirable pick-up in gilt yields, which reflects investors dumping assets for cash.
Economic and financial conditions continue to deteriorate sharply in LatAm.
Brace yourselves; GDP growth forecasts are being slashed left and right, as our colleagues take stock of the economic damage Covid-19 likely will inflict in the U.S. and across Europe, where outbreaks and containment measures have escalated significantly.
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.
The Eurozone's current account surplus slipped at the start of Q2, falling to €28.4B in April from an upwardly-revised €32.8B in March.
Mexico's industrial recession deepened in April, though some leading indicators suggest that the worst is over as the economy gradually reopens. But downside risks have increased dramatically in recent weeks, as the pandemic seems to be gathering renewed strength.
We expect the Fed today to shift its dotplot to forecast one rate hike this year, down from two in December and three in September.
Mexico's recent rebound in inflation and a more volatile financial environment, due to increasing global trade tensions, forced Banxico to keep its policy rate unchanged at 8.25% last Thursday.
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.
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.
Argentina's economy is firing on all cylinders, thanks to improving fundamentals and a positive external backdrop.
We hope never to see another labour market report as bad as yesterday's, though the omens aren't good.
The annual National People's Congress meeting of China's legislature will get underway at the end of this week, after delay due to the Covid outbreak.
We expect April's consumer price figures, due on Wednesday, to show that CPI inflation leapt to 2.3%, from 1.9% in March, exceeding the MPC's 2.2% forecast in the latest Inflation Report.
Hard data released in Argentina over the last month showed that the economy was struggling in early Q1, even before the Covid-19 hit.
Investors have been treated to good news in the past week, at least if they've managed to side-step the barrage of terrible economic data.
In about 100 days, the LatAm economy and financial markets will face a defining moment in the face of uncertainty, namely, the outcome of the U.S. presidential election.
Friday's detailed euro area CPI report for December confirmed that inflation pushed higher at the end of last year. Headline inflation increased to 1.3% year-over- year, from 1.0% in November, lifted primarily by higher energy inflation, rising by 3.4pp, to +0.2%. Inflation in food, alcohol and tobacco also rose, albeit marginally, to 2.1%, from 2.0% in November.
The Brazilian economy fell into recession over the first half of the year due to the severity of the Covid shock on domestic demand.
India's GDP shrank by 23.9% year-over-year in the second quarter, following growth of 3.1% in Q1.
Argentina's economic and financial situation has deteriorated significantly in recent weeks and the outlook is becoming increasingly bleak.
The inevitable--more or less--correction from August's 14-year high is no big deal.
Korea's trade data have been extremely volatile over the past two months, thanks to distortions caused by last year's odd holiday calendar.
Manufacturers in China continued to trudge along in May, with their post-lockdown recovery looking increasingly fragile.
We remain convinced by other evidence that manufacturing output now is recovering, though pre-virus levels of production likely will not be realised for several years.
China's Caixin manufacturing PMI was unchanged at 51.0 in October, continuing the sideways trend this year.
We still think it is a question of when--not if-- MPs will be successful in taking a no -deal Brexit off the table.
The Andean economies have been clear examples of true leadership in the current global crisis. Leaders of these countries acted rapidly to contain the spread of the virus, jumping right over the phases of denial, anger and unscrupulousness we've seen in Brazil and Mexico.
Peru's economic recovery gathered strength late last year.
Expectations that the MPC will cut Bank Rate at its meeting on January 30 received a further shot in the arm at the end of last week, when December's retail sales figures were released.
Argentina's inflation ended 2019 badly, and it is still too early to bet on a protracted downtrend, even after the renewed economic slowdown.
Wednesday's State Council meeting implies that the authorities are starting to take more serious coordinated fiscal measures to counter the virus threat to the labour market and to banks.
The BoJ held firm, for the most part, during this year's bout of central bank dovishness.
As painful as it is, the decision to lock down economies to curb the spread of Covid-19 was easy. The next step, however, is considerably more difficult.
While we were on holiday, the data confirmed that inflation in Mexico is rapidly unwinding the increases posted earlier in the year; that the economy was under severe strain in late Q2 and early Q3; and that the near-term outlook has grown increasingly challenging.
Argentinians are heading to the polls on Sunday October 27 and will likely turn their backs on the current president, Mauricio Macri.
The vote in the House of Commons today on whether MPs should effectively take control of Brexit negotiations, if Theresa May can't strike a deal by mid-January, looks finely balanced.
Wednesday's money data confirmed that Chinese households have continued to borrow into Q2 but at a slower rate than in 2016. The slowdown will really set in during the second half, and into 2018. Households have done a sterling job of taking over the borrowing baton from corporates, but they can't do everything.
China's post-lockdown recovery broadly has surprised this quarter, particularly in the industrial sector.
Economic activity remains under severe strain in the Andes.
Today's brings the June retail sales and industrial production reports, after which we'll update our second quarter GDP forecast.
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.
The new Argentinian president, Alberto Fernández, will have to make a quick start on the titanic task of cleaning up the economic and social mess left by his predecessor, Mauricio Macri.
The BoJ is likely to be thankful next week for a relatively benign environment in which to conduct its monetary policy meeting.
Judging by the solid advance data in the major economies, yesterday's EZ industrial production report should have hit desks with a bang, but it was a whimper in the end.
EZ investors are still trying to come to grips with last week's terrifying price action, culminating in the 12.5% crash in equities on Thursday
The House passage of a stimulus bill last Friday, seeking to ameliorate some of the damage done by the coronavirus outbreak, will not be nearly enough.
The sovereign debt crisis in the euro area was a macroeconomic horror story
Monday's economic data in Colombia provided further evidence of a gradual rebound in manufacturing output and retail sales as the economy slowly reopened.
The latest official data continue to understate the collapse in labour demand since Covid-19.
The Brexit-related slump in corporate confidence finally has taken its toll on hiring.
Even if the Prime Minister fends off an emerging leadership challenge--as we write, the rebels still are short of the 48 signatures required to trigger a confidence vote--her chances of getting parliament to back the Withdrawal Agreement in its current form are slim.
Official industrial production growth in China plunged to 5.4% year-over-year in April, from 8.5% in March.
Banxico hiked its policy rate by 25bp to a cyclical-high of 8.0% yesterday, in line with market expectations.
Industrial production growth in China appears to be stabilising, following the slowdown in Q2.
Markets greatly cheered the Conservatives' landslide victory on Friday, but remained cautious on the potential for the MPC to return to the tightening cycle it started in 2017.
ate last week, China and the U.S. reached an agreement, averting the planned U.S. tariff hikes on Chinese consumer goods that were slated to be imposed on December 15.
Mexican policymakers stuck to the script yesterday and voted unanimously to cut the main rate by 50bp to 5.50%, its lowest level in more than three years.
Japan's GDP likely dropped by 1.1% quarter- on-quarter in the first quarter, even from the favourable Q4 base, when it fell by 1.8%.
China's main activity data for October disappointed across the board, strengthening our conviction that the PBoC probably isn't quite done with easing this year.
The headlines of China's main activity gauges paint a dreary picture of the start of the year, implying a slowdown.
The Prime Minister is threatening to bring back her Brexit deal to the Commons for a third time before March 20, in a final bid to win over the rebels within the Tory party who want a harder Brexit.
Most of the Andean economies have been hit by the turmoil roiling the global economy in the past few quarters. But modest recovery in commodity prices in Q3, and relatively solid domestic fundamentals helped them to avoid a protracted slowdown in Q2 and most of Q3.
The economy will be a shadow of its former self over the remainder of this year, following the heavy pummelling from Covid-19.
The surge in Covid-19 case and hospitalizations-- and, in due course, deaths--in some southern states since they began to reopen probably is not a sign of what is likely to happen as the populous states in the Northeast and Midwest reopen too.
Yesterday's second Q3 GDP estimate confirmed that the EZ economy expanded by 0.2% quarter-on- quarter in Q3, the same pace as in Q2, leaving the year-over-year rate unchanged at 1.2%.
CPI inflation held steady at 2.4% in October, undershooting the 2.5% consensus expectation and the MPC's forecast in this month's Inflation Report.
The return of the virus in the Eurozone isn't what the economy needed, but we continue to think it differs from the first shock, for three key reasons.
The Chinese activity data published yesterday were much weaker than expected; growth rates fell resoundingly. Did analysts really get it wrong, or is this just another example of erratic Chinese data?
The big difference in this round of stimulus is in the complete lack of easing on the shadow banking side.
August's consumer prices report, due on Wednesday, is harder to forecast than usual, given high uncertainty regarding the impact of the cut in VAT for the hospitality sector, as well as the consequences of the ONS' decision to resume collecting data from physical stores.
Japan's prime minister in-all-but-name, Yoshihide Suga, will be inheriting an economy struggling to maintain any momentum from the release of pent-up demand.
Japanese leading indicators point to a slowdown, and the trend over this volatile year is emerging as firmly downward.
Mexico's latest industrial production data were worse than we expected. Output rose just 0.1% month-to-month in September, pushing the year- over-year rate down to -1.3%, from a downwardly revised +0.2% in August.
Few Eurozone investors are going blindly to accept the rosy premise of last week's relief rally in equities that both a Brexit and a U.S-China trade deal are now, suddenly, and miraculously, within touching distance. But they're allowed to hope, nonetheless.
Market-based sentiment indicators in the Eurozone are becoming increasingly detached from the reality of the threat of resurgent Covid-19 and the danger this poses to the strength of the economic recovery.
China's September imports missed expectations, but commentators and markets tend to focus on the year-over-year numbers.
The drop in CPI inflation to 0.5% in May, from 0.8% in April, brought it another big step closer to the near-zero rate we foresee in the second half of this year.
The establishment of the Fed's commercial paper funding facility, announced yesterday, replicates the first wave of asset purchases undertaken after the crash of 2008.
The labour market was pretty robust before the coronavirus crisis.
China's investment slowdown went from worrying to frightening in October. Last week's fixed asset investment ex-rural numbers showed that year- to-date spending grew by 5.2% year-over-year in October, marking a further slowdown from 5.4% in the year to September.
Colombia has been one of LatAm's outperformers this year.
The labour market remains healthy enough to persuade the MPC to keep its powder dry over the coming months.
AMLO unveiled on Saturday Mexico's budget plan for 2019, calling for a moderate increase in spending, focused mainly on social programs, without raising taxes or the country's debt.
We've continuously warned that Japan's national accounts weren't sitting easily with the underlying signals from survey data, and monetary conditions, through last year.
The global coronavirus pandemic is hitting the LatAm economy at a particularly vulnerable time, following last year's stuttering economic recovery, temporary shocks in key economies and the effect of the global trade war.
Wage growth in the euro area slowed slightly last year, consistent with the rapid deceleration in economic growth since the end of 2017, though it remained robust overall.
Data released on Friday confirmed an appalling end to the first quarter for the Brazilian and Colombian economies. In Brazil, the March IBC-Br, a monthly proxy for GDP, plunged 5.9% month-to-month, close to expectations.
Friday's second Q1 GDP estimate confirmed that lockdowns to halt the spread of Covid-19 hurt the EZ economy in Q1. Real GDP plunged by 3.8% quarter-on- quarter, following a 0.1% rise in Q4, in line with the first estimate.
China's two-tier post-lockdown economic revival continued in April. Industrial production beat expectations easily, rising by 3.9% year-over-year, after slipping by 1.1% in March.
In recent client "meetings" we have been emphasizing the idea that a sustained recovery in the economy over the summer depends on the solidity of a three-legged stool.
Downward revisions to Japan's Q4 real GDP growth, published on Wednesday, lead us to revisit our main worry over the durability of the recovery; namely, that monetary conditions appear to be signalling a slowdown.
Media reports allege that the Chancellor's Budget pared back the fiscal squeeze planned for the next couple of years. The Director of the Office for Budget Responsibility, Robert Chote, even compared the Chancellor to Saint Augustine, who supposedly said "make me pure, but not yet."
Brazil's monetary authority adopted a neutral tone and kept its main rate on hold at 6.5% at its monetary policy meeting on Wednesday, surprising investors.
The headlines of China's August activity data are missing the real story in recent months.
Japan's economy shrank by an historic 7.8% quarter-on-quarter in Q2, much worse than the 0.6% slip in the first quarter.
To avoid rocking the 2020 boat, the Phase One trade deal needed to be sufficiently vague, so that neither side, and particularly Mr. Trump, would have much cause to kick up a fuss around missed targets.
External conditions are becoming more demanding for LatAm economies, with global trade tensions intensifying in recent weeks.
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.
We had expected the batch of Chinese data released at the end of last week to disappoint.
On the face of it, December's flash Markit/CIPS PMIs warrant the MPC cutting Bank Rate at its meeting on Thursday.
While we were away, the Monetary Policy Committee of the Reserve Bank of India voted unanimously to keep its benchmark repo rate unchanged, at 4.00%, defying expectations for a 25-basis point cut.
Friday's EZ data provide a good base from which to recap the main themes midway through the third quarter. The second estimate of Q2 GDP confirmed the initial headline that output plunged by 12.1% quarter- on-quarter, extending the decline from a 3.6% fall in Q1.
Incoming activity data from Colombia over the past quarter have been surprisingly strong, despite many domestic and external threats.
The Monetary Policy Board of the Bank of Korea voted yesterday to lower its policy base rate to 1.25%, from 1.50%.
May's activity data in the Andes underline the severe hit from the pandemic on economic activity.
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.
We lack an adjective sufficiently strong to describe China's February activity data.
Colombian activity data released this week were relatively strong, but mostly driven by the primary sectors; consumption remains sluggish compared to previous standards.
Latin American markets and policymakers are bracing for another complicated week, after the second, and more aggressive, Fed emergency move over the weekend.
The split between the reality reflected in the economic data and market pricing has never been wider in the euro area
Yesterday's labour cost data in the EZ are misleading. Eurostat's headline index jumped by 3.4% year-over-year in Q1, accelerating from a revised 2.3% increase in Q4,
At first glance, the latest labour market data appear to be contradictory.
Incoming data continue to highlight the severe hit from the pandemic on the real economies of the region, but some surveys and leading indicators are already pointing to a gradual upturn from June onwards.
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.
China's September PMIs, most of which were released over the weekend, mark out a clear downtrend in activity since late last year.
August's public finances figures, released last week, were an unwelcome but manageable setback for the Chancellor.
The Prime Minister set out her blueprint for Brexit yesterday, asserting that the U.K. will leave the single market and potentially even the E.U.'s customs union in order to control immigration and regain lost sovereignty. She argued that "no deal is better than a bad deal", suggesting that the U.K. might even fall back on its membership of the World Trade Organisation as the basis for trading with the E.U., if her demands were not met.
Business investment has held up better than most economists--ourselves included--expected after the Brexit vote.
okThe weekend's election result in Spain provided relief for investors anxiously looking for another "surprise." Exit polls on Sunday showed a big majority for the anti-establishment party Podemos, but in the end Spanish voters opted for safety. The incumbent Partido Popular, PP, was the election's big winner compared with the elections six months ago, gaining 15 seats.
Fiscal policy is in limbo until a new leader of the Conservative party has been elected on September 9. Shortly after, however, a new Budget--or a Budget disguised as an Autumn Statement--will be held.
We expect to learn today that the economy barely grew at all in the fourth quarter. At least, that's what we think the first estimate of growth, due today, will show. This number will then be revised twice over the next couple of months, then again when revisions for the past three years are released in July. Thereafter, the numbers are subject to further annual revisions indefinitely.
Inflation pressures in LatAm are moderating, and governments have been taking steps to pursue fiscal consolidation. These factors, coupled with a relatively favourable external environment, are providing policymakers with the opportunity to start relaxing monetary policy.
Greece goes to the polls this weekend, but unlike the chaos in the summer, we doubt it will be a nail-biting experience for investors. Polls put Syriza and the conservative New Democracy neck-and-neck, but neither party likely will be able to form a majority. Syriza has ruled out a grand coalition, which potentially means tricky negotiations with minority parties. But we are confident that any new government will be committed to euro membership, and a constructive dialogue with the EU and IMF.
Italian bond yields have remained elevated this week, following the release of the government's detailed draft budget for 2019.
The new Argentinian president has started to clean up the mess left by his predecessor, Cristina Fernandez de Kirchner. President Mauricio Macri lifted capital controls, and let the ARS float freely yesterday. The peso tumbled about 30%, getting close to 14 ARS per USD, where it had been trading in the black market. The government also announced that it is on track to receive about USD 12-to-15B, to build up the battered foreign reserves, and to contain any overshooting. This money will come through many channels, for example, grain producers have announced that they will sell about USD400M a day over the coming weeks.
A powerful cocktail of cheap money, labour and commodities, allowed to infuse by a hiatus in the government's austerity programme, has reinvigorated the U.K. economy over the last three years. But these supports are now weakening while new headwinds are emerging. The U.K. economy is heading for a pronounced slowdown, one that is under-appreciated by most forecasters and under-priced by markets.
We are fairly sanguine that government bond markets in the Eurozone will take the end of QE in their stride.
Brazil's government announced on Monday spending cuts and new tax increases, aiming to generate a 0.7% of GDP primary surplus, and so restore market confidence and avoid further credit rating downgrades. The plan is to reduce expenditure by BRL26B next year--or 0.4% of GDP--mainly through freezing public sector salaries and slashing social projects. These measures, especially the latter, will likely meet strong resistance in Congress. The salary freeze has more of a chance of passing, but reducing or closing some Ministries is a cost-cutting exercise with an extremely high political price.
The Eurosystem's position on Greece, echoed by Mr. Draghi earlier this week, is that progress on a deal is up to the Syriza-led government. But recent comments by German officials have added to the speculation that a Grexit is getting closer.
The Japanese government's plan to smooth out the consumption cliff-edge generated by October's sales tax hike is either going too well, or consumers now are facing fundamental headwinds.
Data on air quality in China provide some useful insights into the economic disruptions--or lack thereof--caused by the outbreak of the coronavirus from Wuhan and the government's aggressive containment measures.
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.
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.
The ECB's decision to go all-in and buy sovereign debt has three key consequences for U.S. markets. First, Treasuries will no longer benefit from safe-haven flows, because shorting Eurozone government debt has just become a fantastically risky proposition.
Financial markets in Brazil and Argentina have been under pressure this week, following negative news, both domestic and external. In Brazil, the Ibovespa index tumbled nearly 1.8% on Tuesday after a Senate Committee rejected the Government's labour reform bill.
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.
Like just about everyone else, we have struggled in recent years to find a convincing explanation for the persistent sluggishness of growth even as the Fed has cut rates to zero and expanded its balance sheet to a peak of $4.2T. Sure, we can explain the slowdown in growth in 2010, when the post-crash stimulus ended, and the subsequent softening in 2013, when government spending was cut by the sequester.
Mr. Draghi's pledge in 2012 to do "whatever it takes to preserve the euro," and QE have stymied sovereign debt risk in the euro area. At the same time, the EU's relaxed position over debt sustainability was highlighted earlier this year by the Commission's decision to give France two more years to get its deficit below 3% of GDP. But Moody's downgrade of the French government bond rating last week to Aa2 from Aa1 serves as a gentle reminder to investors of the underlying fundamentals.
Investors will get what they want today from the ECB: additional easing in the form of government bond purchases. The central bank is likely to announce or pre-commit to sovereign QE and corporate bond purchases in a new program that will last at least two years.
Outside the U.S., global oil production is dominated by national oil companies, which are effectively arms of their states. State actors respond differently to private oil producers when prices fall, especially in states where oil revenues are the key element of government cashflow.
The day of reckoning in Greece has been continuously postponed in the past three months, but government officials told national TV yesterday that the country cannot meet its IMF payment of €300M June 5th, without a deal with the EU. The urgency was echoed by the joint statement earlier this week by German Chancellor Merkel and French President Hollande that Greece has until the end of this month to reach a deal.
A spell of outright CPI deflation in Japan is just around the corner. Headline inflation slipped to 0.2% in August, from 0.3% in the previous month, as the drag from the discounts backed by the government's "Go To Travel" subsidies more than outweighed the upward pressure from non-core goods.
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.
The cyclical recovery in Italy likely strengthened in the second quarter. Real GDP rose 0.3% quarter-on-quarter in Q1, and we think the e conomy repeated, or even slightly, beat this number in Q2. This would mark the strongest performance in four years, but it will take more than a business cycle upturn to solve the Italian economy's structural challenges. Government and non-financial corporate debt has risen to 220% of GDP since 2008, and non-performing loans--NPLs--have sky rocketed.
The Chancellor has prepared the public and the markets for a ratcheting-up of the already severe austerity plans in the Budget on Wednesday. George Osborne warned on Sunday that he would announce "...additional savings, equivalent to 50p in every £100 the government spends by the end of the decade", raising an extra £4B a year.
Brazil's interim government has been trying to put the kibosh on the vicious circle of recession, capital outflows, and political pandering that has dogged the country for so long. In his first few weeks at the helm, despite the political turmoil, Mr. Temer has started to tackle Brazil's fiscal mess, the country's biggest headache.
Investors in the gilt market would be wise not to take the new official projections for borrowing and debt issuance at face value. The forecast for the Government's gross financing requirement between 2017/18 and 2021/22 was lowered to £625B in the Budget, from £646B in the Autumn Statement.
The CPI report due today will be released on schedule, because the Bureau of Labor Statistics, which compiles the data, remains open during the partial government shutdown.
Brazil and Argentina, South America's biggest economies are going through a metamorphosis. Brazil is emerging from its recession and a modest recovery is on the horizon. Exports have rebounded, thanks to the lagged effect of the BRL's sharp sell-off last year, and confidence has improved significantly in recent months. The likelihood that interim President Michel Temer will stay on as head of Brazil's government has also helped to boost sentiment.
In a note to clients ahead of the report, Ian Shepherdson at Pantheon Macro said that while ADP isn't all that reliable of an indicator for the government's payroll release, set for Friday morning.
LatAm's growth outlook is deteriorating, despite decent domestic fundamentals and political transitions toward more market-oriented governments in some of the region's main economies.
Even though Greece managed to avert default yesterday by paying €200M in interest to the IMF, our assumption is that the country remains on the brink of running out of money. Our view is supported by the government's decision to expropriate local authority funds, and reports that the government's domestic liabilities, excluding wages and pensions, are not being met.
Brazil's GDP rose by 0.1% quarter-on-quarter in the third quarter, according to the report published last Friday. The slight growth was driven by investment and government spending, both growing 1.3%, while private consumption fell 0.3%, the biggest drop since late 2008.
The government last week fired the starting gun for the contest to replace Mark Carney as Governor of the Bank of England.
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.
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.
The Mexican government last week unveiled its 2017 fiscal budget proposal. The plan makes clear that the shocks which have battered the economy and public finances since 2015 will linger in to next year. Mexico's government has been eager to cut spending in recent years.
In theory, the headline labour market data in France should be a source of comfort and support for the new government.
The EU and Greece finally managed to agree on the framework for a third bailout yesterday, conditional on ratification in the Greek and EU parliaments this week. Mr. Tsipras' capitulation to EU demands will increase tensions within Syriza, but we expect the opposition comfortably to offset any government dissenters in this week's vote.
Italy's long-term challenges--chiefly, structurally high government debt and deteriorating demographics--remain daunting, but the cyclical picture is improving steadily. Final GDP data last week revealed that growth in the first half of the year was 0.2% better than initially estimated, taking the annualised growth rate to 1.4%, the highest in five years. This is the first sign of a durable business cycle upturn since the sovereign debt crisis crashed the economy in 2012.
All policymaking is about trade-offs; very few government decisions confer only benefits. Someone, or more likely some group, loses. Monetary policy is no exception to the trade-off rule.
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.
Retail sales account for some 30% of GDP--more than all business investment and government spending combined--so the monthly numbers directly capture more of the economy than any other indicator. Translating the monthly sales numbers into real GDP growth is not straightforward, though, because the sales numbers are nominal. Sales have been hugely depressed over the past year by the plunging price of gasoline and, to a lesser extent, declines in prices of imported consumer goods.
Suggestions that the U.K. government might choose to hold a second referendum have been constantly rebuffed by the Prime Minister.
As we go to press, Mrs. May's last-minute scramble to Strasbourg appears to have failed to persuade enough rebels to back the government.
• U.S. - The April NFP report was terrible; reality is worse • EUROZONE - How to spy to a rebound in the EZ economy • U.K. - The BOE will boost its QE program in due course • ASIA - China's 2020 budget deficit is set to soar • LATAM - Brazil is suffering from the government's Covid-19 mismanagement
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.
• U.S. - Can Powell push Congress to act again? • EUROZONE - Has the ECB revived the carry trade in EZ government bonds? • U.K. - What are the options for the MPC this week? • ASIA - Don't be fooled by the relatively solid Chinese manufacturing PMI • LATAM - The LatAm economies are feeling the pain of Covid-19
Political risks in the periphery have simmered constantly during this cyclical recovery, but they have increased recently. In Italy, the government is scrambling to find a solution to rid its ailing banking sector of bad loans. But recapitalisation via a bad bank is not possible under new EU rules.
Hopes that GDP growth will strengthen following the general election, which has eliminated near- term threats of a no-deal Brexit and a business- hostile Labour government, were bolstered yesterday by the release of December's Markit/ CIPS services survey.
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.
We were happy to see the 255K gain in July payrolls, but we remain nervous about the sustainability of such strong numbers. The jump in employment was very large relative to some of the key survey-based indicators of the pace of hiring, even after allowing for the 29K favorable swing in the birth/ death model, compared to a year ago, and the 27K jump in state and local government education jobs, likely due to seasonal adjustment problems
Brazil's interim government has been trying to put the kibosh on the vicious circle of recession, capital outflows, and political pandering that has dogged the country for so long. In his first few weeks at the helm, despite the political turmoil, Mr. Temer has started to tackle Brazil's fiscal mess, the country's biggest headache.
It's probably happening a decade too late, but the EU is now moving in leaps and bounds to restructure the continent's weakest banks. Yesterday, the Monte dei Paschi saga reached an interim conclusion when the Commission agreed to allow the Italian government to take a 70% stake in the ailing lender.
The key data originally scheduled for today--ADP employment and the ISM non-manufacturing survey, and the revised Q3 productivity and unit labor costs-- have been pushed to Thursday because the federal government will be closed for the National Day of Mourning for president George H. W. Bush.
The violent protests in France claimed their first victims over the weekend, providing sombre evidence of the severity of the situation for the government.
Argentina's overdue policy tightening, aimed at dealing with the country's severe inflation and fiscal problems, is underway. Printing of ARS at the central bank, the BCRA, to finance the budget, deficit has slowed and will be curbed further. Welfare spending, which accounts for nearly half of government spending, has been put on the chopping block.
The decision by the ECB to remove the waiver for including Greek government bonds in standard refinancing operations changes little in the short run, as the banking system in Greece still has full access to the ELA. It does put additional pressure on Syriza, though, to abandon the position that it will exit the bailout on February the 28th, effectively pushing the economy into the abyss.
Brazil's interim government has been trying to put the kibosh on the vicious circle of recession, capital outflows, and political pandering that has dogged the country for so long. In his first few weeks at the helm, despite the political turmoil, Mr. Temer has started to tackle Brazil's fiscal mess, the country's biggest headache.
Sterling jumped last week to its highest level against the dollar since last October in response to news that a general election will be held on June 8. Markets are betting that the Conservative Government will sharply increase its majority, enabling Theresa May to ignore Eurosceptic backbenchers when she strikes a deal with the EU.
China's PMIs are not yet fully picking up the coronavirus; China's non-manufacturing PMI lifted by local government spending; not yet hit by the virus; Japan's job postings still suggest the unemployment rate is unsustainably low; Japan's national inflation has less far to fall than Tokyo's; The coronavirus will delay the return of Japanese retail sales to pre-tax hike levels; Investment goods drive Japan's IP rebound in December; no real support now for consumer goods production; December probably is as good as it will get for Korean industrial production, for now
In one line: Not pretty, but partly driven by volatility around government incentive schemes.
In one line: Did the ECB just revive the bank-carry trade in government bonds?
In one line: EZ GDP growth held up by consumers' and government spending.
Non-core items outweigh government measures in Japan's October CPI. Ignore the minor rebound in Japan's manufacturing PMI; the trend remains very weak. The post-tax drop and rebound in Japan's services PMI isn't as sharp, but Q4 looks vulnerable to a painful GDP hit.
Japan's government is sucking out more private funds than it is pumping in. Weak oil prices will continue to pull down Korean inflation in the coming months.
The verdict is not yet definitive, but prudence dictates we must now assume victory for Donald Trump. The immediate implication of President Trump is global risk-off, with stocks everywhere falling hard, government bonds rallying, alongside gold and the Swiss franc. The dollar is the outlier; usually the beneficiary when fear is the story in global markets, it has fallen overnight because the risk is a U.S. story.
Our caution over China's March industrial production spike was justified. Chinese retail sales growth hits lows. Chinese FAI growth suggests private sector policy loosening isn't working. Japan's M2 growth upturn is a welcome break, but needs to be sustained. Korean unemployment jumps in April, showing the limits of the government's hiring spree.
Judgement pending on Chinese industrial production. Chinese retail sales buoyed by inflation. Chinese FAI growth stable through Q4; local government spending better managed this year. China's housing market still not reached a bottom. Japan's tertiary index plunge is more tax hike than typhoon. Japan's PMIs underline damage from tax hike.
Brazil's central bank doubled the pace of rate increases last Wednesday, in the wake of the re-elected Rousseff government's promise to tackle the severe inflation problem.
The budget sequestration process, which cut discretionary government spending by a total of $114B in fiscal 2013 and fiscal 2014, was one of the dumbest things Congress has done in recent years.
Brazil's central bank is desperately trying to get a grip on inflation. It has raised the Selic rate by 225bp, to 13.25%, in just the last six months, and real rates now stand at a hefty 5.0%. And, at last, we are seeing tentative signs that policymakers and the government, after hiking rates and adjusting regulated prices, are making some headway.
The Argentinian government and the IMF have finally reached a new agreement to "strengthen the 36-month Stand-By Program approved on June 20".
The publication yesterday of the first BCB quarterly inflation report under the new president, Ilan Golfajn, revealed his initial views on inflation, the currency, and monetary policy. Overall, Mr. Golfajn has taken a hawkish approach. We think Brazil's first rate cut will come no earlier than Q4, likely at the final meeting of the year, providing the government continues the fiscal consolidation process and inflation keeps falling.
The Atlanta Fed's GDP Now estimate for second quarter GDP growth will be revised today, in light of the data released over the past few days. We aren't expecting a big change from the June 24 estimate, 2.6%, because most of the recent data don't capture the most volatile components of growth, including inventories and government spending. The key driver of quarterly swings in the government component is state and local construction, but at this point we have data only for April; those numbers were weak.
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.
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.
Companies' profit margins have fared relatively well during this recovery, and on many measures, they are back to pre-crisis levels. But looking ahead, corporate profitability is set to be squeezed as labour takes a larger share of national income and the Government gets to grips with the budget deficit by increasing corporate taxation.
Reports yesterday indicated that a deal has finally been struck between the European Commission and the Italian government to start dealing with bad loans in the banking system. The initial details suggest the government will be allowed to guarantee senior tranches on non-performing loans, supposedly making them easier to sell to private investors. In order to avoid burdening government finances as part of the sales--not allowed under the new banking union rules--the idea is to price the guarantees based on the credit risk of similar loans.
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.
Mr. Draghi's speech yesterday in Portugal, at the ECB forum on Central Banking, pushed the euro and EZ government bond yields higher. The markets' hawkish interpretation was linked to the president's comment that "The threat of deflation is gone and reflationary forces are at play."
The Prime Minister will invoke Article 50 today, marking the end of the beginning of the U.K.'s departure from the EU. The move likely will not move markets, as it has been all but certain since MPs backed the Government's European Union Bill on February 1.
The defeat in the House of Lords of the Government's plans to cut spending on tax credits by £4.4B next year is not a barrier to their implementation. But it has prompted speculation that the Chancellor will reduce the size of the fiscal consolidation planned for next year. The plans may be tweaked in the Autumn Statement on 25 November, but we think the economy will still endure a major fiscal tightening next year.
Eurozone politicians are likely scrambling for a last gasp return to negotiations before the Greek bailout program ends at the end of today. But progress will likely be limited until we have the result of the planned Greek referendum on Sunday. Voters will be asked essentially on whether they agree with the proposal presented by the institutions. The government will campaign for a "no," but a "yes" looks more likely, based on polls that Greeks want to stay in the Eurozone.
The Prime Minister achieved a rare victory yesterday, when the Commons passed the government-backed Brady amendment.
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.
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
The alarming pace at which the Government is marching towards the Brexit cliff edge still shows no sign of instilling panic among households or firms.
Six developments over the summer have increased the likelihood that the government will make concessions required to preserve unfettered access to the single market after formally leaving the EU in March 2019.
Sunday's referendum on independence in Catalonia is a wild-card. The central government has taken drastic steps to ensure that a vote doesn't happen.
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.
Brazil's recession eased considerably in the first quarter, due mainly to a slowing decline in gross fixed capital formation, a strong contribution from net exports, and a sharp, albeit temporary, rebound in government spending. Real GDP fell 0.3% quarter-on-quarter, much less bad than the revised 1.3% contraction in Q4.
On the face of it, the outperformance of gilts compared to government bonds in other developed countries this year suggests that Brexit would be a boon for the gilt market. In the event of an exit, however, we think that the detrimental impact of higher gilt issuance, rising risk premia and weaker overseas demand would overwhelm the beneficial influence of stronger domestic demand for safe-haven assets, pushing gilt yields higher.
The Chancellor is likely to announce plans for additional public sector asset sales in today's Autumn Statement, to help arrest the unanticipated rise in the debt-to-GDP ratio this year. But privatisations rarely improve the underlying health of the public finances, partly because assets seldom are sold for their full value. And the Chancellor is running out of viable assets to privatise; the low-hanging, juiciest fruits have already been plucked.
Ian Shepherdson, Pantheon Macroeconomics founder and chief U.S. economist, joins "Squawk Box" to discuss how the partial government shutdown is impacting the economy.
Freya Beamish, Chief Asia economist at Pantheon Macroeconomics, discusses the Chinese government's ability to provide economic stimulus. She speaks on "Bloomberg Surveillance."
Chief U.K. Economist Samuel Tombs on UK Government Borrowing
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.
Chief U.K. Economist Samuel Tombs discussing next months budget
Chief U.K. economist Samuel Tombs comments on today's retail data release
Chief U.K. Economist Samuel Tombs on U.K. Public Finances
Has the Internal Market Bill killed off the chances of a trade deal with the E.U.?
Chief U.K. Economist Samuel Tombs on U.K. Public Finances
Chief U.S. Economist Ian Shepherdson on U.S. Unemployment
Chief U.S. Economist Ian Shepherdson on the lack of new U.S. Fiscal stimulus
Chief U.S. economist Ian Shepherdson comments on U.S Q4 GDP
Freya Beamish, Pantheon Macroeconomics Chief Asia Economist, says the recovery in China is likely to underperform in the second half of the year.
Senior International Economist Andres Abadia on Chile's economy
Chief U.S. Economist Ian Shepherdson on the U.S. Economy
Chief U.S. Economist Ian Shepherdson on today's Payroll report
Is the monetary easing cycle in Brazil over?
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