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684 matches for " orders":
Demand for German manufacturing goods remained firm at the start of Q4. Data yesterday showed that factory orders increased 0.5% month-to-month in October, helped by gains in both export and domestic activity.
Manufacturing activity in Germany rebounded at the start of the fourth quarter, following a miserable Q3. New orders jumped 1.8% month-to-month in October, lifted by increases in consumer and capital goods orders, both domestic and export. But the year-over-year rate fell to -1.4%, from a revised -0.7% in September, due to unfavorable base effects, and the three-month trend remained below zero. Our first chart shows that non-Eurozone export orders are the key drag, with export orders to other euro area economies doing significantly better.
Factory orders in Germany probably jumped in September, following a string of losses in the beginning of Q3. We think new orders rose 1.0% month-to-month, pushing the year-over-year rate slightly lower, to 1.8% from 2.0% in August. A rebound in non- Eurozone export orders likely will be the key driver of the monthly gain, following a 14.8% cumulative plunge in the previous two months. The rise will be concentrated in capital and consumer goods, and should be enough to offset a fall in export orders within the euro area. Our forecast is consistent with new orders falling 2.0% quarter-on-quarter in Q3, partly reversing the 3.0% surge in the second quarter, and raising downside risks for production in Q4.
Our hope for a year-end jump in German factory orders was laughably optimistic.
German manufacturing is in good shape, but probably is not as strong as implied by yesterday's surge in new orders. Factory orders jumped 5.2% month-to-month in December, rebounding strongly after a downwardly revised 3.6% fall in November. December's jump was the biggest monthly increase in two years, but it was flattered by a leap in bulk investment goods orders, mainly in the domestic market and other EZ economies.
The disappointing German factory orders ended the run of strong economic data last week. New orders fell 1.4% month-to-month in July, pushing the year-over-year rate down to a 0.6% fall from a 7.0% increase in June. This is a poor headline, but it partly reflects mean-reversion from last month's revised 1.8% jump. We expect a rebound next month, and the details also offer a useful reminder that these data are extremely volatile on a month-to-month basis.
Yesterday's factory orders report in German was grim reading. New orders fell 1.8% month-to-month in August, following a downwardly revised 2.2% plunge in July. Weakness in export demand and mean reversion in domestic orders were the key culprits. Domestic orders fell 2.6% month-to-month; nothing to worry about after a near-4% jump in July.
The forecasts compiled by Bloomberg for today's June German factory orders data look too timid to us. The consensus is pencilling in a 0.5% month-to month rise, which would push the year-over-year rate down to -2.1%, from zero in May. But survey data point to an increase in year-over-year growth, which would require a large month-to-month rise due to base effects from last year.
A third outright decline in the past four months seems a decent bet for today's August durable goods orders, thanks to the malign influence of the downward trend in orders for civilian aircraft. The global airline cycle is maturing, and orders for both Boeing and Airbus aircraft have been slowing for some time.
The flat trend in core capital goods orders continued through May, according to yesterday's durable goods orders report. We are not surprised.
We would like to be able to argue with confidence that today's December durable goods orders report will show core capital goods orders rebounding after three straight declines, totalling 3.4%.
We're braced for a hefty downside surprise in today's durable goods orders numbers, thanks to a technicality.
We were wrong about headline durable goods orders in April, because the civilian aircraft component behaved very strangely.
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.
We are pretty confident that the reported 3.4% drop in durable goods orders in December, which so spooked the markets yesterday, didn't actually happen.
Core durable goods orders in recent months have been much less terrible than implied by both the ISM and Markit manufacturing surveys.
A setback in German manufacturing orders was coming after the jump at the end of 2016, but yesterday's headline was worse than we expected. Factory orders crashed 7.4% month-to-month in January, more than reversing the 5.4% jump in December. The year-over-year rate fell to -0.8% from a revised +8.0%. The decline was the biggest since 2009, but the huge volatility in domestic capital goods orders means that the headline has to be taken with a large pinch of salt.
Friday's factory orders report in Germany provided a bit of relief amid the gloom in manufacturing.
In one line: The headline jump is noise, but so--we hope--is the drop in core capital goods orders.
In one line: No bottom yet for core orders.
In one line: Core orders soft, but likely to be even softer in Q4.
In one line: The jump in capex orders is welcome but impossible to square with surveys; expect a correction.
In one line: Before the deluge, the trend in core orders was flat.
In one line: Another solid month for capex, but headline orders pushed up by noise in the aircraft sector.
In one line: Headline is very flattering; core orders rising but outlook is cloudy.
In one line: Capex orders and trade are net neutral for Q2 GDP estimates.
In one line: Solid EZ retail sales and German new orders; and upward revisions to the PMIs.
The 7.8% month-on-month plunge in Japan's core machine orders in May re-emphasises the underlying weakness that we have been worrying about, after the 5.2% jump in April.
The upturn in German manufacturing orders waned slightly towards the end of 2017; factory orders fell 0.4% month-to-month in November.
In one line: Machine tool orders feeling for the floor
In one line: Solid; export orders soared, offsetting a plunge in domestic orders
In one line: Hit by decline in capital goods orders, but still overall solid.
In one line: Stung by volatility in major orders, but still unequivocally grim.
The key data today, covering March durable goods orders and international trade in goods, should both beat consensus forecasts.
In one line: Surging core capex orders suggest non-manufacturing firms are spending.
A grim-looking headline durable goods orders number for April seems inevitable today, given the troubles at Boeing.
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 plunge in capital spending in the oil business appears to be over, at least for now. Orders for non-defense capital goods, excluding aircraft, fell by 8.9% from their September peak to their February low, but they have since rebounded, as our first chart shows. We can't be certain that the sudden drop in core capex orders late last year was triggered by a rollover in oil companies' spending, but it is the most likely explanation, by far.
If you wanted to be charitable, you could argue that the downturn in the rate of growth of core durable goods orders in recent months has not been as bad as implied by the ISM manufacturing survey.
Today brings a wave of data, some brought forward because of Thanksgiving. We are most interested in the durable goods orders report for October, which we expect will show the upward trend in core capital goods orders continues.
Core machine orders in Japan held up surprisingly well in March, slipping by just 0.4% month-on-month, erasing only part of the 2.3% increase in February.
Our default position for core durable goods orders over the next few months is that they will fall, sharply.
New business in German manufacturing ended the first quarter on a strong note. Factory orders rose 1.9% month-to-month in March, above the consensus 0.6%, and net revisions to the February data were +0.4 percentage points. The rise in new orders was exclusively due to a 4.3% increase in export orders, which offset a 1.2% fall in domestic orders. These are strong numbers, but the details suggest that mean reversion will push the headline down next month.
We are wary of a downside surprise in today's German orders, due to weak advance data from the engineering organisation, VDMA. We think factory orders fell 0.5% month-to-month, pushing the year-over-year rate slightly lower to 4.5% in June from 4.7% in May. This is noticeably worse than the market expects, but the consensus forecast for a 0.3% rise implies a jump in the year-over-year rate, which is difficult to reconcile with leading indicators.
Today's headline durable goods orders number for January is likely to blast through the consensus forecast, +2.7%. We expect a 6.5% jump, comfortably reversing December's 5.0% drop.
The nominal value of orders for non-defense capital equipment, excluding aircraft, fell by 3.4% last year. This was less terrible than 2015, when orders plunged by 8.4%, but both years were grim when compared to the average 7.5% increase over the previous five years.
We see significant upside risk to today's headline durable goods orders numbers for April.
We have been very encouraged in recent months to see core capital goods orders breaking to the upside, relative to the trend implied by the path of oil prices.
Chief U.S. Economist Ian Shepherdson discussing U.S. Durable Goods Orders
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.
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.
In one line: Recovery continues, though not for Boeing.
Yesterday's manufacturing data in Germany were poor, but not as weak as implied by the headline.
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.
Demand in German manufacturing rebounded powerfully at the end of the second quarter, accelerating from an initially modest rebound when lockdowns were lifted.
In one line: The core capex picture is deteriorating.
Another day, another couple of April reports likely to reverse March "weakness", triggered by the early Easter. We look for robust core durable goods and pending home sales reports, with the odds favoring consensus-beating numbers. In both cases, though, the noise-to-signal ratio is quite high, and we can't be certain the Easter seasonal unwind will be the dominant force in the April data.
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.
In one line: Could have been even worse; will be (much) worse.
In one line: The warning from jobless claims is very clear; the manufacturing rebound is being offset by weakness in services, thanks to Covid.
The January durable goods numbers, viewed in isolation, were not terrible.
Manufacturers in China continued to trudge along in May, with their post-lockdown recovery looking increasingly fragile.
In one line: Still no recovery.
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.
Yesterday's raft of data had no net impact on our forecast for second quarter GDP growth, which we still think will be about 21⁄4%.
Demand in German manufacturing slid at the start of Q3.
In one line: Dreadful.
In one line: Grim, and worse is coming.
In one line: The calm before virus storm.
In one line: Terrible, but could have been even worse.
In one line: Soft, but the outlook is for a much worse numbers in Q4 and beyond.
In one line: Still stuck in the mud.
In one line: No relief; these data are still horrible.
In one line: No V-shape here.
In one line: Not much to cheer about; the trend is still falling.
In one line: Solid core behind the soft headlines.
In one line: Normal, and poor, services resumed.
In one line: Dreadful, but also old news.
In one line: That's more like it.
In one line: A strong rebound is underway, can it be sustained?
In one line: Not pretty; the slowdown intensified in Q3.
German manufacturing was in clear recovery mode before Covid-19.
In one line: Very strong; it won't last, but every little helps at this point.
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.
Job losses in the over-60 group pull Korea's unemployment rate higher in December. Japanese M2 growth holds steady in December. Still no clear signs of a recovery in machine tool orders in Japan.
Don't be fooled by the modest uptick in Japan's core machine orders for August; Machine tool orders in Japan have recovered from Covid; Japanese PPI deflation is about to get a lot deeper
Japan's M2 growth is going nowhere fast. Japanese machine tool orders suggest some stabilisation in global activity.
Mr. Trump's partial U-turn on September tariffs shows some semblance of an understanding of reality...that's a good thing. China's industrial production crushes June hopes of a swift recovery. Chinese consumers struggle. Chinese FAI: the infrastructure industry growth slowdown is especially worrying. Japan's strong core machine orders rebound in June probably faded in recent weeks. Korea's jobless rate will soon creep back up after remaining steady in July.
China's firms aren't passing on tax hikes after all. China takes full advantage of previous oil price declines. Japan's core machine orders better than expected, but that won't help Q2. Japan is heading for a spell of sustained PPI deflation in H2. Better May jobs report will help to keep any BoK rate cuts at bay.
CPI inflation in China punches through the 3% target. PPI deflation in China should soon bottom out. Japan's rugby boost small in the face of pre-tax front loading. September machinery orders data seriously undermines Japan's "resilient capex" story.
Core machine orders hack a hole in the notion of resilient Japanese domestic demand
Japan's machinery orders boosted by one-off transportation spike. Japanese PPI ticks higher on commodities. China's new home price rises should remain on the tepid side for now .
Japan's monetary and credit trends were looking better, but now stand to be damaged by... the virus scare. Virus hit still to come for Japanese machine tool orders? Korea's jobless rate is back to its pre-August one-off plunge.
M2 growth in Japan should now start to tick down. The rebound in machine tool orders in Japan continues to defy gravity. Poor jobs numbers leave the door ajar for a BoK rate cut.
The good news in today's March durable goods report is that a rebound in orders for Boeing aircraft means February's 3.0% drop in headline orders won't be repeated. The company reported orders for 69 aircraft in March, compared to just one in February.
Yesterday's industrial production report in Germany was much better than implied by the poor new orders data--see here--released earlier this week.
Demand in the German manufacturing sector stumbled at the end of Q4. Factory orders fell 0.7% month-to-month in December, but the details of the report were slightly more upbeat than the headline. The main hit came from a 2.5% fall in domestic orders, chiefly as a result of weakness in the intermediate goods sector.
Yesterday's survey data tell a story of resilient manufacturing in the Eurozone. The headline EZ PMI rose to 52.6 in September, from 51.7 in August, lifted by a rise in new orders to a three-month high.
Japan's machine tool orders remain nasty. Japan's M2 growth shows first signs of looming tax hike.
Core machine orders in Japan collapsed in April, as expected, falling by 12.0% month-on-month, worse than the minor 0.4% slip in March.
The RMB's run is slowing China's exit from PPI deflation. Pork prices are starting to cool, again, pulling down Chinese CPI inflation. M2 growth in Japan remains punchy, setting the stage for a Q3 bounce. Machine tool orders in Japan are finally turning the corner after a long-running slump. Like last year, don't read too much into the August surprise in Korea's jobs data.
The PBoC is standing firm for now, but adjustments will be needed; Japan's machinery orders are defying gravity; gravity always wins in the end
Japan's money growth reverts back after a brief uptick. Japan's wage headline improves, details deteriorate. Japan's machine tool orders should turn stomachs.
June moderation confirms May nadir in Chinese PPI deflation. Food price disinflation in China stalls in June. No signs of Japan's M2 growth spike tapering anytime soon. The surprise bounce in Japanese core machine orders was fairly narrow. Machine tool orders in Japan end Q2 on an encouraging note.
State of emergency destroyed Japanese overtime pay in April. M2 growth in Japan hasn't been this strong since the early 90s. No relief for Japanese tool orders in May, despite the phased withdrawal of the emergency declaration.
Japan's core machine orders spell further capex woes; Japan's trade data show some early virus hit, but worse is to come
Valuation effects boost China's June FX reserves. Japan's currency account surplus unlikely to fall further. Japan's core machine orders should shake policymakers' conviction in Capex resilience.
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.
New orders data increasingly suggest that German manufacturers all but shut their production lines at the start of the year.
Yesterday's manufacturing data in Germany followed the lead from Monday's relatively underwhelming new orders report; see here.
The tepid recovery in German manufacturing continued in at the start of Q4. Factory orders edged higher by 0.3% month-to-month in October, boosted by a 2.9% month-to-month increase in export orders, primarily for capital and intermediate goods in other EZ economies.
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.
Capex data by industry are available only on an annual basis, with a very long lag, so we can't directly observe the impact the collapse in the oil sector has had on total equipment spending. But we can make the simple observation that orders for non-defense capital goods were rising strongly and quite steadily-- allowing for the considerable noise in the data--from mid-2013 through mid-2014, before crashing by 9% between their September peak and the February low. It cannot be a coincidence that this followed a 55% plunge in oil prices.
Demand for German manufacturing goods slipped at the end of Q3. Yesterday's report showed that factory orders fell 0.6% month-to-month in September, constrained by weakness in domestic demand and falling export orders to other EZ economies.
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.
Yesterday's PMI data confirmed that the EZ manufacturing sector is in rude health. The manufacturing PMI in the euro area rose to a cyclical high of 57.4 in June, from 57.0 in May, slightly above the first estimate. New orders and output growth are robust, pushing work backlogs higher and helping to sustain employment growth.
Manufacturing orders in Germany recovered some ground in the middle of Q1, following the plunge at the beginning of the year. Factory orders rose 3.4% in February, pushing the year-over-year rate up to +4.6% from a revised 0.0% in January.
The hard numbers in Eurozone manufacturing continue to lag the sharp rise in the main surveys. Data yesterday showed that German factory orders rose 1.0% month-to-month in May, only partially rebounding from a downwardly revised 2.2% plunge in April.
Data yesterday showed that the recovery in German manufacturing picked up the pace midway through Q3. Factory orders jumped by 4.5% month-to-month in August, accelerating after a revised 3.3% gain in July.
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.
After two hefty month-to-month increases, durable goods orders ex-transportation now stand only 3.9% below their January pre-Covid peak.
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.
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.
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.
After three straight 1.3% month-to-month increases in core capital goods orders, we are becoming increasingly confident that the upturn in business investment signalled by the NFIB survey is now materializing.
Leave it to an economist to tell contradictory stories; German manufacturing orders, at the start of the year, rose at their fastest pace since 2014, but it doesn't mean anything.
CPI inflation in China is nearing a peak, with pork prices starting to stabilise. November's data confirm that PPI deflation in China has bottomed out. Japan's M2 growth looks exposed to a downward revision. Japan's machine tool orders refuse to turn.
China still is on track for mild CPI deflation by Q4, PPI deflation in China has bottomed out , Core machine orders in Japan tank in the wake of the state of emergency, Adverse base effects from last year's tax hike will delay Japan's exit from PPI deflation, Surprise spike in Korea's unemployment rate makes sense given the plunge in jobs created
Japan's machinery orders are set to stay weak. Japan's PPI deflation likely just troughed.
China's PPI back in deflation until fall. China's February CPI inflation was a battle between food and services. M2 growth in Japan was due a further uptick, given the perkier trends at the margin. Favourable base effects flattered Japanese machine tool orders in February.
Friday's industrial production data in Germany added to the manufacturing optimism following the sharp rise in new orders--see here--reported earlier in the week.
Friday's German new orders data were sizzling. Factory orders jumped 3.6% month-to-month in August, pushing the year-over-year rate up to a nine-month high of 7.8%, from an upwardly-revised 5.4% in July.
The decline in headline durable goods orders in May, reported yesterday, doesn't matter.
Core machine orders in Japan surprised to the upside in August, when the country's second wave of Covid-19 peaked.
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.
Yesterday's German factory orders report showed that manufacturing activity accelerated in August. New orders rose 1.0% month-to-month, after a 0.3% increase in July, pushing the year-over-year rate up to +2.1% from a revised -0.6%.
The alarming-looking decline in core capital goods orders since late 2014 has been substantially due, in our view, to the rollover in investment in the mining sector. But the 29% jump in the number of oil rigs in operation, since the mid-May low, makes it clear that the collapse is over.
We don't often write about the performance of individual companies, but we have to make an exception for Boeing, because it is big enough to matter at a macro level. Last year, civilian aircraft orders--dominated by Boeing--totalled $102B, equivalent to 0.6% of GDP.
Unless Boeing received a huge aircraft order on November 30, we can now be pretty sure that most of October's 4.6% leap in headline durable goods orders reversed last month. Through November 29, Boeing booked orders for 34 aircraft, compared to 85 in October. Moreover, the bulk of the orders were for relatively low value 737s, whereas the October numbers were boosted by a surge in orders for 787s, whose list price is about three times higher.
Orders for non-defense capital goods, excluding aircraft, have risen in six of the past seven months. In the fourth quarter, orders rose at a 4.7% annualized rate, in contrast to the 5.3% year-over-year plunge in the first half of the year.
Orders for core capital goods began to fall outright in September last year; we can't blame the severe winter for the 11.1% annualized decline in the fourth quarter of last year. Indeed, the drop in orders in the first quarter will be rather smaller than in the fourth, unless today's March report reveals a catastrophic collapse.
The rollover in core capital goods orders in recent months has been startling. In the three months to February, compared to the previous three months, orders for non-defense capital goods fell at a 7.6% annualized rate.
Two key reports today, on January consumer prices and durable goods orders, have the power to move markets substantially. We think both will undershoot market expectations, though we would be deeply reluctant to read too much into either report; both are distorted by temporary factors.
The durable goods numbers were among the first short-term indicators to warn clearly of the hit to manufacturing from the rollover in oil sector capex, which began last fall. The trend in core capital goods orders was rising strongly before oil firms began to cut back, with the year-over-year rate peaking at 11.9% in September. Leading capex indicators in the small business sector remained quite robust, but just nine months later, core capex orders were down 6.4% year-over-year, following annualized declines of more than 14% in both the fourth quarter of 2014 and the first quarter of this year.
Chief U.S. Economist Ian Shepherdson on U.S. Durable Goods Orders
Chief U.S. Economist Ian Shepherdson discussing Durable Goods Orders in May
Machine tool orders in Japan are still in the doldrums.
Chief U.K. economist Samuel Tombs comments on U.K. manufacturing
Chief U.K. Economist Samuel Tombs on U.K. Manufacturing
Manufacturers in the Eurozone are still suffering, but yesterday's final PMI data for April offered a few bright spots.
The Markit/CIPS manufacturing PMI shot up to a three-year high of 57.3 in April, from 54.2 in March, bringing an end to the run of downbeat news on the economy. The performance of the U.K. manufacturing sector, however, remains underwhelming, given the magnitude of sterling's depreciation.
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%.
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.
The most positive thing to say about the EZ manufacturing PMI at the moment is that it has stopped falling.
Polls can be wrong, but we have to assume that Joe Biden will beat Donald Trump in today's election to become America's 46th president. If we are right, the people of Europe will be satisfied.
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.
Yesterday's final manufacturing PMIs confirmed that the headline index in the euro area rebounded further last month.
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.
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 agreement between Presidents Trump and Xi at the G20 is a deferment of disaster rather than a fundamental rebuilding of the trading relationship between the U.S. and China.
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.
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.
Retail sales values in Japan plunged by 14.4% month-on-month in October, reversing September's 7.2% spike twice over.
Our analysis of the Q3 activity and GDP data in yesterday's Monitor strongly suggests that China's authorities will soon ready further stimulus.
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.
December's money and credit data support the MPC's decision last week to hold back from providing the economy with more stimulus.
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.
This week's economic reports have provided clear, and uplifting, evidence that EZ consumers came out swinging as lockdowns were lifted.
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.
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.
Yesterday's final manufacturing PMIs confirmed that all remained calm in the EZ industrial sector through February.
Don't write off the outlook for the construction sector purely on the basis of June's grim Markit/CIPS survey.
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.
Friday's advance Q4 growth numbers in the EZ were a bit of a dumpster fire.
Korean trade ended the year strongly, salvaging what was shaping up as a dull fourth quarter for the economy.
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.
Something of a debate appears to be underway in markets over the "correct" way to look at the coronavirus data.
The upside to manufacturing survey data in the Eurozone appears endless.
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.
The PBoC cut its seven-day reverse repo rate to 2.20%, from 2.40%, while making a token injection; the Bank only moves these rates when it injects funds.
A pair of closely-watched reports today will confirm that business and consumer confidence is tanking in the face of the coronavirus outbreak.
China's official PMIs for January, due out tomorrow, will give the first indications of how the economy started the year.
We were nervous ahead of the GDP numbers on Friday, wondering if our forecast of a 1.5 percentage point hit from foreign trade was too aggressive. In the event, though, the trade hit was a huge 1.7pp, so domestic demand rose at a 3.5% pace.
Yesterday's FOMC , announcing a unanimous vote for no change in the funds rate, is almost identical to December's.
Yesterday's final EZ manufacturing PMIs for July extended the run of gains since the nadir during lockdown.
It's a myth that the 10-ye ar decline in the unemployment rate has not driven up the pace of wage growth.
We learned yesterday that the patchy but widespread reopening of the economy is triggering the first wavelet of rehiring.
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.
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.
Markets see a strong possibility, though not a probability, that the BoJ will cut rates on Thursday.
The models which generate the ADP measure of private payrolls will benefit in May from the strength of the headline industrial production, business sales and jobless claims numbers.
Korea's main activity data for August showed that the economy clearly wobbled in the wake of the country's second wave of Covid-19, and the social distancing measures imposed in response to it.
Yesterday's advance CPI data in Germany suggest that EZ inflation is now rebounding slightly.
The upward trend in German inflation stalled temporarily in August, with an unchanged 0.4% year-over-year reading in August. A dip in core inflation likely offset a continued increase in energy price inflation. The detailed final report next month will give the full story, but state data suggest that the core rate was depressed by a dip in price increases of household appliances, restaurant services, as well as "other goods and services."
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.
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.
Yesterday's final EZ manufacturing PMIs for August provided little in the way of relief for the beleaguered industrial sector.
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.
The recovery in the Markit/CIPS manufacturing PMI to 53.1 in November, from 51.1 in October, propelled it well above the consensus, and the equivalent reading for the Eurozone, 51.8, for only the second time in the last 19 months.
The fundamentals underpinning our forecast of solid first half growth in consumers' spending remain robust.
January's Markit/CIPS manufacturing survey suggests that the outcome of the general election has brought manufacturers some momentary relief.
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.
The near-term performance for EZ manufacturing will be a tug-of-war between positive technical factors, and a still-poor fundamental outlook.
China's official manufacturing PMI for May, out tomorrow, will give the first indication of the coming hit from the resumption of its tariff war with the U.S.
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.
2019 is a year many in the construction sector would prefer to forget.
Japan is one of the countries most exposed to economic damage from the coronavirus.
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.
Japan's Q1 is coming more sharply into focus.
Implied volatility on the euro is now so low that we're compelled to write about it, mainly because we think the macroeconomic data are hinting where the euro goes next.
China's official PMIs were little changed in August, with the manufacturing gauge up trivially to 51.3, from 51.2 in July and the non-manufacturing gauge up to 54.2, from 54.0.
Japan's labour market is already tight, but last week's data suggest it is set to tighten further.
Today's ADP employment report for December ought to show private payrolls continue to rise at a very solid pace
Yesterday's barrage of French business sentiment data was mixed.
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 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.
The CBI's Industrial Trends Survey, for July and Q3, supplied encouraging evidence yesterday that the manufacturing upswing still has momentum.
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.
The economy's resilience in the first quarter of this year, in the midst of heightened Brexit uncertainty, can be attributed partly to a boost from no-deal Brexit precautionary stockpiling.
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.
Mark Carney's assertion that "now is not yet the time to raise rates" fell on deaf ears last week. Markets are pricing-in a 20% chance that the MPC will increase Bank Rate at the next meeting on August 3, up from 10% just after the MPC's meeting on June 15, when three members voted to hike rates.
The INSEE's manufacturing sentiment data in France are slightly confusing at the moment.
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.
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.
The headline EZ data added to the evidence of a weakening recovery while we were away.
It is becomingly increasingly clear that the trade war with China is hurting manufacturers in both countries.
The extent to which the Covid wave in the South and West--plus a few states in other regions--will constrain the recovery is unknowable at this point.
We didn't believe the first estimate of Q1 GDP growth, 0.7%, and we won't believe today's second estimate, either. The data are riddled with distortions, most notably the long-standing problem of residual seasonality, which depressed the number by about one percentage point.
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%.
Initial jobless claims have stopped falling.
The impending appointment of ex-Fed Chair Yellen as Treasury Secretary is to be welcomed--a safer pair of hands is hard to imagine--but it does not change our view that the next Covid relief bill will be modest if Republicans still control the Senate after the January 5 runoffs in Georgia. As Treasury Secretary, Dr. Yellen will have a powerful bully pulpit, alongside Fed Chair Powell to make the case for more fiscal action.
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.
News from AstraZeneca that its vaccine is 70% effective at preventing Covid-19 symptoms leaves leaked government plans for a rapid immunisation programme looking realistic.
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 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.
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 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%.
The mortgage market is continuing to hold up surprisingly well, given the calamitous political backdrop.
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.
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.
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.
If Japan's flash PMIs for March are a sign of things to come, then the government really should get moving on fiscal stimulus.
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.
The FOMC minutes confirmed that most FOMC members were not swayed by the weak-looking first quarter GDP numbers or the soft March core CPI. Both are considered likely to prove "transitory", and the underlying economic outlook is little changed from March.
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.
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.
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.
Korea is officially out of recession, with GDP rising by 1.9% quarter-on-quarter in Q3, following the 3.2% plunge in Q2.
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.
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.
Fed Chair Powell sounded a lot like Janet Yellen yesterday, at least in terms of substance.
Judging by the survey data, German business sentiment remained depressed at the start of the year.
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.
Two entirely separate factors point to significant upside risk to the first estimate of third quarter GDP growth, due today. First, we think it likely that farm inventories will not fall far enough to offset the unprecedented surge in exports of soybeans, which will add some 0.9 percentage points to headline GDP growth.
In the last few weeks markets have been treated to the news that euro area industrial production crashed towards the end of Q4, warning that GDP growth failed to rebound at the end of 2018 from an already weak Q3.
The third estimate of first quarter GDP growth, due today, will not be the final word on the subject. Indeed, there never will be a final word, because the numbers are revised indefinitely into the future.
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 Fed will do nothing to the funds rate or its balance sheet expansion program today.
Net foreign trade was a drag on GDP growth in the second quarter, subtracting 0.7 percentage points from the headline number.
Britain still has nothing to show for sterling's depreciation, even though nearly two years have passed since markets started to price-in Brexit risk, driving the currency lower.
The Fed will soon have to step in to try to put a firebreak in the stock market.
Friday's detailed GDP data in Germany confirm that the euro area's largest economy performed strongly in the second quarter.
The recovery in the composite PMI to 52.4 in January, from 49.3 in December, should convince a majority of MPC members to vote on Thursday to maintain Bank Rate at 0.75%.
We expect to learn today that the economy expanded at a 1.7% rate in the fourth quarter. At least, that's our forecast, based on incomplete data, and revisions over time could easily push growth significantly away from this estimate. The inherent unreliability of the GDP numbers, which can be revised forever--literally--explains why the Fed puts so much more emphasis on the labor market data, which are volatile month-to-month but more trustworthy over longer periods and subject to much smaller revisions.
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 closer we look at the startling surge in imports in the fourth quarter, the more convinced we become that it was due in large part to a burst of inventory replacement following the late summer hurricanes.
The tax plan released by the administration yesterday was so thoroughly leaked that it contained no real surprises. The border adjustment tax is dead -- not that we thought it would have passed the Senate in any event -- and the centerpiece is a proposed cut in the corporate income tax rate to 15% from 35%.
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.
With just five days of July remaining, it seems likely that the trends in most of the key near-real-time indicators will end the month close to the levels seen at the end of June.
India's government imposed a three-week nationwide lockdown on March 25 to combat the increasingly rapid spread of Covid-19.
Whatever number the BEA publishes this morning for first quarter GDP growth -- we expect zero -- you probably should add about one percentage point to correct for the persistent seasonal adjustment problem which has plagued the data for many years. Reported first quarter growth has been weaker than the average for the preceding three quarters in 21 of the 31 years since 1985 -- and in eight of the past 10 years.
Net foreign trade made a positive contribution of 0.2 percentage points to GDP growth in the second quarter, matching the Q1 performance.
The Fed is on course to hike again in December, with 12 of the 16 FOMC forecasters expecting rates to end the year 25bp higher than the current 2-to-21⁄4%; back in June, just eight expected four or more hikes for the year.
Japan and Korea dealt with their second waves of Covid-19 in the third quarter in completely different ways.
Friday's advance Eurozone PMI reports capped a fine quarter for the survey. The composite PMI jumped to a 80-month high of 56.7 in March, from 56.1 in February, rising to a cyclical high over Q1 as a whole.
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.
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.
The September PMI surveys in Mexico continue to bolster our argument for a subpar recovery in the second half of the year.
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.
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.
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.
Last week we reported on the V-shaped recovery in German retail sales--see here--as lockdowns ended mid- way through Q2.
Yesterday's economic reports in the Eurozone were solid across the board.
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.
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%.
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've been hearing a good deal about the slowdown in the rate of growth of consumer credit in recent months, and with the April data due for release today, it makes sense now to reiterate our view that the recent numbers are no cause for alarm.
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.
The Monetary Policy Committee of the Reserve Bank of India voted unanimously on Friday to cut interest rates at a fifth straight meeting, as expected.
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 economic reports in the Eurozone were mostly positive.
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.
Korea's final GDP report for Q4 was little changed, in the end.
Demand for German manufacturing goods remained subdued at the end of Q4.
As we go to press, equities in the Eurozone are having a bad day following the collapse in U.S. and Asian equities earlier.
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%.
Recently released data for Q3 in Brazil have surprised to the upside, but the outlook is darkening for late Q4 and early next year.
Judging by interactions with readers in the past few weeks, fiscal policy is one of the most important topics for EZ investors as we move into the final stretch of the year.
October's Markit/CIPS services survey suggests that the PM's new Brexit deal has had a lukewarm reception from firms.
Efforts to contain the coronavirus outbreak severely dented industrial activity in Brazil.
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.
Manufacturing in Germany maintained momentum at the end of Q3.
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.
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.
We raised our forecast for today's January payroll number after the ADP report, to 200K from 160K.
The MPC struck a less dovish tone than markets had anticipated yesterday.
The final Monitor before our summer break is characterized by great uncertainty.
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.
Yesterday's first batch of Q3 survey data in the Eurozone suggest that economic growth eased further, albeit it slightly, at the start of the quarter.
The changing face of India's post-lockdown economic recovery indicates that the initial bounce since the June reopening could soon stall.
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.
The first round of trade talks between the U.S.and China kicked off in Beijing on Monday, marking the first face-to-face meeting between the two sides since Presidents Donald Trump and Xi Jinping struck a "truce" in December.
China's trade surplus jumped to a record high in May, defying expectations for a fall by spiking to $69.2B.
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 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 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.
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.
The ECB made no major policy changes yesterday, but tweaked its communication. The key refinancing and deposit rates were kept at 0.00% and -0.4%, respectively, and the pace of QE was maintained at €30B per month.
Industrial production data in Germany continued to defy the signal of doom and gloom from leading indicators.
Japan's tertiary index remains below trend despite looming tax hike
In one line: The recovery from the Q4 stock market hit continues apace.
This will be as good as it gets for Japanese PPI
China's export data for April were a mixed bag, to say the least.
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.
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.
China's export data shows little impact from trade tensions so far.
China's trade numbers for July surprised to the upside, with both exports and imports faring better than consensus forecasts in year-over-year terms.
The 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.
Odds-on, the consensus forecast for May's GDP report, released on Wednesday, will miss the mark.
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.
Mortgage applications have risen, net, over the past couple of months, despite the 70bp surge in 30-year mortgage rates since the election. Indeed, we'd argue that the increase in applications is a result of the spike in rates, because it likely scared would-be homebuyers, triggering a wave of demand from people seeking to lock-in rates, fearing further increases.
Yesterday's manufacturing data in German threw off a nasty surprise.
Last week's manufacturing data in Germany left investors with more questions than answers.
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.
Demand in German manufacturing rebounded slightly at the end of Q1, though the overall picture for the sector remains grim.
Chinese exporters ostensibly enjoyed another strong month in August, with shipments rising by 9.5% year-over-year, marking the biggest gain in about 18 months.
Friday's industrial production report in Germany capped a miserable week for economic data in the Eurozone's largest economy.
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.
Manufacturers in Germany endured another miserable quarter in Q3.
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.
Mr. Draghi was in a slightly more bullish mood yesterday, noting that the significant easing of financial conditions in recent months and improving sentiment show that monetary policy "has worked". Economic risks are tilted to the downside, according to the president, but they have also "diminished".
We think today's February payroll number will be reported at about 140K, undershooting the 175K consensus.
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.
Our composite index of employment indicators, based on survey data and the official JOLTS report, looks ahead about three months.
The Budget on March 11 will be the first time that the new government's ambition and bluster collide with reality.
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.
Yesterday's data provided further evidence of the rising costs of supporting the EZ economy through the Covid-19 shock.
The advance indicators of July payrolls are wildly contradictory, so you should be prepared for anything from a consensus-busting jump to a renewed outright drop, in both Friday's official numbers and today's ADP report.
The 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.
Yesterday's retail sales report indicates that preliminary Eurozone Q4 GDP data next week are likely to paint an upbeat picture of the economy. Sales rose 0.3% month-to-month in December, equivalent to 2.8% year-over-year. An upward revision to November data means that turnover increased 0.8% quarter-on- quarter, the best since the first quarter of 2005.
Our judgement that April was the low point for economic activity was challenged yesterday by the publication of results of the fifth wave of the Business Impact of COVID-19 Survey, conducted by the ONS between May 4 and 17.
The comforting 183K increase in February private payrolls reported by ADP yesterday likely overstates tomorrow's official number.
Wednesday's industrial production report in Brazil was terrible, despite overshooting market expectations.
Korea's economic data for June largely were poor, and are likely to make more BoK board members anxious ,ahead of their meeting on July 18.
The 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.
Mr Abe's Liberal Democratic Party took a drubbing at the polls in Tokyo's Assembly election over the weekend. The consequences for fiscal spending probably are minimal but the vote strengthens the case for increased emphasis on the structural reform "arrow" and less focus on monetary policy.
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.
The relative strength of the investor and consumer confidence reports for March, released this week, signal a better outlook for the Mexican economy.
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 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.
Markets were left somewhat disappointed yesterday by the G7 statement that central banks and finance ministers stand ready "to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks."
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%.
India's consensus-beating GDP report for the first quarter wasn't much to write home about.
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.
Equity markets are correctly concluding that the outlook for U.K.-listed manufacturers is brighter than for most other firms.
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.
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.
We have been telling an upbeat story about the EZ economy in recent Monitors, emphasizing solid services and consumers' spending data.
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.
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.
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.
Two approaches to forecasting payrolls have been the most useful in recent months, and both point to August payrolls rising by less than the 1,350K consensus; our forecast is 750K.
The Fed's unscheduled 50bp cut on Tuesday opens up some space for Asian central banks to follow suit.
It will take a while for the economic data in the euro area fully to reflect the Covid-19 shock, but the incoming numbers paint an increasingly clear picture of an improving economy going into the outbreak.
The jump in the Caixin services PMI in the past two months looks erratic, with holiday effects playing a role, though there could be more going on here.
Real M1 growth is slowing, and financial conditions are beginning to tighten in the Eurozone, but shortleading indicators continue to signal firm momentum in the economy.
The decision by the ECB to remove the waiver for including Greek government bonds in standard refinancing operations changes little in the short run, as the banking system in Greece still has full access to the ELA. It does put additional pressure on Syriza, though, to abandon the position that it will exit the bailout on February the 28th, effectively pushing the economy into the abyss.
The post-election run of upbeat business surveys was extended yesterday, with the release of the final Markit/CIPS services PMI for January.
Productivity likely rose by 1.7% last year, the best performance since 2010.
Yesterday's final PMI data in the Eurozone were better than we expected.
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.
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%.
In today's Monitor, we'll let the economy be, and focus instead on what are fast becoming the two defining political issues for the EU and its new Commission, namely migration and climate change.
The rapid escalation of Covid-19 cases in Korea in recent weeks has broadened the likely damage to the economy this quarter.
On the face of it, markets' newfound view that the MPC's next move is more likely to be a rate cut than a hike was supported by May's Markit/CIPS PMIs.
The private sector in China has finally joined the party, boosting the durability of the economic recovery.
Demand in German manufacturing rebounded strongly midway through the second quarter.
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.
Yesterday's detailed Q3 growth data in the Eurozone offered no surprises in terms of the headline.
October payrolls were stronger than we expected, rising 128K, despite a 46K hit from the GM strike.
Yesterday's final manufacturing PMIs for October were grim, but they told investors nothing they don't already know.
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.
The simultaneous decline in both ISM indexes was a key factor driving markets to anticipate last week's Fed easing.
Services will bear the brunt of the Covid-19 shock in the euro area, but manufacturing is not far behind.
We're very comfortable with the idea that the coronavirus is a broad deflationary shock to the U.S. economy.
Korea's manufacturing PMI fell for a fourth straight month in April, dropping to 41.6, which is the lowest reading since January 2009.
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.
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.
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.
China's PMIs point to softening activity in Q3. The Caixin services PMI fell to 52.8 in July, from 53.9 in June.
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.
Headline GDP growth in Korea was revised down, to a seasonally-adjusted 0.6% quarter-on-quarter in Q2, from 0.7% in the preliminary report.
Consumers' spending in the Eurozone slowed in the second half of 2017, providing a favourable base for growth in H1 2018.
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 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.
Japan's GDP likely dropped by 1.1% quarter- on-quarter in the first quarter, even from the favourable Q4 base, when it fell by 1.8%.
China's main activity data for October disappointed across the board, strengthening our conviction that the PBoC probably isn't quite done with easing this year.
China's trade surplus plunged to $46.4B in June, from $62.9B in May, largely in line with our below- consensus forecast.
Brazil's recession carried over into the middle of Q2, but with diminishing intensity in some economic sectors.
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.
Manufacturers in the Eurozone stood tall mid-way through Q2, despite still-subdued leading indicators.
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.
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 September core CPI was held down by prescription drug prices, which fell by 0.6%, and vehicle prices, which fell by 0.4%.
Japan's tertiary index edged up 0.1% month-on-month in July, after the 0.1% decrease in June.
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.
The House passage of a stimulus bill last Friday, seeking to ameliorate some of the damage done by the coronavirus outbreak, will not be nearly enough.
The BoJ is likely to be thankful next week for a relatively benign environment in which to conduct its monetary policy meeting.
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 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.
The effects of Covid-19--both negative and positive--on Korea's labour market certainly were felt in February.
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.
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.
China's GDP report for the fourth quarter, due on Friday, is likely to show that economic growth has stabilised, on the surface.
Today's industrial production report in the Eurozone will be poor.
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.
We argued a couple of weeks ago that the stock market could suffer a relapse, on the grounds that valuations hadn't fallen far enough from their peak to reflect the extent of the hit to the economy; that hopes for an early re-opening were likely to prove forlorn; and that investors were likely to be spooked by the incoming coronavirus data.
Data on Friday showed that the upturn in French manufacturing petered out at the end of Q1.
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.
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.
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.
Japan's Q2 GDP was driven by the twin pillars of private consumption and capex.
We have been quite bullish on U.S. economic growth this year.
Prime Minister Shinzo Abe last Tuesday finally declared a state of emergency for a month in parts of Japan, after weeks of dithering.
We're braced for disappointing jobless claims numbers today.
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.
Japanese policymakers have a wary eye on the weakness in industrial production and exports.
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.
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.
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.
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.
Investors have welcomed the flurry of encouraging opinion polls for the Conservatives that were published over the weekend, with cable rising nearly to $1.30 on Monday, a level last seen on a sustained basis six months ago.
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.
The headline employment numbers masked an otherwise sub-par December labour market report.
India's industrial production data last week are the last set of key economic indicators for the fourth quarter, before next week's Q4 GDP report.
Japan's trade surplus is set to fall in coming months, as domestic demand remains robust, while recent oil price increases will be a drag, lifting imports.
The BoJ is likely to stay on hold this week for all its main policy settings.
The labour market remains healthy enough to persuade the MPC to keep its powder dry over the coming months.
On the face of it, December's flash Markit/CIPS PMIs warrant the MPC cutting Bank Rate at its meeting on Thursday.
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.
After strong real GDP growth in Q1, China commentators called the peak, claiming that growth would slow for the rest of 2017.
The November industrial production numbers will be dominated by the rebound in auto production following the end of the GM strike.
Your correspondent is headed to the beach for the next couple of weeks, with publication resuming on Tuesday, September 4.
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.
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.
The Monetary Policy Board of the Bank of Korea voted yesterday to lower its policy base rate to 1.25%, from 1.50%.
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.
Japan's economic data have been very volatile in the last 18 months.
Here's something we didn't expect to write: The control measure of retail sales in May was slightly higher than in February.
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.
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.
Quarter-on-quarter GDP growth last year was buffeted by the accumulation, and subsequent depletion, of inventories, around the two Brexit deadlines in March and October.
We think Japanese monetary policy easing essentially is tapped out, both theoretically and by political constraints.
Friday's data provided the first bit of evidence that manufacturing in the Eurozone is headed for a slowdown in Q2, partly reversing the strength in Q1.
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.
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
The early Q4 hard data in Germany recovered a bit of ground yesterday.
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.
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%.
China's November money and credit data were a little less grim, with only M2 growth slipping, due to unfavourable base effects.
The combination of sluggish GDP growth in October and news that the Prime Minister will attempt to renegotiate the terms of the Brexit backstop, most likely pushing back the key vote in parliament until January, has extinguished any lingering chance that the MPC might be in a position to raise Bank Rate at its February meeting.
Markets 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%.
The ECB made no changes to its policy stance yesterday.
The economy has remained remarkably resilient in the face of intense political uncertainty.
Japan's GDP growth was revised up, to 0.4% quarter-on-quarter in Q3, from 0.1% in the preliminary reading.
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.
China's economy looks to have shrugged off the supposed "second wave" of Covid-19, sparked by a cluster in Beijing's largest wholesale market for fruit and veg, looking at June's PMIs.
Japan's main activity data for April were massively disappointing, presaging the sharper GDP contraction we expect in Q2, compared with Q1.
China's manufacturing PMIs have softened in Q4. Indeed, we think the indices understate the slowdown in real GDP growth in Q4, as anti-pollution curbs were implemented. More positively, though, real GDP growth should rebound in Q1 as these measures are loosened.
China's official PMIs for March surprised well to the upside, cheering markets across Asia.
Today's September ISM manufacturing survey is one of the most keenly-awaited for some time. Was the unexpected plunge in August a one-time fluke--perhaps due to sampling error, or a temporary reaction to the Gulf Coast floods, or Brexit--or was it evidence of a more sustained downshift, possibly triggered by political uncertainty?
The 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.
A quick rebound in growth, after the slowdown to a reported 2.6% in the fourth quarter, is unlikely.
The momentum in Chinese manufacturing waned in August, with the official manufacturing PMI slipping marginally to 51.0, from 51.1 in July,
The worst of the pandemic seems to be over in many countries in LatAm, allowing a gradual reopening of their economies.
China's manufacturers ended the third quarter on a fairly strong note.
This week's manufacturing, construction and services PMIs for October will demonstrate how well the economy is coping with the prospect of higher interest rates.
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.
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.
The clear threat to demand posed by the coronavirus and China's efforts at containment have sent a shock wave through commodities markets.
Central bankers globally are full of market- appeasing but conditional statements.
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.
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.
The latest GDP data confirm that the economy ended last year on a very weak note.
China concludes its annual Central Economic Work Conference today, where the economic targets and the agenda for next year are set.
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.
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.
This week brings a wave of data on all aspects of the economy, bar housing. By the end o f the week, we'll have a better idea of the shape of consumers' spending, the industrial sector and the inflation picture, and estimates of third quarter GDP growth will start to mean something.
A sluggish GDP headline, a further increase in inflation, and poor German manufacturing data were the primary euro area highlights in our absence.
It's tempting to conclude that the pick-up in year over-year growth in average weekly wages, excluding bonuses, to a three-year high of 3.1% in July, from 2.8% in June, signals that employees' bargaining power has strengthened and that a sustained wage recovery now is under way.
Long-standing readers will know that we have been downbeat on the potential for net external trade to boost the economy following sterling's 2016 depreciation.
Friday's sole economic report added to the evidence that the rebound in EZ manufacturing petered out midway through Q3, even if we still think the German numbers--see here--will rebound soon.
The escalation in the U.S.-Chinese trade wars has understandably pushed EZ economic data firmly into the background while we have been resting on the beach.
Manufacturing in France rebounded only modestly at the start of Q3, despite favourable base effects.
France is solidifying its position as one of the Eurozone's best-performing economies.
Collapsing oil prices add fresh deflationary pressure on China.
Yesterday's manufacturing data in France were in stark contrast to last week's upbeat German numbers.
Economic data in the euro area are still slipping and sliding.
If Fed Chair Yellen's objective yesterday was to deliver studied ambiguity in her Testimony--and we believe it was--she succeeded. She offered plenty to both sides of the rate debate. For the hawks, she noted that unemployment is now "...in line with the median of FOMC participants' most recent estimates of its longer-run normal level", and that inflation is still expected to return to the 2% target, "...once oil and import prices stop falling".
China's unadjusted trade surplus collapsed in February, to just $4.1B, from $39.2B in January.
Friday's manufacturing data in the Eurozone were mixed.
Business investment in Japan took a nasty hit in the third quarter.
The latest GDP data continue to show that the economy is holding up well, despite the Brexit saga.
Yesterday's economic reports in the Eurozone were ugly.
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.
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.
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.
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.
Yesterday's announcement that the administration plans to imposes tariffs worth about $60B per year -- thatìs 0.3% of GDP -- on an array of imports of consumer goods from China is a serious escalation.
Japanese policymakers will have been scouring yesterday's data for signs that the trade situation is improving.
We are intrigued by the idea that the rollover in oil firms' capital spending on equipment might already be over, even as spending on new well-drilling--captured by the still-falling weekly operating rigs data--continues to decline. The evidence to suggest equipment spending has fallen far enough is straightforward.
Japan's flash Jibun Bank PMIs for July showed continued improvement, but only just.
As we reach our deadline--4pm eastern time--media reports indicate that a debt ceiling agreement is close.
Silly season in Japanese inflation is pretty much over.
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.
The Chancellor's alterations to the Job Support Scheme--JSS--yesterday were substantial enough to reduce meaningfully the scale of job losses ahead.
The 810K drop in jobless claims in the week ended April 18 was a bit less than we expected, but the downward trend is clear; claims have fallen by some 2.4M from their peak, in the final week of March.
When we're thinking about the prospects for the holiday shopping season, we usually focus on two questions.
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.
As we write, the Commons appears to be on the verge of voting for the Withdrawal Agreement Bill--WAB--at its second reading but then voting against the government's "Programme Motion", which sets out a very tight timetable for its passage through parliament, in a bid to meet the October 31 deadline and to minimise parliamentary scrutiny.
Further evidence that the general election has transformed business confidence emerged yesterday, in the form of January's CBI Industrial Trends survey.
The Conference Board's index of leading economic indicators appears to signal that the U.S. economy is plunging headlong into recession.
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.
The most striking feature of the Fed's new forecasts is the projected overshoot in core PCE inflation at end-2019 and end-2020, which fits our definition of "persistent".
Yesterday's data presented Eurozone investors with an unfamiliar sight; a big downside surprise in the survey data.
This is the final U.S. Economic Monitor of 2017, a year which has seen the economy strengthen, the labor market tighten substantially, and the Fed raise rates three times, with zero deleterious effect on growth.
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.
We are hearing a great deal about the threat of a second wave of Covid-19 infections, caused either by the reopening of the economy, or the arrival of cooler weather in the fall, or both.
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.
Japan's flash PMI numbers for August were a mixed bag.
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.
Sterling briefly touched $1.30 yesterday, in response to signs that a very small majority in the Commons stands ready to vote for an unamended version of the Withdrawal Agreement Bill--WAB-- on Tuesday.
After the strong Philly Fed survey was released last week, we argued that the regional economy likely was outperforming because of its relatively low dependence on exports, making it less vulnerable to the trade war.
The public finances are in better shape than October's figures suggest in isolation. Public sector net borrowing excluding public sector banks--PSNB ex.--leapt to £11.2B, from £8.9B a year earlier.
Korean GDP contracted by 1.4% quarter-on- quarter in Q1, erasing the 1.3% jump at the end of last year. The pullback was sharper than we expected, with the cliff-edge drop in private consumption, in particular, catching us by surprise.
The initial "official estimate" of the French presidential election--released 20.00 CET--suggest that the runoff will be between the centre-right Emmanuel Macron and Front National's Marine Le Pen. This is consistent with opinion polls. The average of five early estimates also suggests that Mr. Macron won the vote with 23.1% of the vote against Mrs. Le Pen's 22.5%.
Yesterday's advance EZ PMI data for September conformed to our expectations.
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.
Business surveys released this week suggest the economic recovery decelerated in early September.
Yesterday's PMI data were an open goal for those with a bearish outlook on the euro area economy.
The PM now is at a fork in the road and will have to decide in the coming days whether to risk all and seek a general election, or restart the process of trying to get the Withdrawal Agreement Bill--WAB--through parliament.
Fed Chair Yellen speaks at Jackson Hole today, at 10:00 Eastern. Her topic is billed as "financial stability", but that does not necessarily preclude remarks on the outlook for the economy and policy.
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.
The Monetary Policy Board of the Bank of Korea yesterday left its benchmark base rate unchanged, at 1.75%, at its first meeting of the year.
The ECB made no major policy changes yesterday.
Today's advance inventory and international trade data for December could change our Q4 GDP forecast significantly.
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.
Last week's data added yet more weight to our view that manufacturing is in deep trouble, and that the bottom has not yet been reached.
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.
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.
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 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.
We are currently operating with a very simply rule-of- thumb for interpreting the PMIs.
Eurozone investors will be drawing a sigh of relief after yesterday's PMI data. The alarming plunge in February and March made way for stabilisation, with the composite PMI in the euro area unchanged at 55.2 in April.
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.
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.
The public finances are in better health than appeared to be the case a few months ago.
The Jibun Bank services PMI for Japan saw a heftier increase in June, to 42.3, from 26.5 in May, signalling a substantial easing of the industry's downturn.
This is the final Monitor before we head out for our spring break, so we have added a page in order to make room to preview the employment report due next Friday, April 4. We expect a solid but unspectacular 175K increase in payrolls, slowing from February's unsustainable 242K, but still robust.
Both business surveys and unconventional activity indicators suggest that the recovery from the Covid-19 shock has sped up in June, after a shaky start in May.
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.
Korea's GDP report for the second quarter was a huge let-down.
The government now has a 50:50 chance of getting the Withdrawal Agreement Bill--WAB--through parliament in the coming weeks, despite Letwin's successful amendment and the extension request.
The 17-point leap in the Richmond Fed index for October, reported yesterday, was startlingly large.
We'll cover Friday's barrage of EZ economic data later in this Monitor, but first things first. We regret to inform readers that the ECB is behind the curve. Last week, Ms. Lagarde downplayed the idea that the central bank will respond to the shock from the Covid-19 outbreak.
We expect the BoK to hike this month, believing that it's necessary to curtail household debt growth now, in order to prevent a sharper economic slowdown as the Fed hiking cycle continues, China slows, and trade risks unfold.
The 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.
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.
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.
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.
Korea's trade data have been extremely volatile over the past two months, thanks to distortions caused by last year's odd holiday calendar.
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.
Judging by the PMIs, the euro area's industrial sector is now stretching its legs.
Renewed stockpiling ahead of the October Brexit deadline finally appears to be providing some near-term support to manufacturing output.
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.
The Fed won't raise rates today, or substantively change the wording of the post-meeting statement. In September, the FOMC said that "The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives."
The 253K increase in May private payrolls reported by ADP yesterday was some a bit stronger than our 225K forecast. Plugging the difference between these numbers into our payroll model generates our 210K forecast for today's official number.
The recovery in the industrial sector from Covid-19 finally commenced in earnest in June, after May's stalled start.
Expectations for a March rate hike have dipped since Fed Vice-Chair Clarida's CNBC interview last Friday.
With campaigning for the general election intensifying last week, it was unsurprising that October's money and credit release from the Bank of England received virtually no media or market attention.
The past two days have seen a slew of data that should keep the hawks in the Bank of Korea at bay during the Board's meeting at the end of this month.
The Caixin manufacturing PMI rebounded to 51.1 in July from 50.4 in June, soundly beating the consensus for no change. The PMIs are seasonally adjusted but the data are much less volatile on our adjustment model. On our adjustment, the headline has averaged 50.9 so far this year, modestly higher than in the second half of last year.
We were happy to see the small increase in the March ISM manufacturing index yesterday, following better news from China's PMIs, but none of these reports constitute definitive evidence that the manufacturing slowdown is over.
The key detail in Friday's barrage of economic data was the above-consensus increase in EZ inflation.
Holiday effects are tedious and you are going to hear us talking about them until the March data come through.
Most of the data were consistent with the idea that fourth quarter growth will be a two-part story, with real strength in domestic final demand partly offset by substantial drags from net foreign trade and inventories.
We keep hearing that the auto market is struggling, but that idea is not supported by the recent sales numbers.
China's official manufacturing PMI was unchanged at 50.2 in December, marking a weak end to the year. But it could have been worse; we had been worried that the return to above-50 territory in November had been boosted by temporary factors. December's print allays some of those fears.
The manufacturing sector appears to have started the new year on a weaker note. The Markit/CIPS manufacturing PMI dropped to 55.3 in January--its lowest level since June--from 56.2 in December.
We struggle to find much wrong with the near-term outlook for Eurozone manufacturing. The headline PMI fell marginally to 59.6 in January, from 60.6 in December, but it continues to signal robust growth at the start of the year.
China's September PMIs, most of which were released over the weekend, mark out a clear downtrend in activity since late last year.
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 rate of increase of confirmed new U.S. Covid cases per day is slowing, quite quickly.
Mr. Draghi's speech to the European Banking Congress on Friday--see here--was a timely reminder to markets that the ECB is in no hurry to make any changes to its policy setting.
Leading indicators are giving conflicting signals regarding the outlook for core goods CPI inflation.
Yesterday's headline economic data in the euro area were solid across the board, though the details were mixed.
The initial pace of the Fed's balance sheet run-off, which we expect to start in October, will be very low. At first, the balance sheet will shrink by only $10B per month, split between $6B Treasuries and $4B mortgages.
The recent jobless claims numbers have been spectacularly good, with the absolute level dropping unexpectedly in the past two weeks to a 43-year low. The four-week moving average has dropped by a hefty 14K since late August.
Mr. Trump fired the shot everyone was expecting this week with a 10% tariff on $200B-worth of Chinese goods, and a pledge to lift the rate to 25% on January 1.
Borrowing by local authorities from the Public Works Loan Board, used to finance capital projects-- and arguably dubious commercial property acquisitions--has surged this year.
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 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.
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.
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.
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.
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.
Halfway through the third quarter, we have no objection to the idea that GDP growth likely will exceed 2% for the third straight quarter.
Japan in July recorded its first trade surplus in three months, as exports continued to show more signs of life.
Inflation in the Eurozone eased at the start of Q3.
The key market risk in the August employment report is the hourly earnings number. The consensus forecast is for a 0.2% month-to-month increase, in line with the underlying trend, but the balance of risks is firmly to the downside.
Wednesday's State Council meeting implies that the authorities are starting to take more serious coordinated fiscal measures to counter the virus threat to the labour market and to banks.
The run of weak retail sales figures continued yesterday, with the release of November's official data.
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.
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.
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.
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 was a busy day in the EZ
Industrial companies in the Eurozone are still struggling with low growth, but the outlook is stabilising following the near-recession late last year. The Eurozone manufacturing PMI was unchanged at 51.0 in February, trivially lower than the initial estimate of 51.1.
The November FOMC meeting was the definitive holding operation; rates were never likely to rise just six days before a very contentious presidential election, especially with the committee split on the degree of inflation risk facing the economy.
The forward-looking indices of China's Caixin manufacturing PMI for April attracted more attention than the headline, which was a bit of a non-event; it rose trivially 51.1, from 51.0 in March.
The solid 0.2% increase in January's core CPI, coupled with the small upward revision to December, ought to offer a degree of comfort to anyone worried about European-style deflation pressures in the U.S.
The seasonal adjustment problems which tend to drive up the national ISM manufacturing survey in late spring and summer are more or less absent from the Chicago PMI, which will be released today. As far as we can tell, the biggest short-term influence on the Chicago number is variations in the order flow for Boeing aircraft; the company moved its headquarters to the city from Seattle in 2001.
In one line: Stabilisation in the m/m data, but trend still points to slower output growth.
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.
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.
After a 15 year hiatus, Argentina returned to the global credit markets yesterday with the sale of a USD16.5B sovereign bonds, the largest ever dollar offering by a developing country. Argentina boosted the size of its offering to USD16.5B from USD15B after attracting orders worth USD70B. The country sold four tranches: 10-year debt at 7.5%, three- and five year yielding 6.25% and 6.875%, respectively, and 30-year paper at 8.0%.
We're still no nearer to a definitive answer to the question of what went wrong in the manufacturing sector over the summer, when we expected to see things improving on the back of the rebound in activity in the mining sector, rising export orders and an end to the domestic inventory correction. Instead, the August surveys dropped, and September reports so far are, if anything, a bit worse.
Judging by the media coverage of the Europe's "migrant crisis", you would think that the number of North African asylum seekers arriving at EU's southern borders is soaring.
The Caixin PMI likely remained stable or even strengthened in January. The December jump was driven by the forward-looking components, with both the new export orders and total new orders indices picking up.
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.
The newly-revised data on capital goods orders, released on Friday, support our view that sustained strength in business capex remains a good bet for this year.
At the headline level, much of the recent U.S. macro dataflow has been disappointing. January retail sales, industrial production, housing starts, and both ISM surveys--manufacturing and non-manufacturing-- undershot consensus, following a sharp and unexpected drop in December durable goods orders.
Yesterday's industrial production numbers in Germany were similar to Friday's confusing new orders data.
The headline 0.9% month-to-month increase in German factory orders--a 1.9% increase year-over-year-- is not enough to change the picture of an overall sluggish first quarter.
Yesterday's German factory orders data suggest that manufacturing remained weak in the beginning of Q1. New orders fell 0.1% month-to-month in January, though the year-over-year rate rose to 1.1% from a revised -2.2% in December. The small monthly decline was due to a fall in domestic orders; this offset an increase in export orders to other Eurozone economies.
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 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.
China's official manufacturing PMI was little changed in January, ticking up to 49.5, from 49.4 in December, with the output and new orders sub-indices largely stable.
Chief U.S. Economist Ian Shepherdson discussing Durable Goods Orders in May
The first major data release of 2016 showed manufacturing activity slipping a bit further at the end of last year, but we doubt the underlying trend in the ISM manufacturing index will decline much more. Anything can happen in any given month, especially in data where the seasonal adjustments are so wayward, but the key new orders and production indexes both rose in January; almost all the decline in the headline index was due to a drop in the lagging employment index.
Yesterday's final EZ PMIs imply that growth in manufacturing slowed marginally in August. The PMI fell to 51.7, from 52.0 in July, trivially below the initial estimate, 51.8. Output and new orders growth declined, pushing down the pace of new job growth. But we think the hard data for industrial production in Q3 as a whole will be decent.
BoJ programmes are propping up M2 growth; Japan's machine tool orders tumble will get worse before better
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.
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.
Friday's industrial production data capped another dreadful week for German manufacturing. Output fell 1.1% month-to-month in September, pushing the year-over-year rate lower to 0.2%, from a revised 2.9% in August. The 0.6% upward revision of the previous month's data makes the data slightly less awful than the headline, but the details showed weakness across all core sectors. The underlying trend in production is stable at about 1.2% year-over-year, but downbeat new orders suggest it will weaken in the fourth quarter.
China's exporters fulfil old orders; new orders have plunged; Caixin survey underlines that smaller firms are still sputtering; An unsurprisingly modest start for "unlimited QE" in Japan; Expect much more trade damage to Korea's current account surplus in April
In one line: Better, but the balance between new orders and inventories isn't pretty.
Eurozone manufacturing is showing signs of stabilisation. Final PMI data showed the headline gauge falling trivially to 52.4 in July from 52.5 in June, slightly above the initial estimate of 52.2. New orders slowed, though, with companies reporting weakness in export business amid firm domestic demand.
In one line: Orders surging but employment lagging far behind.
In one line: Better, but the balance between new orders and inventories isn't pretty.
New orders data released yesterday for Germany confirmed that weakness in the manufacturing sector remains a key challenge for the economy. Factory orders fell 2.4% month-on-month in November, equivalent to a 0.4% fall year-over-year.
July's punchy orders suggest Japan's capex slump could soon stabilise.
German manufacturing data continues to offer a sobering counterbalance to strong services and consumers' spending data. New orders plunged 1.7% month-to-month in September, well below the consensus, pushing the year-over-year rate down to a 1.0% fall from a revised 1.7% increase in August. These data are very volatile, and revisions probably will lift the final number slightly next month, but the evidence points to clear risks of a further decline in the underlying trend of production.
German factory orders probably bounced a modest 0.3% month-to-month in February, equivalent to a 0.5% decline year-over-year. We expect private investment growth to have picked up in the first quarter, but leading indicators for the industrial sector in Germany are sending conflicting signals.
The combination of upbeat survey data and solid consumer spending numbers indicate that the German economy is in good shape. But manufacturing data continue to disappoint; factory orders fell 0.9% month-to-month in February, equivalent to a 1.3% decline year-over-year.
German factory orders struggled in the second quarter. New orders were unchanged month-to-month in May, a poor headline following the revised 1.9% plunge in April. The year-over-year rate rose to -0.2%, from a revised -0.4% in April. The month-to-month rate was depressed by a big fall in domestic orders, which offset a rise in export orders.
German manufacturing data are all over the place at the moment. Earlier this week, data showed that new orders jumped toward the end of 2016, but yesterday's industrial production report was a shocker. Output plunged 3.0% month-to-month in December, pushing the year-over-year rate down to -0.7% from a revised +2.3% in November.
The fall in the services PMI to 53.8 in May, from 55.8 in April, is a setback for hopes that the slowdown in GDP growth in Q1 will be fleeting. Both business activity and orders rose at their slowest rates since February.
Yesterdays' industrial production report capped a poor week for German manufacturing. Output fell 1.2% month-to-month in August, well below the consensus, +0.2%, though note that a 0.5% upward revision to the July data made the August headline look worse. Similar to the factory orders report earlier this week--see our October 6th Monitor--base effects also mean that production accelerated to 2.5% year-over-year, from a revised 0.8% gain in July.
New orders data indicate that German manufacturing enjoyed a strong start to the second quarter. Factory orders rose 1.4% month-to-month in April, equivalent to a modest 0.4% gain yearover- year, down from a revised 2.0% in March. The numbers put new orders on track for a solid 1.8% quarter-on-quarter gain in Q2--assuming no change in May and June--but these data are volatile, making this estimate highly uncertain.
Chief U.S. Economist Ian Shepherdson with a guest column in The Hill on U.S. Manufacturing
Ian Shepherdson comments on strong construction data
Chief U.S. Economist Ian Shepherdson on ISM Non-Manufacturing
Chief U.K. Economist Samuel Tombs on U.K Manufacturing in May
Chief U.K. Economist Samuel Tombs on the U.K. CBI Industrial Trends Survey
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