Search Results: 1716
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1716 matches for " index":
We're very interested in the detail of today's January NFIB survey; the headline index, not so much.
In one line: A solid start to the year, but Q2 will be awful.
In one line: Tariff fears strike again?
In one line: A decent end to the year as the hit from the social unrest eases.
In one line: Great, but rising external risks suggest that the recovery will stutter.
In one line: Still reflecting the pre-Covid world.
In one line: Nothing to lose sleep over.
In one line: The first signs of the coronavirus hit; more pain to come.
In one line: Falling mortgage rates are bolstering prices.
In one line: A good start to Q3.
In one line: Soft start to the third quarter; the trade war is a huge drag.
In one line: A decent rebound, despite undershooting expectations.
In one line: A surprising rebound in activity.
In one line: A modest improvement; the road to full recovery will be long and painful.
In one line: A decent improvement, and we expect further good news ahead.
In one line: Surging in the wake of the stamp duty cut.
In one line: Further evidence that the housing market already had regained momentum before the election.
In one line: The modest recovery is on track, but risks remain.
In one line: The recovery continues; risks are titling to the upside.
In one line: The upturn in prices is built on sand.
In one line: Falling employment and rising mortgage rates spell falling prices soon.
In one line: On the mend, but momentum in some sectors is easing.
In one line: Near-flat trend in prices unlikely to improve soon.
In one line: Non-mining activity collapses in April; Q2 is a write-off.
In one line: An ugly headline, but the detail are not as horrible.
In one line: Horrible, but likely the floor.
In one line: On the mend, but a full recovery remains a long way off
In one line: A poor start to the third quarter and downside risks remain.
In one line: The economy is on the mend, unevenly.
In one line: The economy was on the mend before the virus, but Covid-19 will hit hard.
In one line: Starting to converge with other weaker measures.
In one line: Slower growth reported following methodological improvements.
In one line: Irreconcilable with all other evidence.
In one line: Still implausibly strong.
In one line: Weak, and the details are much worse than the headline.
In one line: Still misleadingly upbeat.
In one line: No longer slowing; lower mortgage rates are helping.
In one line: Close to the nadir.
In one line: A modest rebound, but the trend is improving.
In one line: Treading water, but falling mortgage rates will help soon.
In one line: Terrible numbers, but likely marking the floor.
In one line: Economic activity its rebounding following the social unrest.
In one line: Flat for six months, but modest growth likely ahead.
In one line: A decent rebound, but downside risks remain.
In one line: A soft headline and a near-term misery looms.
In one line: Social unrest puts the economy on its knees.
In one line: A tragic end to Q1, and worse is coming.
In one line: Solid, and further gains likely in coming months.
In one line: Terrible, but a gradual upturn likely will emerge in late Q2.
In one line: A poor start to 2020 for Mexico, even before Covid-19.
In one line: Modest inflation pressures amid subpar economic activity.
Brazil is back on global investors' radar screens. Financial market metrics capture a relatively robust bullish tone, especially since the presidential election.
In one line: The recovery continues, but some sectors are struggling,
In one line: The recovery continues, but it is easing on sequential basis.
In one line: An ugly start to the second quarter, despite a modest improvement in sectoral data.
In one line: A decent rebound, but downside risks remain.
In one line: The economy did very badly in Q1, and risks are still tilted to the downside.
In one line: The recovery continues, but it is easing on sequential basis.
In one line: A soft end to the year, but the modest recovery continues.
In one line: The modest uptrend continues.
In one line: Worst monthly contraction ever, but it soon will hit the floor.
In one line: Weighed down by political uncertainty.
The dovish members of Banxico's board garnered further support on Friday for prolonging the current easing monetary cycle over coming meetings.
In one line: Still reflecting market conditions only immediately after the lockdown ended.
In one line: The Brazilian economy was gathering strength before Covid-19.
In one line: Better domestic conditions offset by rising external risks.
In one line: Weakness reflects pre-election nerves; Covid-19, however, has re-written the post-election script.
In one line: London prices had begun to outperform before the virus shock.
In one line: A decent start to the year, but the good news won't last.
In one line: Lower mortgage rates are working their magic.
The downturn in Japan's all-industry activity index slowed in May to -3.5% month-on-month, from April's significantly revised 7.6% plunge.
Our composite index of employment indicators, based on survey data and the official JOLTS report, looks ahead about three months.
Last week's strong ISM manufacturing survey for November likely will be followed by robust data for the non-manufacturing sector today, but the headline index, like its industrial counterpart, likely will dip a bit.
French consumers remained in great spirits midway through the fourth quarter. The headline INSEE consumer confidence index jumped to a 28-month high in November, from 104 in October, extending its v-shaped recovery from last year's plunge on the back of the yellow vest protests.
Yesterday's IFO survey in Germany sent a marginally more downbeat message than the strong PMIs last week. The IFO business climate index fell to 115.2 in September, from 115.9 in August, its second straight monthly dip.
The MPC will be looking for the Q1 national accounts and April's index of services data, both released on Friday, to support its view that the economy hasn't lost momentum this year.
Our view that EZ survey data would take a step back in February was severely challenged by yesterday's PMI reports. The composite index in the Eurozone rose to 56.0 in February, from 54.4 in January, lifted by a jump in the services index and a small rise in the manufacturing index.
German producer price inflation rebounded last month. The headline PPI index rose 2.6% year-over-year in August, up from a 2.3% increase in July, driven almost exclusively by a jump in energy inflation.
The headline May ISM non-manufacturing index today likely will mirror, at least in part, the increase in the manufacturing survey, reported Friday.
Mexico's National Institute of Statistics--INEGI-- will release preliminary GDP data for Q1 on Friday. We are expecting good news, despite the tough external and domestic environment. According to the economic activity index--a monthly proxy for GDP-- growth gained further momentum in Q1, based on data up to February.
Latin American markets have been relatively resilient this year, despite Fed tightening and high global political risks. The LACI index has risen more than 5% year-to-date, and the MSCI index has been trending higher since late last year.
We were terrified by the plunge in the ISM manufacturing export orders index in August and September, which appeared to point to a 2008-style meltdown in trade flows.
Japan's all-industry activity index dropped by 3.8% month-on-month in March, worse than the 0.7% slip in February.
The Conference Board's index of leading economic indicators appears to signal that the U.S. economy is plunging headlong into recession.
The July trade deficit likely fell significantly further than the consensus forecast for a dip to $42.2B from $43.8B in June, despite the sharp drop in the ISM manufacturing export orders index. Our optimism is not just wishful thinking on our p art; our forecast is based on the BEA's new advance trade report. These data passed unnoticed in the markets and the media. The July report, released August 28, wasn't even listed on Bloomberg's U.S. calendar, which does manage to find space for such useless indicators as the Challenger job cut survey and Kansas City Fed manufacturing index. Baffling.
Japan's Q2 Tankan survey wasn't all bad news, but the positives won't last long. The large manufacturers index dropped to 7 in Q2, after the decline to 12 in Q1.
The 17-point leap in the Richmond Fed index for October, reported yesterday, was startlingly large.
Yesterday's PMIs kicked off a busy week for Eurozone data on a downbeat note. The composite EZ PMI fell to a five-month low of 55.8 in July, from 56.3 in June; it was constrained by a 0.6 point dip in the manufacturing index to 56.8.
Japan's manufacturing PMI rose to 53.3 in April, from 53.1 in March. The index weakened earlier this year, but remained at levels unjustified by the hard data.
The rebound in the ISM manufacturing index was a relief, after the sharp drop in October, though the strength in last week's Chicago PMI meant that it wasn't a complete surprise.
While we were out, the economic news in LatAm was mostly positive. The main upside surprise came from Mexico, with the IGAE activity index--a monthly proxy for GDP--rising 2.9% year-over-year in August, up from 1.2% in July, and an average of 2.4% in Q2. A modest rebound was anticipated, but the headline was much better than we and the markets expected.
The most important number, potentially, in today's wave of economic reports is the Employment Costs Index for second quarter.
The simultaneous decline in both ISM indexes was a key factor driving markets to anticipate last week's Fed easing.
Before the Covid pandemic struck, the mix-adjusted measure of wages and salaries in the employment costs index was trending up by about 3.0% year-over-year.
The huge drop in the March Markit services PMI, reported yesterday, and the modest dip in the manufacturing index, are the first national business survey data to capture the impact of the Covid-19 outbreak.
Markets cheered soaring business surveys in the Eurozone earlier this week, and recent consumer sentiment data also have been cause for celebration. The advance GfK consumer confidence index in Germany rose to a record high of 10.4 in June, from 10.2 in May.
Yesterday's 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.
The trend of consensus-beating EZ economic data was brought to a halt yesterday. The IFO business climate index in Germany slipped to a five-month low of 109.8 in January, from 111.0 in December, mainly due to a fall in the expectations index. But we are not alarmed. The dip in the headline comes after a run of strong data, and the IFO remains consistent with GDP growth of about 1.6% year-over-year.
Japanese data continue to come in strongly for the second quarter. The manufacturing PMI points to continued sturdy growth, despite the headline index dipping to 52.0 in June from 53.1 in May. The average for Q2 overall was 52.6, almost unchanged from Q1's 52.8, signalling that manufacturing output growth has maintained its recent rate of growth.
Survey data in EZ manufacturing remain soft. Yesterday's final PMI report for August confirmed that the index dipped to 54.6 in August, from 55.1 in July, reaching its lowest point since the end of 2016.
This week is, potentially, hugely important in determining the Fed's near-term view of the real state of the labor market and its approach to monetary policy over the next few months. The key event is the release of the fourth quarter employment cost index, which could make a material difference to perceptions of the degree of wage pressure.
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.
Yesterday's final manufacturing PMIs confirmed that the headline index in the euro area rebounded further last month.
Consumer sentiment data yesterday from the major economies were mixed, signalling that support to Eurozone GDP growth from surging German household consumption is waning. The key "business outlook" index--which correlates best with spending--plunged to a 30-month low in October, while the advance GfK sentiment index dipped to 9.4 in November from 9.6 in October. We see little signs in retail sales data of slowing momentum, and also think consumers' spending rebounded in Q3. But our first chart shows that the fall in the GfK index implies clear downside risks in coming quarters.
French manufacturing confidence soared at the start of Q2. The headline INSEE index jumped to a six-year high of 108 in April, from an upwardly revised 105 in March. The headline was flattered by a big increase in the "past activity" index, but the survey's leading indicators also improved.French manufacturing confidence soared at the start of Q2. The headline INSEE index jumped to a six-year high of 108 in April, from an upwardly revised 105 in March. The headline was flattered by a big increase in the "past activity" index, but the survey's leading indicators also improved.
Advance inflation data on Friday added to the gloom on the Eurozone economy. Reports from Germany, France, and Spain all surprised to the downside, indicating the euro area as a whole slipped back into deflation in February. Inflation in Germany dipped to 0.0% year-over-year in February, from 0.5% in January, and France slid back into deflation as the CPI index fell 0.2%, down from a 0.2 increase last month.
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.
Friday's final June PMI data confirmed the survey's recovery through Q2. The composite index edged higher to 48.5, from 31.9 in May, extending its rebound from a low of just 13.6 in April.
The headline ISM non-manufacturing index is not, in our view, a leading indicator of anything much. The survey covers a broad array of non manufacturing activity, including mining, healthcare, and financial services, but most of the time it tends to follow the track of real core retail sales, as our first chart shows.
Japan's tertiary index rounds out a dismal Q4
August's 14-year high in the ISM manufacturing index, reported yesterday, clearly is a noteworthy event from a numerology perspective, but we doubt it marks the start of a renewed upward trend.
Slowing FAI growth underscores the urgency for more PBoC easing October was painful and the slowdown in Chinese IP growth is far from over and no, households in China won't come to the economy's rescue. Japan sneaks in a tax hike; GDP data unfazed. Japan's tertiary index jars with the GDP data.
Short-term trends in Chinese industry continued to soften in May, with catch-up growth fading, No noticeably May Day lift, as retail sales in China continue to fall behind, Chinese investment looks to have taken a breather in May, Don't put too much stock into the stronger increase in Chinese home prices, Japan's tertiary index should rebound from April, but Q2 is a write-off
Japan's tertiary index shows Q2 services strength was merely an April leap. Japan's PPI is slated for more deflation.
Once again, ignore the headline... Japanese machine orders probably rose in September. Japan's rising tertiary index will soon hit the third wave wall. PPI deflation in Japan should end in Q2.
Whatever happened to consumers' sentiment in March, the level of University of Michigan's index will be very high, relative to its long-term average.
Japan's tertiary index fell further in December,by 0.3% month-on-month, after the downwardly- revised 0.4% drop in November.
Japan's inflationary upturn will be limited. Japan's activity index reinforces case for Q1 GDP downgrades.
Japan's tertiary index still has further to fall
Japan's tertiary index remains below trend despite looming tax hike
Before last November's election, movements in the headline NFIB index of activity and sentiment among small businesses could be predicted quite reliably from shifts in the key labor market components, which are released in advance of the main survey.
PPI deflation should soon trough. Chinese food inflation takes off. Japan's tertiary index points to strong Q3 GDP growth.
The likely dip in the headline NFIB index of small business sentiment and activity today will tell us that business owners are unhappy and nervous about the potential impact of the latest China tariffs on their sales and profits.
The case for believing that August's unexpected 14-year high in the ISM manufacturing index was a fluke is pretty straightforward, and it has both short and medium-term elements.
Japan's trade balance continues to struggle with oil gains and post-tax hike recovery. Activity index shows downside risks to Q4 GDP.
April should be as bad as it'll get for Japan's all-industry index.
Echoes of the global financial crisis and the 2011 tsunami in Japan's manufacturing PMI; Japan's services index tanks to a record low
Further weakness to come for Japan's manufacturing PMI. First services hit from the coronavirus is damning. Japan's all-industry activity index suggests the 2019 tax hike was as bad as 2014. A drop in food inflation was enough to offset lagged oil pressures in Japan's January CPI. Ignore the headline; the coronavirus is now hurting Korean exports.
March was painful, but Japan's all-industry index likely was hit much harder in April.
Steady Q4 GDP growth in China masks respectable q/q rebound. Signs of recovery in China's industrial complex, but for how long? China's households continue to struggle. China's FAI growth shows rebuilding confidence around the Phase One deal. Japan's November tertiary index suggests October plunge was more tax than typhoon. January sees the first of many BoK "holds" this year.
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.
Japan's tertiary index underlines that Q4 was catch-up growth...Q1 is payback
Today's March CPI ought to provide further support for the idea that the trend rate of increase in the core index is running at about 0.2% per month, an annualized rate, if sustained, of about 2.5%.
CPI deflation in Japan is looming, due to the collapse in global oil prices. January will be as good as it gets for Japan's all-industry activity index
Under normal circumstances, we can predict movements in the headline NFIB index from shifts in the key labor market components, which are released a day ahead of the official employment report, and, hence, about 10 days before the full NFIB survey appears.
The recent softening in the ISM employment indexes failed to make itself felt in the June payroll numbers, which sailed on serenely even as tariff-induced chaos intensified at the industry and company level.
Brazil's December economic activity index, released last week, showed that the economy ended the year on a relatively soft footing.
RPI inflation has declined in importance as a measure of U.K. inflation and was stripped of its status as a National Statistic in 2013. Yet it is still used to negotiate most wage settlements, calculate interest payments on index-linked gilts, and revalue excise duties. We have set out our above-consensus view on CPI inflation several times, including in yesterday's Monitor. But the potential for the gap between RPI and CPI inflation to widen over the coming years also threatens the markets' view that the former will remain subdued indefinitely.
Some shoes never drop. But it would be unwise to assume that the steep plunge in manufacturing output apparently signalled by the ISM manufacturing index won't happen, just because the hard data recently have been better than the survey implied.
Today's February CPI report is very unlikely to repeat January's surprise, when the core index was reported up 0.3%, a tenth more than expected.
Brazil's December economic activity index, released last week, showed that the economy ended the year on a relatively weak footing. The IBC-Br index, a monthly proxy for GDP, fell 0.3% month- to-month, pushing down the adjusted year-over- year rate to 0.3%, from a downwardly-revised 0.7% increase in November.
The 6.4-point rebound in the May ISM non-manufacturing employment index, to a very high 57.8, supports our view that summer payroll growth will be strong. On the face of it, the survey is consistent with job gains in excess of 300K, as our first chart shows, but that's very unlikely to happen.
We were happy to see the small increase in the March ISM manufacturing index yesterday, following better news from China's PMIs, but none of these reports constitute definitive evidence that the manufacturing slowdown is over.
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.
Usually, we forecast existing home sales from the pending sales index, which captures sales at the point contracts are signed.
Chile's Imacec index confirmed that economic growth ended the year on a soft note, due mainly to weakness in the mining sector.
Investors have treated the upbeat message of the Markit/CIPS PMIs this week with caution and continue to think that the chance that the MPC will raise interest rates this year is remote. Overnight index swap rates currently are pricing-in just a one-in-four chance of a 25 basis point increase in Bank Rate in 2017.
Data on EZ consumption were soft while we were enjoying our Christmas break. The advance EC consumer confidence index slipped to a three-year low of -8.1 in December, from -7.2 in November, breaking its recent tight range.
The rebound in the ISM non-manufacturing index in February was in line with our forecast, but behind the strong headline, the employment index dropped to an eight-month low.
Hot on the heels of yesterday's news that the NAHB index of homebuilders' sentiment and activity dropped by two points this month -- albeit from December's 18-year high -- we expect to learn today that housing starts fell last month.
The rate of growth of real personal incomes is under sustained downward pressure, slowing to 2.1% year-over-year in December from 3.4% in the year to December 2015. In January, we think real income growth will dip below 2%, thanks to the spike in the headline CPI, reported Wednesday. Our first chart shows that the 0.6% increase in the index likely will translate into a 0.5% jump in the PCE deflator, generating the first month-to-month decline in real incomes since January last year.
Mexico's economy is not accelerating, but it is holding up well in extremely difficult circumstances for EM. Growth is reasonably healthy, inflation is under control and the labor market is resilient. In short, Mexico is a success story, given the backdrop of plunging oil prices. The contrast with the disaster in Brazil is stark. Last week's survey and hard data continued to tell an upbeat story on Mexico's economy. The IMEF manufacturing index, Mexico's PMI, rose to 52.1 in November up from 51.6 in October, lifted mainly by gains in the employment and deliveries indexes.
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.
Economic data released yesterday underscored that Brazil emerged from recession in the first quarter, but further rate cuts are needed. Indeed, the monthly economic activity index--the IBC-Br--fell 0.4% monthto- month in March, though this followed a strong 1.4% gain in February.
The IBC-Br index, a monthly proxy for Brazil's GDP--rose 0.5% month-to-month in November, pushing the year-over-year rate down to 2.8%, from an upwardly-revised 3.1% in October.
Brazil's benchmark inflation index, the IPCA, fell 0.1% month-to-month unadjusted in August, below market expectations.
We don't take much reassurance from the upward revision to the business activity index of Markit's services PMI to 56.1, from the flash estimate, 55.1.
If you need more evidence that the U.S. economy is bifurcating, look at the spread between the ISM non- manufacturing and manufacturing indexes, which has risen to 3.5 points, the widest gap since September 2016.
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,
Brazil's July economic activity index, released yesterday, showed that the economy started the second half of the year strongly. The IBC-Br index, a monthly proxy for GDP, rose 0.4% month-to-month, pushing the year-over-year rate up to 1.4%, from -0.4% in June.
Economic sentiment in the Eurozone's largest economy stayed solid at the start of the fourth quarter, despite subdued manufacturing and poor investor sentiment. The headline IFO business climate index fell slightly to 108.2 in October from 108.5 in September, due to a fall in the current assessment index. The expectations index rose, though, to 103.8 from 103.5 last month pointing to a resilient outlook for businesses and solid GDP growth in coming quarters.
Chief U.K. Economist Samuel Tombs on U.K. House prices
Chief US economist Ian Shepherdson on the latest ISM nonmanufacturing data
Samuel Tombs on Halifax House Price Index in May
The Brazilian labour market is slowly healing following the severe recession of 2015-16. The latest employment data, released last week, showed that the economy added 35K net jobs in August, compared to a 34K loss in August 2016.
Friday's PMI data in the Eurozone added to the evidence that GDP growth is slowing, after a cyclical peak last year. The composite PMI in the euro area slipped to a 21-month low of 52.6 in September, from 52.9 in August.
The ECB kept its cool yesterday, at the headline level, amid crashing stock markets, volatile BTPs and souring economic data.
Economic news in the Eurozone, and virtually everywhere else, has been mostly downbeat in the past few months, but French consumers are doing great.
In the absence of reliable advance indicators, forecasting the monthly movements in the trade deficit is difficult.
Yesterday's IFO offered a rare upside surprise in the German survey data.
Inflation in Mexico surprised to the upside in April, but the underlying picture has improved rapidly over recent months.
The official data lag developments in the real economy even at the best of times, but on this occasion the gap has turned into a chasm.
Consumers' spending in Mexico was relatively resilient at the end of Q1, but we think it will slow in the second quarter. Data released this week showed that retail sales rose a strong-looking 6.1% year-over-year in March, well above market expectations, and up from 3.6% in February.
In a week of important global events, local factors remained in the spotlight in Brazil, with a more benign data flow and the central bank statement reducing the likelihood of an imminent end to the easing cycle.
Economic and financial conditions have worsened substantially in Brazil in recent weeks, due mainly to Covid-19 and the sharp deterioration of the global economy.
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.
Hong Kong delivered a resounding landslide victory to pro-Democracy parties in district council elections over the weekend.
Mexico's final estimate of third quarter GDP, released yesterday, confirmed that the economy is still struggling in the face of domestic and external headwinds.
The headline EZ data added to the evidence of a weakening recovery while we were away.
Outright CPI deflation likely already has taken hold in Japan. Friday's data showed inflation falling to zero percent in September, from 0.2% in the previous month.
This week's surveys data in France, for November, have all but confirmed that the economy will be knocked off its perch in Q4.
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 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
Back in the olden days, we argued that shifts in the global manufacturing cycle often originated in China, and then fed into the U.S. and European data with a lag of one-to-three months.
India's government imposed a three-week nationwide lockdown on March 25 to combat the increasingly rapid spread of Covid-19.
The MPC likely will vote unanimously to keep Bank Rate at 0.75% on Thursday.
The EZ economic survey data for April were disappointing in our absence.
Yesterday's money supply data in the Eurozone were solid across the board.
Inflation in Mexico remains relatively sticky, limiting Banxico's capacity to adopt a more dovish approach, despite the subpar economic recovery.
Household sentiment in France continues to improve, consistent with tailwinds from low energy prices and accommodative monetary policy. INSEE's measure of consumer confidence rose to 94 in April, up from 93 in March, the highest since November 2010.
It seems reasonable to think that manufacturing should be doing better in the U.S. than other major economies.
Inflation in Brazil remained subdued at the start of the second quarter, strengthening the odds for an additional interest rate cut next month, and opening the door for further stimulus in June.
Net foreign trade was a drag on GDP growth in the second quarter, subtracting 0.7 percentage points from the headline number.
Brazil's external accounts were a relatively bright spot again last year.
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.
The preliminary estimate of Q4 GDP was unambiguously strong and has forced us to modify our view of the likely timing of the next interest rate increase.
We argued in the Monitor on Friday--see here--that the Fed likely will increase the pace of its Treasury purchases, in order to ensure that the wave of supply needed to finance the next Covid relief bill does not drive up yields.
The real Boris Johnson will have to stand up this year.
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.
The Fed will do nothing to the funds rate or its balance sheet expansion program today.
Our ECB-story since Ms. Lagarde took the helm as president has been that the central bank will do as little as possible through 2020, at least in terms of shifting its major policy tools.
Consumer confidence in Korea plummeted in September for the first time since its first wave of Covid-19 earlier this year, in line with our view that the August increase was a fluke.
Recent economic data in Brazil, along with recent messages from the BCB, have supported our view that interest rates will remain on hold for the foreseeable future.
Beyond the immediate wild swings in prices for food, clothing, hotel rooms and airline fares, the medium-term impact of the Covid outbreak on U.S. inflation will depend substantially on the impact on the pace of wage growth.
Yesterday's big news in the Eurozone was the EU Commission's proposed recovery fund.
China's abysmal industrial profits data for October underscore why the chances of less- timid monetary easing are rising rapidly.
The trade war with China is a macroeconomic event, whose implications for economic growth and inflation can be estimated and measured using straightforward standard macroeconomic tools and data.
CPI inflation last Friday gave Japanese policymakers a break from the run of bad data, jumping to 0.9% in April, from 0.5% in March.
Gilt yields have tumbled, with the 10-year sliding to just 1.0%, from 1.2% a week ago.
Brazil's economic prospects continue to deteriorate rapidly, due to a combination of rising political uncertainty, the failure of the new government to advance on reforms, and ongoing external threats.
The deadline for registering to vote in the general election passed on Tuesday, with a record 660K people registering on the final day.
Argentina's near-term economic outlook remains murky, as recent data has highlighted, hit by tighter financial conditions.
This EZ calendar is extremely busy over the next few days, so we'll use this Monitor to preview the key numbers, before turning our focus on the ECB in tomorrow's report.
The best way to answer the perennially vexed question of what's happening to home prices is to take a deep breath and cite a range, given that the four main measures of prices don't measure the same thing in the same way, never agree with each other, and often contradict themselves from month-to-month.
Korea is officially out of recession, with GDP rising by 1.9% quarter-on-quarter in Q3, following the 3.2% plunge in Q2.
Survey data in Germany showed few signs of picking up from their depressed level at the start of Q4.
China's official real GDP growth slowed to 6.0% year-over-year in Q3, from 6.2% in Q2 and 6.4% in Q1. Consecutive 0.2 percentage points declines are significant in China.
Recent polls in Argentina suggest that Alberto Fernández, from the opposition platform Frente de Todos, has comfortably beaten Mauricio Macri, to become Argentina's president.
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.
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.
We aren't convinced by the idea that consumers' confidence will be depressed as a direct result of the rollover in most of the regular surveys of business sentiment and activity.
Monetary policy usually is the first line of defence whenever a recession hits.
While we were out, data released in Mexico added to our downbeat view of the economy in the near term, supporting our base case for interest rate cuts in the near future.
Our analysis of the Q3 activity and GDP data in yesterday's Monitor strongly suggests that China's authorities will soon ready further stimulus.
Yesterday's EZ money supply data confirmed that liquidity conditions in the private sector improved in Q3, despite the dip in the headline.
Yesterday's October labour market data in Mexico showed that the adjusted unemployment rate rose a bit to 3.4%, from 3.3% in September.
Predictably, the Bank of England's estimate that GDP would plunge by 8% in the first year after a disorderly no-deal, no transition Brexit and that interest rates would need to rise to 5.5% to contain inflation grabbed the headlines yesterday.
It's an almost cruel setup for the ECB today, following the central bank's slightly more confident tone last month.
In order fully to reverse the fall in GDP in the first and second quarters, the third quarter needs to grow at a 45.7% annualized rate.
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.
Today's payroll number is completely irrelevant, because 97% of the 10.2M increase--so far--in initial jobless claims from their pre-coronavirus level came after the employment survey was conducted, between Sunday March 8 and Saturday March 14.
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.
The estimate of services output for the first month of the current quarter usually gets lost among the deluge of national accounts and balance of payments data released for the previous quarter.
September likely was as good as it will get for Chinese factories this year.
Our latest round-up of the key near-real-time data is not encouraging.
All seven of Britain's major banks passed the Bank of England's stress test this year, in the first clean sweep since the annual test began in 2014.
Headline money supply growth in the Eurozone has averaged 5% year-over-year since the beginning of 2015; yesterday's October data did not change that story.
Our base case forecast has core PCE inflation at 1.9% from November 2018 through July this year.
Banxico yesterday left its policy rate unchanged at 3%, the highest level in a decade.
May's E.C. Economic Sentiment survey was a blow to hopes that the six-month stay of execution on Brexit would facilitate a recovery in confidence.
Yesterday's data don't significantly change our view that first quarter GDP growth will be reported at only about 1%, but the foreign trade and consumer confidence numbers support our contention that the underlying trend in growth is rather stronger than that.
The stock market did not like the renewed closure of bars in Texas and Florida, announced Friday morning.
Surveys released yesterday failed to support the MPC's view that the economy has bounced back in Q2.
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.
While businesses--and farmers--fret over the damage already wrought by the trade war with China and the further pain to come, consumers are remarkably happy.
We learned yesterday that the patchy but widespread reopening of the economy is triggering the first wavelet of rehiring.
Retail sales values in Japan plunged by 14.4% month-on-month in October, reversing September's 7.2% spike twice over.
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.
Leading economic indicators in the Eurozone continue to send contradictory signals. Most of the headline surveys indicate that a further slowdown, and perhaps even recession, are imminent, while the money supply data suggest that GDP growth is about to re-accelerate.
Data released this week have confirmed that the Mexican economy is struggling and that the near-term outlook remains extremely challenging.
The Monetary Policy Board of the Bank of Korea yesterday voted unanimously to lower its base rate by 25 basis points to a record low of 0.50%.
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.
Bond yields in the Eurozone took another leg lower yesterday.
Last week's capsized European Council summit added to our suspicions that uncertainty over the EU's top jobs will linger over the summer.
Don't be alarmed by the second straight jump in consumers' inflation expectations, captured by the Conference Board's May survey, reported yesterday.
Political uncertainty is starting to dampen housing market activity again.
Japan's retail sales data--due out on Thursday-- have been badly affected by the October tax hike.
Speculation that the MPC will abandon its aversion to negative rates has increased, following recent comments by Committee members.
Data released yesterday in Brazil support our base case that the IPCA inflation rate will remain relatively stable over the coming months, hovering around 2%.
The COPOM meeting minutes, released yesterday, brought a balanced message aimed at curbing market pricing of further rate cuts, in our view.
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.
Yesterday's sole economic report in the EZ showed that consumer sentiment in Germany improved mid-way through the fourth quarter.
Japan's flash Nikkei manufacturing PMI report for November was abysmal, putting the chances of a recovery this quarter into serious doubt.
We're expecting to learn today that shipments of core capital goods jumped at a 33% annualized rate in the third quarter, a record increase, and more than reversing the 19.7% second quarter plunge.
Since the Party Congress last month, China has made a number of bold moves in multiple policy fields, with a regularity that almost implies the authorities are working through a list.
President Temer seems to be advancing on his reform agenda.
Today's wave of data will bring new information on the industrial sector, consumers, the labor market, and housing, as well as revisions to the third quarter GDP numbers.
The Monetary Policy Board of the Bank of Korea yesterday left its benchmark base rate unchanged, at 0.50%, as widely expected.
German retail and consumer sentiment data for March have been mixed this week, but broadly support our call that growth in consumption should pick up soon.
Recent upbeat economic reports have mitigated the downside risks we had been flagging to our growth forecast for Mexico for the current quarter.
The Covid-19 scare can be split into two stages, the initial outbreak in China, concentrated in Wuhan, and the now-worrying signs that clusters are forming in other parts of the world, primarily in South Korea, the Middle East and Italy.
The stagnation in business investment since 2016 has been key to the slowdown in the overall economy since the E.U. referendum.
Yesterday's State Council meeting significantly expanded support to the economy, through a number of channels.
The rate of growth of Covid-19 cases outside China appears to have peaked, for now, but we can't yet have any confidence that this represents a definitive shift in the progress of the epidemic.
The headline INSEE consumer confidence data in France have become unmoored from reality.
It's pretty clear now that the President is not a reliable guide to what's actually happening in the China trade war, or what will happen in the future.
It looks as though business and consumer confidence in Korea has brushed off the economic threat of the second Covid-19 wave.
Sterling has appreciated sharply over the last two weeks and yesterday briefly touched its highest level against the euro since May 2017.
Forecasting the health insurance component of the CPI is a mug's game, so you'll look in vain for hard projections in this note.
The EZ economy's liquidity gears were well-oiled coming into the crisis.
The coronavirus pandemic looks set to spread rapidly throughout LatAm.
Yesterday's consumer sentiment data provided further evidence of a strengthening French economy, amid signs of cracks in the otherwise solid German economy.
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%.
Friday's PMI data were a mixed bag.
On Friday last week, the Chinese authorities suspended sales of domestic and international tours, in an effort to contain the spread of the coronavirus, which started in Wuhan.
On a headline level, yesterday's IFO in Germany confirmed the main message from last week's PMIs.
Japan and Korea dealt with their second waves of Covid-19 in the third quarter in completely different ways.
At first glance, the U.K. consumer price data show a perplexing absence of domestically generated inflation.
Last week the Chinese authorities issued a series of new measures to help with bank recapitalisation, and, we think, to supplement interbank liquidity.
The end of the government shutdown--for three weeks, at least-- means that the data backlog will start to clear this week.
Core durable goods orders in recent months have been much less terrible than implied by both the ISM and Markit manufacturing surveys.
All the evidence indicates that growth in Mexican consumers' spending is slowing, despite the better- than-expected November retail sales numbers, released yesterday.
As the situation with the coronavirus develops, and we gain more information on the authorities' response, it's becoming clear that the damage to Q1 GDP is going to be nasty.
Yesterday's IFO data reversed the good vibes sent by last week's upbeat German PMIs.
Judging by the survey data, German business sentiment remained depressed at the start of the year.
This is the final report before your scribe disappears into the Scottish Highlands for a few weeks, and we are leaving you with a Eurozone economy in fine form. The calendar will be relatively light in our absence and will tell us what we already know; namely that the euro area economy maintained its strong momentum in Q2.
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.
Japan's May retail sales rebound was underwhelming at a mere 0.3% month-on-month, after a 0.1% fall in April.
The decline in headline durable goods orders in May, reported yesterday, doesn't matter.
Money supply growth in the Eurozone rebounded slightly last month, reversing some of the weakness at the start of the year.
House Democrats and Senate Republicans are so far apart on both the structure and the size of the next Coronavirus relief package that it's hard to see a bill passing Congress in less than a couple weeks or so, and it could easily take longer.
The April international trade numbers were startlingly, and surprisingly, horrible. The deficit in trade in goods leaped by $6.2B -- the biggest one-month jump in two years -- to $67.1B, though the headline damage was limited by a sharp narrowing in the oil deficit, thanks to lower prices, and a rebound in the aircraft surplus.
We expect to learn today that the economy expanded at a 2.1% annualized rate in the fourth quarter, slowing from 3.4% in the third.
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.
We were happy to see upside surprises from both sides of the domestic economy yesterday, but we doubt that the August readings from both the Conference Board's consumer confidence survey and the Richmond Fed business survey can hold.
Data last week confirmed that Peru's economic growth slowed sharply in the first half of the year, due to the damaging effects of the global trade war hitting exports.
Mexican GDP plunged 17.1% quarter-on-quarter in Q2, according to the final report, close to the first estimate.
The Fed meeting today is unlikely to bring any significant policy shifts, mostly because the Fed has done everything we thought would be necessary once it became clear how badly the economy would be hit by Covid-19.
Today is a busy day in the Eurozone economic calendar, but we suspect that markets mainly will focus on the details of Italy's 2019 budget.
The headline durable goods orders number for October, due today, likely will be depressed by falling aircraft orders, both civilian and military. Boeing reported orders for 55 civilian aircraft in September, compared to only three in August, but a hefty adverse swing in the seasonal factor will translate that into a small seasonally adjusted decline.
Banxico cut its policy rate by 25bp to 7.75% yesterday, as was widely expected, following August's 25bp easing.
Industrial profits in China continues to go from strength to strength, with growth accelerating to 19.6% year-over-year in July, from 11.5% in July.
Friday's detailed GDP data in Germany confirm that the euro area's largest economy performed strongly in the second quarter.
The Fed will soon have to step in to try to put a firebreak in the stock market.
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 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.
The Mexican economy shrank by 0.2% quarter- on-quarter in Q2, according to the final GDP report, a tenth worse than the preliminary reading.
Headline M3 money supply growth in the Eurozone was steady as a rock at around 5% year-over-year between 2014 and the end of 2017.
Low-income households will feel the full force of the Covid-19 downturn and will have to slash their expenditure aggressively.
Mexican policymakers yesterday voted unanimously to cut the policy rate by 25bp to 4.25%, slowing the pace from 50bp at the previous five meetings.
Korea's trade figures for the first 20 days of November, published yesterday, gave the first real glimpse in a long time of how its exporters are truly performing.
After the strong Philly Fed survey was released last week, we argued that the regional economy likely was outperforming because of its relatively low dependence on exports, making it less vulnerable to the trade war.
Yesterday's barrage of survey data in France suggests that business sentiment in the industrial sector remained soft mid-way through Q4, but the numbers are more uncertain than usual this month.
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.
Back-to-back elevated weekly jobless claims numbers prove nothing, but they have grabbed our attention.
The slowdown in the EZ economy is well publicised.
The continued upward trend in airline passenger numbers has drawn attention as a potential sign that the latest surge in Covid cases is not as big a threat to the economy as some commentators, ourselves included, have argued.
Inflation in Brazil remained subdued at the start of the second quarter, strengthening the odds for an additional interest rate cut next month, and opening the door for further stimulus in June.
The economic data in Brazil were poor while we were away.
For now, we're happy with our base-case forecast that growth will be nearer 3% than 2% this year, and that most of the rise in core inflation this year will come as a result of unfavorable base effects, rather than a serious increase in the month-to-month trend.
We remain bullish on the near-term outlook for the housing market, but momentum in the mortgage applications numbers has faded a bit in recent weeks.
Our forecast for LatAm envisions a gradual pickup in growth, following a terrible first half.
The PBoC's quarterly monetary policy report seemed relatively sanguine on the question of PPI deflation, attributing it mainly to base effects--not entirely fairly--and suggesting that inflation will soon return.
Japan's export data for April unsurprisingly were abysmal, driving a massive deterioration in the trade balance, which flipped from a modest ¥5B surplus in March, to a ¥930B deficit.
We remain very bullish on the housing market, given sustained 11-year highs in applications for new mortgages to finance house purchase.
Brazil's central bank looked through the recent dip in the BRL and left interest rates at 6.50% at Wednesday's Copom meeting, in line with the consensus.
Korea's fledgling export recovery seemingly hit a roadblock this month.
Economic activity is rebounding in LatAm, but the recovery will be slow and uneven.
With Fed officials now in pre-FOMC meeting blackout mode, this week will not bring a repeat of Friday's confusion, when the New York Fed felt obligated to issue a clarification following president William's speech on monetary policy close to the zero bound.
Yesterday's barrage of French business sentiment data suggest that confidence in the industrial sector was a little stronger than expected in Q2.
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 coronavirus pandemic is wreaking havoc in Brazil.
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.
April's retail sales figures, due Thursday, likely will show that spending recovered from snow-induced weakness in March.
We have been pleasantly surprised by the recent Redbook chainstore sales numbers.
Existing home sales peaked last February, and the news since then has been almost unremittingly gloomy.
Yesterday's August PMI data in the euro area ran counter to the otherwise gloomy signals from the ZEW and Sentix investor sentiment indices.
Inflation pressures in Brazil and Mexico are well under control, with the August mid-month readings falling more than expected, strengthening the case for the BCB and Banxico to cut interest rates in the near term.
CPI inflation rose only to 2.1% in April, from 1.9% in March, undershooting the 2.2% consensus and MPC forecasts, as well as our own 2.3% estimate.
Silly season in Japanese inflation is pretty much over.
Today's EZ calendar is a busy one.
The monthly new home sales numbers are so volatile that just about anything can happen in any given month.
Yesterday's barrage of economic data in the Eurozone added to the evidence that economic momentum is slowing.
Today's advance PMI data were collected between November 12 and 22, giving respondents plenty of time to factor in the prospect of a quick and effective vaccine.
Yesterday's barrage of survey data in France, tentatively suggest that business sentiment is stabilising following a string of declines since the start of the year.
Argentina's economy is on the verge of a renewed recession; available data for August and the effect of the recent financial crisis, driven by the result of the primaries, suggest that output will come under severe strain.
It is fair to say that the strength of the rebound in the housing market over the summer has caught most analysts, including ourselves, by surprise.
All the regional PMIs and Fed business surveys are volatile in the short-term, so observations for single months need to be viewed with due skepticism.
India's economy staged a more than respectable rebound in the third quarter, enough to convince us to upgrade our forecast substantially.
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.
Under normal circumstances, we would expect today's retail sales figures to reveal that volumes rebounded in February, following the 2.7% fall over the previous three months. But the continued weakness of spending surveys suggests that we should brace for another soft report.
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.
Further evidence that the general election has transformed business confidence emerged yesterday, in the form of January's CBI Industrial Trends survey.
Barring a meteor strike, the ECB will leave its main refinancing and deposit rates unchanged today, at 0.00% and -0.5% respectively.
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.
Dire warnings that the plunge in s tock prices would depress consumers' confidence and spending have not come to pass. It's too soon to draw a definitive conclusion--the S&P hit its low as recently as the 11th--but peoples' end-February brokerage statements are on track to look less horrific than the end-January numbers, provided the market doesn't swoon again over the next few days.
Japan's flash PMI numbers for August were a mixed bag.
November's labour market data were the last before the MPC's February meeting, when it will conduct its annual assessment of the supply side of the economy.
The public finances continue to heal rapidly, suggesting that the Chancellor should have scope to soften his fiscal plans substantially in the Autumn Budget.
Hot on the heels of yesterday's grim-looking-- temporarily--existing home sales numbers for May, we see upside risk for today's new sales data.
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.
Recent data in Colombia have confirmed that virus containment measures caused much bigger declines in activity in early Q2 than initially expected.
As we reach our deadline--4pm eastern time--media reports indicate that a debt ceiling agreement is close.
Japan's CPI inflation was unchanged in June, at 0.7%, despite strong upward pressure from energy inflation.
Investor sentiment data still indicate that EZ PMIs are set for a significant rebound at start of the year.
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.
Under normal circumstances, the boost to consumption from the astonishing collapse in oil prices would act as a substantial--though not complete--offset to the hit to capital spending in the shale business.
We still don't have the complete picture of what happened to the EZ construction sector in Q2, but we have enough evidence to suggest that it rolled over.
In the wake of the unexpectedly weak September Empire State survey, released Monday, we are now very keen to see what today's Philadelphia Fed survey has to say.
The FOMC won't raise rates today, but we expect that the announcement of the start of balance sheet reduction will not be interrupted by Harvey and Irma.
We don't expect any major policy announcements at today's ECB meeting. We think the central bank will keep its main refinancing rate unchanged at 0.0%, and we expect the deposit and marginal lending facility rates to remain at -0.4% and 0.25%, respectively.
The euro's ascent in the past few months raises two main questions for investors.
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.
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.
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.
Today's advance EZ PMIs will be watched more closely than usual.
We expect the flash reading of Markit's composite PMI, released today, to print at 52.4 in February, below the consensus, 52.8, and January's final reading, 53.3, albeit still in line with last month's flash.
After soaring in the Spring, inflation has slipped back in the Summer. July's consumer prices report, released while we were away last week, showed that CPI inflation held steady at 2.6% in July, one -tenth below the consensus and three tenths below May's year-to-date peak.
U.K. equities have been unable to catch a break this year.
Peru has been one of the most badly-hit LatAm countries, with Covid crushing economic activity.
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.
Yesterday's headline economic data in the euro area were solid across the board, though the details were mixed.
Fed Chair Powell broke no new ground in his Senate Testimony alongside--virtually--Treasury Secretary Mnuchin yesterday, maintaining the cautious tone of his recent public statements.
Friday's CPI data for April provided the final piece of evidence for the significant Easter distortions in this year's data.
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.
The recent increases in single-family housing construction are consistent with the rise in new home sales, triggered by the substantial fall in mortgage rates over the past year.
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.
In the years before the crash of 2008, if you wanted to know what was likely to happen to the pace of U.S. economic growth, all you needed to know was what happened to corporate bond yields a year earlier. The correlation between movements in BBB industrial yields--not spreads--and the changes in the rate of GDP growth, lagged by a year, was remarkably strong from 1994 through 2008, as our first chart shows. Roughly, a 50 basis point increase in yields could be expected to reduce the pace of year-over-year GDP growth--the second differential, in other words--by about 1.5 percentage points.
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.
Official house price figures confirm that the market is booming.
Data released this week confirmed that Q3 real GDP growth in the Andes rebounded sharply, on a sequential basis, as the region's economies gradually reopened.
Leading indicators are giving conflicting signals regarding the outlook for core goods CPI inflation.
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.
A very light week for U.S. data concludes today with four economic reports, which likely will be mixed, relative to the consensus forecasts. The recent run of clear upside surprises and robust-looking headline numbers is likely over, for the most part.
Retailers made hay while the sun shone in August, but clouds now are looming overhead. The 0.8% month-to-month rise in retail sales volumes took them 3.3% above last year's average.
The Fed has given itself and markets clear guidance on the minimum requirements for a rate hike-- maximum employment, and inflation at 2% and on track "moderately" to exceed that pace "for some time"--but has offered no clues at all on the drivers of its other key policy tool, namely, the pace of asset purchases.
As we reach our deadline on Tuesday afternoon, Eastern time, no agreement has been reached between Treasury Secretary Mnuchin and House Speaker Pelosi on the next Covid relief bill.
Data released on Monday confirmed that the Colombian economy slowed in August, following a solid rebound since mid Q2.
In recent client meetings the first and last topic of conversation has been the market implications of the possible departure of President Trump from office.
Exports rebounded sharply in Q3 so far, after the Q2 weakness. This will be a useful boost to GDP growth in Q3, as domestic demand likely will soften.
The New York Fed tweeted yesterday that "Housing market fundamentals appear strong.
The BoJ kept its main policy settings unchanged yesterday, in another 7-to-2 split.
The weather-driven surge in December housing starts, reported last week, is unlikely to be replicated in today's existing home sales numbers for the same month.
High interest rates and inflation, coupled with increasing uncertainty, put Mexican consumption under strain last year.
Yesterday's February PMI data sent a clear message to markets.
The U.S. consumer is back on track, almost. We have argued in recent months that the sharp slowdown in the rate of growth of consumption is mostly a story about a transition from last year's surge, when spending was boosted by the tax cuts and, later, by falling gas prices, to a sustainable pace roughly in line with real after-tax income growth.
The Eurozone's external surplus recovered a bit of ground mid-way through the third quarter.
It's much too soon to have a very firm view on fourth quarter GDP growth, not least because almost half the quarter hasn't happened yet.
February's consumer price figures give the MPC reason to doubt the case for raising interest rates again as soon as May.
We previewed the FOMC meeting in detail yesterday -- see here -- but to recap briefly, we expect a 25bp rate hike, with no significant changes in the statement, and a repeat of the median forecasts of three rate hikes this year.
The MPC's unanimous decision to keep Bank Rate at 0.75% and the minutes of its meeting left little impression on markets, which still see a higher chance of the MPC cutting Bank Rate within the next 12 months than raising it.
We've had pushback from readers over our take on the likelihood of a trade deal with China in the near future.
Over the past couple of weeks, the number of applications for new mortgages to finance house purchase have reached their highest level since late 2010, when activity was boosted by the impending expiration of a time-limited tax credit for homebuyers.
April's consumer price figures, due on Wednesday, are set to show that CPI inflation has fallen, primarily due to the earlier timing of Easter this year than last. We
The FOMC kept policy unchanged at April's meeting-- rates stayed at zero, and all the market valves are wide open, as needed--but policymakers spent considerable time pondering what might happen over the next few months, and how policy could evolve.
If the only manufacturing survey you track is the Philadelphia Fed report, you could be forgiven for thinking that the sector is booming.
Japanese trade remained in the doldrums in October, keeping policymakers on their toes as they repeat the refrain of "resilient" domestic demand.
The year so far in EZ equities has been just as odd as in the global market as a whole.
CPI inflation took a big step in April towards the near-zero rate we anticipate by the summer.
Judging by the trend in investor sentiment, today's PMI data will look great.
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.
Inflation in the biggest economies in the region remains close to cyclical lows, allowing central banks to ease even further over the next few months.
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.
The weaker is the economy over the next few months, the more likely it is that Mr. Trump blinks and removes some--perhaps even all--the tariffs on Chinese imports.
We see significant upside risk to today's headline durable goods orders numbers for April.
On a headline level, the key message from the Eurozone PMIs was little changed on Friday.
Investors think it more likely that the MPC will cut Bank Rate in the first half of next year, following Friday's release of the flash Markit/CIPS PMIs for November.
The PMIs in the Eurozone are still warning that the economy is in much worse shape than implied by remarkably stable GDP growth so far this year.
The ECB made no changes to policy yesterday, leaving its key refinancing and deposit rates unchanged, at 0.00% and -0.5%, and confirmed that it will restart QE in November at €20B per month.
The gaps in the third quarter GDP data are still quite large, with no numbers yet for September international trade or the public sector, but we're now thinking that growth likely was less than 11⁄2%.
This week's November mid-month inflation reports in Brazil and Mexico underscored their divergent trends. Inflation pressures are steadily falling in Brazil, but in Mexico, the pass-through from the MXN's sell- off is driving up inflation and inflation expectations.
Yesterday's detailed Q3 GDP data in Germany confirmed that output rose sharply as the economy reopened.
Inflation in the biggest economies in the region remains close to cyclical lows, but it has taken divergent paths in November, allowing Banxico to ease even further over the next few months.
Argentina's Q4 GDP report, released last week, underscored the severity of the recession, due to the currency crisis and the subsequent tighter fiscal and monetary policies.
If Japan's flash PMIs for March are a sign of things to come, then the government really should get moving on fiscal stimulus.
Last week's debt-relief agreement between Greece and its European creditors goes somewhat further than previous instances when the EU has kicked the can down the road.
Data released yesterday in Mexico strengthened the case for interest rate cuts this year.
Mexican policymakers voted unanimously last Thursday to hike the main rate by 25bp to 7.75%, the highest since early 2009.
The June durable goods, trade and inventory reports today, could make a material difference to forecasts for the first estimate of second quarter GDP growth, due tomorrow.
Broadly speaking, yesterday's headline EZ survey data recounted the same story they've told all year; namely that manufacturing is suffering amid resilience in services.
We are fundamentally quite bullish on the housing market, given the 100bp drop in mortgage rates over the past six months and the continued strength of the labor market, but today's May new home sales report likely will be unexciting.
The IFO continues to tell a story of a German economy on the ropes.
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.
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.
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.
The headline May durable goods orders numbers today probably will look very strong, with the odds favoring a much bigger increase than the 10.1% consensus; we'll come back to that.
Yesterday's national business confidence data for June provided further evidence that the EZ economy is rebounding.
If you're looking for points of light in the economy over the next few months, the housing market is a good place to start.
Inflation in Brazil and Mexico is ending Q3 under control, allowing the central banks to keep easing monetary policy.
Today's preliminary estimate of Q4 GDP likely will show that the Brexit vote has not caused the economy to slow yet. But growth at the end of last year appears to have relied excessively on household spending, which has been increasingly financed by debt. GDP growth likely will slow decisively in Q1 as the squeeze on households' real incomes intensifies.
As expected, the ECB made no changes to its policy stance today. The refi and deposit rates were left at 0.00% and -0.4%, respectively, and the pace of purchases under QE was maintained at €30B per month.
For a central bank already fighting for every decimal in its attempt to convince markets that underlying inflation is slowly edging higher, the recent shift in HICP methodology drives home an increasingly problematic issue.
Data released yesterday confirmed that the Mexican economy ended Q4 poorly; policymakers will take note.
In our Webinar--see here--we laid out scenarios for Chinese GDP in Q1 and for this year.
We remain negative about the medium-term growth prospects of the Mexican economy.
The verdict from the German business surveys is in; economic growth probably slowed further in Q2.
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.
New BoE Governor Andrew Bailey will be reaching for his letter-writing pen soon, to explain to the Chancellor why CPI inflation is more than one percentage point below the 2% target.
Looking beyond the potential hit from the lockdown in North Rhine-Westphalia, German consumer sentiment is improving steadily.
I need to ask your indulgence today, because the release of the durable goods and advance international trade reports coincides with my elder daughter's college graduation ceremony.
Politics in Brazil has been busy in recent days, with local media reporting several items of interest.
The spread of the Covid-19 virus remains the key issue for markets, which were deeply unhappy yesterday at reports of new cases in Austria, Spain and Switzerland, all of which appear to be connected to the cluster in northern Italy.
Data released yesterday confirmed that Mexico's economy ended Q4 poorly, confounding the most hawkish Banxico Board members.
Yesterday's national survey data painted a more nuanced picture of the recovery in the major Eurozone economies than the warning sent by the PMIs earlier in the week; see here.
Argentina's economy continues to recover steadily.
The national accounts for the fourth quarter showed that the economy relied on households slashing their saving rate to a record low in order to spend more. Now, growth in consumer spending will have to fall back in line with real incomes, which will increasingly be impaired by rising inflation.
Yesterday's business confidence data in the EZ core were mixed.
Japan's September PMI report showed some slippage, but overall, it suggests that GDP growth in Q3 was a little stronger than the 0.3% quarter- on-quarter rate in Q2.
Inflation in Mexico surprised to the downside in late Q3, supporting our core view that it will continue to fall gradually over the coming months.
Rising inflation is pressuring some LatAm central banks to take a cautious stance at a time when growth is subpar, particularly in the two biggest economies of the region.
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.
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.
After three days of jaw-dropping actions from President Trump, the position seems to be this: The U.S. will apply 15% tariffs on imported Chinese consumer goods, rather than the previously promised 10%, effective in two stages on September 1 and December 15.
We're expecting to learn today that the economy expanded at a 2.6% annualized rate in the first quarter, rather better than we expected at the turn of the year--our initial assumption was 1-to-2%--and above the consensus, 2.3%.
Yesterday's first batch of Q3 survey data in the Eurozone suggest that economic growth eased further, albeit it slightly, at the start of the quarter.
New home sales surprised to the upside in May, rising 6.7% to 689K, a six-month high.
We suspect that under the calm surface of the BoJ, a major decision is being debated.
Economic activity in Mexico during the past few months has been resilient, as external and domestic threats, particularly domestic political risks, appear to have diminished.
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.
The ECB conformed to expectations today, at least on a headline level.
Brazilian inflation is off to a bad start this year, but January's jump is not the start of an uptrend, and we think good news is coming.
The sluggishness of existing home sales in recent months, as exemplified by yesterday's report of a small dip in June, is due entirely to a sharp drop in the number of cash buyers.
Inflation in Mexico surprised to the upside in early Q3, but we still believe it will fall gradually in Q4.
Yesterday's June PMIs offered more of the same, insofar as the survey's key message goes in the past few months.
The 1.4% month-to-month rise in retail sales volumes in February is not a game-changer for the economy's growth prospects in Q1. The increase reversed just under half of the 2.9% decline between October and January. The 1.5% fall in retail sales in the three months to February, compared to the previous three months, is the worst result in seven years.
Chainstores are continuing to struggle, even as the reopening of the economy continues.
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.
U.K. equities are falling ever further out of favour.
The public finances are in better health than appeared to be the case a few months ago.
You could be forgiven for being alarmed at the 1.5% decline in the stock of outstanding bank commercial and industrial lending in the fourth quarter, the first dip since the second quarter of 2017.
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.
While we were out, new U.S. Covid-19 cases and hospitalizations continued to fall steadily, and deaths have now peaked.
Yesterday's data were mixed, though disappointment over the weakening in the Richmond Fed survey should be tempered by a quick look at the history, shown in our first chart.
Colombia's recently-released data signal that the economy started the year quite strongly, following a relatively poor end to Q4.
Industry estimates for August light vehicle sales suggest that the downshift in sales which began at the turn of the year is over, at least for now.
Yesterday's PMI data in the Eurozone economy were a mixed bag.
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.
We can't yet know how bad the spread of the coronavirus from the Chinese city of Wuhan will be.
Friday's PMIs were supposed to provide the first reliable piece of evidence of the coronavirus on euro area businesses, but they didn't. Instead, they left economists dazed, confused and scrambling for a suitable narrative.
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.
Japan's January PMIs sent a clear signal that the virus impact is not to be underestimated. The manufacturing PMI fell to 47.6 in February, from 48.8 in January, contrasting sharply with the rising headlines of last week's batch of European PMIs.
The recovery in existing home sales appears to have stalled, at best.
Yesterday's data in the Eurozone did little to calm investors' nerves amid rising political uncertainty in Italy and tremors in emerging markets.
Yesterday's barrage of French business surveys contains hundreds of indicators, but its central story is comfortably simple.
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.
Mexico's inflation has been LatAm's odd one out over the last few years. In the decade through 2014, Mexico's inflation rate was broadly in sync with those of its regional fellows, as shown in our first chart.
We have been bullish about the housing market for some time now--since Google searches for "new homes" and mortgage demand began to pick up, in late April--but we might not have been bullish enough.
New Covid-19 cases in Mexico have continued to fall steadily over this month, with deaths peaking two weeks ago, as shown in our first chart.
Yesterday was a watershed moment for investors.
Brazil's inflation rate remained well under control over the first half of February.
The minutes of the Banxico's monetary policy meeting on February 7, when the board unanimously voted to keep the reference rate on hold at 8.25%, were consistent with the post-meeting statement.
Today's advance inventory and international trade data for December could change our Q4 GDP forecast significantly.
China's 2018 property market boomlet let out more air last month.
Yesterday's stock market bloodbath stands in contrast to the U.S. economic data, most of which so far show no impact from the Covid-19 outbreak.
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.
Japan's advance PMI numbers for August suggest that the economy dodged most of the bullets fired by the second wave of Covid-19.
In Brazil, last week's formal payroll employment report for March was decent, with employment increasing by 56K, well above the consensus expectation for a 48K gain.
Argentina's economic recovery continues, but it will take some time to see output returning to pre-Covid levels, and note that the economy was suffering even before the pandemic.
The surge in U.S. median home prices has morphed from merely startling to truly remarkable.
Mexico's retail sector is finally improving, following a grim second half last year.
A grim-looking headline durable goods orders number for April seems inevitable today, given the troubles at Boeing.
Yesterday's barrage of survey data were a mixed bag. The composite EZ PMI edged higher in May to 51.6, from 51.5 in April, but the details were less upbeat, and also slightly confusing.
We're not rushing to revise our assessment of the scale of the economic damage wrought by the second lockdown, following the above-consensus reading of Markit's flash composite PMI in November.
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.
EU negotiations tend to go down to the wire; and last week's summit in Salzburg, and Theresa May's statement on Friday, suggest that the Brexit negotiations will do just that.
Yesterday's PMI data were an open goal for those with a bearish outlook on the euro area economy.
This week's key data releases in Mexico likely will reaffirm that growth remains below trend, while inflation continues to ease.
Core durable goods orders have not weakened as much as implied by the ISM manufacturing survey, as our first chart shows, but it is risky to assume this situation persists.
The consensus for today's first post-apocalypse jobless claims number, 1,500K, looks much too low.
Inflation pressures in the Eurozone probably firmed slightly in August. Data yesterday showed that inflation in Germany and Spain rose by 0.1 percentage points to 1.8% and 1.6% year-over-year respectively, and we are also pencilling-in an increase in French inflation today, ahead of the aggregate EZ report.
A growing number of economists have marked down their forecasts for Chinese growth next year to below the critical 6% year-over-year rate, required to ensure that the authorities meet their implicit medium- term growth targets.
The PMIs have had a hard time this year.
The September PMI surveys in Mexico continue to bolster our argument for a subpar recovery in the second half of the year.
Korean exports ended the third quarter on a solid note, though nowhere near as strongly as the headline growth rate suggested.
We're nudging up our forecast for today's August payroll number to 180K, in the wake of the ADP report.
Labor demand appears to have remained strong through August, so we expect to see a robust ADP report today.
The MPC struck a less dovish tone than markets had anticipated yesterday.
The Brazilian Central Bank's policy board-- COPOM--met expectations on Wednesday, voting unanimously to cut the Selic rate by 25bp to 2.00%.
The final Monitor before our summer break is characterized by great uncertainty.
A trio of data releases yesterday provided no relief from the run of abysmal economic news.
The steep rise in the number of people unemployed for more than six months attracted a good deal of media attention after the release of Friday's August jobs report, as well it might.
Markets interpreted the MPC's decision yesterday to buy £150B more gilts next year, together with its latest forecasts and comments in the minutes, as a sign that the Committee is less likely to resort to reducing Bank Rate below its current 0.10% level.
Emerging evidence suggests that the economy has passed the period of peak Covid-19 pain.
The collapse in global demand last month will have derailed China's trade recovery, causing exports to drop unpleasantly month-on-month after the bounce of around 45% in March; the January/February breakdown is not provided, so we can't be sure of the extent of the March rebound.
Efforts to contain the coronavirus outbreak severely dented industrial activity in Brazil.
Today's April ADP employment report likely will understate the scale of the net payroll losses which will be reported Friday by the BLS.
October's Markit/CIPS services survey suggests that the PM's new Brexit deal has had a lukewarm reception from firms.
Yesterday's minutes of the October 31 COPOM meeting, at which the Central Bank cut the Selic rate unanimously by 50bp at 5.00%, reaffirmed the committee's post-meeting communiqué, which signalled that rates will be cut by the "same magnitude" in December.
Manufacturing in Germany maintained momentum at the end of Q3.
Recently released data for Q3 in Brazil have surprised to the upside, but the outlook is darkening for late Q4 and early next year.
Productivity growth reached the dizzy heights of 1.8% year-over-year in the second quarter, following a couple of hefty quarter-on-quarter increases, averaging 2.9%.
The PBoC finally moved yesterday, cutting its one-year MLF rate by 5bp to 3.25%, whilst replacing around RMB 400B of maturing loans.
Demand in German manufacturing rebounded powerfully at the end of the second quarter, accelerating from an initially modest rebound when lockdowns were lifted.
Chile's central bank, the BCCh, held its reference rate unchanged at 2.75% on Tuesday, in line with the majority of analysts' forecasts.
India's services PMI for June underscores the half-hearted nature of Unlock 1.0, with the daily number of new cases of Covid-19 still rocketing.
The short answer to the question posed by our title is: We don't know. But that's the point, because we shouldn't be needing to ask the question at all.
Last week we reported on the V-shaped recovery in German retail sales--see here--as lockdowns ended mid- way through Q2.
Evidence that mounting concerns about Brexit have caused the economy to slow to a near-halt continued to accumulate last week.
Recent economic indicators in Mexico have been terrible. The worst of the recession seems to be over, but recent hard data have underscored the severity of the shock and made it clear that the recovery has a long way to go.
The next couple of months likely will see some activity data rebound to close to pre-Covid levels, fuelling hopes of a V-shaped recovery.
We're expecting to learn this morning that productivity rose by a respectable 1.7% in the year to the fourth quarter, the best performance in nearly four years.
Korea's final GDP report for Q4 was little changed, in the end.
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.
In the wake of Wednesday's ADP report, showing a mere 27K increase in private payrolls, we cut our payroll forecast to 100K.
China's Caixin services PMI for December surprised well to the upside, providing a glimmer of hope that the economy isn't losing steam on all fronts.
Yesterday's economic reports in the Eurozone were solid across the board.
Our hope for a year-end jump in German factory orders was laughably optimistic.
Nobody knows the damage China's virus- containment efforts will have on GDP, and we probably never will, for sure, given the opacity of the statistics.
The rally in U.K. equities immediately after the general election has done little to reverse the prolonged period of underperformance relative to overseas markets since the E.U. referendum in June 2016.
The Brazilian central bank cut the benchmark Selic interest rate by 25bp, to 4.25%, on Wednesday night, as expected.
We raised our forecast for today's January payroll number after the ADP report, to 200K from 160K.
December's GDP report, released next Monday, likely will maintain the flow of negative news on the U.K. economy.
The jump in oil prices over the past two trading days eventually will lift retail gasoline prices by about 35 cents per gallon, or 131⁄2%.
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.
Chile's near-term economic outlook is still negative, but clouds have been gradually dispersing since late Q4, due mostly to better news on the global trade front, China's improving economic prospects, and rising copper prices.
Demand for German manufacturing goods remained subdued at the end of Q4.
It would be astonishing if the May and June payroll numbers looked much like April's strong data, at least in the private sector.
Yesterday's final PMI data for February confirmed the story from the advance reports.
For sterling traders, no election news is good news.
October payrolls were stronger than we expected, rising 128K, despite a 46K hit from the GM strike.
Brazil's industrial sector is on the mend, but some of the key sub-sectors are struggling.
We have consistently flagged the likelihood that Japan's government would boost spending after the consumption tax hike was implemented.
Brazilian data strengthened early in Q4, supporting the case for the COPOM to slow the pace of rate cuts. We expect the SELIC policy rate to be lowered by 50bp today, to 7.0%.
The slump in the Markit/CIPS services PMI in November to its lowest level since July 2016 provides the clearest indication yet that uncertainty about Brexit has driven the economy virtually to a stand-still.
Productivity likely rose by 1.7% last year, the best performance since 2010.
Korea's trade data for January provided the first real glimpse of the potential hit to international flows from the disruptions caused by the outbreak of the coronavirus.
Yesterday's final PMI data in the euro area for November broadly confirmed the initial estimates.
The Caixin services PMI leapt to an eyebrow- raising 53.8 in November, from 50.8 in October.
China's PMIs point to softening activity in Q3. The Caixin services PMI fell to 52.8 in July, from 53.9 in June.
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 ADP employment report for September showed private payrolls rose by 135K, trivially better than we expected.
Friday's advance EZ inflation data were every bit as soft as we expected. The headline slipped to -0.3% year-over-year in September, from -0.2% in August, with the core sliding by 0.2pp, to 0.2% a new record-low.
Brazil's Q3 hard data have confirmed that the economy is recovering from the Corona shock, as economic activity resumes. But some indicators are losing momentum, and the labour market is still struggling, suggesting a long and bumpy road to full recovery.
The headline 250K October payroll number looked great.
The CPI inflation rate for non-energy industrial goods--core goods, for short--has tracked past movements in trade-weighted sterling closely over the last ten years, because virtually all goods in this sector are imported.
We've been surprised by the fast rate of Japanese GDP growth in the first half, though the Q1 pop merely was due to a plunge in imports.
Judging solely by yesterday's PMI and retail sales data, the EZ economy has shaken off the virus and is going from strength to strength.
Our hopes of another solid increase in payrolls in July were severely dented by yesterday's ADP report, showing that private payrolls rose only 167K in July.
We don't directly plug the ADP employment data into our model for the official payroll number. ADP's estimate is derived itself from a model which incorporates lagged official payroll data, because payrolls tend to mean-revert, as well as macroeconomic variables including oil prices, industrial production and jobless claims -- and actual employment data from firms which use ADP's payroll processing services.
Labor demand, as measured by an array of business surveys, clearly slowed from the cycle peak, recorded late last year.
Yesterday's final PMI data in the Eurozone were better than we expected.
The post-election run of upbeat business surveys was extended yesterday, with the release of the final Markit/CIPS services PMI for January.
The private sector in China has finally joined the party, boosting the durability of the economic recovery.
Let's get straight to the point: It's very unlikely that July's payroll numbers will be as good as June's. Too many direct and indirect indicators of employment and broader economic activity are now moving in the wrong direction.
Brazil's industrial sector is still suffering, but the pain is easing as the economy gradually reopens. That said, full recovery is a long way off, and the pandemic is still far from over, adding downside risks to the recent upbeat picture.
Industrial activity in LatAm, at least in the largest economies, is taking different paths.
Yesterday's final May PMI data in the Eurozone confirmed the strength of the cyclical upturn. The composite PMI was unchanged at 56.8, in line with the initial estimate.
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.
Chancellor Sunak faces a tough first gig on Wednesday, when he delivers the long-awaited Budget.
We think today's February payroll number will be reported at about 140K, undershooting the 175K consensus.
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.
The rapid escalation of Covid-19 cases in Korea in recent weeks has broadened the likely damage to the economy this quarter.
Demand in German manufacturing rebounded strongly midway through the second quarter.
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.
The Nikkei services PMI for Japan partly rebounded in January, to 51.6, after it fell sharply to 51.0 in December.
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.
Consumers' spending in the euro area weakened at the end of Q4, but we think households will continue to boost GDP growth in the first quarter. Data on Friday showed that retail sales fell 0.3% month-to-month in December, pushing the year-over-year rate down to 1.1%, from a revised 2.8% in November.
Chilean GDP growth hit bottom in August, but activity is now picking up and will gather speed over the coming quarters. The tailwinds from lower oil prices and fiscal stimulus will soon be visible in the activity data.
Taken at face value, the retail sales data in the euro area suggest that consumers' spending hit a brick wall at the end of 2018.
Late last year, China said it would scrap residency restrictions for cities with populations less than three million, while the rules for those of three-to-five million will be relaxed.
The economic calendar in Mexico was relatively quiet over Christmas, and broadly conformed to our expectations of poor economic activity in Q4.
Friday's early EZ CPI data for December were red hot. Headline HICP inflation in Germany jumped to 1.5%, from 1.3% in November, while the headline rate in France increased by 0.4pp, to 1.6%.
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.
Yesterday's economic reports in the Eurozone were mostly positive.
The economic data calendar for next week is so congested that we need to preview early September's GDP report, released on Monday.
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.
Small business sentiment and activity, as reported by the NFIB survey, has recovered exactly half the drop triggered by the rollover in stock prices in the fourth quarter. This matters, because most people work at small firms, which are responsible for the vast bulk of net job growth.
Andean inflation remains under control, due to subpar growth, modest pressures on prices for nontradeables, and broadly stable currencies.
China's official manufacturing PMI slipped in June, but the overall picture for Q2 is sound despite the uncertainty posed by rising trade tensions with the U.S.
The immediate impact of the Covid-19 crisis on the auto market was calamitous.
April's GDP report probably will be the worst any of us will see in our lifetime.
January's GDP report, released on Wednesday, was set to be one of the most important data releases of this year, due to its role in providing the first official steer on the economy's post-election performance.
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.
The coronavirus outbreak has pushed inflation lower in the Andean economies as the shock drives them into the deepest recession on record.
China's trade surplus jumped to a record high in May, defying expectations for a fall by spiking to $69.2B.
The only way to read the December NFIB survey and not be alarmed is to look at the headline, which fell by less than expected, and ignore the details.
Brazil's industrial sector is still struggling, despite recent signs of better economic and financial conditions.
The hard data in Germany took a turn for the worse at the start of Q4. The outlook for consumers' spending was dented by the October plunge in retail sales--see here-- and on Friday, the misery spilled over into manufacturing.
We have two competing explanations for the unexpected leap in November payrolls. First, it was a fluke, so it will either be revised down substantially, or will be followed by a hefty downside correction in December.
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.
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%.
Data released on Friday showed that November inflation was in line with, or below, expectations in Brazil, Colombia and Chile.
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.
We already know that the month-to-month movements in the key labor market components of the December NFIB small business survey were mixed; the data were released last week, ahead the official employment report, as usual.
The reported drop in mortgage applications over the holidays is now reversing, not that it ever mattered.
The German manufacturing sector appears to have settled into an equilibrium of sustained misery.
The release of October's GDP report on Tuesday likely will be overshadowed by campaigning ahead of Thursday's general election.
Britain's housing market appears to be going from bad to worse.
Small cracks continue to emerge in Chinese industry. While we were away, the official manufacturing PMI for October slipped to 51.4, following the jump to 51.5 in September.
September setback will delay China's exit from PPI deflation to Q2. Falling pork prices in China mask a welcome rebound in services inflation. The second wave only muted Japan's services recovery in Q3.
April revision means little to the overall damage done by Japan's state of emergency
Tankan poses downside risks to our Q3 GDP forecast for Japan. Chuseok effects flatter Korean exports in September... expect a reversal this month.
Tankan suggests downside risks to our -6% y/y Q2 GDP forecast. Private manufacturers in China continue to play catch-up. Expect a bumpy recovery for Korean exports in Q3. Korean business sentiment is finally recovering.
The BoJ keeps it promises vague. Japan's April is turning out quite nicely. PPI inflation in Korea slipped in May, and is heading for deflation in Q3.
Japan's recovery is on track--just--with its second wave receding. Japan's construction sector rebounded modestly at the start of Q3.
April's RICS Residential Market survey confirmed that housing market activity collapsed to negligible levels during the lockdown, which prohibited property viewings, depleted the work forces of lenders and prompted many people to defer big financial decisions.
In one line: A sharp rebound, due to higher food prices, but underlying pressures remain tame for now.
Surge in Chinese profits suggests industry no longer needs additional life support, Japan's all-industry gauge likely returned to the black in June
Japan will be in deflation in a few months. Stimulus fails to buoy Japan's construction sector. China's smaller TMLF injection means the facility has been superseded, while interbank rates already are low.
China's export data for April were a mixed bag, to say the least.
Before we cover yesterday's economic news, we regret to inform our readers that the Brexit negotiations remain bizarre as ever.
Convention dictates that we lead with yesterday's Fed meeting, but it's hard to argue that it really deserves top billing.
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.
We were pretty sure that the underlying trend in jobless claims had bottomed, in the high 230s, before the hurricanes began to distort the data in early September.
The official industrial production data in Germany are still underperforming, relative to leading indicators. Friday's report showed that output edged higher by 1.6% month-to-month in September, lifting the year-over- year rate to -7.3%, from -9.6% in August, undershooting the consensus for the second month in a row.
Chile's inflation outlook remains benign, allowing policymakers to cut interest rates if the economic recovery falters.
We look for August's GDP report, released on Thursday, to show that output held steady, following July's 0.3% month-to-month jump.
Inflation in most economies in LatAm is well under control, allowing central banks to keep a neutral or dovish bias, and giving them room for further rate cuts if the economic recovery falters in the near term.
Inflation in most economies in LatAm is well under control, allowing central banks to keep a dovish bias, and giving them room for further rate cuts.
Yesterday's industrial production data in Germany were better than we feared. Output slipped 0.3% month-to-month in August, depressing the year- over-rate to -0.4% from 1.6% in July, a minor fall given evidence of a big hit from weakness in the auto sector ahead of the EU emissions tests.
Next week's labour market report likely will show that job cuts accelerated again, after a lull in the summer.
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.
Friday's factory orders report in Germany provided a bit of relief amid the gloom in manufacturing.
The contrast between November's very modest 67K ADP private payroll number and the surprising 254K official reading was startling, even when the 46K boost to the latter from returning GM strikers is stripped out.
Given the light flow of data this week we want to go back for a closer look at the market-shattering January hourly earnings data.
We expect to see a 180K increase in November payrolls
The run-up to the release of the official retail sales figures has become so congested with other indicators, following alterations by the ONS to its publication schedule, that we now have to preview the data earlier than usual.
Colombia was the fastest growing LatAm economy in 2019, due mostly to strong domestic demand, offsetting a sharp fall in key exports.
The trade war with the U.S. has taken its toll on the RMB.
We aren't perturbed by the undershoot in December payrolls, relative both to the October and November numbers and all the leading indicators.
Japan's services sector PMI last week was disappointing.
Friday's final EZ inflation report of 2017 sent a dovish signal to bond markets.
The ink has hardly dried on economists' and the ECB's inflation projections for 2020, but we suspect that some forecasters are already considering ripping up the script.
The return to normal in the March payroll numbers, with a 196K headline increase, is another nail in the coffin of the "imminent recession" theory.
Fears of a Chinese hard landing have roiled financial and commodity markets this past year and have constrained the economic recovery of major raw material exporters in LatAm.
The flow of data pointing to strength in the labor market has continued this week, on the heels of last week's report of a 250K jump in October payrolls.
Argentina's central bank likely will leave its main interest rate at 27.75% tomorrow at its biweekly monetary policy meeting.
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.
India's PMIs for October were grim, indicating minimal carry-over of energy from the third quarter rebound.
Recently released data in Mexico are sending weak signals for the business outlook, and the Texcoco airport saga won't help.
The changing face of India's post-lockdown economic recovery indicates that the initial bounce since the June reopening could soon stall.
In the wake of yesterday's ADP report, which showed private payrolls rising by only 163K, we have pulled down our forecast for today's official number to 170K.
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.
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 German economy's engine room continues to stutter.
Colombia was one of the fastest growing economies in LatAm in 2018, and prospects for this year have improved significantly following June's presidential election, with the market-friendly candidate, Iván Duque, winning.
Headline inflation in Brazil remained low in October, and even breached the lower bound of the BCB's target range.
Manufacturers in Germany endured another miserable quarter in Q3.
A steep drop in prices for financial services in January was a key factor behind the sharp slowdown in the rate of increase of the core PCE deflator in the first quarter, relative to the core CPI.
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.
Markets clearly love the idea that the "Phase One" trade deal with China will be signed soon, at a location apparently still subject to haggling between the parties.
The RMB has been on a tear, as expectations for a "Phase One" trade deal have firmed.
Yesterday's data seemed to pour cold water on the idea of a sustained recovery in German manufacturing. Industrial production, including construction, fell by 0.2% in August driving the year-over-year rate down by 0.4pp, to -10.0%.
September PMI surveys in Mexico continued to bolster our argument for a subpar recovery in the second half of the year.
We have argued for a while that China and the U.S. will not reach a comprehensive trade deal until after the next election.
Yesterday's manufacturing data in Germany were poor, but not as weak as implied by the headline.
Economic growth in Chile slowed in Q1, despite a relatively strong end to the quarter, and the chances of an accelerating recovery remains disappointingly low, due to both global and domestic headwinds.
LatAm assets have done well in recent weeks on the back of upbeat investor risk sentiment, low volatility in developed markets and a relatively benign USD. A less confrontational approach from the U.S. administration to trade policy has helped too.
Yesterday's manufacturing data in Germany followed the lead from Monday's relatively underwhelming new orders report; see here.
The German manufacturing data remain terrible. Friday's factory orders report showed that new orders plunged 2.2% month-to-month in May, convincingly cancelling out the 1.1% cumulative increase in March and April.
Odds-on, the consensus forecast for May's GDP report, released on Wednesday, will miss the mark.
The June employment report pretty much killed the idea that the Fed will cut rates by 50bp on July 31.
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.
The ECB will keep all its policy parameters unchanged today. The refi and deposit rates will be maintained at 0.00% and -0.4%, respectively, and the pace of QE will stay at €60B per month, running until the end of the year.
Consumer sentiment in Mexico continues to improve, consistent with tailwinds from the relatively strong labour market and the president's rising approval ratings.
Economic conditions remain challenging in Mexico, despite a modest improvement in leading indicators. The usual surveys currently are not well-suited to capture the economy's upturn from the Covid-19 collapse.
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.
Normally, we wouldn't pin our story on the fact that the PMIs are signalling a risk of outright contraction in the economy, but on this occasion we think the surveys are on the money.
Yesterday's final manufacturing PMIs for October were grim, but they told investors nothing they don't already know.
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.
Yesterday's advance CPI data in Germany suggest that EZ inflation is now rebounding slightly.
It's possible that first hints of better news ahead in the Covid surge in the South and West are beginning to emerge in the data.
Data released last week confirm that Argentina's economy remains a mess.
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.
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.
Neither the strength in October consumption nor the softness of core PCE inflation, reported yesterday, are sustainable.
The rate of growth of third quarter consumers' spending was revised up by 0.3 percentage point to 3.3% in the national accounts released yesterday.
Reporting on the German labour market has been like watching paint dry in this expansion, but yesterday's data were a stark exception to this rule.
The trade war with China is not big enough or bad enough alone to push the U.S. economy into recession.
The Fed made no changes to policy yesterday, as was almost universally expected.
The recovery of consumer confidence in Korea remains undeterred by the lingering risk of a second wave.
Japan is one of the countries most exposed to economic damage from the coronavirus.
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.
It's pretty easy to spin a story that the recent core PCE numbers represent a sharp and alarming turn south.
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.
Yesterday's economic reports in the euro area were mixed.
Yesterday's FOMC , announcing a unanimous vote for no change in the funds rate, is almost identical to December's.
Argentina's Recession Has Ended, Supporting Mr. Macri's Odds
Today's barrage of data kicks off a couple of busy days in the Eurozone economic calendar.
Recently released data in Colombia signal that the economy ended last year quite strongly.
China's official PMIs for January, due out tomorrow, will give the first indications of how the economy started the year.
Markets see a strong possibility, though not a probability, that the BoJ will cut rates on Thursday.
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.
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 full-year 2019 GDP in Mexico confirmed that growth was extremely poor, due to domestic and external shocks.
The MPC's decision yesterday was a "dovish hold", designed to keep market interest rates at current stimulative levels and to preserve the option of cutting Bank Rate swiftly and without surprise, if the economy fails to rebound in Q1.
The Bank of Korea's two main monthly economic surveys were very perky in January.
The FOMC has gone all-in, more or less, on the idea that the headwinds facing the economy mean that the hiking cycle is over.
The further depreciation of sterling yesterday, to its lowest level against the dollar and euro since March 2017 and September 2017, respectively, signified deepening pessimism among investors about the chances of a no-deal Brexit.
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.
Households' willingness to save a smaller fraction of their incomes goes a long way to explaining why the U.K. economy hasn't lost too much momentum since the Brexit vote.
Covid-19 has cut short a nascent recovery in housing market activity.
A pair of closely-watched reports today will confirm that business and consumer confidence is tanking in the face of the coronavirus outbreak.
Data yesterday showed that German inflation roared higher at the start of the year, but the devil is in the detail.
Construction in the EZ stumbled at the start of the year.
The Bank of Japan yesterday left its -0.10% policy balance rate and ten-year yield target of "around zero" unchanged, as widely expected.
French consumer confidence and consumption have been among the main bright spots in the euro area economy so far this year.
The stage is set for the Fed to ease by 25bp today, but to signal that further reductions in the funds rate would require a meaningful deterioration in the outlook for growth or unexpected downward pressure on inflation.
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.
Yesterday's ECB meeting conformed to the consensus and our own expectations. The central bank left its main refinancing and deposit rates unchanged, at 0.00% and -0.5% respectively, and also maintained the pace and level of its QE programs.
The modest overshoot to consensus in September's core PCE deflator won't trouble any lists of great economic surprises, but it did serve to demonstrate that the PCE can diverge from the CPI, in both the short and medium-term.
The improvement in Mexico's trade surplus since mid last year consolidated in Q2, albeit not for any welcome reason, as imports fell more sharply than exports on the back of pandemic-induced crash.
Yesterday's advance CPI data in Germany offer a slight victory for ECB doves, and forecasters eyeing further stimulus from the central bank between now and the end of the year.
ADP's measure of private payrolls has undershot the initial official estimate in each of the past five months.
We have no way of knowing what will be the final outcome of the impeachment inquiry now underway in the House of Representatives, but we are pretty sure that the first key stage will end with a vote to send the President for trial in the Senate.
Last week's preliminary estimate of Q1 GDP has extinguished any lingering chance that the MPC might raise interest rates at its next meeting on May 10.
The 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."
The Caixin manufacturing PMI picked up to 51.5 in December from 50.8 in November. But the jump looks erratic and we expect it to correct in January.
The first economic report of 2020 confirmed the main story in the euro area last year; namely a recession in manufacturing.
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 data in LatAm were all over the map while we were out.
Data released in recent weeks have confirmed that the Andean economies retained a degree of momentum in Q4, with inflation well under con trol.
The Manufacturing Upswing Continues; no Sign of Weakening
Data released over the last few weeks have confirmed that Colombia's economic performance in Q2 was grim, adding weight to our below-consensus GDP forecast.
Today brings an array of economic data, including the jobless claims report, brought forward because July 4 falls on Thursday.
Argentina's economic data released last week confirm that the economy is improving. Our core view, for now, is that the economy will continue to defy rising political uncertainty, both domestic and external.
China's Caixin manufacturing PMI doused hopes of turning over a January new leaf; it dropped to 49.7 in November, from 50.2 in December.
Korean trade ended the year strongly, salvaging what was shaping up as a dull fourth quarter for the economy.
CPI inflation looks set to remain below the 2% target this year, driven by sterling's recent appreciation and lower energy prices.
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 Redbook chainstore sales survey today is likely to give the superficial impression that the peak holiday shopping season got off to a robust start last week.
The political momentum in the run-up to the election now lies with Labour.
We look for a 210K increase in July payrolls. That would be consistent with the message from an array of private sector surveys, as well as the recent trend.
President Trump tweeted yesterday that he wants to re-introduce tariffs on steel and aluminium imports from Brazil and Argentina, after accusing these economies of intentionally devaluing their currencies, hurting the competitiveness of U.S. farmers.
Chile's stronger-than-expected industrial production report for December, and less-ugly-than- feared retail sales numbers, confirmed that the hit from the Q4 social unrest on economic activity is disappearing.
Friday's advance Q4 growth numbers in the EZ were a bit of a dumpster fire.
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.
December's money and credit data support the MPC's decision last week to hold back from providing the economy with more stimulus.
The official PMIs suggest that the January survey data have escaped the worst of the hit from the virus.
The release today of the final reading of the composite PMI for June will provoke further debate over its usefulness in charting the economy's recovery from the Covid-19 shock.
This week's economic reports have provided clear, and uplifting, evidence that EZ consumers came out swinging as lockdowns were lifted.
The wild gyrations in the core inflation numbers in recent months have made it hard to keep track of the underlying story.
We're fully expecting to see a hit to September payrolls from Hurricane Florence, which struck during the employment survey week.
U.K. manufacturers are benefiting from rapid growth in the Eurozone, but increasingly they are being held back by weak domestic demand.
ADP's report that September private payrolls rose by 135K was slightly better than we expected, but not by enough to change our 150K forecast for tomorrow's official report.
On the face of it, yesterday's German consumption data were disappointingly weak.
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.
We are all for ambitious economic targets, but the ECB's pledge to drive EZ core inflation in the Eurozone up to "below, but close to" 2% is particularly fanciful.
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.
Yesterday's final EZ manufacturing PMIs for August provided little in the way of relief for the beleaguered industrial sector.
After a week--yes, a whole week!--with no significant new developments in the trade war with China--it's worth stepping back and asking a couple of fundamental questions, which might give us some clues as to what will happen over the months ahead.
It's entirely possible that Donald Trump will be re-elected today, but it is not very likely. The FiveThirtyEight model--the only one to give Mr. Trump much chance in 2016--puts his odds at only 10%.
Mexico's first estimate of third quarter GDP, released last week, confirmed that the economy is still struggling in the face of Covid-related domestic and external headwinds, despite recording the biggest-ever quarterly increase.
It has been a nasty start to the year for LatAm as markets have been hit by renewed volatility in China, triggered by the coronavirus.
Chile's near-term economic outlook is still negative after a sharp resurgence of coronavirus cases.
We're expecting ADP today to report a 10M drop in private payrolls in May, but investors should be braced for surprises, in either direction, because ADP's methodology is not clear.
The chance of a self-inflicted, unnecessary weakening in the economy this year, and perhaps even a recession, has increased markedly in the wake of the president's announcement on Friday that tariffs will be applied to all imports from Mexico, from June 10.
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.
The Bank of England issued a statement yesterday that it is "working closely with HM Treasury and the FCA--as well as our international partners--to ensure all necessary steps are taken to protect financial and monetary stability".
Manufacturers in the Eurozone are still suffering, but yesterday's final PMI data for April offered a few bright spots.
Yesterday's advance Q1 GDP data in the EZ confirmed that growth slowed at the start of the year.
Something of a debate appears to be underway in markets over the "correct" way to look at the coronavirus data.
LatAm, particularly Mexico, has dealt with Donald Trump's presidency better than expected thus far. Indeed, the MXN rose 10.7% against the USD in Q1, the stock market has recovered after its initial post-Trump plunge, and risk metrics have eased significantly.
We can think of at least three reasons for the apparent softness of ADP's March private sector employment reading.
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.
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.
We were worried about downside risk to yesterday's ADP employment measure, but the 67K increase in November private payrolls was at the very bottom of our expected range.
Yesterday's data showed that the euro area PMIs were a bit stronger than initially estimated in November.
November's Markit/CIPS construction report brings hope that the sector no longer is contracting. The PMI increased to a five-month high of 53.1 in November from 50.8 in October, exceeding the 52-mark that in practice has separated expansion from contraction.
Brazil's key data flow started Q4 on a soft note, but we still believe that the economic recovery will gather strength over the next three-to-six months.
The Budget on March 11 will be the first time that the new government's ambition and bluster collide with reality.
We've previously highlighted the pro-cyclical elements of the BoJ's framework, but it's worth repeating, when an economic shock comes along.
Brazil's December industrial production report, released yesterday, confirmed that the recovery was stuttering at the end of last year.
Data last Friday showed Japan's labour market trends deteriorating.
The advance indicators of July payrolls are wildly contradictory, so you should be prepared for anything from a consensus-busting jump to a renewed outright drop, in both Friday's official numbers and today's ADP report.
Yesterday's data provided further evidence of the rising costs of supporting the EZ economy through the Covid-19 shock.
China's services sector continues to do most of the heavy lifting for the economy's recovery this quarter, judging by the survey data.
Japan's real GDP seems unlikely to have risen in Q3, and could even have edge down quarter-on- quarter, after the 0.7% leap in Q2.
The ADP employment report suggests that the hit to payrolls from Hurricane Florence was smaller than we feared, so we're revising up our forecast for the official number tomorrow to 150K, from 100K.
Today brings the first glimpse of the post-hurricane employment picture, in the form of the September ADP report.
Yesterday's Brazilian industrial production data were downbeat.
We have argued for some time that much of the early phase of the downturn in global manufacturing was due to the weakening of China's economic cycle, rather than the trade war.
The economy will endure a sluggish recovery from Covid-19 this year, even if a second wave of the virus is avoided, partly because monetary stimulus is not filtering through powerfully to households.
Data released this week in Brazil underscored that the Covid-related shock on the industrial sector is finally easing, as the economy gradually reopens.
China hit back against the Trump-administration tariffs yesterday, targeting Mr. Trump's electorate.
While we were out, most of the core domestic economic data were quite strong, with the exception of the soft July home sales numbers and the Michigan consumer sentiment survey.
The opening gambits in the post-Brexit trade negotiations were played earlier this week, in speeches from U.K. Prime Minister Boris Johnson and EU chief negotiator, Michel Barnier.
The Caixin services PMI jumped sharply to 53.9 in December from 51.9 in November. All the PMIs picked up significantly, but we find this hard to believe and suspect seasonality is to blame, though the adjustment is tricky.
The economic slowdown in China is old news for Eurozone investors.
The simultaneous weakening of the ISM manufacturing and non-manufacturing surveys in recent months is one of the more disconcerting shifts in the recent macro data.
The outlook for Argentina is gradually improving, after a long and painful recession.
The apparently imminent imposition of 25% tariffs on imported steel and 10% on aluminum does not per se constitute a serious macroeconomic shock.
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.
We're very comfortable with the idea that the coronavirus is a broad deflationary shock to the U.S. economy.
China is facing a nasty mix of spiking CPI inflation and ongoing PPI deflation.
Economic conditions are deteriorating rapidly in Chile, despite the relatively decent Imacec reading for Q3.
Services will bear the brunt of the Covid-19 shock in the euro area, but manufacturing is not far behind.
Korea's manufacturing PMI fell for a fourth straight month in April, dropping to 41.6, which is the lowest reading since January 2009.
Friday's economic data in Germany suggest that households had a slow start to the year.
Speculation mounted yesterday that the MPC will follow the U.S. Fed and cut interest rates before its next meeting on March 26.
The flow of downbeat business surveys continued yesterday, with the release of the Markit/CIPS construction survey.
If you were looking just at investor sentiment in the Eurozone, you would conclude that the economy is in recession.
We expect to see a 160K increase in June payrolls today, though uncertainty over the extent of the rebound after June's modest 75K increase means that all payroll forecasts should be viewed with even more skepticism than usual.
Brazil's external position continue to improve, but we are sticking to our view that further significant gains are unlikely in the second half, given the stronger BRL. For now, though, we still see some momentum, with the unadjusted trade surplus increasing to USD7.2B in June, up from USD4.0B a year earlier. Exports surged 24% year-over-year but imports rose only 3%.
Inflation in the Eurozone tumbled last month, increasing the pressure on Mr. Draghi to deliver another dovish message when the central bank meets on Thursday.
Fed Chair Powell yesterday said about as little as he could without appearing to ignore the turmoil in markets since the President announced his intention to apply tariffs to imports from Mexico: "We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective."
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.
The Fed's unscheduled 50bp cut on Tuesday opens up some space for Asian central banks to follow suit.
The comforting 183K increase in February private payrolls reported by ADP yesterday likely overstates tomorrow's official number.
China's official non-manufacturing PMI rose further in May, hitting a four-month high of 53.6.
Peru is now in the grip of a severe political storm that is shaking the country's foundations and darkening the already fragile economic outlook.
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.
January's Markit/CIPS manufacturing survey suggests that the outcome of the general election has brought manufacturers some momentary relief.
Colombia's central bank has found a relatively sweet spot.
The fundamentals underpinning our forecast of solid first half growth in consumers' spending remain robust.
The 90-day truce in the trade wars between the U.S. and China, brokered on Saturday at the G20 meeting in Argentina, is a big deal for financial markets in the euro area, at least in the near term.
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.
The near-term performance for EZ manufacturing will be a tug-of-war between positive technical factors, and a still-poor fundamental outlook.
The economic calendar in Mexico was relatively quiet over Christmas, and broadly conformed to our expectations of resilient economic activity in Q4.
Today's ADP employment report for December ought to show private payrolls continue to rise at a very solid pace
The Caixin manufacturing PMI for January was grim, indicating that China's start to the year wasn't as benign as the official surveys suggested.
Where to start with the January employment report, where all the key numbers were off-kilter in one way or another?
Japan's labour market is already tight, but last week's data suggest it is set to tighten further.
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.
Data released in recent days confirmed the intensity of the Covid-related shock to the Chilean economy in Q2.
All the main surveys of business activity in Q1 now have been released and they present a uniformly downbeat picture.
Yesterday's economic reports added to the evidence the euro area economy as a whole is showing signs of resilience in the face of still-terrible conditions in manufacturing.
Japan's services PMI edged down to 52.0 in March, from 52.3 in February, taking the Q1 average to 52.0, minimally up from Q4's 51.9.
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.
Data released yesterday confirm that Brazil's recovery has continued over the second half of the year, supported by steady capex growth and rebounding household consumption.
2019 is a year many in the construction sector would prefer to forget.
The ADP employment report was on the money in October at the headline level--it undershot the official private payroll number by a trivial 6K--but the BLS's measure was hit by the absence of 46K striking GM workers from the data.
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.
Consumption remains an important source of economic growth in LatAm.
Data yesterday showed that Momentum in the EZ retail sector stumbled through middle of Q2.
Korean exports hit a brick wall in April, unsurprisingly, as lockdowns across the non- China world dealt a body blow to demand.
We recommend that investors take yesterday's inflation data in the Eurozone with a pinch of salt. The headline rate slipped to 1.2% in April, from 1.4% in March, hit by a slide in core inflation to 0.7%, from 1.0%.
April payroll growth likely will be reported at close to 200K. Overall, the survey evidence points to a stronger performance, but they don't take account of weather effects, and April was a bit colder and snowier than usual. We're not expecting a big weather hit, but some impact seems a reasonable bet.
January's money supply figures continued the nerve-jangling flow of data on the economy's momentum.
We have spent the past few weeks shifting our story on the EZ economy from one focused on slowing growth and downside risks to a more balanced outlook. It seems that markets are starting to agree with us.
The downturn in global trade looks set to turn a corner, at least judging by the outlook for Korean exports, which are a key bellwether.
Equity markets are correctly concluding that the outlook for U.K.-listed manufacturers is brighter than for most other firms.
Economic conditions are improving rapidly in Chile, in line with the relatively strong IMACEC reading for Q3 and upbeat leading indicators. This supports our case for interest rates on hold for the foreseeable future.
Thursday and Friday were busy days for LatAm economy watchers. In Brazil, the data underscored our view that the economy is on the mend, but the recent upturn remains shaky, and external risks are still high.
The unexpectedly robust 128K increase in October payrolls--about 175K when the GM strikers are added back in--and the 98K aggregate upward revision to August and September change our picture of the labor market in the late summer and early fall.
Investors focussed last week on Chair Powell's semi-annual Monetary Policy Testimony, but he said nothing much new.
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%.
The unexpectedly small 2,760K drop in the ADP measure of May private payrolls is consistent, at least, with the idea that the partial reopening of several states in the early part of the month prompted an immediate wave of rehiring.
The Caixin manufacturing PMI was steady in May, at 50.2, in contrast to the official gauge published on Friday, which dropped to 49.5, from April's 50.2.
The most positive thing to say about the EZ manufacturing PMI at the moment is that it has stopped falling.
We were surprised to see Japan's services PMI edging up to 51.9 in June, from 51.7 in May. We attributed apparent service sector resilience in April and May to the abnormally long holiday this year.
India's consensus-beating GDP report for the first quarter wasn't much to write home about.
Covid-19 has taken a large and immediate toll on house prices, but bigger damage likely lies ahead.
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.
We aren't in the business of trying to divine the explanation for every twist and turn in the stock market at the best of times, and these are not the best of times.
The key story in Brazil this year remains one of gradual recovery, but downside risks have increased sharply, due mainly to challenging external conditions.
Investors probably are right to expect this week's MPC meeting to lack drama.
Japan's jobless rate was unchanged, at 2.4% in October, as the market took a breather after September's job losses.
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.
The underlying trend in the core CPI is rising by just under 0.2% per month, so that has to be the starting point for our January forecast.
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.
Jim Bullard, the St. Louis Fed president, said last week that Phillips Curve effects in the U.S. are "weak", and that nominal wage growth is not a good predictor of future inflation.
Today's industrial production report in the Eurozone will be poor.
We will be paying special attention to the sentiment surveys for Argentina over the coming weeks.
The odds favor--just--an end to the three-month streak of solid 0.2% increases in the core CPI with the release of today's January report.
Today's industrial production data will confirm that EZ manufacturing suffered a slow start to Q4. Advance country data signal a 0.2% month-to-month fall in October, slightly worse than the consensus, 0.0%.
The ECB and Ms. Lagarde played it safe yesterday.
While we were out, most of the action was on the political front, while the economic data mostly were unexciting.
We expect July's consumer prices report, due on Wednesday, to reveal that CPI inflation dropped to 1.8% in July, from 2.0% in June.
The Brazilian central bank cut its benchmark Selic interest rate by 50bp to 4.50% on Wednesday night.
Next week is so crammed full of data releases that we need to preview November's consumer price data early, in the eye of the storm of the general election.
We've been consistent in saying that Japanese capex would roll over this year, after strength in the first three quarters was seen by the authorities and many commentators as a sign of resilience.
Today's November retail sales numbers are something of a wild card, given the absence of reliable indicators of the strength of sales over the Thanksgiving weekend, and the difficulty of seasonally adjusting the data for a holiday which falls on a different date this year.
December's consumer prices report looks set to show that CPI inflation was stable at 1.5%--in line with the consensus--though the risks are skewed to the downside.
China's GDP report for the fourth quarter, due on Friday, is likely to show that economic growth has stabilised, on the surface.
Data over the weekend revealed a further slowdown in China's CPI inflation, to 1.5% in February, from 1.7% in January.
As we go to press, Mrs. May's last-minute scramble to Strasbourg appears to have failed to persuade enough rebels to back the government.
The MPC's meeting on Thursday looks set to be a perfunctory affair. Signs that the economy has lost momentum this year, alongside downward surprises from CPI inflation in January and wage growth in December, mean the Committee won't give the idea of hiking rates a moment's thought.
Chile's market volatility and high political risk continue, despite government efforts to ease the crisis.
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 political situation in Spain remains an odd example of how complete gridlock can be a source of relative stability.
The consensus forecast for the October core CPI, which will be reported today, is 0.2%. Take the over. Nothing is certain in these data, but the risk of a 0.3% print is much higher than the chance of 0.1%.
The NY Fed's announcement yesterday restarts QE. The $60B of bill purchases previously planned for the period from March 13 through April 13 will now consist of $60B purchases "across a range of maturities to roughly match the maturity composition of Treasury securities outstanding".
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.
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.
Here's the bottom line: U.S. businesses appear to have over-reacted to the impact of the trade war in their responses to most surveys, pointing to a serious downturn in economic growth which has not materialized.
June's consumer price figures, released on Wednesday, probably will be overshadowed this week by data for May for GDP--see our detailed preview here--and the labour market.
We are still annoyed, for want of a better word, by the May payroll numbers. Specifically, we're annoyed that we got it wrong, and we want to know why. Our initial thoughts centered on the idea that the plunge in the stock market in the first six weeks of the year hit business confidence and triggered a pause in hiring decisions, later reflected in the payroll numbers.
The effects of Covid-19--both negative and positive--on Korea's labour market certainly were felt in February.
LatAm governments and policymakers are bracing for a more dramatic and longer virus-led downturn than initially expected.
Today's ECB meeting is supposed to be a slam-dunk.
Data released yesterday support our view that the Brazilian retail sector has gathered strength in recent months, following a weak Q2, when activity was hit by the truckers' strike.
Chair Powell broke no new ground in his semi-annual Monetary Policy Testimony yesterday, repeating the Fed's new core view that the current stance of policy is "appropriate".
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.
Yesterday's minutes of the February 4-to-5 COPOM meeting, at which Brazil's central bank, the BCB, cut the benchmark Selic rate by 25bp to 4.25%, reaffirmed the committee's post-meeting communiqué.
On a headline level, the Spanish economy conformed to its image as the star performer in the EZ in Q4.
The Mexican industrial sector is struggling. December industrial output fell 0.4% month-to-month, the third consecutive drop, driven mainly by a similar decline in mining/oil output.
The U.S. Commerce Department on Tuesday released a list of Chinese imports, with an annual value of $200B, on which it is threatening to impose a 10% tariff, after a two-month consultation period.
Markets are looking for the BCCh to remain on hold and the BCRP to ease on Thursday; we think they will be right. In Chile, the BCCh will hold rates because inflation pressures are absent and economic activity is stabilizing following temporary hits in Q1 and early Q2.
Local policy drivers have remained in the spotlight in Brazil, against a background of important recent global events.
Mexico's economy is not accelerating, but it is holding up very well in difficult circumstances, with rising domestic political risk and stifling interest rates.
Yesterday's ZEW investor sentiment report in Germany provided an upside surprise.
The sluggishness of consumers' spending and business investment in the first quarter means that hopes of a headline GDP print close to 2% rely in part on the noisier components of the economy, namely, inventories and foreign trade.
China concludes its annual Central Economic Work Conference today, where the economic targets and the agenda for next year are set.
The U.K. general election is the main event in today's European calendar, but the first official ECB meeting and press conference under the leadership of Ms. Lagarde also deserves attention.
Today's consumer prices figures likely will show that CPI inflation increased to 3.1% in November, from 3.0% in October.
The FOMC did mostly what was expected yesterday, though we were a bit surprised that the single rate hike previously expected for next year has been abandoned.
June's RICS Residential Market Survey brings hope that the housing market already is over the worst.
In March, CPI rents--the weighted average of primary and owners' equivalents rents--rose by 0.35% month- to-month.
Financial assets of all stripes are, by most metrics, expensive as we head into year-end, but for some markets, valuations matter less than in others. The market for non-financial corporate bonds in the euro area is a case in point.
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.
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.
If the Phase One trade deal with China is completed, and is accompanied by a significant tariff roll-back, we'll revise up our growth forecasts, but we'll probably lower our near-term inflation forecasts, assuming that the tariff reductions are focused on consumer goods.
Mexico's industrial sector did relatively well in Q3, due mainly to the resilience of the manufacturing sector, and the rebound in construction and oil output, following a long period of sluggishness.
Inflation data for Brazil and Chile released last week surprised to the upside, but the rebound in September mainly was driven by the effect of the reopening of the economy and food-related pressures as external demand increases.
We remain resolutely open-minded about the medium-term inflation outlook, on the straightforward grounds that the post-Covid economy will bear little resemblance to any previous U.S. economic experience.
The 0.1% dip in the core CPI in March was the first outright decline in three years, but we expect another-- and bigger--decline in today's April numbers.
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.
We have drawn attention over the past couple of weeks in our daily Coronavirus Update to the rising trend in new cases in some states, mostly in the South.
We expect May's consumer prices report, released on Wednesday, to show that the headline rate of CPI inflation fell to a four-year low of 0.4% in May, from 0.8% in April.
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.
The Fed paved the way with a 50bp emergency rate cut on March 3, with more to come.
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.
Yesterday's industrial production numbers in Germany were similar to Friday's confusing new orders data.
Japan's GDP report for the third quarter, due on Monday, is likely to show that the economy rebounded by 5.2% quarter-on-quarter, following the 7.9% collapse in Q2.
The sharp currency sell-off in Q2 and Q3, the financial crisis and tighter monetary and fiscal policies have pushed the Argentinian economy under stress since Q2.
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.
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.
Today brings a wave of data which will help analysts narrow their estimates for first quarter GDP growth, and will offer some clues, albeit limited, about the early part of the second quarter.
The ECB did its utmost not to say or do anything remotely novel today. The central bank kept its main refinancing and deposit rates unchanged at 0.00% and -0.40%, respectively, and reiterated its plan for QE next year.
January's consumer price data, released tomorrow, look set to reveal a third consecutive rise in CPI inflation, dampening speculation that the U.K. is stuck in a deflationary funk. Indeed, we think CPI inflation picked up to 0.4%, from 0.2% in December, above the consensus, 0.3%.
Inflation in the Andean economies ended 2019 well within central banks' objectives, despite many domestic and external challenges.
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.
After five straight undershoots to consensus, with the core CPI averaging monthly gains of just 0.05%, investors are asking hard questions about the Fed's belief -- and ours -- that core inflation is headed towards 2% in the not-too-distant future.
The 0.4% August core CPI print was close to our expectations, and it likely will look much the same in September and October, driven by the same forces.
The overarching theme in the September CPI numbers is that there is no overarching theme.
Sterling leapt to $1.27, from $1.22 last week, amid some positive signals from all sides engaged in Brexit talks.
The broad message from the Mexican activity data and job market numbers released in recent days is that the economy is finally on the mend, though it seems no longer to be accelerating.
In a world where the ECB is inclined to ease first and ask questions later, yesterday's detailed German inflation data gave further indication that more stimulus is on the way.
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.
Friday's sole economic report provided further clarity on the impact on Germany's inflation data from the Value-Added-Tax cut in July.
Eurozone investors should by now be accustomed to direct intervention in private financial markets by policymakers.
The weekly jobless claims numbers are due Thursday, as usual, but in the wake of a flood of emails from readers, all asking a variant of the same question-- should we be worried about the rise in continuing jobless claims?--we want to address the issue now.
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.
We aren't much bothered by the one-tenth overshoot in the June core CPI, reported yesterday.
China's trade surplus plunged to $46.4B in June, from $62.9B in May, largely in line with our below- consensus forecast.
German inflation eased in May, but the underlying upward pressure on the core is increasing. Yesterday's data showed that inflation fell to 1.5% year-over-year in May, from 2.0% in April, as the boost from the late Easter reversed. Inflation in leisure and entertainment services was driven down to +0.8%, from +3.3% in April, as a result of sharply lower inflation in package holidays and airfares.
The Fed's action, statement, and forecasts, and Chair Yellen's press conference, made it very clear the Fed is torn between the dovish signals from the recent core inflation data, and the much more hawkish message coming from the rapid decline in the unemployment rate.
The surge in Covid-19 case and hospitalizations-- and, in due course, deaths--in some southern states since they began to reopen probably is not a sign of what is likely to happen as the populous states in the Northeast and Midwest reopen too.
The headline May retail sales numbers were flattered by a 2.4% leap in the wildly volatile building materials component and a price-driven 2.0% surge in gasoline sales.
Brazil's recession carried over into the middle of Q2, but with diminishing intensity in some economic sectors.
Manufacturers in the Eurozone stood tall mid-way through Q2, despite still-subdued leading indicators.
December's consumer price figures, released on Tuesday, likely will show that CPI inflation fell more than most analysts expect.
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.
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.
In our Monitor of January 10, we argued that the market turmoil in Q4 was largely driven by the U.S.- China trade war, and that a resolution--which we expect by the spring, at the latest--would trigger a substantial easing of financial conditions.
Treasury Secretary Mnuchin's five-line letter to House Speaker Pelosi on last Friday--copied to other Congressional leaders--which said that "there is a scenario in which we run out of cash in early September, before Congress reconvenes", introduces a new element of uncertainty to the debt ceiling story.
Last week's horrible manufacturing data in the major EZ economies had already warned investors that yesterday's industrial production report for the zone as a whole would be one to forget.
Hard data for Brazil and Mexico, released last week, support the case for further interest rate cuts.
Friday's data added further colour to the September CPI data for the Eurozone.
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.
We've already raised a red flag for today's second Q4 GDP estimate in the Eurozone, but for good measure, we repeat the argument here.
It was no surprise that Banxico cut its policy rate by 25bp to 7.00% yesterday, following similar moves in August, September, November and December.
The 0.242% increase in the January core CPI left the year-over-year rate at 2.3% for the third straight month.
Our base case is that the core CPI rose 0.2% in December, but the net risk probably is to the upside. We see scope for significant increases in sectors as diverse as used autos, apparel, healthcare, and rent, but nothing is guaranteed.
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.
Investors concluded too hastily yesterday that November's GDP report boosted the chances that the MPC will cut Bank Rate at its upcoming meeting on January 30.
July's consumer price figures, released on Wednesday, look set to show that CPI inflation rose to 2.5%, from 2.4% in June.
German inflation data are more noise than signal at the moment.
The manufacturing sector likely was the primary driver of Q3 GDP growth in the Eurozone. Data yesterday showed that industrial production rose 1.4% month-to-month in August, pushing the year-over-year rate up to 3.8%, from a revised 3.6% in July.
Covid-19 is a very different calamity from the shocks that stung the EZ economy during the financial and sovereign debt crises, but one thing hasn't changed.
The third straight 0.3% increase in the core CPI-- that hasn't happened since 1995--was ignored by the Treasury market yesterday, which appeared to be focusing its attention on the ECB.
The surge in gasoline prices triggered by refinery outages after Hurricane Harvey came much too late to push up the August PPI, but gas prices had risen before the storm so the headline PPI will be stronger than the core.
Japan's Q2 GDP was driven by the twin pillars of private consumption and capex.
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.
Inflation in Brazil Ended 2019 Above the BCB's Target; 2020 will be Fine
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.
Manufacturing in the EZ was held above water by Ireland at the end of Q3.
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.
It's hard to know what to make of the October CPI data, which recorded hefty increases in healthcare costs and used car prices but a huge drop in hotel room rates, and big decline in apparel prices, and inexplicable weakness in rents.
Japan's PPI data yesterday confirmed that October was a turning point for prices--due to the consumption tax hike--despite the surprising stability of CPI inflation in Tokyo for the same month.
Friday's detailed October CPI report in Germany confirmed that inflation pressures are steadily rising. Inflation rose to 0.8% year-over-year in October, from 0.7% in September, lifted mostly by a continuing increase in energy prices.
We remain confident--see here--that today's Q3 GDP report in Germany will be a shocker, but this already is priced-in by markets.
We're expecting to see the sixth straight drop in initial jobless claims this week, though we think the 2,500K consensus forecast is too ambitious.
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 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.
We have no argument with the FOMC's view that the Covid crisis is a disinflationary event, but the run of three straight outright month-to-month declines in the core CPI likely came to an end in June.
Evidence of a modest upturn in Brazilian consumers' spending continues to mount. Retail sales rose 1.0% month-to-month in April, pushing the year-over-rate up to +1.9%, from an upwardly-revised -3.2% in March.
Korea watchers appear to be hanging on Governor Lee Ju-yeol's every word, searching for any sign that he'll drop his hawkish pursuit of more sustainable household debt levels and prioritise short-term growth concerns.
Yesterday's data provided further evidence of the damage wrought on the EZ at the end of Q1.
The January durable goods numbers, viewed in isolation, were not terrible.
If you had only the NFIB survey of small businesses as your guide to the state of the business sector, you'd be blissfully unaware that the economic commentariat right now is obsessed with the potential hit from the trade tariffs, actual and threatened.
The August NFIB survey of activity and sentiment at small businesses was soft, but it could have been worse.
The momentum in Chinese manufacturing waned in August, with the official manufacturing PMI slipping marginally to 51.0, from 51.1 in July,
Yesterday's inflation data in France and Italy were just about as soft as we had expected, but not for the reasons we were looking for.
China's manufacturers ended the third quarter on a fairly strong note.
Today brings a raft of data which mostly will look quite positive but will do nothing to assuage our fears over a sharp slowdown in growth in the fourth quarter.
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.
It's probably too soon to expect to see a meaningful reaction in the NFIB small business survey to the drop in stock prices, but it likely is coming, and a hit in today's March report can't be ruled out entirely.
Last fall and winter, when the weather was warmer than usual--thanks largely to El Nino--construction employment rocketed. Between October and March, job gains averaged 36K, compared to an average of 20K per month over the previous year. When these strong numbers began to emerge, we expected to see a parallel acceleration in construction spending.
China's official and Caixin manufacturing PMIs have diverged in the last couple of months.
The BoJ kept policy unchanged, as expected, at its meeting yesterday.
The Office for Budget Responsibility has decided to press ahead with the publication of new fiscal forecasts on November 7, despite the government's decision to postpone the Budget until after the next election.
Yesterday's first estimate of Q1 GDP in Mexico confirmed that growth was under severe pressure at the start of the year. GDP fell by 1.6% quarter- on-quarter, the biggest drop since mid-2009, well below market expectations and following a 0.1% drop in Q4.
We expect to see a 70K increase in October payrolls today.
The Brazilian Central Bank's policy board-- COPOM--voted unanimously on Wednesday to cut the Selic rate by 50bp to 5.00%, as expected.
The more headline hard data we see in the Eurozone, the more we are getting the impression that 2019 is the year of stabilisation, rather than a precursor to recession.
The BoJ yesterday kept the policy balance rate at -0.1%, and the 10-year yield target at "around zero", in line with the consensus.
Brazil's economic activity data have disappointed in recent months, firming expectations that the Q1 GDP report will show another relatively meagre expansion.
Friday's manufacturing and trade data added to the evidence of a solid rebound in the EZ economy at the end of Q2, as lockdowns were lifted.
We have questioned the reliability of the recent consumer confidence numbers, and are very skeptical of their signal that spending is set to accelerate rapidly, but we see no real sign yet of any significant reversal of the post-election spike.
Friday's industrial production data in the core EZ economies, for December, were startlingly poor. In Germany, industrial production plunged by 3.5% month-to-month, comfortably reversing the revised 1.2% rise in November.
Inflation data in Brazil, Mexico and Chile last week reinforced our view that interest rates will remain on hold, or be cut, over the coming meetings. The recent fall in oil prices, and the weakness of domestic demand, will offset recent volatility caused by the FX sell-off, driven mostly by the coronavirus story.
Survey data have been signalling a resilient Brazilian economy in the last few months, despite the broader challenges facing LatAm and the global economy in 2019.
The market-implied probability that the MPC will cut Bank Rate in the first half of this year leapt to 50% yesterday, from 35%, following Mark Carney's speech.
Yesterday's industrial production report in Germany was much better than implied by the poor new orders data--see here--released earlier this week.
Our forecast of a solid 190K increase in headline December payrolls ignores our composite employment indicator, which usually leads by about three months and points to a print of just 50K or so.
The reported 225K jump in payrolls in January was even bigger than we expected, but it is not sustainable. The extraordinarily warm weather last month most obviously boosted job gains in construction, where the 44K increase was the biggest in a year
We can't quibble with the consensus that GDP likely rose by 0.2% month-to-month in December, reversing only two-thirds of November's drop.
The early Q4 hard data in Germany recovered a bit of ground yesterday.
Japan's GDP growth was revised up, to 0.4% quarter-on-quarter in Q3, from 0.1% in the preliminary reading.
The monthly survey of small businesses conducted by the National Federation of Independent Business is quite sensitive to short-term movements in the stock market, so we're expecting an increase in the November reading, due today.
Recent inflation and activity data in Mexico were dovish.
China's January trade data were scheduled for release on Friday, but instead, the customs authority delayed the publication, saying it would publish the numbers with the February data
With the exception of Mexico, November inflation was or below expectations in LatAm. Mexico's overshoot increases the likelihood that Banxico will hike its reference rate at the next board meeting on December 20.
The drop in jobless claims to 3,839K in the week ended April 25, from 4,442K in the previous week, leaves the data still terrible, but markedly less terrible than at the 6,867K peak in late March.
Yesterday's economic headlines in the Eurozone were pleasant reading.
China's manufacturing PMIs have softened in Q4. Indeed, we think the indices understate the slowdown in real GDP growth in Q4, as anti-pollution curbs were implemented. More positively, though, real GDP growth should rebound in Q1 as these measures are loosened.
The Fed shifted its stance significantly in June, so we're expecting only trivial changes in today's statement.
The underlying U.S. consumer story, hidden behind a good deal of recent noise, is that the rate of growth of spending is reverting to the trend in place before last year's tax cuts temporarily boosted people's cashflow.
Headline inflation in the Eurozone eased at the start of the year, but leading indicators suggest that the dip will be short-lived.
It's tempting to conclude from the recent decline in consumers' confidence that growth in real spending will continue to weaken over the coming quarters, from the already modest 1.8% year-over-year rate in Q3.
The outcome of the Trump-Xi meeting at the G20 summit was as good as we expected.
We have few doubts that labor demand remained strong in January, but the chance of a repeat of December's 312K payroll gain is slim.
Friday's economic data added to the evidence of a Q1 rebound in EZ consumption growth.
Yesterday's March labour market data in Germany were surprisingly strong
Last week's official data unequivocally indicated that the Brexit vote has not had a detrimental impact on the economy yet.
Further compelling signs that the U.K. has lost its status as one of the fastest growing advanced economies were presented by the Markit/CIPS manufacturing survey, released yesterday. The PMI fell in February to 50.8--its lowest level since April 2013--from 52.9 in January.
The odds of the MPC cutting interest rates again in November took another knock yesterday after further signs that the manufacturing sector is getting back on its feet quickly.
The huge rebound in September's ISM non- manufacturing survey, reported yesterday, strongly supports our view that the August drop was more noise than signal.
China's official PMIs for March surprised well to the upside, cheering markets across Asia.
Today's March ADP employment report likely will catch the leading edge of the wave of job losses triggered by the coronavirus.
Today brings a raft of data with the potential to move markets, but we're far from convinced that the two most closely-watched reports--ADP employment and the ISM manufacturing survey--will tell us much about the future.
Data released yesterday showed that the labour market in Brazil looks relatively resilient to the collapse in economic activity.
Chinese data still are in the midst of Lunar New Year-related noise, so take February's PMIs with a pinch of salt, even though they ostensibly are adjusted for seasonal effects.
All eyes today will be on the core PCE deflator for January, following the unexpectedly large 0.3% increase in the core CPI.
A quick rebound in growth, after the slowdown to a reported 2.6% in the fourth quarter, is unlikely.
China's official manufacturing PMI implies a modest gain in momentum in Q2, at 51.4, compared with 51.0 on average in Q1.
On the face of it, the timing of the drop in the E.C.'s measure of consumers' confidence, to its lowest level since July 2016 in April, is peculiar.
We're expecting the April ISM report today to bring yet more evidence that the manufacturing cycle is peaking, though we remain of the view that the next cyclical downturn is still some way off.
China's PMIs surprised the consensus forecasts to the downside for February. The manufacturing PMI dropped to 50.3 in February from 51.3 in January, while the non-manufacturing PMI fell to 54.4 from 55.3 in January.
The entire 10.5% increase in personal income in April, reported on Friday, was due to the direct stimulus payments made to households under the CARES Act.
Yesterday's national accounts showed that the downturn in the economy on the eve of the Covid-19 outbreak was sharper than first estimated.
Yesterday's EZ data showed that French households came out swinging as the economy reopened. Consumers' spending, ex-services, jumped by 36.6% month-to-month in May, driving the year-over-year rate up to -8.3%, from -32.7% in April.
The Eurozone escaped deflation last month, and we doubt it will return in this business cycle. Inflation rose to 0.1% year-over-year in June, up from -0.1% in May; it was lifted chiefly by the gradual recovery in oil and other global commodity prices. Energy prices fell 6.5% in June, up from a 8.4% fall in May, and we think the recovery will accelerate in coming months.
We're expecting a strong-looking 225K increase in the May ADP measure of private sector payroll growth, due today. The consensus forecast is 180K.
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.
We're expecting a 180K increase in today's May headline payroll number, a bit below the underlying trend--200K or so--for the second straight month.
Japan's regular wage growth continued to edge up in November, maintaining the rising trend. The headline is volatile, with growth in labour cash earnings rising to 0.9% year-over-year in November, up from a downwardly revised 0.2% in October.
Inflation in Mexico edged higher in the second half, but we expect both the headline and core rates to continue falling, allowing Banxico to keep interest rates on hold.
Collapsing oil prices add fresh deflationary pressure on China.
This has been a very complicated week for LatAm policymakers, who are particularly uneasy about the performance of the FX market.
April's GDP data give a grim firs t impression, though the details provide reassurance that the economy isn't on the cusp of a recession.
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.
It's just not possible to forecast the reaction of businesses and consumers to the coronavirus outbreak.
Inflation in the Andes remains in check and the near term will be benign, suggesting that central banks will remain on hold over the coming months.
We expect the Budget today to underwhelm investors who are eager to see a quick and powerful government response to the coronavirus outbreak.
Inflation is under control in most LatAm economies, and we expect headline rates to remain close to current levels in the very near term.
Political risks in Brazil recently have simmered alongside the modest cyclical recovery, but they are now increasing. President Michel Temer's future remains hard to predict as circumstances change by the day.
Analysts' forecasts for January's consumer prices report, released on Wednesday, are unusually dispersed.
Banxico's monetary policy meeting on Thursday was the first to be attended by the two new deputy governors, Jonathan Heath and Gerardo Esquivel, economists appointed by AMLO.
Chinese PPI inflation fell to 4.9% in December, from 5.8% in November. The decline was expected, but underneath the slowdown in commodity price inflation, the rate of increase of manufacturing goods prices is slowing sharply too.
Momentum in French manufacturing eased slightly in November, but the setback was modest. Industrial production dipped 0.5% month-to-month, only partially reversing the revised 1.7% jump in October.
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.
Mexico's inflation rate ended 2018 in line with market expectations, strengthening the case for interest rates to remain on hold in the near term.
The re-emergence of Chinese PPI inflation in 2016 was instrumental in stabilising equities after the 2015 bubble burst.
Economic conditions in Brazil are deteriorating rapidly.
Business investment in Japan took a nasty hit in the third quarter.
Yesterday's economic reports in the Eurozone were ugly.
Recent inflation numbers across the biggest economies in LatAm have surprised to the downside, strengthening the case for further monetary easing.
The latest GDP data continue to show that the economy is holding up well, despite the Brexit saga.
Peru's central bank likely will cut its main interest rate by 25bp to 3.25% on Thursday. Inflation dipped in September and likely will increase only marginally in October, while economic growth was relatively sluggish at the start of Q3.
Manufacturing in France rebounded only modestly at the start of Q3, despite favourable base effects.
We'd be surprised to see a repeat today of August's very modest 0.08% increase in the core CPI.
The undershoot in the September core CPI does not change our view that the trend in core inflation is rising, and is likely to surprise substantially to the upside over the next six-to-12 months.
Peru's embattled president, Martin Vizcarra, was dismissed by Congress yesterday, after two years and eight months in office.
Last week finished as it started, with more depressing economic numbers in the Eurozone, this time from manufacturing in the core economies.
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.
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
October's consumer prices report, released on Wednesday, likely will show that CPI inflation has continued to drift further below the 2% target
Friday's data force us to walk back our recession call for Germany. The seasonally adjusted trade surplus rose in September, to €19.2B from €18.7B in August, lifted by a 1.5% month-to-month jump in exports, and the previous months' numbers were revised up significantly.
A reader pointed out Friday that the standard measurement of the impact of the weather on January payrolls--the number of people unable to work due to the weather, less the long-term average--likely overstated the boost from the extremely mild temperatures.
Yesterday's Sentix investor sentiment survey provided the first glimpse of conditions on the ground in the EZ economy in the wake of the coronavirus scare.
On the face of it, our forecast of higher core inflation by the end of this year is seriously challenged by the recent data.
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.
The CBO reckons that the April budget surplus jumped to about $179B, some $72B more than in the same month last year. This looks great, but alas all the apparent improvement reflects calendar distortions on the spending side of the accounts.
In the wake of the payroll report on Friday, several readers sent us a version of the chart reproduced below, showing the rates of growth of S&P earnings and private sector payrolls. The message from the chart appears to be that the current trend in payroll growth, a bit over 200K per month cannot be sustained.
Headline inflation in Mexico remained sticky in October, and even breached the ceiling of Banxico's target range.
Gloom and uncertainty are spreading across the global economy as we head into the final stretch of the year.
Pfizer's announcement yesterday provided the answer to the--rhetorical--question we've been asking for months: Do you want to be short equities the day we learn that a Covid-19 vaccine works?
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.
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.
We'd be surprised to see any serious shift in the tone of Fed Chair Powell's semi-annual Monetary Policy Testimony today compared to the FOMC statement and press conference just three weeks ago.
Inflation pressures are gradually easing in Mexico, opening the door for rate cuts as early as next month. The June CPI report, released yesterday, showed that prices rose 0.1% month-to-month unadjusted in June, in line with market expectations.
Yesterday's trade data in Germany added to the evidence of a relatively slow rebound as the domestic and European economies emerged from lockdown.
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.
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.
China's trade balance flipped to an unadjusted deficit of $7.1B in the first two months of the year, from a $47.2B surplus in December.
Data released in recent days have supported our base case for further interest rate cuts in Mexico over the coming meetings.
Data yesterday suggest that EZ investor sentiment is on track for a modest recovery in Q3.
We see clear upside risk to the inflation data due before the FOMC announcement, from three main sources.
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.
Markets rightly placed little weight on October's below-consensus GDP report yesterday, and still think that the chances of the MPC cutting Bank Rate within the next six months are below 50%.
China's November money and credit data were a little less grim, with only M2 growth slipping, due to unfavourable base effects.
The clear threat to demand posed by the coronavirus and China's efforts at containment have sent a shock wave through commodities markets.
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.
Manufacturing in France remained on the front foot at the start of Q4.
A plunge in apparel prices attracted most of the attention after the release of the March CPI report, but it was not, in our view, the most important number.
The data calendar is so congested next week that it makes sense to preview Tuesday's labour market report early.
We're expecting to see another dip in initial claims for regular state unemployment benefits today, to about 850K, but that's only part of the story.
The balance of risks is finely poised ahead of today's ECB meeting.
Friday was a busy day in the Eurozone economy. The third detailed GDP estimate confirmed that growth was unchanged at 0.4% quarter-on-quarter in Q2, pushing the year-over-year rate down by 0.4 percentage points to 2.1%, marginally below the first estimate,2.2%.
The economy has remained remarkably resilient in the face of intense political uncertainty.
The Mexican economy's brightest spot continues to be private consumption.
Don't worry about the weakness of the recent retail sales numbers. The three straight 0.1% month-to- month declines tell us nothing about the underlying state of the consumer.
The outlook for the French economy is changing on a daily basis these days.
The probability of a rate hike on June 14, as implied by the fed funds future, has dropped to 90%, from a peak of 99% on May 5.
Political risk in Brazil has increased substantially, following reports that President Temer was taped in an alleged cover-up scheme involving the jailed former Speaker of the House. If the tapes are verified, calls for Mr. Temer to face impeachment will mount.
The BoE has lived up to its reputation again as one of the most unpredictable central banks.
The uncertainty over the strength and speed of the economic rebound is still a concern for investors in terms of putting money to work.
April's consumer prices report, released on Wednesday, likely will show that CPI inflation plunged and is heading quickly to a near-zero rate by the summer.
Italy's economy is still bumping along the bottom, after emerging from recession in the middle of last year.
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.
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.
Peru's April supply-side monthly GDP data confirm that the economic rebound lost momentum at the start of the second quarter.
June's consumer price figures threw a last minute curve-ball at the MPC ahead of its key meeting on August 2.
China's official GDP data, published on Monday, showed year-over-year growth edging down to 6.7% in Q2, from 6.8% in Q1.
The Spanish economy remains the star performer among the majors in the Eurozone.
The spike in the May core CPI, and its likely echo in the core PCE, won't stop the Fed easing at the end of this month.
Today's construction data in the Eurozone will inject a dose of optimism amid the series of poor economic reports at the start of Q2.
Iván Duque, the conservative candidate for the Democratic Centre Party, won the presidential election held in Colombia on Sunday.
The People's Bank of China cut its seven-day reverse-repo rate yesterday, to 2.50% from 2.55%.
As the impeachment hearings gather momentum, we have been asked to provide a cut-out-and-keep guide to the possible outcomes.
Last week's unprecedented surge in initial jobless claims, to 3,283K from 282K, prompted a New York Times front page for the ages; if you haven't seen it, click here.
The duration and future scope of the current lockdown is the main uncertainty that U.K economic forecasters have to grapple with at present.
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.
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.
Data released last week confirm that the Argentinian economy finally is stabilizing.
The FOMC did nothing yesterday and said nothing significantly different from its June statement, as was universally expected.
Inflation in the Eurozone stumbled at the end of Q3.
Brazil's economy surprised to the upside in early Q3, despite downbeat data released in recent days.
The September NAHB survey, released yesterday, shows, that the housing market took a knock from the hurricanes but the damage, so far at least, appears to be contained.
The plunge in oil prices in recent weeks is not a threat to the overall U.S. economic growth story in the near term--we have always expected growth to slow, but remain decent, once the boost from the tax cuts fades--but it will make a difference, at the margin.
It's tempting to think, in the wake of yesterday's strong October housing starts numbers and the dip in mortgage rates to record lows, that the market will continue to strengthen.
Evidence of weakening momentum in the economic recovery in Colombia was seen last week, alongside its regional peers and some DM economies. Low inflation, low interest rates, and the ongoing boost from a decent fiscal stimulus, all have supported the upturn since mid-Q2.
Korea's labour market ran out of luck in September, with the unemployment rate rebounding back up to 3.9%, after the surprise one-percentage point drop to 3.2% in August.
Colombian activity data released this last week were upbeat, better than we expected, showing a significant pickup in manufacturing output and improving retail sales. Retail sales rose 3.1% year- over-year, after a modest 1.0% increase in June.
Everyone is familiar by now with the conundrum in the labor market: How come wage gains have barely increased over the past few years even as the unemployment rate has fallen to very low levels, and business surveys scream that employers can't find the people they want? To give just one visual example of the scale of the apparent anomaly, our first chart shows the yawning gap between the headline unemployment rate and the rate of growth of hourly earnings, compared to previous cycles.
The solid numbers for December mean that core inflation remains on track to breach 2?-?% this year, though probably not until the summer. Over the next few months, base effects will help to hold the core rate close to the December pace.
Judging by the monthly production data, construction in the Eurozone slowed sharply in the second half of 2018.
PM Johnson has conceded considerable ground over the terms of Brexit for Northern Ireland in order to get a deal over the line in time for MPs to vote on it on Saturday, before the Benn Act requires him to seek an extension.
The declines in headline housing starts and building permits in September don't matter; both were driven by corrections in the volatile multi-family sector.
Rapidly increasing food inflation is creating all sorts of dilemmas for policymakers in Asia's giants.
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.
You'd be hard-pressed to read the minutes of the September FOMC meeting and draw a conclusion other than that most policymakers are very comfortable with their forecasts of one more rate hike this year, and three next year.
The ongoing weakness in DM has been a feature of the global landscape over the last year.
In September last year, headline CPI inflation stood at exactly zero. Today, we expect to see a 1.5% print, thanks mostly to the fading impact of falling energy prices.
Argentinians are heading to the polls on Sunday October 27 and will likely turn their backs on the current president, Mauricio Macri.
Fed Chair Yellen's Testimony yesterday pretended the election hadn't happened, and ignored the incoming administration's plans for a huge fiscal stimulus. She did address the issue under questioning, though, pointing out that fiscal stimulus could have inflationary consequences and that the Fed will have to factor-in to its decisions whatever Congress decides to do to taxes and spending.
The half-way point of the quarter is not, alas, the half-way point of the data flow for the quarter.
The turmoil in Washington has begun to hit markets. We don't know how this will end, but we do know that it isn't going away quickly.
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.
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.
The consensus for a mere 0.3% month-to-month fall in the official measure of retail sales volumes--the data are released on Friday--looks too sanguine. We look for a fall of about 0.7%, followed by a lockdown induced plunge in sales of about 10% in November.
Peru's political crisis has deteriorated the country's economic outlook, just as it was emerging gradually from the Corona shock.
The near-real-time economic data have been hard to read recently, because of distortions caused by the Labor Day holiday.
For the record, we think the Fed should raise rates in December, given the long lags in monetary policy and the clear strength in the economy, especially the labor market, evident in the pre-hurricane data.
Yesterday's IFO data in Germany heaped more misery on the Eurozone economy.
The next couple of rounds of business surveys will capture firms' responses to the Phase One trade deal agreed last week, though the news came too late to make much, if any, difference to the December Philly Fed report, which will be released today.
Colombia's GDP report, released last week, confirmed that it was the fastest growing economy in LatAm and everything suggests that it likely will lead the ranking again this year.
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 headline employment numbers masked an otherwise sub-par December labour market report.
Yesterday's German ZEW investor sentiment survey provided the first clear evidence of the coronavirus in the EZ survey data.
The PBoC reduced its 14-day reverse repo by 5bp to 2.65% in a routine operation yesterday.
CPI inflation held steady at 1.5% in November, marking the fourth consecutive below-target print, though it was a tenth above both the MPC's forecast and the consensus.
The first estimate of retail sales growth in August was weaker than implied by the Redbook chainstore sales survey, but our first chart shows that the difference between the numbers was well within the usual margin of error.
Yesterday's final CPI report confirmed that inflation in the EZ fell marginally in August, by 0.1 percentage points to 2.0%.
The ECB's communication to markets has been clear this year. In Q1, the central bank changed its stance on the economy towards an emphasis on "downside risks to the outlook".
An inverted curve is a widely recognised signal that a recession is around the corner, though it's worth remembering that the lags tend to be long.
The Eurozone economy all but stalled at the start of Q4.
Recession, rising unemployment and disinflation remain the main themes for economists in the context of charting the course of the Covid-19 crisis.
We're reasonably happy with the idea that business sentiment is stabilizing, albeit at a low level, but that does not mean that all the downside risk to economic growth is over.
The key detail in Friday's barrage of economic data was the above-consensus increase in EZ inflation.
Halfway through the third quarter, we have no objection to the idea that GDP growth likely will exceed 2% for the third straight quarter.
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.
A few ECB governors has attempted to lean against dovish expectations in the past week.
The jump in CPI inflation to 1.0% in July, from 0.6% in June, caught all analysts by surprise.
Under normal circumstances, the 0.23% increase in the core CPI, reported earlier this month, would be enough to ensure a 0.2% print in today's core PCE deflator.
The INSEE business sentiment data in France continue to tell a story of a robust economy.
Banxico cut its policy rate by 25bp to 7.25% yesterday, as was widely expected, following similar moves in August, September and November.
Argentina's economic and financial situation has deteriorated significantly in recent weeks and the outlook is becoming increasingly bleak.
India's GDP shrank by 23.9% year-over-year in the second quarter, following growth of 3.1% in Q1.
Japan's key Tankan indices rebounded in the third quarter, from their lowest levels since the global financial crisis.
We look for a 950K increase in September private payrolls, more than the 700K or so implied by the Homebase daily employment data but consistent with ADP, assuming it has undershot the official numbers for a sixth straight month.
Last week's national accounts were a setback for the hawks on the MPC seeking to raise interest rates at the next meeting, on November 2.
The inevitable--more or less--correction from August's 14-year high is no big deal.
We're expecting the first look at August employment, in the form of today's ADP report, to fall short of the 1,000K consensus forecast; we look for 500K.
The Brazilian economy fell into recession over the first half of the year due to the severity of the Covid shock on domestic demand.
The BoJ held firm, for the most part, during this year's bout of central bank dovishness.
The FOMC did the minimum expected of it yesterday, raising rates by 25bp--with a 20bp increase in IOER--and dropping one of its dots for 2019.
Yesterday's economic data added further evidence that GDP growth in the EZ will slow in Q2.
We would like to be able to argue with conviction that the surge in June housing starts and building permits represents the beginning of a renewed strong upward trend, but we think that's unlikely.
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.
The tone of Fed Chair Powell's opening comments at the press conference yesterday was much more dovish than the statement, which did little more than most analysts expected.
Economic and financial conditions continue to deteriorate sharply in LatAm.
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.
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.
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.
Officially, China's real GDP growth was unchanged at 6.0% year-over-year in Q4; low by Chinese standards, but not overly worrying. Full-year growth was 6.1% within the 6.0-to-6.1% target down from 6.7% last year, also in keeping with the authorities' long-term poverty reduction goals.
Production in the EZ construction sector slumped at the end of Q4. Data yesterday showed that output slid by 3.1% month-to-month in December, comfortably reversing the 0.7% increase in November.
The market-implied probability that the MPC will cut Bank Rate by June fell to 34%, from 38%, after the release of January's consumer price figures, though investors still see around an 80% chance of a cut by the end of this year.
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.
Peru's economic recovery gathered strength late last year.
Argentina's inflation ended 2019 badly, and it is still too early to bet on a protracted downtrend, even after the renewed economic slowdown.
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.
Chile's upbeat economic activity reports for August are consistent with economic recovery in the second half of the year, after an ugly first half.
Renewed stockpiling ahead of the October Brexit deadline finally appears to be providing some near-term support to manufacturing output.
Japan's Tankan survey for Q2 was unsurprisingly grim, given the devastation caused by the near- global lockdown in the first half of the quarter, and the nationwide state of emergency that enveloped April and May.
We keep hearing that the auto market is struggling, but that idea is not supported by the recent sales numbers.
Perhaps the single strongest U.S. economic data series in recent months has been construction spending, which has risen by more than 1%, month-to-month, in four of the past five months.
The recovery in the industrial sector from Covid-19 finally commenced in earnest in June, after May's stalled start.
The May auto sales numbers probably will be released just after our deadline at 4pm eastern time today, but all the signs are that a hefty rebound will be reported after April's plunge to just 8.6M, not much more than half the pre-Covid level.
Manufacturers in China continued to trudge along in May, with their post-lockdown recovery looking increasingly fragile.
Colombian policymakers on Friday cut the reference rate by 50bp, for a third straight month, to 2.75%.
In the wake of last week's national accounts release, markets judge that the probability of a Bank Rate hike at the August 2 MPC meeting has increased to about 65%, from 60% beforehand.
Markets now think the Fed is done.
Holiday effects are tedious and you are going to hear us talking about them until the March data come through.
LatAm assets and currencies had a bad November, due to global trade war concerns, the USD rebound and domestic factors.
While were out over the holidays, the single biggest surprise in the data was yet another drop in imports, reported in the advance trade numbers for November.
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.
At the end of last year, China's Central Economic Work Conference set out the lay of the land for 2019. Cutting through the rhetoric, we think the readout implies more expansionary fiscal policy, and a looser stance on monetary policy.
China's official PMIs paint a picture of robust momentum going into 2018 but we find this difficult to reconcile with the other data.
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.
Japan's labour data threw another January curve ball this year--last year it was wages--with a change in the standards for job openings.
Korea's trade data have been extremely volatile over the past two months, thanks to distortions caused by last year's odd holiday calendar.
Brazil's central bank kept the Selic policy rate at 6.50% this week, as markets broadly expected.
Brazil's September industrial production report, released yesterday, confirmed the message from survey data that the sector stabilized towards the end of summer. Output rose 0.5 month-to-month, and August output was revised up by 0.3 percentage points.
Brazil's industrial production rose 0.8% month- to-month in August, well above our call, and the consensus, for a trivial increase.
The dreadful September ISM manufacturing survey reinforces our view that the sector will be in recession for the foreseeable future, and that both business capex and exports are on the verge of a serious downturn.
Japan's Tankan survey continues to paint a picture of a contracting economy.
China's Caixin manufacturing PMI was unchanged at 51.0 in October, continuing the sideways trend this year.
After 99.3K new Covid cases on Friday and 81.2K Saturday, and a further 1,279K net new hospitalizations, the U.S. is beginning to look alarmingly like several large European countries, where steady but relatively modest increases in new cases suddenly exploded into exponential growth in mid-October.
Data on Friday showed that the downward trend in Brazil's unemployment continued into this year. The unadjusted unemployment rate fell to 11.2% in January, slightly below the consensus, and down from 12.0% in January last year.
The number of Covid-19 cases is increasing at a faster rate, though 89% of the new cases reported Saturday were in China, South Korea, Italy and Iran.
Investors moved rapidly last week to price-in renewed easing by central banks around the world, in response to the rapid growth in coronavirus cases outside China and the resulting sell-off in equity markets.
March auto sales were much weaker than expected, falling by 5.5% month-to-month to a 25-month low, 16.5M. The average for the previous six months was 17.8M. The sudden drop in March likely was driven in large part by the huge snowstorm which tracked across the Northeast in the middle week of the month, so we think a decent rebound in April is a good bet.
The Fed yesterday acknowledged clearly the new economic information of recent months, namely, that first quarter GDP growth was "solid", with Chair Powell noting that it was stronger than most forecasters expected.
Korean exports continued to fall year-over-year in April, but the story isn't as bleak as the headlines suggest.
While Brexit news will dominate the headlines again--see here for why the odds remain against Mrs. May winning the third "meaningful vote"--February's consumer prices report is the highlight in this week's congested economic data calendar.
After three straight lower-than-expected jobless claims numbers, we have to consider, at least, the idea that maybe the trend is falling again. This would be a remarkable development, given that claims already are at their lowest level ever, when adjusted for population growth, and at their lowest absolute level since the early 1970s.
Economic activity remains under severe strain in the Andes.
We agree with the majority of economists that the MPC will announce on Thursday another £100B of asset purchases, primarily of gilts, once it has completed the £200B of purchases it authorised on March 19.
The weekly initial jobless claims numbers have been a useful proxy for the real-time performance of the economy since Covid-19 struck.
The two marquee economic reports today, covering May retail sales and industrial production, will capture the initial rebound after the economy hit bottom sometime in mid-April.
The Covid-19 crisis has turned the tables on the Spanish economy.
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.
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
We still expect CPI inflation to decline a little further in the second half of this year, despite its surprise increase to 0.6% in June, from 0.5% in May.
Today's brings the June retail sales and industrial production reports, after which we'll update our second quarter GDP forecast.
Brazil's consumer sluggishness in Q3 and early Q4 eased in November.
Inflation pressure remained relatively high in Argentina last year, due mostly to the legacy of the Kirchner era. But we think inflation will ease this year, given the lagged effects of the recession and the fiscal consolidation.
We expect June's consumer prices report, released on Wednesday, to show that CPI inflation increased to 2.7%, from 2.4% in May, above the consensus, 2.6%, and the Bank of England's forecast, 2.5%.
Last week's packed political agenda in Europe confirmed that political relations between the U.S. and the major Eurozone economies remain difficult.
We expect June's consumer prices report, due on Wednesday, to show that CPI inflation fell to 1.9%, from 2.0% in May.
The ramifications of continued disappointing Asian growth, particularly in China, and its impact on global manufacturing, are especially hard-felt in LatAm.
Today brings yet another broad array of data, with new information on housing construction, industrial production, consumer sentiment, and job openings.
Growth in new EZ car sales slipped last month, following a strong start to the year. New registrations rose 4.4% year-over-year in February, slowing from a 8.7% rise in January.
Data released yesterday from Brazil support our view that the economic recovery continues, but progress is slowing, following the initial post-lockdown rebound.
The Brexit-related slump in corporate confidence finally has taken its toll on hiring.
Tariffs are a tax on imported goods, and higher taxes depress growth, other things equal.
September's consumer price figures likely will surprise to the downside, prompting markets to reassess their view that the MPC will almost certainly raise interest rates next month.
China's official real GDP growth is absurdly stable, but the risks in Q3 are tilted to the downside.
We have been quite bullish on U.S. economic growth this year.
The softness of the headline September retail sales numbers hid a decent 0.5% increase in the "control" measure, which is the best guide to consumers' spending on non-durable goods.
Yesterday's final inflation data in France for September were misleadingly soft.
Evidence of accelerating economic activity in Colombia continues to mount, in stark contrast with its regional peers and DM economies.
We are not worried about the reported drop in April manufacturing output, which probably will reverse in May.
We see downside risk to the housing starts numbers for April, due today. Our core view on housing market activity, both sales and construction activity, is that the next few months, through the summer, will be broadly flat-to-down.
We see slight upside risk to the consensus and MPC forecasts that CPI inflation remained at 0.5% in October. We think it nudged up to 0.6%, though admittedly a 0.5% print looks much more likely than 0.7%.
The story of the next few weeks will be a gradual and uneven--but unambiguous--tightening of anti-Covid restrictions across the country.
China's official real GDP growth likely slowed to 6.0% year-over-year in Q3, from 6.2% in Q2.
The average month-to-month increase in the core CPI in the past three months is a solid 0.20, much firmer than the 0.05% average over the previous five months, stretching back to the first of the run of downside surprises, in March.
Ahead of the release of the retail sales report for December 2018, markets expected to see unchanged non-auto sales.
The market-implied probability that the MPC will cut Bank Rate at its meeting on January 30 jumped to 63%, from 44%, following the release of December's consumer prices report.
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%.
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 two biggest economies in the region have taken divergent paths in recent months, with the economic recovery strengthening in Brazil, but slowing sharply in Mexico.
Consumption accounts for almost 70% of GDP, and retail sales account for about 45% of consumption.
Yesterday's second estimate of GDP confirmed that Eurozone growth slowed significantly in Q3.
Data released yesterday from Brazil support our view that the economic recovery continues, but progress has been slow.
We expect September's consumer prices report, released on Wednesday, to show that CPI inflation held steady at 1.7%, below the 1.8% consensus.
October's 0.1% month-to-month fall in retail sales volumes was disappointing, following substantial improvements in the CBI, BRC and BDO survey measures.
Yesterday's data provided further evidence of the EZ economy's response to the Covid-19 shock, though we recommend that investors take the numbers with a pinch of salt. In Germany, the final CPI report for April showed that headline inflation slipped to 0.9% year-over-year, from 1.4% in March, trivially above the first estimate, 0.8%.
April's consumer price figures, released on Tuesday, look set to reveal that CPI inflation jumped to 2.7%--its highest rate since September 2013--from 2.3% in March. Inflation likely will be driven up entirely by a jump in the cor e rate to 2.3%, from 1.8% in March.
Data on Friday confirmed that headline inflation in the Eurozone rose a bit last month, to 1.5% from 1.4% in January, but also that the core rate dipped by 0.1 percentage points, to 1.0%.
Yesterday's inflation data in Germany were old news to markets, but the details were spectacular all the same.
The gap between the official measure of the rate of growth of core retail sales and the Redbook chainstore sales numbers remains bafflingly huge, but we have no specific reason to expect it to narrow substantially with the release of the April report today.
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.
LatAm assets did well in Q1, on the back of upbeat investor risk sentiment, low volatility in developed markets and a relatively benign USD.
Few Eurozone investors are going blindly to accept the rosy premise of last week's relief rally in equities that both a Brexit and a U.S-China trade deal are now, suddenly, and miraculously, within touching distance. But they're allowed to hope, nonetheless.
China's September imports missed expectations, but commentators and markets tend to focus on the year-over-year numbers.
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.
March's consumer prices figures, released on Wednesday, are even more important than usual, as they are the last to be published before the MPC's next meeting on May 10.
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.
The "Phase One" China trade deal announced late last week is a step in the right direction, but a small one. With no official text available as we reach our deadline, we're relying on media reporting, but the outline of the agreement is clear.
The BoJ is likely to be thankful next week for a relatively benign environment in which to conduct its monetary policy meeting.
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.
For all the excitement generated by yesterday's raft of appalling economic reports, the weekly jobless claims numbers still offer the best, and almost real-time, guide to the big picture.
Momentum in the rebound in economic activity has faded over the past couple months, housing and auto sales aside.
Yesterday's industrial production data in the EZ suggest that the rebound in manufacturing slowed sharply midway through Q3.
The New York Times called the China trade agreement reached Friday "half a deal", but that's absurdly generous.
Brexit talks will dominate the headlines this week, with the focal point set to be a meeting of the European Council on Wednesday, where E.U. leaders might give the green light for an extraordinary summit next month to formalise the Withdrawal Agreement.
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.
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.
Brazil's economic recovery continues, according to the relatively upbeat data released in recent days.
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 rate of growth of nominal core retail sales substantially outstripped the rate of growth of nominal personal incomes, after tax, in both the second and third quarters.
Japan's exporters have largely shrugged off the country's second wave of Covid-19.
Colombia's July activity numbers, released on Friday, portrayed still-strong retail sales and a reviving manufacturing sector, with both indicators stronger than expected.
Manufacturing is in recession, with few signs yet that a floor is near, still less a recovery.
The headlines of China's August activity data are missing the real story in recent months.
We are becoming increasingly convinced that momentum is starting to build in the housing market. That might sound odd in the context of the recent trends in both new and existing home sales, shown in our first chart, but what has our attention is upstream activity.
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.
The February activity report in Colombia showed a modest pick-up in manufacturing activity and strength in the retail sales numbers.
The median of FOMC members' estimates of longer run nominal r-star--the rate which would maintain full employment and 2% inflation--nudged up by a tenth in September to 3.0%, implying real r-star of 1%.
Swap rates imply that markets expect RPI inflation to settle within a 3.3% to 3.5% range over the next five years, once the boost from sterling's depreciation has faded.
The beleaguered EZ car sector finally enjoyed some relief at the end of Q3, though base effects were the major driver of yesterday's strong headline.
Evidence in support of our view that the U.S. industrial slowdown is ending continues to mount, though nothing is yet definitive and the re-escalation of the trade war is a threat of uncertain magnitude to the incipient upturn.
The Monetary Policy Board of the Bank of Korea voted yesterday to lower its policy base rate to 1.25%, from 1.50%.
The GM strike will make itself felt in the September industrial production data, due today.
The first October survey evidence from the industrial economy, in the form of the Empire State report, is remarkably strong.
The case for the MPC to hold back from implementing more stimulus was bolstered by September's consumer prices figures.
Banxico will meet tomorrow, and we expect Mexican policymakers to cut the main interest rate by 25bp, to 7.25%.
Boeing's announcement that it will temporarily cut production of 737MAX aircraft to zero in January, from the current 42 per month pace, will depress first quarter economic growth, though not by much.
The declines in headline housing starts and building permits in June don't matter; both were depressed by declines in the wildly volatile multi-family components.
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.
Yesterday's November EZ construction data offered little respite to the gloomy outlook for the Q4 GDP headline.
Colombia has been one of LatAm's outperformers this year.
We expect May's consumer prices report, released on Wednesday, to show that CPI inflation fell to 2.0% in May, from 2.1% in April.
We're braced for disappointing jobless claims numbers today.
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.
The consensus forecast for retail sales in December has been consistently too upbeat in recent years and we think most analysts are too sanguine yet again.
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 BoJ is likely to stay on hold this week for all its main policy settings.
Data yesterday added further evidence of a slow recovery in Eurozone auto sales.
CPI inflation has undershot the consensus forecast six times this year, but surprised to the upside only twice.
In the wake of last week's strong core retail sales numbers for November, the Atlanta Fed's GDPNow model for fourth quarter GDP growth shot up to 3.0% from 2.4%.
The idea that the ECB will use its forthcoming strategic policy review to include a measure of real estate prices in its inflation target has been consistently brought up by readers in recent meetings.
Today's labour market report looks set to be a mixed bag, with growth in employment remaining strong, but further signs that momentum in average weekly wages has faded.
Economic data released on Wednesday underscored that Brazil was struggling at the end of the first quarter, strengthening our case that Q1 GDP fell 0.2% quarter-on-quarter, the first contraction since Q4 2016.
Data released yesterday confirmed that economic activity is improving in Brazil.
Friday' second Q4 GDP estimate revealed that the EZ economy barely grew at the end of 2019. The report confirmed that GDP rose by 0.1% quarter-on-quarter in Q4, slowing from a 0.3% rise in Q3, but the headline only narrowly avoided downward revision to zero, at just 0.058%
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.
Peru's central bank kept the reference rate unchanged at 3.5% at Thursday's meeting, in line with our view and market expectations.
CPI inflation surprises look set to trigger larger- than-usual market reactions over the coming months, given that the MPC emphasised last month that it wants to see domestically-generated inflation rebound swiftly, after falling suddenly late last year, in order to justify keeping Bank Rate on hold.
Over the past 30 years China's role in LatAm and the global economy has increased sharply. Its share of world trade has surged, and its exports have gained significant market share in LatAm.
Brazil's consumer resilience in Q3 continued to November, but retail sales undershot market expectations, suggesting that the sector is not yet accelerating and that downside risks remain.
Today's official retail sales figures look set to show that consumers tightened their purse strings at the start of this year, following last year's spending spree. We think that retail sales volumes rose by just 1.0% month-to-month in January; that would be a poor result after December's 1.9% plunge. Surveys of retailers have been weak across the board. The reported sales balance of the CBI's Distributive Trade Survey collapsed to -8 in January, from +35 in December. The balance is notoriously volatile, but the 43-point drop is the largest since the survey began in 1983.
On the face of it, December's flash Markit/CIPS PMIs warrant the MPC cutting Bank Rate at its meeting on Thursday.
We're sticking to our call that the Eurozone PMIs have bottomed, though we concede that the picture so far is more one of stabilisation than an outright rebound.
The split between the reality reflected in the economic data and market pricing has never been wider in the euro area
We are fairly sanguine that government bond markets in the Eurozone will take the end of QE in their stride.
This week's labour market, inflation and retail sales data--the last before the MPC meets on May 10--will have a major bearing on the Committee's decision.
The November industrial production numbers will be dominated by the rebound in auto production following the end of the GM strike.
China's activity data outperformed expectations in November.
Incoming activity data from Colombia over the past quarter have been surprisingly strong, despite many domestic and external threats.
A strong finish to the fourth quarter spared the EZ auto sector the embarrassment of posting an outright fall in domestic sales through 2019 as a whole.
We expect July's consumer prices report, released on Wednesday, to show that CPI inflation ticked up to 0.7% in July, from 0.6% in June.
May's activity data in the Andes underline the severe hit from the pandemic on economic activity.
We have revised up our second quarter consumption forecast to a startling 4.0% in the wake of yesterday's strong June retail sales numbers, which were accompanied by upward revisions to prior data.
May's activity data underline the gradual recovery in Colombia's economic growth, following signs of weakness at the start of the year.
Yesterday's ECB meeting was a snoozer, just as we predicted.
The trend in manufacturing output probably is about flat, with no real prospect of any serious improvement in the near term.
The MPC will have to issue fresh, dovish guidance in order to satisfy markets on Thursday, which now think the Committee is more likely to cut than raise Bank Rate within the next six months.
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.
External conditions are becoming more demanding for LatAm economies, with global trade tensions intensifying in recent weeks.
When economic historians look back at the bizarre trade war of 2018-to-19, we think they will see Tuesday June 4 as the turning point, after which the threats of fire and brimstone were taken much less seriously, and markets began to ponder life after tariffs.
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.
Economists are divided evenly on whether Tuesday's consumer price figures will show that CPI inflation held steady at 2.9% or edged down to 2.8% in June.
At the end of last year, U.S. homebuilders were more optimistic than at any time in the previous 18 years, according to the monthly NAHB survey.
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.
Reporting on German CPI data has been like watching paint dry in recent months, but that will change in the first half of the year.
Monday's economic activity data from Peru signalled that the gradual recovery continues, despite November's undershoot, which was chiefly driven by temporary factors.
All the regional PMI and Fed business surveys we follow suggest that today's national ISM manufacturing report for November will be weaker than in October
For more than two years, the BoJ has fretted, in the outlook for economic activity and prices, that "there are items for which prices are not particularly responsive to the output gap."
In one line: A marginal improvement, but poor mining activity remains a drag.
Chile's activity numbers at the beginning of Q3 were mediocre, suggesting that the economy remains sluggish. The industrial production index--comprising mining, manufacturing, and utility output--fell by 1.7% year-over-year in July, reversing a 1.6% expansion in June. A disappointing 4.5% year-over-year contraction in mining activity depressed the July headline index, following a 1.4% increase in June. The moderation in output growth was due to maintenance-related shutdowns at key processing plants, and disruptions from labor strikes, especially a three-week strike by contract workers at Codelco--the state-owned mining firm--which badly hit production.
Chile's economic indicators for July were unreservedly weak, confirming that the economic recovery remains sluggish. The industrial production index--comprising mining, manufacturing, and utility output--fell by 5.2% year-over-year in August, after a 1.7% contraction in July. Mining production suffered a sharp 9.3% year-over-year contraction, due mainly to an 8.3% fall in copper production, as strikes and maintenance works badly hit the industry.
Brazil's December economic activity index, released last week, showed that the economy ended the year on a relatively soft footing. The IBC-Br index, a monthly proxy for GDP, fell 0.3% month-to-month, though the year-over-year rate rose to -1.8%, from -2.2% in November.
German survey data did something out of character yesterday; they fell. The IFO business climate index declined to 117.2 in December from a revised 117.6 in November.
Yesterday's IFO survey capped a fine Q4 for German business survey data. The headline business climate index climbed to a 34-month high of 111.0 in December, from 110.4 in November. An increase in the "current assessment" index was the main driver of the gain, while the expectations index rose only trivially.
Brazil's December economic activity index, released yesterday, showed that the economy ended the year in relatively good shape.
Brazil's recession carried over into the beginning of Q2, but with diminishing intensity. The IBC-BR economic activity index, a monthly proxy for GDP, fell 5.0% year-over-year in April, up from a revised 6.4% contraction in March. The index's underlying trend has improved in recent months, suggesting that the economy is turning around, slowly.
This week economic data highlighted the severity of Brazil's economic recession and the huge challenges it will face next year to return to growth. The recession further deepened in the third quarter with the economic activity index--a monthly proxy for GDP--surprising, once again, to the downside in September. The index fell 0.5% month-to-month, pushing the year-over-year rate down to 6.2%, the steepest fall on record. The series is very volatile on a monthly basis, but the underlying trend remains grim.
The recent sharp, if not startling, upturn in the regional manufacturing surveys should continue today with the release of the Philadelphia Fed report. The survey is constructed in the same way as the more volatile Empire State, which has rocketed in the past few months, and the headline indexes follow similar trends, as our first chart shows.
One way or the other, the post-referendum lurch in sterling will make its recent gyrations pale by comparison. If the U.K. votes to remain in the E.U.--as we continue to expect--then sterling likely will jump up to about $1.48 immediately afterwards. As our first chart shows, the gap between sterling and the level implied by the current difference between overnight index swap rates in the U.S. and Britain is currently about $0.05.
This week has seen a huge wave of data releases for both January and February, but the calendar today is empty save for the final Michigan consumer sentiment numbers; the preliminary index rose to a very strong 99.9 from 95.7, and we expect no significant change in the final reading.
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.
Brazilian inflation is off to a good start this year, and we think more good news is coming. The January mid-month IPCA-15 index rose an unadjusted 0.3% month-to-month, a tenth less than expected. This was the smallest gain for January since 1994 and the sixth consecutive month in which the number came in below expectations.
The latest survey evidence strongly supports our view that momentum is building in the industrial economy, but the official production data continue to lag. Yesterday's March Philly Fed survey was remarkably strong, with the correction in the headline sentiment index -- inevitable, after February's 33-year high -- masking increases in all the subindexes.
Yesterday's economic activity data from Peru signalled that the relatively firm business cycle continues. The monthly GDP index accelerated to 3.6% year-over-year in November, rising from 2.1% in October, but marginally below the 4.4% on average in Q3. Growth continued to be driven by mining output, including oil and gas, which rose 15% year-over- year. The opening of several new mines explains the upturn, and we expect the sector to remain key for the Peruvian economy this year.
Core CPI inflation is heading for 2½% by the end of this year, and perhaps sooner. The trend in the monthly numbers is now a solid 0.2%, and that's before the weaker dollar arrests the decline in goods prices. Goods account for only a quarter of the core CPI, and right now they are the only part of the index under downward pressure. If--when--that changes, core inflation could rise quite rapidly.
Equity prices for U.K. retailers have performed woefully since the E.U. referendum. The FTSE All-Share Index for general retailers has underperformed the overall All-Share Index by nearly 30% since the Brexit vote.
Manufacturing confidence in France remained resilient in the fourth quarter. The INSEE sentiment index rose to 103 in December from 102 in November, lifted by a jump in firms' own production expectations, and a small increase in the new orders-to-inventory ratio. We think production will increase in Q4, lifted by energy output, but the recent jump in the year-over-year rate is unlikely to be sustained, even if we factor in the marginal increase in new orders this month.
Economic data are telling a story of a strengthening recovery, but downbeat investor sentiment points to a more difficult environment. The headline ZEW expectations index fell to a ten-month low of 12.1 in September, from 25.0 in August. This takes sentiment back to levels not seen before QE was announced, highlighting the increasing worry that deflation risks and low growth in China will derail the recovery. We don't agree, but we can't be sure the ECB thinks the same, and risks of additional stimulus this year have increased.
Inflation pressures in Brazil are still easing rapidly. The mid-May unadjusted IPCA- 15 index rose just 0.2% month-to-month, much less than the 0.6% historical average for the month. Base effects pushed the year-over-year rate down to 3.8% from 4.1% in April. Food prices, healthcare and personal costs were the main drivers of the modest month-to-month increase.
The FTSE 100 has fallen by 4% over the last two weeks, exceeding the 1-to-3% declines in the main US, European and Japanese markets. The FTSE's latest drop builds on an underperformance which began in early 2014. The index has fallen by 10% since then--compared to rises of between 10% and 20% in the main overseas benchmarks--and has dropped by nearly 15% since its April 2015 peak. We doubt, however, that the collapse in U.K. equity prices signals impending economic misery. The economy is likely to struggle next year, but this will have little to do with the stock market's travails.
Data released over the weekend confirm that the Peruvian economy enjoyed a strong second quarter. The economic activity index rose 6.4% year-over-year in May, well above market expectations, and up from 3.2% in Q1.
It is very difficult to be positive about the Brazilian economy in the short term, with every indicator of confidence at historic lows. The industrial business confidence index fell 9.2% month-to-month in March alone. Capacity use dropped to 79.7% from 81.5% in February, the lowest level in six years, and inventories rose, presumably because businesses over-estimated the strength of sales.
Industrial sector activity in the euro area was broadly stable at the beginning of the third quarter, despite the headline dip in the July manufacturing PMI. The Eurozone index fell to 52.0 in July, from 52.8 in June, but if it holds at this level it will be unchanged in Q3 compared with the second quarter.
We don't use the index of leading economic indicators as a forecasting tool. If it leads the pace of growth at all, it's not by much, and in recent years it has proved deeply unreliable.
Core inflation failed in May to record its fifth straight 0.2% increase, but--on the 200th anniversary of the Battle of Waterloo--we are obliged to point out that it was the nearest-run thing you ever saw. As published, the core index rose 0.145%, but favorable rounding--at the fourth decimal place--did the job.
Today's ZEW investor sentiment report in Germany will kick off a busy week for Eurozone economic survey data, which likely will be tainted by the U.K. referendum result. We think the headline ZEW expectations index fell to about five in July, from 19.2 in June, below the consensus forecast, 9.2. Our forecastis based on the experience from recent "unexpected" shocks to investors' sentiment.
Brazil's economic data last week were appalling. The IPCA-15 price index rose 1.3% month-to-month, the fastest pace in 12 years, pushing the annual rate to 7.4% in mid-February from 6.7% in mid-January,well above the 6.5% upper bound of the BCB's target range.
French manufacturers recovered their optimism towards the end of Q3. The headline INSEE manufacturing sentiment index rose to 103 in September, from 101 in August, and the composite business confidence gauge also increased. A rebound in transport equipment firms' own production expectations was the key driver of the recovery.
Sentiment in Germany has improved slightly this month with the IFO business climate index rising to 106.8 from 106.7 in January, pushed higher by a small increase in the expectations index.
Yesterday's IFO survey sent a clear signal that the German economy's engine is stuttering. The business climate index fell to a 14-month low of 105.7 in February from 107.3 in January, and the expectations index slumped to 98.8 from 102.3. The weakness was driven by weaker sentiment in manufacturing, which plunged at its fastest rate since November 2008.
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.
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.
Yesterday's advance consumer sentiment index in the Eurozone confirmed the upside risks for consumers' spending in Q4. The headline index rose to a 17- year high of +0.1 in November, from -1.0 in October.
If, like us, you have been cheered by the upturn in mortgage applications since November, you don't need to worry about the apparent drop in activity in the past couple of weeks. The numbers don't look great: The MBA's index capturing the number of applications for new mortgages to finance house purchase has dropped from a peak of 237.7 in the third week of January--ignoring September's spike, which was triggered by a regulatory change--to 213.3 last week.
In November, existing home sales substantially overshot the pace implied by the pending home sales index.
Japan's tertiary index edged up 0.1% month-on-month in July, after the 0.1% decrease in June.
All the evidence indicates that growth in Eurozone consumers' spending is slowing. We think data today will show that the advance GfK consumer sentiment index in Germany was unchanged at 9.5 in April, but the headline index does not correlate well with spending. The "business expectations" index is better, and while it likely will increase slightly, our first chart shows that it continues to signal a slowdown in consumers' spending growth.
The PMI survey yesterday painted a more upbeat picture on the Eurozone economy than we expected. The composite index rose to 54.1 in June from 53.6 in May, taking the quarterly average to its highest level since Q2 2011.
Brazil's inflation data continue to disappoint, but they are showing some signs of improvement, at the margin. The mid-month CPI, the IPCA-15 index, jumped to 9.3% year-over-year in July, up from 8.8% in June, soaring well above the upper bound of the inflation target and reaching the highest level since December 2003, as shown in our first chart.
Of all the regional Fed and PMI business surveys, the Richmond Fed index appears to be the most sensitive to U.S. trade policy.
The bad news just keeps coming for Brazil's economy. The mid-month CPI, the IPCA-15 index, rose 1.2% month-to-month in March. Soaring energy prices remain the key contributor to the inflation story in Brazil, pushing up the housing component by 2.8% in March, after a 2.2% increase in February.
The June batch of the French statistical office's business surveys continues to signal a firming cyclical recovery. The aggregate business index rose to cyclical high of 106 in June from a revised 105 in May, continuing an uptrend that began in the middle of 2016.
Sentiment in the French business sector ended this year on a high. The headline manufacturing index fell slightly to 112 in December, from an upwardly-revised 113 in November, but the aggregate sentiment gauge edged higher to a new cycle high of 112.
Economic survey data this week will give the first clear evidence on whether recent market volatility has dented Eurozone confidence. The key business and consumer surveys dipped in January, and we now expect further declines, starting with today's PMI data. We think the composite index fell slightly to 53.0 in February from 53.6 in January.
Advance April consumer survey data will likely confirm that households remain the standout driver of the cyclical recovery in the euro area. We think the headline EC consumer sentiment index rose to -1.0 in April from -3.7 in March.
Brazil's recession stretched into the start of the third quarter, but its intensity has eased. The IBC-Br economic activity index--a monthly proxy for GDP--fell 0.1% month-to-month seasonally adjusted in July, following a 0.4% gain in June. The unadjusted year-over-year rate fell to -5.2%, from an upwardly revised -2.9%.
The startling jump in the Philly Fed index in May, when it rose 11.2 points to a 12-month high, seemed at first sight to be a response to fading tensions over global trade.
Yesterday's ZEW investor sentiment in Germany shows showed no signs that uncertainty over the U.K. referendum is taking its toll on EZ investors. The expectations index surged to 19.2 in June, from 6.4 in May, the biggest month-to-month jump since January last year, when investors were eagerly expecting the ECB's QE announcement.
The remarkably strong existing home sales numbers in recent months, relative to the pending home sales index, are hard to explain. In January, total sales reached 5.69M, some 6% higher than the 5.35M implied by December's pending sales index. The gap between the series has widened in recent months, as our first chart shows, and we think the odds now favor a correction in today's February report.
Yesterday's German IFO survey broadly confirmed the bullish message from the PMIs earlier this week. The headline business climate index rose to 111.0 in February from a revised 109.9 in January, boosted by increases in both the current assessment and the expectations index.
The manufacturing industry in France is recovering slowly, but surely. The headline INSEE index rose to 102 in July from 101 in June, close to a post-crisis high, pointing to steady improvement for manufacturers. Our first chart shows the main leading components of the survey, indicating a modest, but positive, trend in output. The increase in sentiment in July was driven by firming new orders--especially in the export sector--pushing the new orders-to-inventory ratio to an 18-month high.
The S&P 500 index chalked up a new record on Wednesday by going 3,453 days without a 20% drawdown, making it the longest equity bull-run in U.S. history.
Japan's all-industry activity index fell 0.5% month-on- month in September after a 0.2% rise in August. Construction activity continued to plummet, with the subindex dropping 2.3%, after a 2.2% fall in August.
The composite PMI in the Eurozone continues to edge slightly lower, falling to 53.4 in May from 53.9 in April. A fall in the services index to 53.3, from 54.1 last month offset a modest increase in manufacturing to 52.3 from 52.0 in April.
Investor sentiment in the Eurozone showed further signs of recovery yesterday. The ZEW expectations index rose strongly to 48.4 in January from 34.9 in December, and the leap since the trough in October ranks among the strongest rebounds ever recorded in the index.
The headline index in today's NFIB small business survey probably won't quite converge with the ISM manufacturing index, but it will come v ery close. To close the gap completely, for the first time since the crash, the NFIB needs to rise to just over 102, from 100.4.
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.
Halifax's house price index rose by an eye catching 1.5% month-to-month in March, superficially suggesting that the housing market is reviving.
When the Fed raised rates in December, it subverted one of its own long-standing conventions by hiking with the ISM manufacturing index below 50. The December survey, released just 15 days before the meeting, showed the headline index slipping to 48.6, the third straight sub-50 reading. It has since been revised down to 48.0, the lowest reading since June 2009.
The easiest way to track the impact of the rising dollar on real economic activity is via the export orders component of the ISM manufacturing survey. We have been profoundly skeptical of the value of the ISM headline index, because it suffers from substantial seasonal adjustment problems, but the export orders index seems not to be similarly afflicted.
Investors currently think that official interest rates are more likely to fall than rise this year. Overnight index swap markets are factoring in a 30% chance of a rate cut by December, but just a 1% chance of an increase by year-end. The case for expecting looser monetary policy, however, remains unconvincing.
The headline number in today's NFIB survey of small businesses probably will look soft. The index is sensitive to the swings in the stock market and we'd be surprised to see no response to the volatility of recent weeks. We also know already that the hiring intentions number dropped by four points, reversing December's gain, because the key labor market numbers are released in advance, the day before the official payroll report.
June's trade figures yesterday highlighted that it takes more than just a few months for exchange rate depreciations to boost GDP growth. The trade-weighted sterling index dropped by 9% between November and June as the risk of Brexit loomed large and the prospect of imminent increases in interest rates receded.
Demand for new mortgages to finance house purchase has rebounded somewhat in recent weeks, following an alarming dip in the wak e of October's stock market correction. At the low, in the third week in October, the MBA's index of applications volume was at its lowest since mid-February, when the reported numbers are substantially depressed by a long-standing seasonal adjustment problem.
The medium-term trend in the volume of mortgage applications turned up in early 2015, but progress has not been smooth. The trend in the MBA's purchase applications index has risen by about 40% from its late 2014 low, but the increase has been characterized by short bursts of rapid gains followed by periods of stability.
Demand for new mortgages to finance house purchase has rebounded somewhat in recent weeks, following an alarming dip in the wak e of October's stock market correction. At the low, in the third week in October, the MBA's index of applications volume was at its lowest since mid-February, when the reported numbers are substantially depressed by a long-standing seasonal adjustment problem.
Nowhere is the gap between sentiment and activity wider than in the NFIB survey of small businesses. The economic expectations component leaped by an astonishing 57 points between October and December, but the capex intentions index rose by only two points over the same period, and it has since slipped back. In February, the capex intentions index stood at 26, compared to an average of 27.3 in the three months to October.
Brazil's March report reinforced recent evidence indicating that inflation is decelerating. The headline CPI surprised to the downside again, slowing to a nine-month low of 9.4% year-over-year from 10.4% in February. The index rose 2.6% quarter-to-quarter in Q1, well below the 3.8% increase in the same period last year.
Yesterday's CPI report in Mexico confirmed that headline inflation edged higher, to 5.0% in September from 4.9% in August, as the mid-month inflation index suggested.
The 2.4% depreciation of the yuan over the past month has not been quite as big as the 3.0% move on August 11, and it's not a big enough shift to make a material difference to aggregate U.S. export performance. Market nerves, then, seem to us to be largely a reflection of fear of what might come next. China's real effective exchange rate--the trade-weighted index adjusted for relative inflation rates--has risen relentlessly over the past decade, and to restore competitiveness to, say, its 2011 level, would require a 20%-plus devaluation.
Increased volatility has given equity investors a torrid start to the year, but economic reports have been strong, and yesterday's PMIs were no exception. The composite index in the Eurozone rose marginally to 54.3 in December from 54.2 in November, slightly higher than the initial estimate of 54.0. This is consistent with a continuing cyclical recovery, and real GDP growth of 0.4%-to-0.5% in Q4, modestly higher than the 0.3% rise in the third quarter.
US home prices rose in November from October but the underlying trend continued to point to a slowdown in price gains, according to the S&P/Case-Shiller index released Tuesday
The major Andean economies had a very challenging first quarter. In Colombia, the effect of the sharp fall in oil prices has become more evident in the last few months. The ISE economic activity index--a monthly proxy for GDP--fell considerably during 2014, with a significant deceleration over the last half of the year.
The chances of a cut in official interest rates were boosted yesterday by the sharp fall in the business activity index of the Markit/CIPS report on services in February, to its weakest level since April 2013. Its decline, to just 52.8 from 55.6 in January, mirrored falls in the manufacturing and construction PMIs earlier in the week and pushed the weighted average of the three survey's main balances down to a level consistent with quarter-on-quarter GDP growth of just 0.2% in Q1.
Eurozone PMI data yesterday presented investors with a confusing message. The composite index fell marginally to 52.9 in May, from 53.0 in April, despite separate data that showed that the composite PMIs rose in both Germany and France. Markit said that weakness outside the core was the key driver, but we have to wait for the final data to see the full story.
While we were out, Brazil's economic, fiscal and political position continued to deteriorate further. The recession deepened in the fourth quarter, with Brazil's economic activity index surprising yet again to the downside in October, falling for the eight consecutive month. The index fell 0.6% month-to-month and 6.4% year-over-year, the biggest contraction since the index began in 2004. And the prospects for first quarter consumption and industrial output have deteriorated substantially. Unemployment increased further in November, and inflation continues to rise, with the mid-month CPI--the IPCA-15 index-- increasing 1.2% month-to-month in November, after a 0.9% increase in October.
Chief U.K. Economist Samuel Tombs on Nationwide's June House Price Index
Germany's consumer price index fell 0.3% month-over-month in January. It's the first time the inflation rate went negative since September 2009. "Deflation has arrived," Pantheon Macroeconomics' Claus Vistesen said
Chile's economic outlook is still clouded, due mostly to the slowdown in China and low copper prices. But the steady, slow increase in the Imacec index, a monthly proxy for GDP, supports our view of a sustained but modest economic recovery this year. The index increased 1.8% year-over-year in November, marginally up from the meagre 1.5% gain in October, but below the 2.2% average seen during Q3 as a whole. November's gain was driven by an increase in services activity, offsetting weakness in mining. Services have been the key engine of growth in the current cycle and likely will remain so in H1.
September's Markit/CIPS services survey added to the evidence indicating that GDP growth softened, rather than fell off a cliff, in the third quarter. The activity index edged down only to 52.6, from 52.9 in August.
Yesterday's EZ producer price data showed that deflationary pressures in the manufacturing sector are fading. The headline PPI index fell 0.2% month- to-month in August, pushing the year-over-year up to -2.1%, from a revised -2.6% July.
The first major data release of 2016 showed manufacturing activity slipping a bit further at the end of last year, but we doubt the underlying trend in the ISM manufacturing index will decline much more. Anything can happen in any given month, especially in data where the seasonal adjustments are so wayward, but the key new orders and production indexes both rose in January; almost all the decline in the headline index was due to a drop in the lagging employment index.
A looming rate lift-off at the Fed, chaos in Greece, and a renewed rout in commodities have given credit markets plenty to worry about this year. The Bloomberg global high yield index is just about holding on to a 0.7% gain year-to-date, but down 2.5% since the middle of May. The picture carries over to the euro area where the sell-off is worse than during the taper tantrum in 2013.
Brazil's inflation rate is in double digits for the first time in 12 years. The benchmark IPCA price index rose 1.0% month-to-month in November, lifting the year-over-year rate to 10.5%, the highest since November 2003. The core IPCA increased 0.7% month-to-month, pushing the year-over-year rate in November up to 8.9% from 8.6% in October.
Last week's events highlighted the seriously challenging global environment for LatAm equities and currencies. Trading in Chinese shares was stopped twice early last week, after falls greater than 7% of the CSI 300 index reverberated around the world. Markets were calmer on Friday but the volatility nevertheless reminded investors that LatAm's economies are floating in rough waters and their resilience will be put to the test again this year. The Fed's policy normalization, the unwinding of the leverage in EM, the continued slowdown of the Chinese economy, low commodity prices and currency depreciation are all real threats across the continent.
The benchmark MSCI EU ex-UK equity index was down a startling 17% year-over-year at the end of February. A disappointing policy package from the ECB in December initially put Eurozone equities on the back foot, and the awful start to the year for global risk assets has since piled on the misery.
Small businesses remain extremely positive about the economy, but some of the post-election gloss appears to be wearing off. To be clear, the headline composite index of small business sentiment and activity in February, due this morning, will be much higher than immediately before the election, but a modest correction seems likely after January's 12- year high.
We are a bit uneasy about today's data on economic activity. The NFIB index of activity in the small business sector is likely to undershoot consensus expectations, while retail sales are something of a black hole, at least at the core level, where we have no reliable month-to-month advance indicators. Our bullish view on the underlying state of the economy, and its likely second-half performance, hasn't changed, but perceptions count in the short-term and these reports will help set the market mood just ahead of Chair Yellen's Testimony tomorrow.
German inflation pressures were unchanged last month. The CPI index rose 0.8% year-over-year, matching the increase in October, and in line with the consensus and initial estimate. Energy deflation intensified marginally, as a result of lower prices for household utilities.
Barring a gigantic shock from the Fed this week--we expect a 25bp hike--Eurozone equities will end the year with a solid return for investors, who have been overweight. Total return of the MSCI EU ex-UK should come in around 10%, which compares to a likely flat return for the MSCI World, reflecting the boost from the ECB's QE driving out performance. Our first chart shows the index has been mainly lifted by consumer sector, healthcare and IT stocks, comfortably making up for weakness in materials and energy. The year has been a story of two halves, however, and global headwinds have intensified since the summer, partly offsetting the surge in the Q1 as markets celebrated the arrival of QE and negative interest rates.
The equity market this year has been a story of two halves. Hopes of a sustainable economic recovery pushed the benchmark Eurozone equity index to an 7.5% increase in the first six months of the year.
Falling gas prices will make themselves felt in the November CPI data today, with a likely 4% seasonally adjusted decline enough to subtract 0.2% from the month-to-month change in the headline index. But gas prices plunged by 7.2% in November last year, so in year-over-year terms gas prices will push aggregate headline inflation up. We look for the rate to rise to 0.4%, up from 0.2% in October and zero in September. The same story will play out in January and February too, by which time the headline rate should have risen to 1¼%, assuming a crude oil price of about $35 per barrel.
Yesterday's euro area PMI data continue to tell a story of a firm business cycle upturn. The composite PMI was unchanged at 53.9 in December; an increase in the manufacturing index offset a decline in the services PMI.
The economic recovery in Brazil slowed to a sluggish pace in September, with the IBC-BR index, a monthly proxy for GDP, rising by merely 1.3% on a month-to- month basis and languishing 2.5% below its February's peak.
Markets expect RPI inflation--which still is used to calculate index-linked gilt payments, negotiate wage settlements, and revalue excise duties--to rise to only 2.7% a year from now, from 1.6% in June. By contrast, we expect RPI inflation to leap to 3.5%. As we outlined in yesterday's Monitor which previewed today's numbers, CPI inflation likely will shoot up to 3% from 0.5% over the next year.
Yesterday's industrial production report was poor, but the headline was better than we, and the market, feared. Output fell 0.5% month-to-month in August, but the July data were revised up 0.2%, pushing the year over-year rate--using the seasonally- and working day-adjusted index--higher to 1.9% from 1.4% in July. Bloomberg reported the year-over-year rate fell to 0.9% from 1.7% in July, but they used an index which is only working day-adjusted.
Recent bond market volatility has left a significant mark on Eurozone credit markets. The recent slide in the Bloomberg composite index for Eurozone corporate bonds is the biggest since the U.S. taper tantrum in 2013. The prospect of a Fed hike later this year and rising inflation expectations in the Eurozone have changed the balance of risk for fixed income markets.
The macro data reported in Brazil this week added weight to the view that the economy ended the second quarter in a severe recession. Brazil's retail sales fell 0.4% month-to-month in June, the fifth consecutive contraction. The broad retail index, which includes vehicles and construction materials, fell 0.8% month-to-month, with a sharp contraction in auto sales, down 2.8%.
In recent years we have argued consistently that investors and the commentariat overstate the importance of the dollar as a driver of U.S. inflation. Only about 15% of the core CPI is meaningfully affected by shifts in the value of the dollar, because the index is dominated by domestic non-tradable services.
Brazil's benchmark inflation index, the IPCA, rose 0.5% unadjusted month-to-month in July, pushing the year-over-year rate down marginally to 8.7%, from 8.8% in June. Overall inflation pressures in Brazil are easing, especially in regulated prices, which have been the main driver of the disinflation trend this year. But market-set prices are still causing problems.
The downturn in equity prices deepened yesterday, with the FTSE 100 index closing at 5,537, 22% below its April 2015 peak. We remain unconvinced, however, that financial market turmoil is set to push the U.K. economy into a recession. We continue to take comfort from the weakness of the past relationship between equity prices and economic activity.
EZ investors remain depressed. The headline Sentix confidence index fell to 12.0 in September, from 14.7 in August, and the expectations gauge slid by three points to -8.8.
The undershoot in the April core CPI wasn't a huge surprise to us; the downside risk we set out in yesterday's Monitor duly materialized, with used car prices dropping by a hefty 1.6% month-to-month, subtracting 0.05% from the core index.
Brazil's headline CPI has been well above the upper limit of the BCB's target zone since January 2015. We expect this situation will continue for some time, due to the lagged effect of last year's sharp increases in regulated prices, El Niño, the BRL's sell-off in 2015, and, especially, widespread price indexation.
Judging from our inbox, economy bulls are pinning a great deal of hope on the idea that the collapse in the Help Wanted Online index is misleading, because the index is subject to distortions caused by shifts in pricing behavior in the online job advertising business. These distortions were analyzed in a recent Fed paper--click here to read on the Fed's website-- which makes a convincing case that at least some of the decline in the HWOL over the past half-year represents a change in recruiters' behavior rather than slowing in labor demand.
Eurozone capital markets have been split across the main asset classes this year. Equity investors have had a nightmare. The MSCI EU ex-UK index is down 10.6% year-to-date, a remarkably poor performance given additional QE from the ECB and stable GDP growth. Corporate bonds, on the other hand, are sizzling.
On the face of it, small business have taken quite a hit over the past few months. The headline index from the NFIB survey of small businesses has dropped to a nine-month low of 95.2 in March from 100.4 in December. As a result, the gap between the NFIB and the ISM manufacturing indexes, which had been narrowing, has widened again.
Within the next few month, and perhaps as soon as next month, the gap between the headline NFIB and ISM manufacturing indexes, shown in our first chart, will close for the first time since late 2008.
Brazil's April CPI data this week showed that inflation pressures remain weak, supporting the BCB's focus on the downside risks to economic activity. Wednesday's report revealed that the benchmark IPCA inflation index rose 0.1% unadjusted month-to-month in April, marginally below market expectations.
The April CPI report today will be watched even more closely than usual, after the surprise 0.12% month-to-month fall in the March core index. The biggest single driver of the dip was a record 7.0% plunge in cellphone service plan prices, reflecting Verizon's decision to offer an unlimited data option.
Brazil's benchmark inflation index, the IPCA, rose 0.7% month-to-month in May, above market expectations. The stickiness of some components explains the surprise upshift; food prices in particular rose by 1.4% in May, after a 1% increase in April. Housing also rose at a faster rate than we had expected, due mainly to a 2.8% jump in the electricity component, the largest single contributor to May's headline increase.
Brazil's retail sales plunged in August, falling 0.9% month-to-month--the seventh consecutive contraction -- and with a net revision of -0.6%. The broad retail index, which includes vehicles and construction materials, dropped 2.0% month-to-month, the biggest fall this year, due mainly to a 5.2% collapse in auto sales, reversing July's unexpected increase. In annual terms, headline sales fell by an eye-popping 6.9% in August, after the downwardly-revised 3.9% drop in July. In short, the sales data show that consumers are suffering. They will struggle for some time yet.
Economic data in the Eurozone continue to come in soft. Yesterday's final manufacturing PMIs confirmed that the euro area index slipped to an eight-month low of 56.6 in March, from 58.6 in February.
The final EZ PMI data for November yesterday confirmed that the composite index in the Eurozone rose to an 11-month high of 53.9, from 53.3 in October. The key driver was an improvement in services, boosted by stronger data in all the major economies. Manufacturing activity also improved, though, and the details showed that new business growth was robust in both sectors.
The odds favor a robust January payroll report today. The key leading indicator--the NIFB hiring intentions index from five months ago--points to a 275K increase, while the coincident NFIB actual employment change index suggests 260K.
We aren't much interested in the headline ISM non- manufacturing index, which tends to track the rate of growth of nominal retail sales. In other words, it is not a leading indicator of broad economic activity. We were happy to see the November index rise yesterday, to 57.2 from 54.8, but it doesn't change our core views about anything.
Chile's Imacec index confirmed that economic growth is slowing. The Imacec, a monthly proxy for GDP, fell 1.1 month-to-month in October, pushing the year-over-year rate down to -0.4% from an already soft 1.4% in September. This marks the first annual contraction since October 2009, underscoring Chile's fragility. Mining activity plunged 7.1% year-over-year in October, while the non-mining sector rose just 0.3%, supported by services.
Chile's economy appears to have gathered momentum in February with the Imacec index, a proxy for GDP, increasing 2.8% year-over-year, up from a modest 0.1% contraction in January and its fastest pace since January 2015. Activity was driven mainly by expansion in services, mining and retail commerce activities.
The record 1,178-point drop in the Dow will garner all the headlines today, but a sense of perspetive is in order, despite the chaos. The 113-point, or 4.1%, fall in the S&P 500 was very startling, but it merely returned the index to its early December level; it has given up the gains only of the past nine weeks.
Yesterday's news that the business activity index of the Markit/CIPS services survey fell again in January, to just 50.1--its lowest level since July 2016--has created a downbeat backdrop to the MPC meeting; the minutes and Q1 Inflation Report will be published on Thursday.
Survey data continue to suggest that GDP growth will accelerate in Q1. The final PMI reports on Friday showed that the headline EZ composite index rose to 56.0 in February, from 54.4 in January, in line with the first estimate.
Chile's IMACEC economic activity index rose 3.9% year-over-year in January, up from 2.6% in December, and 2.9% on average in Q4, thanks to strong mining output growth and solid commercial, manufacturing and services activity.
We chose last week to ignore the payroll warning signal from the ISM non-manufacturing employment index, which rolled over in January and February, because the danger seemed to have passed. The ISM is not always a reliable indicator--the drop in the index in early 2014 was not replicated in the official data, but the plunge in early 2015 was--and usually it operates with a very short lag, just a month or two.
Yesterday's economic data point to a sea of calm in the Eurozone economy. The composite PMI was unchanged at 53.1 in June, a slight upward revision from the initial estimate, 52.8. The index suggests real GDP growth was stable at 1.5%-to-1.6% year-overyear in Q2, though the quarter-on-quarter rate likely slowed markedly, following the jump in Q1.
Economic activity is slowing in Colombia. The ISE activity index--a monthly proxy for GDP--rose only 0.6% year-over-year in April, down from 2.3% in March, and we expect it to rise at this pace over the coming months. During the first quarter, the index rose at an average year-over-year rate of 3.0%.
The final Eurozone PMIs indicate that the cyclical recovery continued in Q1, but downside risks are rising. The composite index rose marginally to 53.0 in March, from 53.1 in February, below the initial estimate 53.7. Over the quarter as a whole, though, the index fell to 53.2 from 54.1 in Q4, indicating that economic momentum moderated in the first quarter.
Yesterday's PMI reports repeated the message of a firm cyclical Eurozone recovery, despite investors' angst over deflation and the underwhelming Q3 GDP data earlier this month. The composite index in the zone rose to a 54-month high of 54.4 in November from 53.9 in October, lifted by strong output and solid new business growth. Our first chart shows the rise in the PMI points to slight upside risks in Q4 to the four quarter trend in real GDP growth of 0.4% per quarter.
The Caixin manufacturing headline was unremarkable, but the input price index signals that PPI inflation is set to rise again in May, to 4.0%-plus, from 3.4% in April.
Eurozone manufacturing selling prices remain under pressure from deflationary headwinds. The PPI index, ex-construction, in the euro area fell 4.2% year-over-year in March, matching February's drop. Weakness in oil prices continues to drive the headline.
It probably would be wise to view the increase in the ISM manufacturing index in December with a degree of skepticism. The index is supposed to record only hard activity, but we can't help but wonder if some of the euphoria evident in surveys of consumers' sentiment has leaked into responses to the ISM. That said, the jump in the key new orders index-- which tends to lead the other components--looked to be overdue, relative to the strength of the import component of China's PMI.
Brazil's manufacturing PMI edged down to a six-month low of 45.2 in December, from 46.2 in November. This marks a disappointing end to Q4, following a steady upward trend during the first half of the year, as shown in our first chart. December's new work index fell to 45.2 from 47.7 in November, driving a slowdown in production, purchases of materials, and employment. The new export orders index also deteriorated sharply in December, falling close to its lowest level since mid-2009.
The manufacturing indexes for January showed a small improvement for the biggest economies in LatAm: Brazil and Mexico. In Brazil, the PMI manufacturing index increased marginally to 50.7 in December from 50.2 in November, thanks to stronger output and new orders components, which rose together for the first time in ten months.
Final October PMI data today will confirm the Eurozone's recovery remains on track. We think the composite PMI rose to 54.0 from 53.6 in September, in line with the consensus and initial estimate. Data on Monday showed that manufacturing performed better than expected in October, and the composite index likely will enjoy a further boost from solid services. The PMIs currently point to a trend in GDP growth of 0.4%-to-0.5% quarter-on-quarter, the strongest performance since the last recession.
China's Caixin manufacturing PMI edged down to 50.6 in August, from July's 50.8. This clashed with the increase in the official PMI, though the moves in both indexes were modest.
All the fundamentals point to a very strong payroll number for May. The NFIB hiring in tentions index, the best single leading indicator of payrolls five months ahead, signalled back in December that May employment would rise by about 300K. The NFIB actual net hiring number, released yesterday, is a bit less bullish, implying 250K, but the extraordinarily low level of jobless claims, shown in our first chart, points to 300K. Finally, the ISM non-manufacturing employment index suggests we should be looking for payrolls to rise by about 260K. Our estimate is 280K.
Headwinds from global growth fears have weighed on Eurozone equities in recent months, leaving the benchmark MSCI EU ex-UK index with a paltry year-to-date return ex-dividends of 1.7%. We think bravery will be rewarded, though, and see strong performance in the next six months. Equities in Europe do best when excess liquidity --M1 growth in excess of inflation and nominal GDP growth--is high.
The June ISM manufacturing index signalled clearly that the industrial recovery continues, with the headline number rising to its highest level since August 2014, propelled by rising orders and production. But the industrial economy is not booming and the upturn likely will lose a bit of momentum in the second half as the rebound in oil sector capex slows.
...Third quarter growth was revised up sharply and the prospects for fourth quarter consumption improved substantially. Less positively, the first signs of faltering capex in the wake of the plunge in oil prices emerged in the macro data, and the ISM manufacturing index began to reverse its run of absurd, seasonally-assisted, "strength".
Most of the leading indicators of payroll growth have rebounded in recent months, with the exception of the Help Wanted Online. Our first chart shows that the NFIB's measure of hiring intentions and the ISM non-manufacturing employment index have returned to their cycle highs, while the manufacturing employment index has risen substantially from its late 2015 low. The Help Wanted Online remains very weak, but it might have been depressed by increased prices for job postings on Craigslist.
Chile's IMACEC economic activity index rose 2.4% year-over-year in January, down from 2.6% in December, and 3.3% on average in Q4, thanks mostly to weak mining production.
Economic growth in Chile picked up in Q1, but the recovery remains disappointingly weak, due to both global and domestic headwinds. The latest Imacec index, a proxy for GDP, rose just 2.1% year-over-year in March, slowing from a 2.8% gain in February. Assuming no revisions next month, economic activity rose 1.2% quarter-on-quarter in Q1, better than the 0.9% increase in Q4. These data points to a modest pick-up in GDP growth in Q1, to 1.8% year-over-year, from 1.3% in Q4.
Bond market volatility and political turmoil in Greece have been the key drivers of an abysmal second quarter for Eurozone equities. Recent panic in Chinese markets has further increased the pressure, adding to the wall of worry for investors. A correction in stocks is not alarming, though, following the surge in Q1 from the lows in October. The total return-- year-to-date in euros--for the benchmark MSCI EU ex-UK index remains a respectable 11.4%.
Recent inflation numbers across LatAm have surprised, in both directions. On the upside, Brazil's IPCA index rose 0.2% month-to-month in September, above the market consensus forecast of 0.1%.
The slew of EZ economic data on Friday supports our view that the economy ended 2016. The Commission's economic sentiment index jumped to 107.8 in December from a revised 106.6 in November. The headline strength was due to a big increase in "business climate indicator" and higher consumer sentiment. In individual countries, solid numbers for German construction and French services sentiment were the stand-out details.
OPEC's decision at the weekend to turn the oil market into a free-for-all means that the rebound in headline inflation over the next few months will be less dramatic than we had been expecting. Falling retail gas prices look set to subtract 0.2% from the headline index in both November and December, and by a further 0.1% in January. These declines are much smaller than in the same three months a year ago, so the headline rate will still rise sharply, to about 1.3% by January from 0.2% in October, but it won't approach 2% until the end of next year or early 2017,
Economic activity data in Chile have been soft and uneven this year, due mainly to the hit from low commodity prices and uncertainty surrounding the reform agenda, which has badly damaged consumer and investor sentiment. The latest Imacec index, a proxy for GDP, increased just 1.7% year-over-year in October, down from the 2.7% gain in September, and below the 2.2% average seen during Q3 as a whole.
Manufacturers in China are skating on thin ice. Construction is still doing most of the heavy lifting for China's non-manufacturing index. MoF data suggest that Japan probably avoided a technical recession in Q1, just. Korean exports stabilise in May, but Q2 still looks like a lost cause. Korea's PMI continued to sink in May, with no clear signs of a turnaround in export orders.
The renewed trade war is unfortunate timing, as Korea exports are stabilising at the margins. Revised index shows that Korean PPI inflation hasn't been missing this year.
The headline Sentix investor sentiment index in the Eurozone rose to -24.8 in June, from -41.8 in May, slightly below the consensus, -22.0.
In one line: Surging employment index means payroll weakness likely will be temporary
In one line: Hold the press; we have an increase in the EC sentiment index.
In one line: Solid; manufacturing index likely hit by pension reform strikes.
In one line: A v-shaped rebound in the external surplus; wage cost index driven higher by fall in hours worked.
The headline NFIB index of small business activity and sentiment in July likely will be little changed from June--we expect a half-point dip, while the consensus forecast is for a repeat of June's 94.5--but what we really care about is the capex intentions componen
We planned to write today about the rebound in housing market activity over the past few months, arguing that it is about to run out of steam in the face of the recent flat trend in mortgage applications. The Mortgage Bankers Associations' purchase applications index rocketed in the spring, but then moved in a narrow range from mid-April through late September. Then, out of the blue, the MBA reported a 27% leap in applications in the week ended October 2, taking the index to its highest level in more than five years.
If our composite index of businesses' hiring plans could speak, it would say: "Told you payrolls were going to go nuts at the end of the year."
The sell-off in bonds and equities continued yesterday, but the reaction bears no resemblance, so far, to the sovereign debt crises in 2012 and 2010. The first evidence from sentiment data in July also points to surprising stability. The headline Sentix index rose to 18.5, up slightly from 17.1 in June, but the expectations index fell marginally, to 22.3 from 22.5.
Last Friday's August auto sales numbers were overshadowed by the below-consensus payroll report and the six-year high in the ISM manufacturing index, but they are the first data to reflect the impact of Hurricane Harvey.
The elevated September ISM non-manufacturing index reported yesterday--it dipped to 56.9 but remains very high by historical standards--again served to underscore the depth of the bifurcation in the economy. The services sector, boosted by the collapse in gasoline prices and the strong dollar, is massively outperforming the woebegone manufacturing sector.
The PMI survey points to a slight loss of momentum in Eurozone growth towards the end of Q3. The composite index fell to 53.6 in September from 54.3 in August, trivially lower than the initial estimate of 53.9. This is not enough to move the needle on the survey's signal for Q3 GDP growth, though; our first chart shows it pointing to stable growth of 0.4% quarter-on-quarter.
Recent polls in the U.K. have reminded markets that the vote is too close to call at this point, but investors in the Eurozone appear unfazed, so far. The headline Sentix index rose to 9.9 in June, from 6.2 in May, lifted by the expectations index, which increased to a six-month high of 10.0 from 5.5 in May.
The NFIB survey of small businesses today will show that July hiring intentions jumped by four points to +19, the highest level since November 2006. The NFIB survey has been running since 1973, and the hiring intentions index has never been sustained above 20.
Markets have been positively surprised by Brazil's rapid disinflation, the efforts at fiscal reform, and the prospect of growth in the economy this year. The Ibovespa index is now above its pre-crisis high and the real has approached the key level of three per USD in recent months. But the latest GDP report, released yesterday, showed that the economy struggled in Q4. Real GDP fell 0.9% quarter-on-quarter, worse than the revised 0.7% drop in Q3.
This week's MPC meeting and Inflation Report likely will support the dominant view in markets that the chances of a 2017 rate hike are remote, even though inflation will rise further above the 2% target over the coming months. Overnight index swap markets currently are pricing-in only a 20% chance of an increase in Bank Rate this year.
House prices continue to struggle for momentum, instilling caution among households. Admittedly, Halifax reported yesterday that its index jumped by 1.5% month-to-month in May.
Household sentiment in Mexico continues to improve, consistent with tailwinds from low inflation, accommodative monetary policy, and the improving labor market. The consumers confidence index rose to 94.7 in June from 92.0 in May, with four of the five components improving, especially big-ticket purchasing expectations and expectations for the economy.
The release of the NFIB survey at 6.00AM eastern time this morning--really, they need a new PR advisor--doubtless will bring a flurry of headlines about rising wage pressures, with the expected compensation index rising by a startling three points to a new post-crash high. But this is not news, nor is the high, stable level of hiring intentions; these key labor market numbers were released last week in the NFIB Jobs Report, which appears the day before the official employment report. The data are simply extracted from the main NFIB survey.
We're expecting to see November payrolls up by about 200K this morning, but our forecast takes into account the likelihood that the initial reading will be revised up. In the five years through 2014, the first estimate of November payrolls was revised up by an average of 73K by the time o f the third estimate. Our forecast for today, therefore, is consistent with our view that the underlying trend in payrolls is 250K-plus. That's the message of the very low level of jobless claims, and the strength of all surveys of hiring, with the exception of the depressed ISM manufacturing employment index. Manufacturing accounts for only 9% of payrolls, though, so this just doesn't matter.
The latest PMIs indicate that the economy remained listless in Q3, undermining the case for a rate rise before the end of this year. The business activity index of the Markit/CIPS services survey rose trivially to 53.6 in September, from 53.2 in August.
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.
The Eurozone PMIs stumbled at the end of Q2. The composite index slipped to a five-month low of 55.7 in June, from 56.8 in May, constrained by a fall in the services index. This offset a marginal rise in the manufacturing index to a new cyclical high. The dip in the headline does not alter the survey's upbeat short- term outlook for the economy.
Yesterday's IFO survey in Germany was a nasty downside surprise for markets. The business climate index slipped to 106.2 in August, from 108.3 in July, well below the consensus forecast for a modest rise. In addition, the expectations index slid ominously to 100.1, from a revised 102.1 in July.
According to Brazil's mid-August inflation reading, which is a preview of the IPCA index, overall inflation pressures are easing. But some price stickiness remains, due to inertia and temporary shocks, despite the severity of the recession and the rapid deterioration of the labour market in recent months.
The decline in China's unofficial PMI, which has dropped to a six-year low, signals increasing troubles ahead for U.S. manufacturers selling into China, and U.S. businesses operating in China. This does not mean, though, that the U.S. ISM will immediately fall as low as the Caixin/Markit China index appears to suggest in the next couple of months. Our first chart shows that in recent years the U.S. manufacturing ISM has tended hugely to outperform China's PMI from late spring to late fall, thanks to flawed seasonals.
The underlying state of the Mexican economy is still positive, despite recent signs of a modest slowdown. The IGAE economic activity index--a monthly proxy for GDP--rose 2.1% year-over-year in April, a relatively solid pace, but down from 2.8% in March, and 2.6% in Q1.
The IFO survey released yesterday provides further evidence that the cyclical recovery in Germany's economy continued in the current quarter. The headline business climate index rose to 107.9 in March from 106.8 in February, lifted by increases in both the current assessments and expectations index.
Mexico's economy continues to bring good news, despite the tough external environment for all EM economies. According to the economic activity index, a monthly proxy for GDP, growth gained further momentum in Q4. Activity rose 2.7% year-over-year in November, supported by stronger services activities, which expanded 0.3% month-to-month. The services sector has been the main driver of the current cycle, growing 3.8% year-over-year in November, bolstering our optimism about the domestic economy in the near-term.
The July Eurozone PMI survey echoed the message from consumer sentiment earlier of a mild dip in momentum going into Q3. The composite PMI in the euro area fell to 53.7, from 54.2 in June due mainly to a fall in the services index. Companies' own expectations for future business fell in the core, but the survey was conducted soon after the Greek referendum. Markit claims this didn't depress the data, but we are on alert for revisions to the headline and expectations next week, or a rebound next month.
The squeeze on real wages has just ended and GfK's consumer confidence index hit a 11-month high in March.
Yesterday's IFO survey confirmed that the private business sector in Germany was off to a flying start in Q4. The headline business climate index rose to 110.5 in October, from 109.5 in September, lifted mainly by a rise in the expectations index to a 30-month high of 106.5.
Friday's PMIs gave the first hint of Q4 growth in the Eurozone, and continue to tell a story of a stable cyclical recovery. The composite PMI in the Eurozone rose 54.0 in October from 53.6 in September, mainly due to a rise in the services index, to 54.2 from 53.7. Assuming the PMI remains unchanged over the remainder of the quarter, the survey indicates solid GDP growth of 0.4%-to-0.5% quarter-on-quarter in Q4.
A further rise in the business activity index of the November Markit/CIPS report on services offset declines in the manufacturing and construction surveys' key balances. The composite PMI--a weighted average of three survey's activity indices -- therefore rose, to a level consistent with quarter-on-quarter GDP growth strengthening to 0.6% in the fourth quarter, from 0.5% in Q3. Nonetheless, we do not think this is a convincing signal that the economic recovery is regaining strength.
LatAm currencies and stock markets have suffered badly in recent weeks, but Monday turned into a massacre with the MSCI stock index for the region falling close to 4%. Markets rebounded marginally yesterday, but remain substantially lower than their April-May peaks. Each economy has its own story, so the market hit has been uneven, but all have been battered as China's stock market has crashed. The downward spiral in commodity prices--oil hit almost a seven-year low on Monday--is making the economic and financial outlook even worse for LatAm.
A downbeat French INSEE consumer sentiment report yesterday continued the run of poor survey data this week. The headline index fell to 95 in February from 97 in January, indicating downside risk f or Q1 consumers' spending. But we remain optimistic that private consumption will rebound solidly, following a 0.4% quarter-on-quarter fall in Q4.
Advance PMI data indicate a slow start to the first quarter for the Eurozone economy. The composite index fell to 53.5 in January from 54.3 in December, due to weakness in both services and manufacturing. The correlation between month-to-month changes in the PMI and MSCI EU ex-UK is a decent 0.4, and we can't rule out the ide a that the horrible equity market performance has dented sentiment. The sudden swoon in markets, however, has also led to fears of an imminent recession. But it would be a major overreaction to extrapolate three weeks' worth of price action in equities to the real economy.
The bad economic news in Brazil is unstoppable. The mid-month CPI index rose 1.3% month-to-month in February, as education, housing, and transport prices increased. School tuition fees jumped 6% month-to-month in February, reflecting their annual adjustment, and transport costs rose by 2% due to an increase in regulated gasoline prices.
Last week's advance PMI data suggest that economic activity in the Eurozone was stable at the beginning of Q2. The composite EZ PMI fell trivially to 53.0 in April, from 53.1 in March, because a dip in manufacturing offset a small rise in the services index.
A startlingly wide gap has emerged over the past nine months between the ISM manufacturing index and Markit's manufacturing PMI.
The Eurozone economy is in fine shape, according to the latest PMI data. The composite EZ PMI fell trivially to 54.3 in January, but remains strong. A marginal dip in the services index offset a small increase in the manufacturing PMI to a cyclical high of 55.1. These data tell a story of a strong private sector that continues to support GDP growth.
The chaos in Greece was identified as the main culprit for yesterday's soft IFO report. The headline business climate index fell to 107.4 in July, down from 108.1 in May, driven by declines in respondents' views on the current economy and their expectations for the future. We expected a dip in the he adline IFO, but we were surprised by the fall in the manufacturing sub-index, given the firmer PMI earlier this week.
The state of the Mexican economy is still favorable, despite the slowdown over the last few quarters. This week, the IGAE economic activity index--a monthly proxy for GDP--rose 2.0% year-over-year in July, a relatively solid pace, but down from 3.2% in June, and 2.6% in the first half. All these data suggest that economic activity failed to gather momentum at the beginning of Q3 after a disappointing first half of the year.
Yesterday's German IFO survey suggests that economic momentum in the Eurozone's largest country remained modest at the start of Q2. The headline business climate index fell trivially to 106.6 in April, from 106.7 in March, lower than the consensus expectation of an increase to 107.2.
The two main national surveys--IFO and INSEE-- both beat consensus forecasts yesterday, supporting our story of that economic sentiment is holding up relatively well in the face increasing investor anxiety. In Germany, the main IFO business climate index rose marginally to 108.5 from a revised 108.4 in August, boosted by an increase in the expectations index to a six-month high of 103.3, up from 102.0 in August. The IFO expectations index points to real GDP growth rising 0.5%-to-0.6% quarter-on-quarter in Q3.
PMI data in the Eurozone rebounded convincingly in October, as the composite index rose to a 10-month high of 53.7, from 52.6 in September. The gain fully reversed the weakness at the end of Q3.
Survey data in Germany continue to tell an upbeat story on the economy. The IFO business climate index rose to 109.0 in November from 108.2 in October, lifted by gains in both the expectations and current assessment indexes. The IFO tends to be slightly over-optimistic on GDP growth, but our first chart shows that the survey points to upside risks in the fourth quarter.
This week's economic data for the Mexican economy have been encouraging, especially for Banxico, which left its main interest rate unchanged yesterday at 3.0%. Inflation remained on target for the second consecutive month in the first half of February, and the closely-watched IGAE economic activity index--a monthly proxy for GDP--continued to grow at a relatively solid pace, despite the big hit from lower oil prices.
The IFO did its part to alleviate the stock market gloom yesterday, with the business climate index rising slightly to 108.3 in August from 108.0 in July. The August reading doesn't reflect the panic in equities, though, and we need to wait until next month to gauge the real hit to business sentiment. The increase in the headline index was driven by businesses assessment of current output, with the key expectations index falling trivially to 102.2 from a revised 102.3 in July. This survey currently points to a stable trend in real GDP growth of about 0.4% quarter-on-quarter, consistent with our expectation of full year growth of about 1.5%.
Survey data signal that Eurozone manufacturing retained momentum at the start of Q4. Yesterday's final PMI reports showed that the EZ manufacturing index rose to 58.5 in October from 58.1 in September, trivially below the first estimate.
Survey and money supply data remain consistent with an improving Eurozone economy. Yesterday's EC sentiment index fell to 103.7 in April, from 103.9 in March, due to weakness in France and Germany, but it is consistent with GDP growth of about 0.4% quarter-on-quarter in Q2.
We are not bothered by either the drop in real December consumption, all of which was due to a weather-induced plunge in utility spending, or the drop in the ISM manufacturing index, which is mostly a story about hopeless seasonal adjustments.
Many investors are betting that the MPC will announce a bold package of easing measures on Thursday. For a start, overnight index swap markets are pricing-in a 98% probability that the MPC will cut Bank Rate to 0.25%, and a 30% chance that interest rates will fall to, or below, zero by the end of the year.
Survey data in the Eurozone were mixed yesterday. In Germany, the advance GfK consumer sentiment index slipped to 10.0 in October, from 10.2 in September, marginally below consensus forecasts. The details, reported for September, also were soft.
Recently data from Argentina continue to signal a firming cyclical recovery. According to INDEC's EMAE economic activity index, a monthly proxy for GDP, the economy grew 4.0% year-over-year in June, up from an already-solid 3.4% in May.
Leading indicators for consumers' spending in France are sending conflicting signals. Survey data suggest that households are in a spendthrift mood. Data yesterday showed that the headline consumer sentiment index was unchanged in March at 100, the cycle high.
The outlook for Argentina is improving. We expect economic growth to remain quite strong over the next year, despite a relatively soft start to 2017 and increasing external threats in recent weeks. The INDEC index of economic activity--a monthly proxy for GDP--is volatile, rising 1.9% month-to-month in March after a 2.6% drop in February, but the underlying trend is improving.
Today's Sentix survey of Eurozone investor sentiment likely will remain downbeat. We think the headline index rose only trivially, to 6.0 in April from 5.5 in March, and that the expectations index was unchanged at 2.8. Weakness in equities due to global growth fears and negative earnings revisions likely is the key driver of below-par investor sentiment.
The headline employment cost index has been remarkably dull recently, with three straight 0.6% quarterly increases. The consensus forecast for today's report, for the three months to December, is for the same again.
We are expecting a hefty increase in the August ADP employment number today--our forecast is 225K, above the 175K consensus --but we do not anticipate a similar official payroll number on Friday. Remember, the ADP number is based on a model which incorporates lagged official employment data, the Philly Fed's ADS Business Conditions Index, and data from firms which use ADP for payroll processing.
Data today will likely show that consumer sentiment in the Eurozone remains firm. In Germany, we expect a slight dip in the advance headline GFK confidence index to 9.8 in June, from an all-time high of 10.1 in May.
Korea's business survey index rose for a second straight month in March, to 75 from 73 in February, on our adjustment.
We have been asked by a few readers how much confidence we have in our forecast of a 1% rebound in the third quarter employment costs index, well above the 0.6% consensus and the mere 0.2% second quarter gain. The answer, unfortunately, is not much, though we do think that the balance of risks to the consensus is to the upside.
We think today's consumer sentiment survey in France will show that the headline index was unchanged at 94 in May. The survey's forward looking components have weakened modestly in recent months, due to declines in households' outlook for their financial situation and standard of living in the coming 12 months.
We will be paying special attention today to the EC sentiment survey for Italy, where the headline index has climbed steadily so far this year. It was unchanged at an eight-year high of 106.1 in April, and even if it fell slightly in May--we expect a dip to 105.0--it still points to an upturn in economic growth.
Recent data have confirmed that Colombian economic activity is still fragile, and that downside risks increased in Q1 as oil prices hav e slipped. The ISE economic activity index rose just 1.0% year-over-year in January, down from a 1.6% average gain in Q4.
French business sentiment cooled marginally at the end of Q3. The headline manufacturing confidence index dipped to 110 in September, from 111 in August, though the overall business sentiment gauge was unchanged at 110.
Yesterday's IFO survey in Germany was a big relief for markets, in light of recent soft data. The main business climate index jumped to 109.5 in September, from 106.3 in August, the biggest month-to-month increase since 2010.
French consumer sentiment dipped slightly in June, but we see no major hit from ongoing labour market disputes. The headline index slipped to 97 in June, from 98 in May; this is a decent reading given the fourpoint jump last month. The headline was constrained by a big fall in consumers' "major purchasing intentions," but this partly was mean-reversion following a surge last month.
The outlook for French consumers' spending improved this month, at the margin. The headline consumer sentiment index was unchanged at 98 in November, but most forward-looking indicators rose. Consumers' spending in was flat in Q2 and Q3, following a 1.1% jump in the first quarter.
Business surveys coming out of the Eurozone have been remarkably strong recently. The composite PMI for the Eurozone jumped to 56.7 in March--its highest level since April 2011--from 56.1 in February. Germany's IFO business climate index leaped to a 67-month high in March.
The Mexican economy is recovering gradually, despite many external headwinds. This week, the IGAE economic activity index--a monthly proxy for GDP--rose a solid 2.6% year-over-year in August, up from 2.0% in July. In the first half the economy grew on average 2.4%. The report showed increases in all three sectors, most notably agriculture, up 8.2% year-over-year, followed by services, 3.3%, and industrial activities, with a 1.0% gain.
German data yesterday indicate that inflation pressures have, so far, been resilient in the face of the recent collapse in oil prices. Inflation rose to 0.5% year-over-year in January from 0.3% in December, partly due to base effects pushing up the year-over-year rate in energy prices, but core inflation rose too. The detailed state data indicate that almost all key components of the core index contributed positively, lead by leisure and recreation and healthcare.
Markets responded to yesterday's disappointing GDP figures by pushing back expectations for the first rise in official interest rates even further into 2017. The first rate hike is now expected--by the overnight index swap market--in April 2017, two months later than anticipated before the GDP release. The figures certainly look weak--particularly when you scratch below the surface--and we expect growth to slow further over the coming quarters. But we don't agree they imply an even longer period of inaction on the Monetary Policy Committee.
Yesterday's French INSEE consumer confidence data provided a fascinating glimpse into the reality for households during these strange times. The headline index fell by "just" eight points in April, to 95 from 103 in March, comfortably beating the consensus for a crash to 80.
Sterling's shaky performance so far this year-- the trade-weighted index currently is 3% below its end-2019 level and was down 8% at the peak of the mid-March market frenzy--raises the question of whether a renewed depreciation would have a better chance of boosting GDP growth than last time.
Payroll growth rebounded to 223K in May, after two sub-200K readings, and we're expecting today's June ADP report to signal that labor demand remains strong.
Chief U.K. Economist Samuel Tombs on the U.K. Halifax House Price Index in December
Chief U.K. Economist Samuel Tombs on Consumer Price Index, June
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Will inflation continue to rebound in Brazil in the near term?
Chief US economist Ian Shepherdson on the latest Jobs report
Chief US economist Ian Shepherdson on the latest Jobs report
Chief U.K. Economist Samuel Tombs on U.K. House Prices
Chief US economist Ian Shepherdson on June Consumer Confidence data
Chief U.S. Economist Ian Shepherdson on NAHB
Chief U.S. Economist Ian Shepherdson on U.S. Home Sales
EU-Japan free trade: Japan and the European Union agreed on an outline for a massive trade deal this week that will rival the size of NAFTA, the free trade accord that the United States has with Canada and Mexico, currently the largest one in the world. Claus Vistesen, the chief eurozone economist with Pantheon Macroeconomics, assesses what's in the agreement and why it matters (19mins 10 secs).
Senior International Economist Andres Abadia appeared on "Counting the Cost" to discuss Venezuela's Petro launch (9:15 - 12:00)
Chief U.S. Economist Ian Shepherdson on the latest NFIB data
Chief Eurozone Economist Claus Vistesen comments on Eurozone Consumer Confidence
Chief U.S. Economist Ian Shepherdson on today's Payroll report
Chief U.K. Economist Samuel Tombs on U.K. House Prices
Dr Ian Shepherdson, chief economist at Pantheon Macroeconomics, says that while US rates will rise by 0.25% on 14th December, the central bank needs to continue to move rates up or wages will spiral up out of control.
Chief Eurozone Economist Claus Vistesen discussing the German Zew in April
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