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910 matches for " output":
In the wake of the uptick in the March ISM manufacturing survey, we think today's official production data for the same month are likely to disappoint. Our model of the month-to-month output numbers incorporates the ISM data, but it is substantially driven by manufacturing hours worked, which fell in both February and March.
The French manufacturing sector remains challenged by weak end-demand. Industrial production was unchanged month-to-month in February, equivalent to a meagre 0.6% increase year-over- year; manufacturing output fell 0.8% on the same basis.
French industrial production data offered a bit of relief last week following a string of woeful German data, and news of monthly falls in Italian and Spanish manufacturing output. Industrial production jumped 1.6% month-to-month in August, but the headline was flattered by a 0.3% downward revision of the July data. The monthly jump pushed the year-over-year rate higher to 1.6%, from a revised 0.9% fall in July. All sectors performed strongly in August, but the key story was a hefty increase in transport equipment manufacturing, due to a 11.9% surge in vehicle production.
The spectacular 1.3% rebound in manufacturing output last month -- the biggest jump in seven years, apart from an Easter-distorted April gain -- does not change our core view that activity in the sector is no longer accelerating.
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.
We look for August's GDP report, released on Thursday, to show that output held steady, following July's 0.3% month-to-month jump.
The downbeat tone of Markit's May manufacturing survey shouldn't come as a surprise, given the weak global backdrop and the inevitable fading of the boost to output from Brexit preparations.
Industrial output in Chile struggled late in the third quarter, falling 1.3% month-to-month in September. The year-over-year rate, calendar and seasonally adjusted, rose 2.4% in September, down from a revised 5.3% in August.
German industrial output was off to a sluggish start in the fourth quarter. Production eked out a marginal 0.2% month-to-month gain in October, pushing the year-over-year rate down to 0.0% from a revised 0.4% in September. Manufacturing output rose 0.6%, led by a 2.7% jump in production of capital goods, but the underlying trend in the sector overall is flat. On a more positive note, construction output rose 0.7% month-to-month in October, and leading indicators suggest this could be the beginning of a string of gains, lifting investment spending in coming quarters.
German industrial output rebounded strongly at the beginning of the Q1. Production surged 3.3% month-to-month in January, pushing the year-over-year rate up to 2.2%, from a revised -1.2% in December
The second quarter is over but it is too early to give a reliable forecast of the pace of Brazilian GDP growth. However, an array of leading and coincident indicators points to a steep contraction in Q2 and a bleak second half of the year. Unemployment is leaping higher, along with inflation and household debt, and the ongoing monetary and fiscal tightening will further hurt the real economy ahead.
We see considerable downside risk to the consensus forecast that GDP increased by 0.4% quarter-on-quarter in Q4, the same as in Q3.
The recovery in the industrial sector from Covid-19 finally commenced in earnest in June, after May's stalled start.
Perhaps the biggest single reason for the Fed's reluctance, so far, to move away from monetary policy designed to cope with catastrophe is that no-one knows for sure how much of the damage has been repaired, and how close the economy is to normalizing.
German manufacturing rebounded somewhat mid-way through Q3.
The industrial production trajectory in Mexico looked strong going into Q3, but Friday's report for August threatens to change that picture.
In one line: The rebound is stalling.
On the face of it, British manufacturers are weathering the global slowdown well. The Markit/CIPS PMI jumped to 55.1 in March, from 52.1 in February, and now comfortably exceeds those for the Eurozone, U.S. and Japan.
Yesterday's first estimate of full-year 2019 GDP in Mexico confirmed that growth was extremely poor, due to domestic and external shocks.
Brazil's key data flow started Q4 on a soft note, but we still believe that the economic recovery will gather strength over the next three-to-six months.
Peru's central bank, the BCRP, capitulated to the sharp PEN depreciation this year--and acceleration of inflation--and unexpectedly increased interest rates by 25bp to 3.50% last Thursday, for the first time since January. This was a brave step, showing that policymakers are extremely worried about the pace of inflation, despite activity still running below potential. The BCRP argues, though, that activity will accelerate during the coming quarters, so they need now to control inflation by anchoring expectations.
The combination of weather effects and the meltdown in the oil sector make it very hard to spot the underlying trend in manufacturing activity. The sudden collapse in oil-related capital spending likely is holding down production of equipment, but the data don't provide sufficient detail to identify the hit with any precision.
The monthly industrial production numbers are collected and released by the Fed, rather than the BEA, so today's December report will not be delayed by the government shutdown.
Manufacturing is not in recession, yet, despite the reams of gloomy analysis of the sector, including our own.
Data on Friday showed that the upturn in French manufacturing petered out at the end of Q1.
Manufacturers in the Eurozone stood tall mid-way through Q2, despite still-subdued leading indicators.
Brazil's economic news this week remained bleak at the headline level, but some of the details were less terrible in than in recent months. Industrial production fell by a worse-than-expected 11.9% year-over-year in December, marginally up from the 12.4% drop in November.
The worst of the pandemic seems to be over in many countries in LatAm, allowing a gradual reopening of their economies.
Yesterday's economic data in Germany were stellar, but base effects mean that the story for Q4 as a whole is less upbeat.
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 Eurozone construction sector took a step back at the end of Q1, but only temporarily. Construction output fell 1.1% month-to-month in March, after a revised 5.5% jump in February. The year-over-year rate slipped to +3.6%, from a two-year high of 5.5% in February.
Some shoes never drop. But it would be unwise to assume that the steep plunge in manufacturing output apparently signalled by the ISM manufacturing index won't happen, just because the hard data recently have been better than the survey implied.
Colombian activity data released this last week were upbeat, better than we expected, showing a significant pickup in manufacturing output and improving retail sales. Retail sales rose 3.1% year- over-year, after a modest 1.0% increase in June.
Renewed stockpiling ahead of the October Brexit deadline finally appears to be providing some near-term support to manufacturing output.
Argentina's economy is on the verge of a renewed recession; available data for August and the effect of the recent financial crisis, driven by the result of the primaries, suggest that output will come under severe strain.
Fourth quarter construction activity in the Eurozone was much better than in Q3, despite a dip in December. Output fell 0.6% month-to-month in the final month of the year, pushing the year-over-year rate down to -0.4% from a revised 0.3% in November.
Over the past 18 months, the year-over-year rate of growth of manufacturing output has swung from minus 2.1% to plus 2.5%.
Increasingly, we are hearing equity strategists argue that investors should rebalance their portfolios toward EZ equities. On the surface, this looks like sound advice. Commodity prices have exited their depression, factory gate inflation pressures are rising, and global manufacturing output is picking up. These factors tell a bullish story for margins and earnings at large cap industrial and materials equities in the euro area.
The collapse in capital spending in the oil sector and poor construction spending have constrained aggregate Mexican industrial output in recent months, despite the strength of the manufacturing sector. Total production fell 0.1% year-over-year in January, though note this was a clear improvement after the 0.6% drop in December, and better than the average 0.4% contraction over the second half of 2016.
We are not worried about the reported drop in April manufacturing output, which probably will reverse in May.
Monday's economic data in Colombia provided further evidence of a gradual rebound in manufacturing output and retail sales as the economy slowly reopened.
Friday's EZ data provide a good base from which to recap the main themes midway through the third quarter. The second estimate of Q2 GDP confirmed the initial headline that output plunged by 12.1% quarter- on-quarter, extending the decline from a 3.6% fall in Q1.
The preliminary estimate of a 0.5% quarter-on-quarter rise in GDP in Q4 slightly exceeded our expectation and the third quarter's growth rate, both 0.4%. Nonetheless, there was little to console the optimists in the figures. The recovery remains unbalanced, with industrial production and construction output falling by 0.2% and 0.1% respectively, while services output rose 0.7% quarter-on-quarter.
The trend in manufacturing output probably is about flat, with no real prospect of any serious improvement in the near term.
Brazilian industrial production data released last week were upbeat. Output rose 8.0% month-to-month in July, much better than the consensus forecast for a 5.9% increase.
China's official manufacturing PMI edged down to 50.8 in April, from 52.0 in March. The output sub- index stayed relatively high, inching down only to 53.7 from 54.1, and chiming with our initial take on the industrial production data for March.
Yesterday's industrial production report was grim reading, with volatility in Greece and the Netherlands, as well as revisions, throwing off our own, and the market's, forecasts. Output fell 0.4% month-to-month in May, well below the consensus and our expectation for a 0.2% rise, pushing the year-over-year rate higher to 1.6%, from a revised 0.9% in April.
We expect July's GDP report, released on Friday, to show that overall output rose by about 7.0% month-to-month, bringing it to 11.5% below its pre-Covid peak.
Productivity statistics released yesterday continued to paint a bleak picture. Output per worker rose by a mere 0.1% year-over-year in Q3, despite jumping by 0.6% quarter-on-quarter.
Yesterday's headline economic data in Germany were decent enough. Industrial output edged higher by 0.3% month-to-month in May, lifted primarily by rising production of capital and consumer goods.
Last week's news that output per hour jumped by 0.9% quarter-on-quarter in Q3--the biggest rise since Q2 2011--has fanned hopes that the underlying trend finally is improving.
Brazil's industrial sector was off to a soft-looking start in Q1, but the fall in January output was chiefly payback for an especially strong end to 2017.
Markets likely will be particularly sensitive to May's industrial production and construction output figures, released today, as they will provide a guide to the strength of the preliminary estimate of Q2 GDP, released shortly before the MPC's key meeting on August 3.
Chile's weak indicators in January confirm that the economy is struggling. Mining output plunged 12.6% year-over-year, down from a modest 0.6% contraction during Q4, due mostly to falling copper production and an unfavourable base effect. This will reverse in February but we still look for a 5% drop.
Industrial production data yesterday confirmed downside risks to Q4's GDP data in Brazil. Output fell 0.7% month-to-month in October, the fifth consecutive decline, pushing the year-over-year rate down to -11.2%, from -10.9% in September. This was the biggest drop since April 2009, when output collapsed by 14.2% during the global financial crisis. The October details were even worse than the headline, as all three broad-measures fell sharply.
Mexico's latest hard data suggest things might not be as bad as we feared. Retail sales and manufacturing output were relatively strong at the end of last year, the Q4 preliminary GDP report was mostly upbeat, and the labor market was firing on all cylinders.
Yesterday's industrial production report in Brazil was sizzling. Headline output jumped 0.8% month- to-month in April--well above the 0.4% consensus-- pushing the year-over-year rate up to 8.9%, a five- year high.
Chile's growth dynamics were robust in August, according to the latest data. Production rose and consumption remained strong during most of Q3. Indeed, industrial output increased 5.1% year-over- year, up from an already strong 3.1% increase in July, and contrasting sharply with the 2% fall in Q2.
Chile's IMACEC economic activity index rose 3.9% year-over-year in January, up from 2.6% in December, and 2.9% on average in Q4, thanks to strong mining output growth and solid commercial, manufacturing and services activity.
The estimate of services output for the first month of the current quarter usually gets lost among the deluge of national accounts and balance of payments data released for the previous quarter.
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.
Mexico's February industrial production report was weaker than markets expected. Output expanded by 0.7% year-over-year, below the consensus, 1.2%, and slowing from 0.9% in January.
The Office for National Statistics yesterday released the last major batch of output data before the preliminary estimate of Q3 GDP is published on October 25, just one week before the MPC's key meeting.
Yesterday's industrial production report in Mexico added weight to the idea that the sector improved marginally in the first quarter, despite many external threats. Industrial output rose 0.1% month-to-month in February, following a similar gain in January. The calendar-adjusted year-over-year rate rose to -0.1%, after a modest 0.3% contraction in January.
Industrial production in Mexico remained under pressure at the start of Q4. Output rose just 0.1% month-to-month in October, leaving the year-over-year rate unchanged at -1.4%, down from an average of -0.8% in Q3.
Yesterday EZ industrial production report confirmed the message from advance country data that manufacturing rebounded towards the end of summer. Output, ex-construction, jumped 1.6% month-to-month in August, and the July data were revised up by 0.4 percentage points.
Eurozone industrial production data today will confirm that economic growth likely accelerated in the first quarter. We think output rose 0.7% month-to-month in February, equivalent to a 0.8% increase year-over-year.
The large unexpected surge in oil and gas output this year has boosted the overall economic recovery significantly. But this looks like the last hurrah for a sector of the U.K. economy in terminal decline.
Mexico's latest industrial production figures, released yesterday, showed that growth is stabilizing, but it likely will not accelerate any time soon. June output rose 1.4% year-over-year, rebounding from the 1.0% contraction in May, and matching April's gain. The increase in output was relatively broad-based, with solid gains in mining and utilities.
Yesterday's deluge of output and trade data broadly supported our call that quarter-on-quarter GDP growth likely slowed to 0.3% in Q4, from 0.4% in Q3.
Mexico's industrial sector did relatively well in Q3, due mainly to the resilience of the manufacturing sector, and the rebound in construction and oil output, following a long period of sluggishness.
Friday's economic data in the Eurozone provided further evidence of a sharp rebound in manufacturing output as the economy reopened. Industrial production in France jumped by 19.6% month-to-month in May, lifting the year-over-year rate to -23.4% from -35.0% in April.
Mexican industrial production data for August were a little stronger-than-expected. Output rose 1.0% year-over-year, for the second consecutive month, and marginally higher than the 0.6% average growth in the second quarter. The rise in production in August is encouraging, especially the strong manufacturing component, which accounts for about half of all output.
Yesterday's industrial production, construction output and trade data for November collectively suggest that the economy lost a little momentum in the fourth quarter. GDP growth likely slowed to 0.5% quarter-on-quarter in Q4, from 0.6% in Q3. Growth remains set to slow further this year, as inflation shoots up and constrains consumers.
Eurozone manufacturing probably stalled at the start of the second quarter. We think industrial production rose a mere 0.1% month-to-month in April, lower than the 0.4% consensus forecast, and equivalent to a 0.8% increase year-over-year. Output ex-construction was up 0.8% in Germany, but this is likely to be offset by declines in France and Italy, and a hefty 3.2% fall in Greece.
Industrial production in Germany stumbled at the end of Q4. Data yesterday showed that output fell 0.6 month-to-month in December, though this drop has to be seen in light of the downwardly-revised 3.1% jump in November.
Brazil's September industrial production report, released yesterday, confirmed the message from survey data that the sector stabilized towards the end of summer. Output rose 0.5 month-to-month, and August output was revised up by 0.3 percentage points.
Samuel Tombs on U.K. Manufacturing Output
Yesterday's French industrial production data were worse than we expected. Output slipped 1.1% month-to-month in September, pushing the year-over-year rate down to -1.1% from a revised +0.4% in August. Mean-reversion was a big driver of the poor headline, given the upwardly-revised 2.4% jump in August.
The construction sector in the Eurozone probably stumbled in March. Advance data for the major economies suggest that output fell 1.2% month-to-month, pushing the year-over-year rate down to 1.6% from 2.4% in February.
Chief U.K. Economist Samuel Tombs on U.K. Manufacturing Output
Swings in energy output continue to add volatility to French manufacturing data. Industrial production fell 0.9% month-to-month in April, equivalent to a 0.1% fall year-over-year. This was a weak report, even if we factor in the 0.3% upward revision to the March numbers,but it was also he avily tainted by a 10.8% month-to-month collapse in oil refining.
October industrial production data in France surprised to the upside yesterday, with headline output rising 0.5% month-to-month, well above the consensus estimate and our own forecast for a monthly fall. Production was lifted by a 5.1% month-to-month jump in energy output, due to unusually cold weather, offsetting a 0.5% decline in manufacturing output, the fifth drop in the past six months.
Falling demand for utility energy, thanks to yet another very warm month, relative to normal, will depress the headline industrial production number for October, due today. We look for a 21⁄2% drop in utility energy production, enough to subtract a quarter point from total industrial output.
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.
Output in EZ construction rebounded sharply in February, erasing a slip at the start of the year.
Wednesday's Brazilian industrial production data were worse than we expected but the details were less alarming than the headline. Output slipped 1.8% month-to-month in March, the biggest fall since August 2015, setting a low starting point for Q2.
Friday's Brazilian industrial production data were relatively positive. Output was unchanged month-to-month in May, and April's marginal gain was revised slightly higher. The flat monthly reading pushed year-over-year growth in output up marginally to -8.9% from -9.1%. May production rose month-to-month in two of the four major categories.
Chief U.K. Economist Samuel Tombs on the U.K. CBI Industrial Trends Survey
Friday's PMIs were supposed to provide the first reliable piece of evidence of the coronavirus on euro area businesses, but they didn't. Instead, they left economists dazed, confused and scrambling for a suitable narrative.
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.
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.
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.
Brazil's economic prospects continue to deteriorate rapidly, due to a combination of rising political uncertainty, the failure of the new government to advance on reforms, and ongoing external threats.
Brazilian inflation is off to a bad start this year, but January's jump is not the start of an uptrend, and we think good news is coming.
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.
Argentina's near-term economic outlook remains murky, as recent data has highlighted, hit by tighter financial conditions.
The second estimate of Q4 GDP, published on Thursday, probably will show that the economy slowed more abruptly last year than previously thought and that it has become very dependent on consumers for momentum.
The MPC will be looking for the Q1 national accounts and April's index of services data, both released on Friday, to support its view that the economy hasn't lost momentum this year.
The latest E.C. survey shows the gap between firms' and households' confidence levels has remained substantial.
Taken at face value, the preliminary estimate of Q2 GDP suggests that the economic recovery weathered Brexit risk well. But growth received support from some unsustainable sources, and also probably was boosted by a calendar quirk. Meanwhile, with few firms or consumers expecting a vote for Brexit prior to the referendum, Q2's brisk growth tells us little about how well the economy will cope in the current climate of heightened uncertainty.
Eurozone PMI data yesterday presented investors with a confusing message. The composite index fell marginally to 52.9 in May, from 53.0 in April, despite separate data that showed that the composite PMIs rose in both Germany and France. Markit said that weakness outside the core was the key driver, but we have to wait for the final data to see the full story.
China's abysmal industrial profits data for October underscore why the chances of less- timid monetary easing are rising rapidly.
While we were on holiday, the data confirmed that economies have been badly hit by the pandemic in Q2, and that the upturn will be gradual.
Brazil's external accounts continue to surprise to the upside, with the current account deficit remaining close to historic lows and capital flows performing better than anticipated, mostly due to higher-than- expected FDI.
Banxico's board will meet tomorrow and we expect a 25bp rate cut to 4.25%, in line with the consensus.
Banxico yesterday left its policy rate unchanged at 3%, the highest level in a decade.
The national accounts, released today, likely will restate that quarter-on-quarter GDP growth held steady at 0.4% in Q4.
We were expecting the pandemic in the Andes to reach a plateau over the coming weeks, given the quick response of regional governments to fight the virus.
While we were out, data released in Mexico added to our downbeat view of the economy in the near term, supporting our base case for interest rate cuts in the near future.
The political momentum in the run-up to the election now lies with Labour.
Economic data released on Friday underscored our view that bolder rate cuts in Brazil are looming. The BCB's latest BCB's inflation report, released on Thursday, showed that policymakers now see conditions in place to increase the pace of easing "moderately" .
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.
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.
The stickiness of CPI inflation in India in recent months should all but guarantee another quiet meeting for the RBI next week.
The gap between the hard and soft data from the industrial economy appeared to widen still further last week. But we are disinclined to take the data--the official industrial production report for March, and the first survey evidence for April--at face value.
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.
Surveys released yesterday failed to support the MPC's view that the economy has bounced back in Q2.
Brazil's external accounts were a relatively bright spot again last year.
Recent polls in Argentina suggest that Alberto Fernández, from the opposition platform Frente de Todos, has comfortably beaten Mauricio Macri, to become Argentina's president.
Data released on Friday in Mexico strengthened the case for further interest rate cuts in Q3. The monthly IGAE economic indicator for April, a proxy for GDP, plunged 19.9% year-over-year, a record drop since the series started in 1993, and down from -2.3% in March.
While we were out, new U.S. Covid-19 cases and hospitalizations continued to fall steadily, and deaths have now peaked.
One way or another, the preliminary estimate of Q1 GDP--due Friday--will have a big market impact, following Mark Carney's warning last week that a May rate hike is not a done deal.
The levelling-off in the industrial surveys in recent months is reflected in the consumer sentiment numbers. Anything can happen in any given month, but we'd now be surprised to see sustained further gains in any of the regular monthly surveys.
Colombia's recently-released data signal that the economy started the year quite strongly, following a relatively poor end to Q4.
Yesterday's PMI data in the Eurozone economy were a mixed bag.
We have been bullish about the housing market for some time now--since Google searches for "new homes" and mortgage demand began to pick up, in late April--but we might not have been bullish enough.
The BRL remains under severe stress, despite renewed signals of a sustained economic recovery and strengthening expectations that the end of the monetary easing cycle is near.
Mexican policymakers yesterday voted unanimously to cut the policy rate by 50bp to 5.00%, the lowest level since late 2016.
Japan's retail sales data--due out on Thursday-- have been badly affected by the October tax hike.
New BoE Governor Andrew Bailey will be reaching for his letter-writing pen soon, to explain to the Chancellor why CPI inflation is more than one percentage point below the 2% target.
Hong Kong delivered a resounding landslide victory to pro-Democracy parties in district council elections over the weekend.
Data released yesterday confirmed that Mexico's economy ended Q4 poorly, confounding the most hawkish Banxico Board members.
News that the Covid-19 virus has spread to more countries frayed investors' nerves further yesterday, with the FTSE 100 eventually residing 5.3% below its Friday close.
We are happy to report that the laws of gravity have been temporarily suspended in the German survey data.
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.
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.
India's GDP report for the second quarter, due on Monday, will be a bloodbath.
Chair Yellen's speech at Jackson Hole at 10am Eastern time today has the potential to move markets substantially, but that's not our core expectation. It's more likely, we think, that Dr. Yellen will stick to the core FOMC view, which remains that "only gradual increases" in rates will be required, and that rates are "likely to remain, for some time, below levels that are expected to prevail in the longer run".
Mexico's final estimate of third quarter GDP, released yesterday, confirmed that the economy is still struggling in the face of domestic and external headwinds.
Data released yesterday in Brazil support our base case that the IPCA inflation rate will remain relatively stable over the coming months, hovering around 2%.
Yesterday's State Council meeting significantly expanded support to the economy, through a number of channels.
Mexican GDP was unchanged quarter-on-quarter in Q2, according to the final report, a tenth worse than the preliminary reading.
The dovish members of Banxico's board garnered further support on Friday for prolonging the current easing monetary cycle over coming meetings.
The preliminary estimate of Q2 GDP, published today, likely will show that growth was immaterially different from Q1's 0.4% quarter-on-quarter rate. But this should not be interpreted as a sign that the economy will be able to shrug off the impact of last month's vote to leave the E.U.
Friday's PMI data were a mixed bag.
Economic and financial conditions have worsened substantially in Brazil in recent weeks, due mainly to Covid-19 and the sharp deterioration of the global economy.
The Brazilian labour market is slowly healing following the severe recession of 2015-16. The latest employment data, released last week, showed that the economy added 35K net jobs in August, compared to a 34K loss in August 2016.
Friday's economic reports delivered more sobering news for the euro area economy.
Recent upbeat economic reports have mitigated the downside risks we had been flagging to our growth forecast for Mexico for the current quarter.
India's government imposed a three-week nationwide lockdown on March 25 to combat the increasingly rapid spread of Covid-19.
The ECB kept its cool yesterday, at the headline level, amid crashing stock markets, volatile BTPs and souring economic data.
The EZ economy's liquidity gears were well-oiled coming into the crisis.
Banxico cut its policy rate by 25bp to 7.75% yesterday, as was widely expected, following August's 25bp easing.
We're revising down our forecast for quarteron-quarter GDP growth in Q3 to 0.3%, from 0.4%, in response to signs that the rebound in industrial production is shaping up to b e smaller than we had anticipated.
The CBI's Industrial Trends Survey, for July and Q3, supplied encouraging evidence yesterday that the manufacturing upswing still has momentum.
If we had known back in June 2014 that oil prices would drop to about $30, the collapse in capital spending in the oil sector would not have been a surprise. Spending on well-drilling, which accounts for about three quarters of oil capex, has dropped in line with the fall in prices, after a short lag, as our first chart shows. We think spending on equipment has tracked the fall in oil prices, too.
Data released yesterday in Mexico strengthened the case for interest rate cuts this year.
Yesterday's national business confidence data for June provided further evidence that the EZ economy is rebounding.
Mexican GDP plunged 17.1% quarter-on-quarter in Q2, according to the final report, close to the first estimate.
Brazil's inflation rate remained well under control over the first half of February.
The Mexican economy shrank by 0.2% quarter- on-quarter in Q2, according to the final GDP report, a tenth worse than the preliminary reading.
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.
Japan's advance PMI numbers for August suggest that the economy dodged most of the bullets fired by the second wave of Covid-19.
GDP rose by 0.3% quarter-on-quarter in Q2, according to the ONS' preliminary estimate, confirming that the economy has fundamentally slowed since the Brexit vote. The modest growth has reduced further the already-small risk that the MPC will raise interest rates at its next meeting on August 3.
Yesterday was a watershed moment for investors.
Retail sales in Mexico fell in Q4, but we think households' spending will continue to contribute to GDP growth in the first quarter, at the margin.
Even the record-breaking slump in Markit's composite PMI probably understates the hit to economic activity from Covid-19 and the emergency measures to slow its spread.
The 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.
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.
The mortgage market is continuing to hold up surprisingly well, given the calamitous political backdrop.
Yesterday's national survey data painted a more nuanced picture of the recovery in the major Eurozone economies than the warning sent by the PMIs earlier in the week; see here.
Argentina's economy continues to recover steadily.
Amid all the trade tensions, it's easy to lose sight of the big picture for China.
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.
Investors think it more likely that the MPC will cut Bank Rate in the first half of next year, following Friday's release of the flash Markit/CIPS PMIs for November.
If Japan's flash PMIs for March are a sign of things to come, then the government really should get moving on fiscal stimulus.
We expect the second estimate of Q1 GDP, released today, to restate that quarter-on-quarter growth slowed to just 0.3%, from 0.7% in Q4. The second estimate of growth rarely is different to the first.
Inflation in the biggest economies in the region remains close to cyclical lows, allowing central banks to ease even further over the next few months.
Japan's CPI inflation was stable at 0.2% in October, despite the sales tax hike, thanks to a combination of offsetting measures from the government and a deepening of energy deflation.
All the evidence indicates that growth in Mexican consumers' spending is slowing, despite the better- than-expected November retail sales numbers, released yesterday.
We expect the official estimate of quarter-on-quarter GDP growth in Q4 to be revised up to 0.7% today, from last month's preliminary estimate of 0.6%. The consensus forecast is for no revision, so the data likely will boost interest rate expectations and sterling, if we're right.
LatAm assets and currencies had a bad November, due to global trade war concerns, the USD rebound and domestic factors.
Inflation in the Eurozone stumbled at the end of Q3.
Holiday effects are tedious and you are going to hear us talking about them until the March data come through.
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.
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.
It is very difficult to be positive about the Brazilian economy in the short term, with every indicator of confidence at historic lows. The industrial business confidence index fell 9.2% month-to-month in March alone. Capacity use dropped to 79.7% from 81.5% in February, the lowest level in six years, and inventories rose, presumably because businesses over-estimated the strength of sales.
The duration and future scope of the current lockdown is the main uncertainty that U.K economic forecasters have to grapple with at present.
Italy's economy is still bumping along the bottom, after emerging from recession in the middle of last year.
Fed Chair Powell's comment on Sunday's "60 Minutes", that a recovery in the economy "may take a while... it could stretch through the end of next year" did not prevent a 3% jump in the S&P 500 yesterday.
The People's Bank of China cut its seven-day reverse-repo rate yesterday, to 2.50% from 2.55%.
The plunge in oil prices in recent weeks is not a threat to the overall U.S. economic growth story in the near term--we have always expected growth to slow, but remain decent, once the boost from the tax cuts fades--but it will make a difference, at the margin.
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.
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's recovery has sped up since Q1, according to Markit's latest survey, but growth still looks too weak to prevent the overall economy from struggling again in Q2.
The Brazilian economy fell into recession over the first half of the year due to the severity of the Covid shock on domestic demand.
Friday's inflation data in the Eurozone added a dovish twist to the story ahead of the key ECB meeting later this month.
India's GDP shrank by 23.9% year-over-year in the second quarter, following growth of 3.1% in Q1.
On the face of it, the rebound in the manufacturing PMI, to 53.3 in August from 48.3 in July, directly challenges our view that the economy is set to slow sharply over the coming quarters. A close look at the survey, however, suggests that the manufacturing PMI exaggerates the extent of the sector's recovery in August.
The Andean economies have been clear examples of true leadership in the current global crisis. Leaders of these countries acted rapidly to contain the spread of the virus, jumping right over the phases of denial, anger and unscrupulousness we've seen in Brazil and Mexico.
Last week's national accounts were a setback for the hawks on the MPC seeking to raise interest rates at the next meeting, on November 2.
Brazil's industrial production rose 0.8% month- to-month in August, well above our call, and the consensus, for a trivial increase.
Manufacturers in China continued to trudge along in May, with their post-lockdown recovery looking increasingly fragile.
Data on Friday showed that the downward trend in Brazil's unemployment continued into this year. The unadjusted unemployment rate fell to 11.2% in January, slightly below the consensus, and down from 12.0% in January last year.
The odds of a hike this month have increased in recent days, though the chance probably is not as high as the 82% implied by the fed funds future. The arguments against a March hike are that GDP growth seems likely to be very sluggish in Q1, following a sub-2% Q4, and that a hike this month would be seen as a political act.
Brazil's recovery has been steady in recent months, and Q1 likely will mark the end of the recession. The gradual recovery of the industrial and agricultural sectors has been the highlight, thanks to improving external demand, the lagged effect of the more competitive BRL, and the more stable political situation, which has boosted sentiment.
Peru's April supply-side monthly GDP data confirm that the economic rebound lost momentum at the start of the second quarter.
Mexico's economic and financial outlook is deteriorating rapidly and hopes of a gradual recovery over the next three-to-six months are fading away after AMLO's missteps in recent months.
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.
PM Johnson has conceded considerable ground over the terms of Brexit for Northern Ireland in order to get a deal over the line in time for MPs to vote on it on Saturday, before the Benn Act requires him to seek an extension.
Headline inflation in the EZ remained elevated in September, rising by 0.1 percentage point to 2.1%, while the core rate was unchanged at 0.9% in August; both numbers are in line with the initial estimates.
Inflation pressures in LatAm are moderating, and governments have been taking steps to pursue fiscal consolidation. These factors, coupled with a relatively favourable external environment, are providing policymakers with the opportunity to start relaxing monetary policy.
We expect today's consumer price figures to show that CPI inflation jumped to 0.9% in September, from 0.6% in August.
The declines in headline housing starts and building permits in September don't matter; both were driven by corrections in the volatile multi-family sector.
Rapidly increasing food inflation is creating all sorts of dilemmas for policymakers in Asia's giants.
Data released on Friday confirmed an appalling end to the first quarter for the Brazilian and Colombian economies. In Brazil, the March IBC-Br, a monthly proxy for GDP, plunged 5.9% month-to-month, close to expectations.
China's investment slowdown went from worrying to frightening in October. Last week's fixed asset investment ex-rural numbers showed that year- to-date spending grew by 5.2% year-over-year in October, marking a further slowdown from 5.4% in the year to September.
Most of the Andean economies have been hit by the turmoil roiling the global economy in the past few quarters. But modest recovery in commodity prices in Q3, and relatively solid domestic fundamentals helped them to avoid a protracted slowdown in Q2 and most of Q3.
Argentinians are heading to the polls on Sunday October 27 and will likely turn their backs on the current president, Mauricio Macri.
China's economy got off to an uneasy start in the third quarter.
Hard data on Mexico's industrial sector for the last couple of months have highlighted major divergences across sectors.
Yesterday's German ZEW investor sentiment survey provided the first clear evidence of the coronavirus in the EZ survey data.
India's industrial production data last week are the last set of key economic indicators for the fourth quarter, before next week's Q4 GDP report.
The headline employment numbers masked an otherwise sub-par December labour market report.
Colombia's GDP growth was a poor 1.6% year-over- year in Q4, down from 2.3% in Q3, despite the oil recovery and the COP's rebound since mid-year. GDP rose a modest 0.3% quarter-on-quarter, after a 0.8% increase in Q3.
Following a challenging start to this year, Andean economic prospects are improving gradually, thanks to falling interest rates, lower inflation, relatively stable currencies and--in some cases--increased infrastructure spending.
Colombia's GDP report, released last week, confirmed that it was the fastest growing economy in LatAm and everything suggests that it likely will lead the ranking again this year.
The next couple of rounds of business surveys will capture firms' responses to the Phase One trade deal agreed last week, though the news came too late to make much, if any, difference to the December Philly Fed report, which will be released today.
The Eurozone economy all but stalled at the start of Q4.
Data on Friday confirmed that headline inflation in the Eurozone rose a bit last month, to 1.5% from 1.4% in January, but also that the core rate dipped by 0.1 percentage points, to 1.0%.
CPI inflation held steady at 1.5% in November, marking the fourth consecutive below-target print, though it was a tenth above both the MPC's forecast and the consensus.
The PBoC reduced its 14-day reverse repo by 5bp to 2.65% in a routine operation yesterday.
It happened! Before Q1, Chinese GDP year-over- year growth had moved by no more than two tenths of a percentage point for years.
Lending conditions in the EZ economy continued to improve in Q1, according to the ECB's bank lending survey. Business and consumer credit supply conditions eased, but mortgage lending became more difficult to come by as standards tightened sharply in Germany, France, and the Netherlands. Demand for new loans also rose, but the increase was due entirely to gains in the mortgage and consumer credit components.
Economic activity is rebounding in LatAm, but the recovery will be slow and uneven.
Yesterday's sole economic report in the Eurozone showed that German producer price inflation edged lower at the end of 2018.
Korea's fledgling export recovery seemingly hit a roadblock this month.
Economic activity in Chile in the first half of the year is now a write-off, due to Covid-19. The country is in a deep recession, and the impact of lockdowns on labour markets and businesses will cause long-lasting economic damage, which will hold back the recovery.
The composite PMI in the Eurozone continues to edge slightly lower, falling to 53.4 in May from 53.9 in April. A fall in the services index to 53.3, from 54.1 last month offset a modest increase in manufacturing to 52.3 from 52.0 in April.
Recent global developments lead us to intensify our focus on trade in LatAm.
Recent global developments lead us to intensify our focus on trade in LatAm.
If the only manufacturing survey you track is the Philadelphia Fed report, you could be forgiven for thinking that the sector is booming.
Japanese trade remained in the doldrums in October, keeping policymakers on their toes as they repeat the refrain of "resilient" domestic demand.
Yesterday's final manufacturing PMIs confirmed that the headline index in the euro area rebounded further last month.
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.
The U.S. consumer is back on track, almost. We have argued in recent months that the sharp slowdown in the rate of growth of consumption is mostly a story about a transition from last year's surge, when spending was boosted by the tax cuts and, later, by falling gas prices, to a sustainable pace roughly in line with real after-tax income growth.
The PBoC's quarterly monetary policy report seemed relatively sanguine on the question of PPI deflation, attributing it mainly to base effects--not entirely fairly--and suggesting that inflation will soon return.
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.
The Conference Board's index of leading economic indicators appears to signal that the U.S. economy is plunging headlong into recession.
Punished by the global economic slowdown depressing commodity prices, the Mexican economy is now making a gradual comeback, thanks to the continuing strength of its main trading partner, increasing public expenditure on key infrastructure projects, and accommodative monetary policy.
Barring a meteor strike, the ECB will leave its main refinancing and deposit rates unchanged today, at 0.00% and -0.5% respectively.
The rate of growth of new coronavirus infections across Europe slowed yesterday, in some cases quite markedly. We can quibble about the reliability of the data in individual countries, given variations in testing regimes, but the picture is strikingly uniform.
Yesterday's detailed Mexican GDP report confirmed that growth was resilient in Q1, despite external and domestic headwinds. GDP rose 0.7% quarter-on-quarter in Q1, in line with our expectation, but marginally above the first estimate, 0.6%.
Japan's flash PMI numbers for August were a mixed bag.
India's trade data for March highlight the immediate severity of the country's sudden nationwide lockdown.
Most LatAm currencies have been under pressure recently, with the Brazilian real and the Chilean peso breaking all-time lows versus the USD in recent weeks.
Yesterday's barrage of survey data in France suggests that business sentiment in the industrial sector remained soft mid-way through Q4, but the numbers are more uncertain than usual this month.
Colombia's trade deficit continued to narrow in Q3; a postive development now that EM are back in the firing line. Assuming no revisions, the marginal year-over-year dip in the September trade deficit means that the third quarter deficit was USD3.1B, down from US4.6B a year ago.
The slowdown in the EZ economy is well publicised.
The year so far in EZ equities has been just as odd as in the global market as a whole.
CPI inflation took a big step in April towards the near-zero rate we anticipate by the summer.
Argentina's inflation ended 2019 badly, and it is still too early to bet on a protracted downtrend, even after the renewed economic slowdown.
Peru's economic recovery gathered strength late last year.
Officially, China's real GDP growth was unchanged at 6.0% year-over-year in Q4; low by Chinese standards, but not overly worrying. Full-year growth was 6.1% within the 6.0-to-6.1% target down from 6.7% last year, also in keeping with the authorities' long-term poverty reduction goals.
High frequency data are all the rage, given the speed and severity of the Covid-19 shock. GDP data are published with a lag of about six weeks, too long for investors to wait.
In about 100 days, the LatAm economy and financial markets will face a defining moment in the face of uncertainty, namely, the outcome of the U.S. presidential election.
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 run of weak retail sales figures continued yesterday, with the release of November's official data.
While we were on holiday, the data confirmed that inflation in Mexico is rapidly unwinding the increases posted earlier in the year; that the economy was under severe strain in late Q2 and early Q3; and that the near-term outlook has grown increasingly challenging.
The jump in CPI inflation to 1.0% in July, from 0.6% in June, caught all analysts by surprise.
Under normal circumstances, the 0.23% increase in the core CPI, reported earlier this month, would be enough to ensure a 0.2% print in today's core PCE deflator.
The INSEE business sentiment data in France continue to tell a story of a robust economy.
Yesterday's economic data added further evidence that GDP growth in the EZ will slow in Q2.
February's consumer price report, released tomorrow, likely will show that CPI inflation has breached the MPC's 2% target for the first time since November 2013. Indeed, we think the headline rate jumped to 2.2%, from 1.8% in January, exceeding the 2.1% rate expected by the MPC and the consensus.
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.
The construction sector remains a stand-out performer in the Eurozone economy, despite stumbling at the end of Q2.
Data released on Friday confirmed that Colombian activity lost momentum in Q4, following an impressive performance in late Q2 and Q3. Retail sales rose 4.4% in November, down from 7.4% in October and 8.3% in Q3.
Just as we turned more positive on the labor market, following three straight months of payroll gains outstripping the message from an array of surveys, the Labor Department's JOLTS report shows that the number of job openings plunged in November.
Data released on Friday confirmed that Colombian activity remained strong in Q4.
The Andean economies haven't been immune to the turmoil roiling the global economy in the past few weeks.
In Friday's Monitor, we warned that Moody's would soon cut Mexico's credit rating; in a matter of hours, it was a done deal.
Yesterday's headline economic data in the euro area were solid across the board, though the details were mixed.
CPI inflation in India jumped to 4.6% in October, from 4.0% in September, marking a 16-month high and blasting through the RBI's target.
Leading indicators are giving conflicting signals regarding the outlook for core goods CPI inflation.
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.
Brazil's external deficit fell marginally in October, but most of the improvement is now likely behind us. The unadjusted current account deficit dipped to USD3.3B, from USD4.3B in October 2015. The trend is stabilizing, with the 12-month total rolling deficit easing to USD22B--that's 1.2% of GDP--from USD23B in September.
The Brazilian manufacturing sector remains very depressed by weak end-demand, but the misery is easing, at the margin. Industrial production fell 2.5% month-to-month in February, equivalent to an eye-watering 9.8% contraction year-over-year, but this was rather less bad than the 13.6% slump in January.
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.
October's GDP report, released on Monday, might just manage to break through the wall of noise coming from parliament ahead of the key Brexit vote on Tuesday.
Our hope for a year-end jump in German factory orders was laughably optimistic.
We raised our forecast for today's January payroll number after the ADP report, to 200K from 160K.
December's GDP report, released next Monday, likely will maintain the flow of negative news on the U.K. economy.
Demand in German manufacturing rebounded powerfully at the end of the second quarter, accelerating from an initially modest rebound when lockdowns were lifted.
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.
Yesterday's minutes of the October 31 COPOM meeting, at which the Central Bank cut the Selic rate unanimously by 50bp at 5.00%, reaffirmed the committee's post-meeting communiqué, which signalled that rates will be cut by the "same magnitude" in December.
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.
Demand in German manufacturing slid at the start of Q3.
Our conviction that the economy continues to grow at a snail's pace increased yesterday following the release of August's Markit/CIPS services survey.
Chile's near-term economic outlook is still negative, but clouds have been gradually dispersing since late Q4, due mostly to better news on the global trade front, China's improving economic prospects, and rising copper prices.
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 economic data calendar for next week is so congested that we need to preview early September's GDP report, released on Monday.
India's PMIs for October were grim, indicating minimal carry-over of energy from the third quarter rebound.
The U.S. Presidential election will set the tone for LatAm's markets this week. Hillary Clinton's dwindling lead over Donald Trump in recent polls has unleashed pressure on EM assets.
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.
Yesterday's economic reports in the Eurozone were mostly positive.
Last week's heavy snowfall, which blighted the entire country, will depress GDP growth in Q1, making it harder for the MPC to read the economy.
Yesterday's economic reports in the Eurozone were solid across the board.
Chile's economic outlook is still positive, but clouds have been gradually gathering since mid-year, due mostly to the slowdown in China, low copper prices and falling consumer and business confidence.
The next couple of months likely will see some activity data rebound to close to pre-Covid levels, fuelling hopes of a V-shaped recovery.
April's GDP report, released on Monday, likely will add fuel to the fire of the re cent sharp decline in interest rate expectations.
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.
Yesterday's detailed Q3 growth data in the Eurozone offered no surprises in terms of the headline.
Brazil's industrial sector is on the mend, but some of the key sub-sectors are struggling.
For sterling traders, no election news is good news.
Brazilian data strengthened early in Q4, supporting the case for the COPOM to slow the pace of rate cuts. We expect the SELIC policy rate to be lowered by 50bp today, to 7.0%.
Yesterday's final PMI data in the Eurozone were better than we expected.
We have consistently flagged the likelihood that Japan's government would boost spending after the consumption tax hike was implemented.
The MPC's view that the economy likely will grow at an above-trend rate over the coming quarters was challenged immediately last week by the PMIs.
The U.K. services sector has vanished overnight, following the introduction of tough restrictions on everyday life to stem the spread of Covid-19.
Friday's final PMI data for March were even more terrifying than the advance numbers. The composite index in the euro area collapsed to 29.7, from 51.6 in February, lower than the consensus 31.4. A downward revision was coming.
The rise in Markit/CIPS services PMI to 55.0 in March, from 53.3 in February, brings some relief that GDP growth has not stalled in Q1, following manufacturing and construction surveys that signalled near-stagnation.
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.
The post-election run of upbeat business surveys was extended yesterday, with the release of the final Markit/CIPS services PMI for January.
Argentina's economy was improving late last year, albeit slowing at the margin, according to the latest published indicators. GDP data confirmed that the revival continued during most of Q4, with the economy growing 0.4% month-to-month in November.
The 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.
On the face of it, the Caixin services PMI was unremarkable in May, unchanged at 52.9.
Chancellor Sunak faces a tough first gig on Wednesday, when he delivers the long-awaited Budget.
Chile's IMACEC economic activity index rose 2.4% year-over-year in January, down from 2.6% in December, and 3.3% on average in Q4, thanks mostly to weak mining production.
Brazil's industrial sector is still suffering, but the pain is easing as the economy gradually reopens. That said, full recovery is a long way off, and the pandemic is still far from over, adding downside risks to the recent upbeat picture.
Industrial activity in LatAm, at least in the largest economies, is taking different paths.
Chile's Imacec index confirmed that economic growth ended the year on a soft note, due mainly to weakness in the mining sector.
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%.
The economic calendar in Mexico was relatively quiet over Christmas, and broadly conformed to our expectations of poor economic activity in Q4.
November's monetary indicators provide an upbeat rebuttal to the swathe of downbeat business surveys. Year-over-year growth in the MPC's preferred measure of broad money--M4 excluding intermediate other financial corporations--rose to a 19-month high of 4.0% in November, from 3.5% in October.
Growth momentum in Mexico has improved marginally over the last few months after the soft patch during the first quarter, with business and households gaining confidence in the economic recovery. But the upswing has been rather modest, due to the volatility in global financial markets and the challenging external environment. The outlook for the global economy has deteriorated over recent months due to China's problems, and commodity prices remain under pressure. All these factors are now weighing on investors' confidence and hurting EM across asset classes.
Hard data in the Eurozone continue to tell a story of a relatively bright pre-Covid-19 world.
The German manufacturing sector appears to have settled into an equilibrium of sustained misery.
Figures due on Friday likely will show that the increase in industrial production in December was much smaller than the 0.6% month-to-month assumed by the ONS in its preliminar y Q4 GDP estimate. We expect a 0.2% rise, which would leave production down 0.1% quarter-on-quarter, rather than up 0.1% as the ONS initially estimated.
Brazil's industrial sector is still struggling, despite recent signs of better economic and financial conditions.
Mark Carney revealed last week that recent data had given him "greater confidence" that the weakness of Q1 GDP was almost entirely due to severe weather.
April's GDP report probably will be the worst any of us will see in our lifetime.
The release of October's GDP report on Tuesday likely will be overshadowed by campaigning ahead of Thursday's general election.
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.
Economic data have yielded the limelight in recent months to Brexit news and, alas, we doubt that February's GDP data, released on Wednesday, will reclaim investors' attention.
Investors with long sterling positions should not pin their hopes on Friday's GDP report to reverse some of the losses endured over the last week.
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.
Data released on Friday showed that November inflation was in line with, or below, expectations in Brazil, Colombia and Chile.
Traders looking for a sustained move in the euro have been left disappointed in the past six-to-12 months, but it is now teasing investors with a break to the upside against the dollar.
The coronavirus outbreak has pushed inflation lower in the Andean economies as the shock drives them into the deepest recession on record.
Industrial production data in Germany continued to defy the signal of doom and gloom from leading indicators.
We're among a small minority of economists forecasting that GDP rose by 0.1% month-to-month in March.
Friday's detailed Q2 growth data in the EZ broadly confirmed the advance numbers.
After three years, we think the level of the CPI would be about 2% higher if the U.K. falls back on WTO terms for trade with the E .U. than if a deep Free Trade Agreement is signed.
The industrial sector went from strength to strength in 2017. Year-over-year growth in production picked up to 2.1%--its highest rate since 2010--from 1.3% in 2016.
The second estimate of Eurozone GDP confirmed that the economy grew 0.3% quarter-on-quarter in the final three months of last year, up slightly from 0.2% in the third quarter. Gross fixed capital formation and household consumption both rose 0.4%, but the improving trend in euro area GDP growth is almost exclusively driven by consumer spending.
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.
Labour cash earnings in Japan ostensibly started the year strongly, jumping by 1.5% year-over-year in January, much better than December's 0.2% slip.
The Fed's 50bp rate cut last week, aiming to shield the U.S. economy against Covid-19, has opened the door for some central banks in LatAm to emulate the move.
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.
Friday's industrial production report in Germany capped a miserable week for economic data in the Eurozone's largest economy.
Markets are looking for the ECB to extend QE today, and we think they will get their way. We expect the central bank to prolong the program by six months, to September 2017, and to maintain the pace of monthly purchases at €80B per month.
Japan's services sector PMI last week was disappointing.
Survey data have been signalling a relatively resilient Brazilian economy in the last few months, despite intensified political risk, and hard data are beginning to confirm this story.
Odds-on, the consensus forecast for May's GDP report, released on Wednesday, will miss the mark.
Yesterday's manufacturing data in Germany followed the lead from Monday's relatively underwhelming new orders report; see here.
German GDP growth likely accelerated in the second quarter, following a disappointing 0.3% quarter-on-quarter expansion in Q1. Growth in the manufacturing sector remains modest, and the trend in consumers' spending remains solid. Industrial production was unchanged in May, pushing year-over-year growth to 2.1% from a revised 1.1% in April.
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.
Colombia was the fastest growing LatAm economy in 2019, due mostly to strong domestic demand, offsetting a sharp fall in key exports.
Last week's manufacturing data in Germany left investors with more questions than answers.
Friday's GDP report should show that the economy narrowly avoided contracting in Q2.
While we were out, Brazil's economic and political position continued to improve. The recession eased in the second quarter and into July. Industrial production, for example, increased in June for the fourth consecutive month, rising by 1.1% month-to-month.
The $10 increase in the price of Brent crude oil over the last three months to $68 is an unhelpful, but manageable, drag on the U.K. economy's growth prospects this year.
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.
Economic conditions remain challenging in Mexico, despite a modest improvement in leading indicators. The usual surveys currently are not well-suited to capture the economy's upturn from the Covid-19 collapse.
Friday's GDP report likely will fuel concerns the economy has little underlying momentum. Granted, quarter-on-quarter growth probably sped up to 0.6% in Q3--exceeding the economy's potential rate--from 0.4% in Q2.
Friday's factory orders report in Germany provided a bit of relief amid the gloom in manufacturing.
Yesterday's German manufacturing data were a damp squib. Industrial production, including construction, rose by 1.2% month-to-month in July, lifting the year- over-year rate by 1.4pp, to -10.0%, undershooting the consensus and our own expectation of a rise of 5%.
Evidence that households are not benefiting much from the Monetary Policy Committee's easing measures mounted yesterday, after the release of August data on advertised borrowing rates. Our first chart shows the drop in swap rates and average quoted mortgage rates since the end of last year.
Manufacturers in Germany endured another miserable quarter in Q3.
Investors now see a 50/50 chance of the MPC cutting Bank Rate within the next nine months, following the slightly dovish minutes of the MPC's meeting, and its new forecasts.
April's production data, released today, look set to indicate that the industrial sector's recession--its third in the last eight years--deepened in the second quarter. We think the consensus expectation that industrial production held steady in April is too upbeat. We look for a 0.3% month-to-month drop.
Consumer sentiment in Mexico continues to improve, consistent with tailwinds from the relatively strong labour market and the president's rising approval ratings.
The sharp 0.4% month-to-month fall in GDP in December and the slump in the Markit/CIPS PMIs towards 50 have created the impression the economy is on the cusp of recession.
Demand in German manufacturing rebounded slightly at the end of Q1, though the overall picture for the sector remains grim.
Recession fears were fanned yesterday by the renewed deterioration of the Markit/CIPS services survey.
Yesterday's final manufacturing PMIs for October were grim, but they told investors nothing they don't already know.
Hard data released in Argentina over recent weeks showed that the economy was resilient in Q1 and early Q2.
Data released last week confirm that Argentina's economy remains a mess.
The news in Brazil on inflation and politics has been relatively positive in recent weeks, allowing policymakers to keep cutting interest rates to boost the stuttering recovery.
Today's wave of economic reports are all likely to be strong. The most important single number is the increase in real consumers' spending in July, the first month of the third quarter.
Data released yesterday show that the Chilean economy had a weak start to the second half of the year.
Argentina's Recession Has Ended, Supporting Mr. Macri's Odds
Economic data in Mexico continue to come in strong.
Britain now looks set to flirt with deflation in the summer.
The BoJ kept policy unchanged last week, but made a significant change to its communication, dropping its previous explicit statement on the timing for hitting the inflation target.
Last week's preliminary estimate of Q1 GDP has extinguished any lingering chance that the MPC might raise interest rates at its next meeting on May 10.
Argentina's financial markets and embattled currency have been under severe pressure in recent weeks, with the ARS hitting a new record low against the USD and government bonds sinking to distress levels.
Yesterday's first estimate of full-year 2017 GDP in Mexico indicates that growth was relatively resilient, despite domestic and external threats and the hit from the natural disasters over the second half of the year.
Yesterday's first estimate of Q2 GDP in Mexico confirmed that the economy has been under severe stress in recent months.
Data released in recent days confirmed the intensity of the Covid-related shock to the Chilean economy in Q2.
Yesterday's final EZ manufacturing PMIs for July extended the run of gains since the nadir during lockdown.
2019 is a year many in the construction sector would prefer to forget.
Data released yesterday confirm that Brazil's recovery has continued over the second half of the year, supported by steady capex growth and rebounding household consumption.
Demands that Germany pay reparations from the Second World War, and the apparently deteriorating relationship between Messrs. Varoufakis and Schauble, have further complicated talks between the Eurogroup and Greece in recent weeks.
The Chancellor's decision immediately to spend all the proceeds from the OBR's upgrade to its projections for tax receipts appears to leave his plans exposed to future adverse revisions to the economic outlook.
A pair of closely-watched reports today will confirm that business and consumer confidence is tanking in the face of the coronavirus outbreak.
The virus outbreak has been relatively limited so far in Argentina, with 820 confirmed cases, but the numbers are rising rapidly.
As we showed in yesterday's Monitor--see here--EZ governments and the ECB have thrown caution to the wind in their efforts to limit the pain from the Covid-19 crisis.
Today's advance Q3 GDP report for Mexico will show that the economy performed relatively well at the start of the second half, despite external and domestic shocks.
China's PMIs show no sign of a recovery yet, but the authorities are sticking to the playbook; they've done the bulk of the stimulus and are waiting for the effects to kick in, but are recognising that they need to make some adjustments.
Yesterday's final EZ manufacturing PMIs for August provided little in the way of relief for the beleaguered industrial sector.
The data in LatAm were all over the map while we were out.
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.
The first economic report of 2020 confirmed the main story in the euro area last year; namely a recession in manufacturing.
The startling jump in supplier delivery times in the June ISM manufacturing survey, to a 14-year high, was due--according to the ISM press release--to disruptions to steel and aluminum supplies, transportation problems and "supplier labor issues".
CPI inflation looks set to remain below the 2% target this year, driven by sterling's recent appreciation and lower energy prices.
Friday's advance Q4 growth numbers in the EZ were a bit of a dumpster fire.
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.
Friday's inflation and labour market data in the Eurozone were dovish.
Chile's stronger-than-expected industrial production report for December, and less-ugly-than- feared retail sales numbers, confirmed that the hit from the Q4 social unrest on economic activity is disappearing.
The official PMIs suggest that the January survey data have escaped the worst of the hit from the virus.
Don't write off the outlook for the construction sector purely on the basis of June's grim Markit/CIPS survey.
Data released over the last few weeks have confirmed that Colombia's economic performance in Q2 was grim, adding weight to our below-consensus GDP forecast.
The Fed left rates on hold yesterday, as expected, repeating its long-held core view that inflation will rise to 2% in the medium-term, requiring gradual increases in the fed funds rate.
U.K. manufacturers are benefiting from rapid growth in the Eurozone, but increasingly they are being held back by weak domestic demand.
Brazil's industrial production surprised to the downside in August, suggesting that manufacturing is struggling to gather momentum over the second half of the year.
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.
Survey data signal that Eurozone manufacturing retained momentum at the start of Q4. Yesterday's final PMI reports showed that the EZ manufacturing index rose to 58.5 in October from 58.1 in September, trivially below the first estimate.
The sharp and unexpected improvement in the Markit/CIPS manufacturing survey in October released on Monday raised hopes that the recession in the industrial sector might be over. A cool look at the evidence, however, suggests that this probably is just wishful thinking.
This week's economic reports have provided clear, and uplifting, evidence that EZ consumers came out swinging as lockdowns were lifted.
Chile's near-term economic outlook is still negative after a sharp resurgence of coronavirus cases.
Yesterday's final manufacturing PMIs confirmed that all remained calm in the EZ industrial sector through February.
Inflation and growth paths remain diverse across LatAm, but in the Andes, the broad picture is one of modest inflationary pressures and gradual economic recovery.
Korea's final GDP report for the third quarter confirmed the economy's growth slowdown to 0.4% quarter-on-quarter, following the 1.0% bounce-back in Q2.
Data released last week confirm that Brazil's recovery has continued over the second half of the year, supported by steady household consumption and rebounding capex.
Colombia's BanRep stuck to the script on Thursday by leaving the policy rate on hold at 4.25%.
The opening gambits in the post-Brexit trade negotiations were played earlier this week, in speeches from U.K. Prime Minister Boris Johnson and EU chief negotiator, Michel Barnier.
The majority of headlines from last week's advance Q4 GDP data in the Eurozone--see here--were negative.
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.
Brazil's external position continue to improve, but we are sticking to our view that further significant gains are unlikely in the second half, given the stronger BRL. For now, though, we still see some momentum, with the unadjusted trade surplus increasing to USD7.2B in June, up from USD4.0B a year earlier. Exports surged 24% year-over-year but imports rose only 3%.
The Budget on March 11 will be the first time that the new government's ambition and bluster collide with reality.
Brazil's December industrial production report, released yesterday, confirmed that the recovery was stuttering at the end of last year.
Yesterday's data provided further evidence of the rising costs of supporting the EZ economy through the Covid-19 shock.
Yesterday's data showed that the euro area PMIs were a bit stronger than initially estimated in November.
India's headline GDP print for the third quarter was damning, with growth slowing further, to 4.5% year- over-year, from 5.0% in Q2.
Over the summer, both Chancellor Javid and PM Johnson appeared to be repositioning the Conservatives, claiming that the era of austerity was over and that higher levels of spending and investment were justified.
The pick-up in the Markit/CIPS services PMI to an eight-month high of 55.1 in June, from 54.0 in May, has provided another boost to expectations that the MPC will raise Bank Rate at its next meeting on August 2.
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 outlook for Argentina is gradually improving, after a long and painful recession.
The economic slowdown in China is old news for Eurozone investors.
The recent March economic activity reports for Chile have been terrible, showing the first signs of the Covid-19 shock, and worse is to come.
Support in opinion polls for both the Conservatives and Labour has been increasing steadily.
Speculation mounted yesterday that the MPC will follow the U.S. Fed and cut interest rates before its next meeting on March 26.
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 economic recovery disappointed in Chile during most of the first half of the year, despite relatively healthy fundamentals, including low interest rates, low inflation and stable financial metrics.
Data released last week confirmed the strength of the economic recovery in Chile, and we expect further good news in the next three-to-six months.
The flow of downbeat business surveys continued yesterday, with the release of the Markit/CIPS construction survey.
The week started well for Brazil's President Bolsonaro.
Data released this week in Brazil underscored that the Covid-related shock on the industrial sector is finally easing, as the economy gradually reopens.
We remain optimistic on the scope for sterling to appreciate this year, reflecting our views that a deal for a soft Brexit will be reached soon and that the MPC will resume its tightening cycle later this year.
The most positive thing to say about the EZ manufacturing PMI at the moment is that it has stopped falling.
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.
Economic prospects in the Andes have deteriorated significantly in recent weeks, due mainly to the escalation of the trade war.
The key story in Brazil this year remains one of gradual recovery, but downside risks have increased sharply, due mainly to challenging external conditions.
We are revising down our forecasts for quarteron-quarter GDP growth in Q1 and Q2 to 0.3% and 0.2%, respectively, from 0.4% in both quarters previously, to account for the likely impact of the coronavirus outbreak.
The near-term performance for EZ manufacturing will be a tug-of-war between positive technical factors, and a still-poor fundamental outlook.
January's Markit/CIPS manufacturing survey suggests that the outcome of the general election has brought manufacturers some momentary relief.
The 90-day truce in the trade wars between the U.S. and China, brokered on Saturday at the G20 meeting in Argentina, is a big deal for financial markets in the euro area, at least in the near term.
The 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.
LatAm assets and currencies enjoyed a good start to the week, following the agreement between the U.S. and China to pause the trade war.
Colombia's central bank has found a relatively sweet spot.
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%.
Last week's final barrage of data showed that EZ headline inflation rose slightly last month, by 0.1 percentage points to 1.5%, driven mainly by increases in the unprocessed food energy components.
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.
Survey data in EZ manufacturing remain soft. Yesterday's final PMI report for August confirmed that the index dipped to 54.6 in August, from 55.1 in July, reaching its lowest point since the end of 2016.
Evidence that the U.K. economy has slowed significantly this year is starting to come in thick and fast. Following the Markit/CIPS manufacturing PMI on Monday --which signalled that growth in production declined in March to its lowest rate since July--the construction PMI dropped to 52.2 in March, from 52.5 in February.
The Monetary Policy Committee of the Reserve Bank of India lowered the benchmark repurchase rate by another 25 basis points yesterday, to 6.00%, as widely expected.
Recent hard data have confirmed the severe shock from Corona to the Chilean economy in Q2.
The rapidity with which the BoJ's QE programme has been scaled back is dramatic. Growth in the monetary base slowed to 15.6% year-over-year in September from 16.3% in August.
This week's March economic activity reports in Chile have been relatively strong, with the industrial sector expanding briskly and retail sales solid.
Korean exports hit a brick wall in April, unsurprisingly, as lockdowns across the non- China world dealt a body blow to demand.
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.
Thursday and Friday were busy days for LatAm economy watchers. In Brazil, the data underscored our view that the economy is on the mend, but the recent upturn remains shaky, and external risks are still high.
The 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.
May's activity data underline the gradual recovery in Colombia's economic growth, following signs of weakness at the start of the year.
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.
Q2's GDP figures create a terrible first impression, but a closer look suggests that the risk of a recession remains very low.
We continue to take little comfort from the small decline in the Labour Force Survey measure of employment in the first half of this year.
Today's industrial production data in the Eurozone will extend the run of soft headlines at the start of the year.
Markets rightly interpreted yesterday's above consensus GDP report as having little impact on the outlook for monetary policy.
Manufacturing in France rebounded only modestly at the start of Q3, despite favourable base effects.
The key question for the MPC at this week's meeting is whether it is prepared to tolerate the consequences for inflation of sterling's further depreciation since its last meeting in August.
Yesterday's ZEW investor sentiment report in Germany provided an upside surprise.
Today's general election looks set to be a closer race than opinion polls suggested two weeks ago.
Economic data in the German economy have been record-breaking in the past 12 months, and yesterday's preliminary full-year GDP report for 2017 was no exception.
May's consumer price figures, released on Wednesday, likely will show that CPI inflation held steady at 2.4%--matching the consensus and the MPC's forecast--though the risks lie to the upside.
Chancellor Sunak's "temporary, timely and targeted" fiscal response to the Covid-19 outbreak, and the BoE's accompanying stimulus measures, won't prevent GDP from falling over the next couple of months.
On the face of it, the latest GDP data look awful. December's 0.4% month-to-month fall in GDP closed a poor Q4, in which quar ter-on-quarter growth slowed to 0.2%, from 0.6% in Q3.
Chair Powell broke no new ground in his semi-annual Monetary Policy Testimony yesterday, repeating the Fed's new core view that the current stance of policy is "appropriate".
Yesterday's minutes of the February 4-to-5 COPOM meeting, at which Brazil's central bank, the BCB, cut the benchmark Selic rate by 25bp to 4.25%, reaffirmed the committee's post-meeting communiqué.
The latest GDP data confirm that the economy ended last year on a very weak note.
This week, Mexico's government unveiled its 2020 fiscal budget proposal.
The stagnation of GDP in August, following five consecutive month-to-month gains, confirms that the economy's momentum in prior months was simply weather-related.
We expect the Fed to drop "patient" from its post-meeting statement today, paving the way for a rate hike in June, data permitting. And the data will permit, in our view, despite what seems to have been a long run of disappointing numbers, and the likelihood that inflation will fall further below the Fed's 2% informal target in the near-term.
Friday's manufacturing data in the Eurozone were mixed.
Inflation in the Andes remains in check and the near term will be benign, suggesting that central banks will remain on hold over the coming months.
It's still unclear how exactly Covid-19 will impact the euro area as a whole, but little doubt now remains that Italy's economy is in for a rough ride.
This has been a very complicated week for LatAm policymakers, who are particularly uneasy about the performance of the FX market.
April's GDP data give a grim firs t impression, though the details provide reassurance that the economy isn't on the cusp of a recession.
The Fed announced no significant policy changes yesterday, but the FOMC reinforced its commitment to maintain "smooth market functioning", by promising to keep its Treasury and mortgage purchases "at least at the current pace".
Economic conditions in Brazil are deteriorating rapidly.
Last week finished as it started, with more depressing economic numbers in the Eurozone, this time from manufacturing in the core economies.
Yesterday's economic reports in the Eurozone were ugly.
The latest GDP data continue to show that the economy is holding up well, despite the Brexit saga.
Base effects were the key driver of yesterday's upbeat industrial production headline in Italy.
Recent inflation numbers across the biggest economies in LatAm have surprised to the downside, strengthening the case for further monetary easing.
October's consumer prices report, released on Wednesday, likely will show that CPI inflation has continued to drift further below the 2% target
The apparent thaw in the U.S.-China trade dispute is great news for LatAm, particularly for the Andean economies, which are highly dependent on commodity prices and the health of the world's two largest economies
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.
The Fed paved the way with a 50bp emergency rate cut on March 3, with more to come.
Industrial production in the Eurozone was probably unchanged in January equivalent to a 0.2% fall year-over-year. This is slightly below the consensus for a 0.2% rise month-to-month, mainly due to the downside surprises in m/m data in Italy and Germany released previously.
The French manufacturing data delivered another upside surprise last week, following the solid numbers in Germany; see here. French industrial production rose slightly in November, by 0.3% month-to-month, extending the gains from an upwardly-revised 0.5% rise in October.
Friday's June inflation data in Brazil confirmed that the ripples from the worst of the Covid shock were still being felt at the end of the quarter.
June's consumer price figures, released on Wednesday, probably will be overshadowed this week by data for May for GDP--see our detailed preview here--and the labour market.
Thursday's CPI report in Mexico showed that inflation is edging lower. We are confident that it will continue to fall consistently during Q1, thanks chiefly to the subpar economic recovery, low inertia and the effect of the recent MXN rebound.
Here's the bottom line: U.S. businesses appear to have over-reacted to the impact of the trade war in their responses to most surveys, pointing to a serious downturn in economic growth which has not materialized.
Japan's tertiary index fell further in December,by 0.3% month-on-month, after the downwardly- revised 0.4% drop in November.
December's consumer prices report looks set to show that CPI inflation was stable at 1.5%--in line with the consensus--though the risks are skewed to the downside.
Mexico's industrial recovery, which began in late Q4, lost momentum at the start of the second quarter.
LatAm governments and policymakers are bracing for a more dramatic and longer virus-led downturn than initially expected.
External and domestic shocks in Mexico over the last two years, including the "gasolinazo", NAFTA renegotiation and the presidential election, have put the country's financial metrics under severe stress and pushed inflation to cyclical highs.
More depressing economic numbers in LatAm have been released in recent days, and high frequency data continue to show a near-term bleak outlook.
Chile's market volatility and high political risk continue, despite government efforts to ease the crisis.
As we go to press, Mrs. May's last-minute scramble to Strasbourg appears to have failed to persuade enough rebels to back the government.
The MPC's meeting on Thursday looks set to be a perfunctory affair. Signs that the economy has lost momentum this year, alongside downward surprises from CPI inflation in January and wage growth in December, mean the Committee won't give the idea of hiking rates a moment's thought.
The effects of Covid-19--both negative and positive--on Korea's labour market certainly were felt in February.
Yesterday's ECB meeting was a tragedy in two acts. Markets were initially underwhelmed by the concrete measures unveiled, and they were then shell-shocked by Ms. Lagarde's performance in the press conference.
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.
The underlying trend in the core CPI is rising by just under 0.2% per month, so that has to be the starting point for our January forecast.
All major EZ governments are now in the process of lifting lockdowns, but investors should expect less a grand opening, more of a careful tip-toeing.
The renewed decline in bond EZ bond yields has raised the question of whether inflation expectations will recover at all in this cycle. We think they will, and we also believe 10-year yields will rise towards 1%-to-1.2% towards the end of the year. But two factors will keep inflation expectations and yields in check in the near term.
If the Phase One trade deal with China is completed, and is accompanied by a significant tariff roll-back, we'll revise up our growth forecasts, but we'll probably lower our near-term inflation forecasts, assuming that the tariff reductions are focused on consumer goods.
The 0.1% dip in the core CPI in March was the first outright decline in three years, but we expect another-- and bigger--decline in today's April numbers.
The Andean countries were quick to implement significant measures in response to the initial stage of the pandemic, adopting a broad range of economic and social policies to ease the effects.
Last week's official data supported our forecast that GDP growth likely will slow further in Q1, suggesting that a May rate hike is not the sure bet that markets assume.
Yesterday's industrial production numbers in Germany were similar to Friday's confusing new orders data.
The headline figures from yesterday's GDP report gave a bad impression. September's 0.1% month-to- month decline in GDP matched the consensus and primarily reflected mean-reversion in car production and car sales, which both picked up in August.
The Mexican economy gathered strength in Q3, due mainly to the strength of the services sector, and the rebound in manufacturing, following a long period of sluggishness, helped by the solid U.S. economy and improving domestic confidence.
Next week is so crammed full of data releases that we need to preview November's consumer price data early, in the eye of the storm of the general election.
The ECB and Ms. Lagarde played it safe yesterday.
Mexican industrial activity started the fourth quarter badly. Industrial production fell 0.1% month- to-month in October, pushing the year-over-year rate slightly up to -1.1% from -1.2% in September and -0.7% in Q3.
The Brazilian central bank cut its benchmark Selic interest rate by 50bp to 4.50% on Wednesday night.
The U.K. economy underperformed its peers to an extraordinary degree in Q2.
September's GDP report laid bare the economy's sluggishness.
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.
The resolution of tensions in Italy and aboveconsensus U.K. PMIs for May last week persuaded investors that the MPC likely will press on and raise interest rates soon.
China's trade surplus has been trending down in the last two years.
Today brings a raft of data which mostly will look quite positive but will do nothing to assuage our fears over a sharp slowdown in growth in the fourth quarter.
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.
This week's labour market data likely will show that the Coronavirus Job Retention Scheme did not prevent a rising tide of redundancies in response to Covid-19.
The momentum in Chinese manufacturing waned in August, with the official manufacturing PMI slipping marginally to 51.0, from 51.1 in July,
Brazilian assets were hit in Q3 by global external challenges, while domestic fundamentals gradually improved.
Yesterday's first estimate of Q1 GDP in Mexico confirmed that growth was under severe pressure at the start of the year. GDP fell by 1.6% quarter- on-quarter, the biggest drop since mid-2009, well below market expectations and following a 0.1% drop in Q4.
The ECB will be satisfied, and a bit relieved, with yesterday's economic data in the Eurozone.
The Conservatives successfully have defended their average poll lead over Labour of 10 percentage points over the last week.
The early Q4 hard data in Germany recovered a bit of ground yesterday.
Friday's industrial production data in the core EZ economies, for December, were startlingly poor. In Germany, industrial production plunged by 3.5% month-to-month, comfortably reversing the revised 1.2% rise in November.
Yesterday's German manufacturing and trade data did little to allay our fears over downside risks to this week's Q4 GDP data. At -1.2% month-to-month in December, industrial production was much weaker than the consensus forecast of a 0.5% increase. Exports also surprised to the downside, falling 1.6% month-to-month. Our GDP model, updated with these data, shows GDP growth fell 0.2%-to-0.3% quarter-on-quarter in Q4, reversing the 0.3% increase in Q3.
Survey data have been signalling a resilient Brazilian economy in the last few months, despite the broader challenges facing LatAm and the global economy in 2019.
Inflation data in Brazil, Mexico and Chile last week reinforced our view that interest rates will remain on hold, or be cut, over the coming meetings. The recent fall in oil prices, and the weakness of domestic demand, will offset recent volatility caused by the FX sell-off, driven mostly by the coronavirus story.
The reported 225K jump in payrolls in January was even bigger than we expected, but it is not sustainable. The extraordinarily warm weather last month most obviously boosted job gains in construction, where the 44K increase was the biggest in a year
Recent inflation and activity data in Mexico were dovish.
We can't quibble with the consensus that GDP likely rose by 0.2% month-to-month in December, reversing only two-thirds of November's drop.
Yesterday's first estimate of Q1 GDP in Mexico confirmed that growth was under severe pressure at the start of the year.
If you apply a seasonal adjustment to a seasonally adjusted series, it shouldn't change. When you apply a seasonal adjustment to the U.S. GDP numbers, they do change. First quarter growth, reported Friday at just 0.7%, goes up to 1.7%, on our estimate.
Figures released today look set to reveal that industrial production rose in January by the biggest percentage since August. But this will simply reflect a rebound in demand for heating energy after extreme weakness late last year. The oil and manufacturing sectors remain on course for an extremely challenging year.
Today's March ADP employment report likely will catch the leading edge of the wave of job losses triggered by the coronavirus.
Data released this week in LatAm are the last calm before the coronavirus storm.
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.
Brazil's recession has been severe, triggered by the downturn in the commodity cycle, which revealed the underlying structural weaknesses in the economy. This set off an acute shock in domestic demand, but it has bottomed in recent months and we now expect a gradual recovery to emerge.
Further compelling signs that the U.K. has lost its status as one of the fastest growing advanced economies were presented by the Markit/CIPS manufacturing survey, released yesterday. The PMI fell in February to 50.8--its lowest level since April 2013--from 52.9 in January.
Last week's official data unequivocally indicated that the Brexit vote has not had a detrimental impact on the economy yet.
The Q4 national accounts show that the economy lost further momentum at the end of last year, in the face of unprecedented levels of political uncertainty.
China's official PMIs for March surprised well to the upside, cheering markets across Asia.
Data released yesterday showed that the labour market in Brazil looks relatively resilient to the collapse in economic activity.
Data released in recent days have started to reveal a story of horror and misery in the Brazilian economy.
Chinese data still are in the midst of Lunar New Year-related noise, so take February's PMIs with a pinch of salt, even though they ostensibly are adjusted for seasonal effects.
Japan's industrial production data for May carried more evidence that the economy is getting a lift--at least temporarily--from the front-loading of activity ahead of the scheduled sales tax increase in October.
Recent economic weakness in Brazil, particularly in domestic demand, and the ongoing deterioration of confidence indicators, have strengthened the case for interest rate cuts.
Chile's central bank left its policy rate on hold last Friday at 3.0%, in line with market expectations, amid easing inflationary pressures and a struggling economy.
Wednesday's first estimate of full-year 2018 GDP in Mexico indicates that growth lost momentum in Q4.
The market-implied probability that the MPC will cut Bank Rate in the first half of this year leapt to 50% yesterday, from 35%, following Mark Carney's speech.
Yesterday's industrial production report in Germany was much better than implied by the poor new orders data--see here--released earlier this week.
The next few months, perhaps the whole of the first quarter, are likely to see a clear split in the U.S. economic data, with numbers from the consumer side of the economy looking much better than the industrial numbers.
The combination of sluggish GDP growth in October and news that the Prime Minister will attempt to renegotiate the terms of the Brexit backstop, most likely pushing back the key vote in parliament until January, has extinguished any lingering chance that the MPC might be in a position to raise Bank Rate at its February meeting.
Mexico's latest forward-looking indicators are showing tentative signs of stabilisation in the wake of recent evidence that growth slowed quicker than markets have been expecting.
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%.
Recent activity data in Mexico have been soft and leading indicators still point to challenging near-term prospects, due mainly to relatively high domestic political risk, stifling interest rates and difficult external conditions.
We expect June's GDP data, released on Wednesday, to show that the economic recovery gathered momentum in June, having got off to a faltering start in May.
Manufacturing in France remained on the front foot at the start of Q4.
The clear threat to demand posed by the coronavirus and China's efforts at containment have sent a shock wave through commodities markets.
Yesterday's Sentix investor sentiment survey provided the first glimpse of conditions on the ground in the EZ economy in the wake of the coronavirus scare.
Yesterday's manufacturing data in France were in stark contrast to last week's upbeat German numbers.
The economy looks to be in better shape following May's GDP report than widely feared.
France is solidifying its position as one of the Eurozone's best-performing economies.
The upturn in the new monthly measure of GDP in May, released yesterday, was strong enough--just--to suggest that the MPC likely will raise Bank Rate at its next meeting on August 2.
Momentum in French manufacturing eased slightly in November, but the setback was modest. Industrial production dipped 0.5% month-to-month, only partially reversing the revised 1.7% jump in October.
A reader pointed out Friday that the standard measurement of the impact of the weather on January payrolls--the number of people unable to work due to the weather, less the long-term average--likely overstated the boost from the extremely mild temperatures.
Banxico's monetary policy meeting on Thursday was the first to be attended by the two new deputy governors, Jonathan Heath and Gerardo Esquivel, economists appointed by AMLO.
The ECB made no changes to its policy stance yesterday.
The economy has remained remarkably resilient in the face of intense political uncertainty.
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.
Most countries in LatAm are now fighting a complex global environment; a viral outbreak of biblical proportions and plunging oil prices, after last week's OPEC fiasco.
In this Monitor we'll let the data be, and try to make some sense of the recent market volatility from a Eurozone perspective, with an eye to the implications for the economy and policymakers' actions.
We expect May's GDP report, released on Tuesday, to provide an early blow to hopes that the economy will embark on a V-shaped recovery this year.
It's hardly surprising that the consensus forecast for month-to-month growth in November GDP, released on Friday, is a mere 0.1%, given the flow of downbeat business surveys.
Survey data have been signalling a stronger German economy in the last few months, and hard data are beginning to confirm this story. Data yesterday showed that industrial production rose 0.4% month-to-month in November, pushing the year-over-year rate up to 2.2%, from an upwardly-revised 1.6% in October. The headline was boosted mainly by a 1.5% month-to-month jump in construction and a 0.9% rise in intermediate goods production.
The stagnation of industrial production in October ended a run of six consecutive month-to-month increases, the longest spell of unbroken growth since 1994.
We're now starting to see clear signs in unofficial data that households are slashing their expenditure on discretionary services, in order to minimise their chances of catching the coronavirus.
Yesterday's economic data in Germany cemented the story of a strong start to the year, despite the disappointing headlines. Industrial production slipped 0.4% month-to-month in March, pushing the year-over-year rate down to +1.9% from a revised +2.0% in February.
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%.
Lacklustre economic data and persistent no deal Brexit risk mean that the MPC won't rock the boat at this week's meeting.
Industrial production hit its stride last year, notching up eight consecutive month-to-month gains--the longest run of unbroken growth since May 1994--before a setback in December, which was triggered by the temporary closure of the Forties oil pipeline.
The pick-up in GDP in July is a re assuring sign that the economy is on course to grow at a solid rate in Q3, thereby substantially weakening the case for the MPC to cut Bank Rate before Britain's Brexit path is known.
Industrial production figures look set to surprise the consensus to the downside again today. We think that production was flat on a month-to-month basis in August, falling short of the consensus forecast of 0.2% growth.
The French manufacturing sector slowed more than we expected in Q1.
German trade data yesterday added further evidence that net exports likely will wreak havoc with the Q3 GDP report this week. Exports rose 2.6% month-to-month in September, partially rebounding from a 5.2% plunge in August. But imports jumped 3.6%, further adding to the net trade drag on a quarterly basis. Our first chart shows our estimate of real net trade in Q3 as the worst since the collapse in 2008-to-09.
The rate of deterioration in the labour market remains gradual enough for the MPC to hold back from cutting Bank Rate over the coming months.
We expect the Budget today to underwhelm investors who are eager to see a quick and powerful government response to the coronavirus outbreak.
Incoming activity data from Colombia over the past quarter have been surprisingly strong, despite many domestic and external threats.
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.
On the face of it, December's flash Markit/CIPS PMIs warrant the MPC cutting Bank Rate at its meeting on Thursday.
The November industrial production numbers will be dominated by the rebound in auto production following the end of the GM strike.
We expect July's consumer prices report, released on Wednesday, to show that CPI inflation ticked up to 0.7% in July, from 0.6% in June.
Economic activity in Mexico during the past few months has been improving gradually, as external and domestic threats appear to have diminished.
The softness of the headline September retail sales numbers hid a decent 0.5% increase in the "control" measure, which is the best guide to consumers' spending on non-durable goods.
Peru's central bank kept the reference rate unchanged at 3.5% at Thursday's meeting, in line with our view and market expectations.
Friday' second Q4 GDP estimate revealed that the EZ economy barely grew at the end of 2019. The report confirmed that GDP rose by 0.1% quarter-on-quarter in Q4, slowing from a 0.3% rise in Q3, but the headline only narrowly avoided downward revision to zero, at just 0.058%
Monday's economic activity data from Peru signalled that the gradual recovery continues, despite November's undershoot, which was chiefly driven by temporary factors.
At the end of last year, U.S. homebuilders were more optimistic than at any time in the previous 18 years, according to the monthly NAHB survey.
Economists are divided evenly on whether Tuesday's consumer price figures will show that CPI inflation held steady at 2.9% or edged down to 2.8% in June.
The consensus forecast for a 0.6% month-to month rise in retail sales volumes in December--data released today--is far too timid.
Brazil's consumer resilience in Q3 continued to November, but retail sales undershot market expectations, suggesting that the sector is not yet accelerating and that downside risks remain.
CPI inflation surprises look set to trigger larger- than-usual market reactions over the coming months, given that the MPC emphasised last month that it wants to see domestically-generated inflation rebound swiftly, after falling suddenly late last year, in order to justify keeping Bank Rate on hold.
Over the past 30 years China's role in LatAm and the global economy has increased sharply. Its share of world trade has surged, and its exports have gained significant market share in LatAm.
September's consumer price figures likely will surprise to the downside, prompting markets to reassess their view that the MPC will almost certainly raise interest rates next month.
The Brexit-related slump in corporate confidence finally has taken its toll on hiring.
The ramifications of continued disappointing Asian growth, particularly in China, and its impact on global manufacturing, are especially hard-felt in LatAm.
Today's brings the June retail sales and industrial production reports, after which we'll update our second quarter GDP forecast.
The weekly initial jobless claims numbers have been a useful proxy for the real-time performance of the economy since Covid-19 struck.
Last week's hard data in Colombia were upbeat, confirming that economic growth accelerated in the first half. Retail sales rose 5.9% year-over-year in May, overshooting consensus.
Ahead of the release of the retail sales report for December 2018, markets expected to see unchanged non-auto sales.
The market-implied probability that the MPC will cut Bank Rate at its meeting on January 30 jumped to 63%, from 44%, following the release of December's consumer prices report.
Judging by the solid advance data in the major economies, yesterday's EZ industrial production report should have hit desks with a bang, but it was a whimper in the end.
Economic activity remains under severe strain in the Andes.
The two marquee economic reports today, covering May retail sales and industrial production, will capture the initial rebound after the economy hit bottom sometime in mid-April.
Evidence of accelerating economic activity in Colombia continues to mount, in stark contrast with its regional peers and DM economies.
Yesterday's final inflation data in France for September were misleadingly soft.
Tariffs are a tax on imported goods, and higher taxes depress growth, other things equal.
Industrial production growth in China appears to be stabilising, following the slowdown in Q2.
Banxico hiked its policy rate by 25bp to a cyclical-high of 8.0% yesterday, in line with market expectations.
The over-hyped mystery of the gap between the hard and soft data in the industrial economy has largely resolved itself in recent months.
We see downside risk to the housing starts numbers for April, due today. Our core view on housing market activity, both sales and construction activity, is that the next few months, through the summer, will be broadly flat-to-down.
Upbeat survey data and relatively resilient consumer spending numbers indicate that the Mexican economy is in good shape, despite a marginal slowdown in most of Q2.
We have revised up our second quarter consumption forecast to a startling 4.0% in the wake of yesterday's strong June retail sales numbers, which were accompanied by upward revisions to prior data.
The labour market remains healthy enough to persuade the MPC to keep its powder dry over the coming months.
The incidence of the phrase "since the early nineties" has increased sharply in our Japan reports this year.
Brazil's December economic activity index, released last week, showed that the economy ended the year on a relatively weak footing. The IBC-Br index, a monthly proxy for GDP, fell 0.3% month- to-month, pushing down the adjusted year-over- year rate to 0.3%, from a downwardly-revised 0.7% increase in November.
Boeing's announcement that it will temporarily cut production of 737MAX aircraft to zero in January, from the current 42 per month pace, will depress first quarter economic growth, though not by much.
Banxico will meet tomorrow, and we expect Mexican policymakers to cut the main interest rate by 25bp, to 7.25%.
Today's economic data will add to the evidence that construction in the Eurozone slowed in the first quarter.
This week's EZ construction report--data released on Wednesday at 11.00 CET--will close the book on the second quarter in the euro area economy, providing further evidence that private sector activity rebounded as lockdowns were lifted.
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.
The idea that the ECB will use its forthcoming strategic policy review to include a measure of real estate prices in its inflation target has been consistently brought up by readers in recent meetings.
Colombia has been one of LatAm's outperformers this year.
The drop in CPI inflation to 0.5% in May, from 0.8% in April, brought it another big step closer to the near-zero rate we foresee in the second half of this year.
The establishment of the Fed's commercial paper funding facility, announced yesterday, replicates the first wave of asset purchases undertaken after the crash of 2008.
Fed Chair Powell delivered no great surprises in his semi-annual Monetary Policy Testimony yesterday, but he did hint, at least, at the idea that interest rates might at some point have to rise more quickly than shown in the current dot plot: "... the FOMC believes that - for now - the best way forward is to keep gradually raising the federal funds rate [our italics]."
The consensus forecast for the October core CPI, which will be reported today, is 0.2%. Take the over. Nothing is certain in these data, but the risk of a 0.3% print is much higher than the chance of 0.1%.
The question of what's really happening to the pace of layoffs is still unanswered, despite the apparent upturn over the past couple of months. The weekly jobless claims numbers are only just emerging from the fog of the usual holiday season chaos. The pattern of pre-holiday hiring and post-holiday layoffs is broadly the same each year, but Christmas and New Year's Day fall on a different day each year, making seasonal adjustment difficult.
Hot on the heels of yesterday's news that the NAHB index of homebuilders' sentiment and activity dropped by two points this month -- albeit from December's 18-year high -- we expect to learn today that housing starts fell last month.
As warned--see our Monitor April 7--economic data in the Eurozone disappointed while we were away. Industrial production, ex-construction, in the euro area slipped 0.3% month-to-month in February, and the January month-to-month gain was revised down by 0.6 percentage point to +0.3%.
We are becoming increasingly convinced that momentum is starting to build in the housing market. That might sound odd in the context of the recent trends in both new and existing home sales, shown in our first chart, but what has our attention is upstream activity.
The split between the reality reflected in the economic data and market pricing has never been wider in the euro area
We lack an adjective sufficiently strong to describe China's February activity data.
The latest survey evidence strongly supports our view that momentum is building in the industrial economy, but the official production data continue to lag. Yesterday's March Philly Fed survey was remarkably strong, with the correction in the headline sentiment index -- inevitable, after February's 33-year high -- masking increases in all the subindexes.
Latin American markets and policymakers are bracing for another complicated week, after the second, and more aggressive, Fed emergency move over the weekend.
Sharp increases in retail sales over the last two months suggest that consumers are not overly concerned by the risk that the U.K. could leave the E.U. next week. Sales volumes rose 0.9% month-on-month in May, and April's surge was revised larger, to 1.9% from 1.3%.
May's activity data in the Andes underline the severe hit from the pandemic on economic activity.
China's activity data for May were a mixed bag, but they broadly paint a consistent picture of a slowdown in economic growth from the first quarter.
The beleaguered EZ car sector finally enjoyed some relief at the end of Q3, though base effects were the major driver of yesterday's strong headline.
The GM strike will make itself felt in the September industrial production data, due today.
Colombia's July activity numbers, released on Friday, portrayed still-strong retail sales and a reviving manufacturing sector, with both indicators stronger than expected.
CPI inflation fell to 0.2% in August, from 1.0% in July, but exceeded our forecast and the consensus, both zero.
Manufacturing is in recession, with few signs yet that a floor is near, still less a recovery.
In the wake of the September retail sales report, we can be pretty sure that real consumers' spending rose at a 2¾% annualized rate in the third quarter, slowing from the unsustainable 4.3% jump. That would mean consumption contributed 1.9 percentage points to headline GDP growth.
The case for the MPC to hold back from implementing more stimulus was bolstered by September's consumer prices figures.
The median of FOMC members' estimates of longer run nominal r-star--the rate which would maintain full employment and 2% inflation--nudged up by a tenth in September to 3.0%, implying real r-star of 1%.
Friday's sole economic report showed that wage growth in France remained robust mid-way through the year. The non-seasonally adjusted private wage index, ex-agriculture and public sector workers, published by the Labour Ministry, rose by 0.3% quarter-on-quarter in Q3.
Data released over the weekend confirm that the Peruvian economy enjoyed a strong second quarter. The economic activity index rose 6.4% year-over-year in May, well above market expectations, and up from 3.2% in Q1.
We take little comfort from the fact that the 2.0% quarter-on-quarter drop in Q1 GDP was a bit smaller than the consensus forecast, 2.5%, and the 3.0% fall pencilled-in by the MPC in its Monetary Policy Report.
The fall in CPI inflation to just 1.5% in October-- its lowest rate since November 2016--from 1.7% in September, isn't a game-changer for the monetary policy outlook.
Manufacturing in the EZ was held above water by Ireland at the end of Q3.
Yesterday's data provided further evidence of the damage wrought on the EZ at the end of Q1.
Yesterday's EZ industrial production data for January confirmed the string of positive advance numbers from most of the individual economies.
The wave of May data due for release today likely will go some way to countering the market narrative of a seriously slowing economy, a story which gained further momentum last week after the release of the May employment report.
The consumer in Brazil was off to a strong start to the first quarter, and we expect household spending will continue to boost GDP growth in the near term.
It's hard to know what to make of the October CPI data, which recorded hefty increases in healthcare costs and used car prices but a huge drop in hotel room rates, and big decline in apparel prices, and inexplicable weakness in rents.
Friday's data added further colour to the September CPI data for the Eurozone.
GDP data for July, released on Friday, showed that the economic recovery following the Covid-19 lockdown still does not look V-shaped, even though virtually all restrictions on economic activity had been lifted.
The U.K. Monitor will be on a short break soon for paternity leave, so we are taking this opportunity to preview next week's data releases.
Today brings a wave of data which will help analysts narrow their estimates for first quarter GDP growth, and will offer some clues, albeit limited, about the early part of the second quarter.
Economic news last week in Mexico was net positive, as industrial production rose by a solid 6.9% month-to-month, following a 17.9% rebound in June, but the bigger picture is less encouraging.
Collapsing energy prices continue to weigh on the headline inflation rate in the Eurozone's largest economy. Final September CPI data in Germany confirmed that inflation fell to 0.0% year-over-year from 0.2%, due to a 9.3% plunge in energy prices -- down from a 7.6% fall in August--mainly a result of a collapse in petrol price inflation. This comfortably offset an increase in food inflation to 1.1% from 0.8%, due to surging vegetable and fruit prices.
Hard data for Brazil and Mexico, released last week, support the case for further interest rate cuts.
Sterling leapt to $1.27, from $1.22 last week, amid some positive signals from all sides engaged in Brexit talks.
CPI inflation increased to 2.9% in May, from 2.7% in April, exceeding the no-change expectation of both the consensus and the MPC, as well as our own 2.8% forecast.
The year-over-year collapse of industrial production in India eased substantially in May, to -35%, from -58% in April, close to our -32% forecast.
Peru's central bank, the BCRP, admitted defeat again in the face of the inflationary effects of the PEN's depreciation and El Niño, increasing interest rates by 25bp to 3.75% last Thursday, following its 25bp increase in September. Peru is the third LatAm economy in the last few months to raise rates in response to currency weakness, despite sluggish economic growth. The key problem for Peru is that inflation has been trending higher since early 2013 and has remained stubbornly high, above 2.8% all this year. "Temporary" factors just keep on coming.
It was no surprise that Banxico cut its policy rate by 25bp to 7.00% yesterday, following similar moves in August, September, November and December.
We've already raised a red flag for today's second Q4 GDP estimate in the Eurozone, but for good measure, we repeat the argument here.
Last week, while we were taking our spring break at home, markets behaved relatively well in LatAm.
The manufacturing sector likely was the primary driver of Q3 GDP growth in the Eurozone. Data yesterday showed that industrial production rose 1.4% month-to-month in August, pushing the year-over-year rate up to 3.8%, from a revised 3.6% in July.
The "Phase One" China trade deal announced late last week is a step in the right direction, but a small one. With no official text available as we reach our deadline, we're relying on media reporting, but the outline of the agreement is clear.
We agree with the consensus and the MPC that October's consumer prices report, released on Wednesday, will show that CPI inflation edged up to 2.5% in October, from 2.4% in September.
Chancellor Javid's resignation, only eight months after assuming the role, is the clearest sign yet that the Johnson-led government wants fiscal policy to play a bigger part in stimulating the economy over the next couple of years.
The 0.242% increase in the January core CPI left the year-over-year rate at 2.3% for the third straight month.
Inflation in Brazil Ended 2019 Above the BCB's Target; 2020 will be Fine
A cursory glance at November's GDP report gives the misleading impression that the U.K. economy is ticking over nicely, despite Brexit.
Today brings a huge wave of data, but most market attention will be on the June CPI, following the run of unexpectedly soft core readings over the past three months.
Industrial production in India turned around sharply in November, rising by 1.8% year-over-year, following October's 4.0% plunge and beating the consensus forecast for a trivial 0.3% uptick.
Investors concluded too hastily yesterday that November's GDP report boosted the chances that the MPC will cut Bank Rate at its upcoming meeting on January 30.
The EZ calendar has been extremely busy in the first few weeks of the year, making it virtually impossible to see the forest for the trees.
Our base case is that the core CPI rose 0.2% in December, but the net risk probably is to the upside. We see scope for significant increases in sectors as diverse as used autos, apparel, healthcare, and rent, but nothing is guaranteed.
The hard economic data in Brazil were relatively solid while we were off last week, supporting our view that the economy was experiencing a good spell at the start of the year just before the coronavirus hit.
Japan's Q2 GDP was driven by the twin pillars of private consumption and capex.
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.
CPI inflation held steady at 2.4% in October, undershooting the 2.5% consensus expectation and the MPC's forecast in this month's Inflation Report.
We expect September's consumer prices report, released on Wednesday, to show that CPI inflation held steady at 1.7%, below the 1.8% consensus.
China's main activity data for October disappointed across the board, strengthening our conviction that the PBoC probably isn't quite done with easing this year.
The two biggest economies in the region have taken divergent paths in recent months, with the economic recovery strengthening in Brazil, but slowing sharply in Mexico.
Mexican industrial production is slowly improving, and further good numbers are likely in coming months.
October's 0.1% month-to-month fall in retail sales volumes was disappointing, following substantial improvements in the CBI, BRC and BDO survey measures.
Data released yesterday from Brazil support our view that the economic recovery continues, but progress has been slow.
Few Eurozone investors are going blindly to accept the rosy premise of last week's relief rally in equities that both a Brexit and a U.S-China trade deal are now, suddenly, and miraculously, within touching distance. But they're allowed to hope, nonetheless.
More evidence emerged yesterday of the fading impact of the severe winter on the data, in the form of the strength of the NAHB survey and the weakness of the headline industrial production number.
The surge in July core retail sales was flattered by the impact of the Amazon Prime Event, which helped drive a 2.8% leap in sales at nonstore retailers.
Yesterday's Q2 GDP report in Germany was solid, but the headline disappointed slightly. GDP growth slowed to 0.6% quarter-on-quarter from an upwardly- revised 0.7% rise in Q1. The year-over-year rate, however, rose to 2.1% from a revised 2.0% in Q1.
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.
For all the excitement generated by yesterday's raft of appalling economic reports, the weekly jobless claims numbers still offer the best, and almost real-time, guide to the big picture.
The New York Times called the China trade agreement reached Friday "half a deal", but that's absurdly generous.
Momentum in the rebound in economic activity has faded over the past couple months, housing and auto sales aside.
The economy will be a shadow of its former self over the remainder of this year, following the heavy pummelling from Covid-19.
Our current base-case forecast for the second quarter is a 30% annualized drop in GDP, based on our assessment of the hit to discretionary spending by both businesses and consumers.
Inflation in the Andean economies ended 2019 well within central banks' objectives, despite many domestic and external challenges.
Eurozone investors should by now be accustomed to direct intervention in private financial markets by policymakers.
Mexico's industrial recession deepened in April, though some leading indicators suggest that the worst is over as the economy gradually reopens. But downside risks have increased dramatically in recent weeks, as the pandemic seems to be gathering renewed strength.
The January core CPI numbers are consistent with our view that the U.S. faces bigger upside inflation risks than markets and the Fed believe.
Last week's industrial report confirmed that the Mexican economy softened at the end of the second quarter. Industrial production was unchanged year- over-year in June, calendar-and seasonally adjusted, down marginally from +0.1% in May.
The EU's decision to grant the U.K. an extension under Article 50, until October 31, reveals two key aspects of continental Europe's position on Brexit.
Today brings an astonishing eight economic reports, so by the end of the wave of numbers we'll have a pretty good idea of how the economy performed in the first month of the third quarter.
Members of the Monetary Policy Committee have signalled that January's flash Markit/CIPS composite PMI, released on Friday 24, will have a major bearing on their policy decision the following week.
The weekly jobless claims numbers are due Thursday, as usual, but in the wake of a flood of emails from readers, all asking a variant of the same question-- should we be worried about the rise in continuing jobless claims?--we want to address the issue now.
The costs of the government's failure to lock down quickly in response to the Covid-19 pandemic, ultimately necessitating long-lasting restrictions, were visible in May's GDP figures.
Upbeat survey data, a competitive MXN, and the strong U.S. manufacturing sector indicate that Mexican industry should be rebounding.
We aren't much bothered by the one-tenth overshoot in the June core CPI, reported yesterday.
The headline May retail sales numbers were flattered by a 2.4% leap in the wildly volatile building materials component and a price-driven 2.0% surge in gasoline sales.
Yesterday's EZ manufacturing data were slightly underwhelming, at least compared to expectations.
Economists are evenly split on December's consumer prices report, due on Wednesday, with half expecting CPI inflation to fall to 2.1%, from 2.3% in November, and the other half expecting a 2.2% print.
Downbeat sectoral data and weakening consumer spending numbers indicate that the Mexican economy remains in bad shape.
The latest data from the Energy Department show that the feared collapse in U.S. oil production in the wake of the plunge in crude prices has no t started yet. The number of rigs in operation is falling sharply, but our first chart shows it is not yet approaching the collapse seen after the financial crash.
Last week's comments by Mr. Draghi--see here-- indicate that the ECB is increasingly confident that core inflation will continue to move slowly towards the target of "below, but close to 2%", despite elevated external risks, and marginally tighter monetary policy.
After a very light week for economic data so far, everything changes today, with an array of reports on both activity and inflation. We expect headline weakness across the board, with downside risks to consensus for the December retail sales and industrial production numbers, and the January Empire State survey and Michigan consumer sentiment. The damage will b e done by a combination of falling oil prices, very warm weather, relative to seasonal norms, and the stock market.
Chief Eurozone Economist Claus Vistesen on Eurozone Industrial Production
Korean 20-day exports are volatile and often miss the mark with respect to the full-month print. But these data offer the month's first look at Asian trade, and we often find value in these early signs.
Today's industrial production report in the Eurozone will be poor.
Last week we reported on the V-shaped recovery in German retail sales--see here--as lockdowns ended mid- way through Q2.
The rising trend in U.S. oil production was interrupted only briefly by the hurricanes.
The manufacturing sector appears to have finished 2017 on a strong note. The Markit/CIPS manufacturing PMI fell to 56.3 in December from 58.2 in November, but it remained above its 12-month average, 55.9.
Brazil's Q4 industrial production report, released Wednesday, confirmed that the recovery remained sluggish at the end of last year. December's print alone was relatively strong, though, and the cyclical correction in inventories--on the back of improving demand--lower interest rates, and the better external outlook, all suggest that the industrial economy will do much better this year.
Data released yesterday confirmed that the Mexican economy ended Q4 poorly; policymakers will take note.
The terrible scenes from Texas will play out in the economic data over the next few weeks.
Data today likely will show that manufacturing in the Eurozone was off to a strong start to the second quarter. Advance country data suggest that industrial production jumped 1.1% month-to-month in April, pushing the year-over-year rate up to 1.9% from 0.1% in March. The rise in output was driven mainly by Germany and France, but decent month-to-month gains in Ireland, Portugal and Greece also helped.
Data yesterday showed that industrial production in the Eurozone stumbled in May. Production fell 1.2% month-to-month, driven by weakness in all major economies and falling output in all sub-industries. The poor headline follows an upwardly revised 1.4% jump in April, which means that production rose marginally in the first two months of the second quarter.
Industrial production in Eurozone had a decent start to the fourth quarter. Output ex-construction rose 0.6% month-to-month in October, pushing the year-over-year rate up to 1.9% from a revised 1.3% in September. Production was lifted by gains in the major economies, and surging output in the Netherlands, Portugal and Lithuania. Across sectors, increases in production of capital and consumer goods were the main drivers, but energy output also helped, due to a cold spell lifting demand and production in France.
When the dust settles after today's wave of data, we expect to have learned that core retail sales continued to rise in June, core inflation nudged back up to its cycle high, and manufacturing output rebounded after an auto-led drop in May. None of these reports will be enough to push the Fed into early action, but they will add to the picture of a reasonably solid domestic economy ahead of the U.K. Brexit referendum.
On Monday we highlighted the grim state of the Brazilian industrial sector, where output fell by a huge 5.8% year-over-year in November. By contrast, the outlook for Mexico's industrial sector is much brighter.
Eurozone manufacturers had an underwhelming start to Q4. Data yesterday showed that production fell 0.1% month-to-month in October, pushing the year-over-year rate down to 0.6%, from a revised 1.3% in September. Output was constrained mostly by weakness in France and a big month-to-month fall in Ireland, which offset marginal gains in Germany and Spain.
Economic growth in Mexico will remain relatively modest over the second half of the year, and the outlook for 2017 remains cloudy, for now. The core fundamentals suggest that growth will increase, but we think that depressed mining output and fiscal tightening might limit the pace of the upturn.
Industrial production data yesterday confirmed downside risks to today's GDP data in the Eurozone. Output fell 0.3% month-to-month in September, pushing the year-over-year rate down to 1.7% from a revised 2.2% in August. Weakness in Germany was the main culprit, amid stronger data in the other major economies. A GDP estimate based on available data for industrial production and retail sales point to a quarterly growth rate of 0.4% quarter-on-quarter, but we think growth was rather lower, just 0.2%, due to a drag from net trade.
Mexican manufacturing data continue to offer a counterweight to strong consumers' spending and services numbers. Output in the key manufacturing sector contracted by 0.2% month-to-month in September, due mainly to severe external headwinds. But the year-over-year rate was unchanged at 3.3%, with a flat underlying trend. Total industrial output, by contrast, rose 0.4% month-to-month in September, pushing the year-over-year rate up to 1.7%, from an upwardly-revised 1.1% gain in August.
The underlying health of the construction sector isn't as poor as today's official output figures likely will imply. Nonetheless, growth in construction output, which accounts for 6% of GDP, probably won't return to the stellar rates seen in 2013 and 2014, and the sector can't be relied upon to provide much support to overall growth.
Mexico's latest industrial production data were worse than we expected. Output rose just 0.1% month-to-month in September, pushing the year- over-year rate down to -1.3%, from a downwardly revised +0.2% in August.
Industrial production in the euro area dipped in February. Output fell 0.8% month-to-month pushing the year-over-year rate down to 0.8% from a revised 2.9% in January. This indicates that Eurozone manufacturing continues to lag the pace seen in previous business cycle upturns.
The upturn in the Eurozone construction sector likely paused in Q3. Yesterday's August report showed that output fell 0.2% month-to-month, pushing the year-over-year rate down to +1.6%, from a revised +2.8% in July.
You'd have to be very brave to take the weakness of yesterday's Empire State survey more seriously than the strong official industrial report published 45 minutes later. The hard data showed industrial production up 1.3% month-to-month, and only two tenths of that gain was explained by the cold weather, which drove up utility energy output.
Industrial production in the Eurozone fell a disappointing 0.1% month-on-month in January, driven by low output in Italy and Germany, as well as a large drop in Finland. But December production was revised up to 0.3% month-to-month, from the initially estimated 0.0%.
The February industrial production numbers were flattered by an enormous 7.3% jump in the output of electricity and gas utility companies, thanks to a surge in demand in the face of the extraordinarily cold weather. February this year was the coldest since at least 1997, when comparable data on population weighted heating degree days begin.
Construction data released yesterday provided further evidence that the Eurozone economy had a decent start to the fourth quarter. Output rose 1.3% month-on-month in October, equivalent to a 1.4% year-over-year increase.
Manufacturing does not consistently lead the rest of the economy. Neither does it consistently lag. On average, turning points in the rates of growth of manufacturing output and GDP are coincident, as our first chart clearly shows. But coincidence is not causality.
The construction sector in the Eurozone remains moribund. Output fell 0.4% month-to-month in September, pushing the year-over-year rate up to 1.8% from a revised 1.4% fall in August. Declines were recorded in France, Germany, and Italy, with a small increase in Spain. These data could, in theory, lead to revisions in the final Q3 Eurozone GDP data released December 8th, but we very much doubt they will move the needle. Our first chart shows the relationship between construction and GDP growth has broken down since the crisis.
Yesterday's economic activity data from Peru signalled that the relatively firm business cycle continues. The monthly GDP index accelerated to 3.6% year-over-year in November, rising from 2.1% in October, but marginally below the 4.4% on average in Q3. Growth continued to be driven by mining output, including oil and gas, which rose 15% year-over- year. The opening of several new mines explains the upturn, and we expect the sector to remain key for the Peruvian economy this year.
The elevated readings from the ISM manufacturing survey this year have not been followed by rapid growth in output. The headline ISM averaged 55.8 in the second quarter, a solid if unspectacular reading. But output rose by only 1.2% year-over-year, and by 1.4% on a quarterly annualized basis.
Industrial production data yesterday indicate manufacturers in the Eurozone enjoyed a decent start to Q3, thanks to strength in Germany, Italy and Spain, which offset weakness in France. Production ex-construction rose 0.6% month-to-month in July, boosted in part by a 3% jump in energy output. If production is unchanged in August and September, output will rise 0.3% quarter-on-quarter in Q3, but this estimate is uncertain, and we look for an increase of about 0.4%-to-0.5%.
Another month, another sluggish performance in the manufacturing sector. Even a third straight big jump in auto output was unable to rescue the May numbers, and aggregate output fell by 0.2%. The trend in output has been broadly flat over the past six months or so, and we see little prospect of any sustained near-term recovery.
Mexico's domestic conditions don't warrant an imminent rate hike in the near term. Headline inflation continues to fall, reaching an all-time low of 2.5% in October. It should remain below 3% in the coming months. And core prices remain wellbehaved, increasing at a modest pace, signalling very little pass-through of the MXN's depreciation. Economic activity gained some momentum in Q3-- this will be confirmed on Friday's GDP report--but demand pressures on inflation are absent and the output gap is still ample. Under these conditions, policymakers should not be in a rush to hike, but they have signalled once again that they will act immediately after the Fed.
We aren't going to pretend for a minute that the manufacturing sector is anything other than weak, but the 0.5% drop in output in August--the worst month since January 2014--hugely overstates the extent of industry's struggles. All the decline was due to a 6.4% plunge in auto output, but a glance at the recent path of production in this sector makes it very clear that its short-term swings aren't to be taken seriously. Auto production fell by 4.5% in June, rocketed by 10.6% in July, and then dropped sharply in August.
Yesterday's industrial production report was poor, but the headline was better than we, and the market, feared. Output fell 0.5% month-to-month in August, but the July data were revised up 0.2%, pushing the year over-year rate--using the seasonally- and working day-adjusted index--higher to 1.9% from 1.4% in July. Bloomberg reported the year-over-year rate fell to 0.9% from 1.7% in July, but they used an index which is only working day-adjusted.
While we were out, Brazil's economic, fiscal and political position continued to deteriorate further. The recession deepened in the fourth quarter, with Brazil's economic activity index surprising yet again to the downside in October, falling for the eight consecutive month. The index fell 0.6% month-to-month and 6.4% year-over-year, the biggest contraction since the index began in 2004. And the prospects for first quarter consumption and industrial output have deteriorated substantially. Unemployment increased further in November, and inflation continues to rise, with the mid-month CPI--the IPCA-15 index-- increasing 1.2% month-to-month in November, after a 0.9% increase in October.
Friday's industrial production reports in the Eurozone were sizzling. In Germany, headline output rose 1.2% month-to-month in May--after a downwardly-revised 0.7% rise in April--which pushed the year-over-year rate up to a six-year high of 4.9%.
Last week's industrial production and construction output figures for May were surprisingly weak. They have compelled us to revise down our expectation for the preliminary estimate of Q2 GDP to 0.2% quarter-on-quarter, from 0.3% previously.
Industrial production and trade data on Friday ended last week on a downbeat note, amid otherwise solid economic reports. In Germany, industrial output fell 0.3% month-to-month in November, pushing the year-over-year rate down to 0.1% from a revised 0.4% in October. The details, however, were better than the headline. Production was hit by a 3.3% plunge in capital goods output, offsetting gains in all other key sectors, and net revisions added 0.3% to the October data.
Another day, another solid economic report in the Eurozone. Data yesterday showed that industrial production in France jumped 2.2% month-to-month in November, pushing the year-over-year rate up to +1.8%, from -1.8% in October. The 2.3% jump in manufacturing output was the key story, offsetting a 0.3% decline in construction activity. Production of food and beverages rebounded from weakness in October, and oil refining also accelerated.
Yesterday's industrial production data in Germany were downbeat. Output fell 1.3% month-to-month in March, pushing the year-over-over rate down to 0.3%, from 2.0% in February. Production was held back by weakness in manufacturing and a plunge in construction, Meanwhile, energy output rebounded slightly following last month's fall. Over Q1 as a whole, though, the industrial sector performed strongly.
The pressures on U.S. manufacturers are changing. For most of this year to date, the problem has been the collapse in capital spending in the oil business, which has depressed overall investment spending, manufacturing output and employment. Oil exploration is extremely capital-intensive, so the only way for companies in the sector to save themselves when the oil prices collapsed was to slash capex very quickly.
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.
The EZ Economy Is Rebounding From The Virus...But Risks To Output And Employment Persist
We think the EZ construction industry stuttered in August, following a strong start to Q3. Advance data from Germany, France and Spain suggest that output fell 1.4% month-to-month, pushing the year-over- year rate down to 1.8%, from a revised 3.1% in July.
The revival in the construction sector is slowing on all fronts as the fiscal squeeze intensifies, business confidence fades and the recovery in housebuilding loses momentum. These headwinds are likely to ensure that construction output only holds steady this year, thereby contributing to the broader economic slowdown.
After disappointing Italian Industrial Output Data, Pantheon Macroeconomics Chief Eurozone Economist Claus Vistesen discusses the current situation in the Eurozone.
It's tempting to conclude from the third quarter's GDP figures, which showed output rising 0.5% quarter-on-quarter, despite a record drag from net trade, that the U.K. economy is comfortably weathering sterling's appreciation. But a closer look at the data shows the net trade drag is the counterparty to some erratic inventory movements. The real net trade hit is still to come.
Mexico's inflation remains the envy of LatAm, having consistently outperformed the rest of the region this year. Headline inflation slowed marginally to 2.5% in October, a record low and below the middle of Banxico's target, 2-to-4%, for the sixth straight month. The annual core rate increased marginally to 2.5% in October from 2.4% in September, but it remains below the target and its underlying trend is inching up only at a very slow pace. We expect it to remain subdued, closing the year around 2.7% year-over-year. Next year it will gradually increase, but will stay below 3.5% during the first half of 2016, given the lack of demand pressures and the ample output gap.
French industrial production data surprised to the upside yesterday. Output rose 0.1% month-to-month in September, a solid gain following an upwardly-revised 1.7% rise in August, and also higher than the consensus, forecast for a 0.4% fall. The details, however, were less upbeat than the headline. Transport equipment fell, as expected, following production being pushed forward ahead of the Summer holidays. But this story was overshadowed by a 22.5% month-to-month jump in oil refining-- included in manufacturing--as refineries resumed full production following maintenance over the summer.
The euro area economy continues to defy rising political uncertainty. Data yesterday showed that industrial production, ex-construction, in the Eurozone jumped 1.5% month-to-month in November, pushing the year-over-year rate up to 3.2% from a revised 0.8% in October. Output rose in all the major economies, but the headline was flattered by a 16.3% month-to-month leap in Ireland. This was due to a production jump in Ireland's "modern sector" which includes the country's large multinational technology sector.
November production data in Mexico, released Monday, showed that the industrial economy remained quite soft in the last part of last year. The collapse in capital spending in the oil sector, slowing public spending, and weaker growth in EM and the U.S. manufacturing sector have combined to hit Mexican industrial output quite hard. Total production rose just 0.1% year-over-year in November, down from an already weak 0.5% in October, and below the 1.3% average increase in Q3. Output fell 0.5% month-to-month, the biggest drop since May, reflecting broad-based weakness.
Yesterday's data showed that industrial production in the Eurozone accelerated at the end of spring. Output, ex-construction, jumped 1.3% month-to-month in May, much better than the downwardly-revised 0.3% rise in April; the rise pushed the year-over-year rate up to a six-year high of 4.0%.
Mexico's latest industrial production figures, released on Friday, showed that the recovery is stuttering. May output fell 0.9% year-over-year, down from the 1.2% gain in April. Total production was depressed by a 1.5% month-to-month drop in construction output, after two consecutive increases.
Activity in the Mexican industrial sector cooled marginally at the start of the second quarter, but the drop was not as dramatic as the headlines suggested. Output fell 4.4% year-over-year in April, after a 3.4% increase in March.
Chile's Central Bank's monetary policy meeting, scheduled for tomorrow, likely will be one of the most difficult in recent months. Economic activity remains soft, and GDP likely contracted in Q4, due to weakness in mining output and investment.
Industrial activity in Mexico had a very poor start to the third quarter. Output plunged 1.0% month-to- month in July, the biggest drop since May 2015, pushing the year-over-year rate down to -1.5%, from -0.2% in June.
February's industrial production and construction output data leave us little choice but to revise down our forecast for quarter-on-quarter GDP growth in Q1 to 0.2%, from 0.3% previously.
Yesterday's Mexican industrial data painted a downbeat picture of the sector at the end of last year, and highlighted the downside risks facing the economy in the first half of this year. Industrial output fell 0.1% month-to-month and was flat year over-year in December, with weakness in all sectors except manufacturing. Overall, industrial activity expanded by only 0.2% year-over-year in the fourth quarter, the slowest pace since late 2013.
The Mexican industrial sector is struggling. December industrial output fell 0.4% month-to-month, the third consecutive drop, driven mainly by a similar decline in mining/oil output.
Economic growth in Brazil is not likely to improve significantly this year. Our pessimism was underscored by the November industrial production data last week, showing a contraction of 0.7%, and pushing output to its lowest level since June.
For more than two years, the BoJ has fretted, in the outlook for economic activity and prices, that "there are items for which prices are not particularly responsive to the output gap."
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.
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.
Industrial production in Germany had a decent start to the third quarter. Output rose 0.7% month-to-month in July, less than we and the consensus expected, but the 0.5% upward revision to the June data brings the net headline almost in line with forecasts. Rebounds of 2.8% and 3.2% month-to-month in the capital goods and construction sectors respectively were the key drivers of the gain, following similar falls in June. A 3.2% fall in consumer goods production, however, was a notable drag.
Yesterday's industrial production data in Germany were better than we feared. Output slipped 0.3% month-to-month in August, depressing the year- over-rate to -0.4% from 1.6% in July, a minor fall given evidence of a big hit from weakness in the auto sector ahead of the EU emissions tests.
Punchy output gains from China's manufacturers will soon give way. A mixed bag for China's non-manufacturing sectors at the start of Q3. Don't be fooled by the June slip in Japan's unemployment rate. Expect only a mild recovery in Japanese industrial production, for now. Korean production ended Q2 on a strong note.
In one line: Stabilisation in the m/m data, but trend still points to slower output growth.
Construction data in the Eurozone usually don't attract much attention, but today's July report will provide encouraging news, compared with recent poor manufacturing data. We think construction output leapt 2.1% month-to-month, pushing the year-over-year rate up to 2.3%, from 0.7% in June. This strong start to the third quarter was due mainly to a jump in non-residential building activity in France and Germany.
German GDP growth jumped in the first quarter, but monthly economic data suggest the economy all but stalled in Q2. Yesterday's industrial production data are a case in point. Output slid 1.3% month-tomonth in May, pushing the year-over-year rate down to -0.4% from a revised 0.8% gain in April. Adding insult to injury, the month-to-month number for April was revised down by 0.3 percentage points
Brazil's industrial sector continues to suffer, despite September's report surprising marginally on the upside. Output contracted 1.3% month-to-month in September, after a 0.9% fall in August, pushing the year over-year rate down to -10.9% down from -8.8% in August. This is the biggest drop since April 2009. Output has fallen an eye-popping -7.4% year-to-date, and in the third quarter alone activity contracted by 3.2% quarter-on-quarter, in line with our vie w for a 1.2% contraction in real GDP for the third quarter.
The Brazilian industrial sector started this year on a very downbeat note, despite a 2% month-to-month jump in output. The underlying trend in activity is still very weak. Production fell 5.2% year-over-year.
Yesterday's German industrial production data were poor, but better than we expected. Output fell 0.5% month-to-month in February, pushing annual growth down to 1.3% from a revised 1.8% in January. In addition, net revisions to the month-to-month data were a hefty -1.0%, but this is not enough to change the story of a Q1 rebound in industrial production.
Yesterday's detailed EZ GDP report showed that real output rose 0.3% quarter-on-quarter in Q3, the same pace as in Q2. The year-over-over rate rose marginally to 1.7% from 1.6%, trivially higher than the first estimate, 1.6%. The details showed that consumers' spending and public consumption were the key drivers of growth in Q3, offsetting a slowdown in net trade.
By any yardstick, U.K. productivity growth has been terrible in recent years. Output per hour exceeded its pre-recession peak only in the second quarter of 2015, and it has grown at an average annual rate of just 0.6% this decade. U.S. productivity growth has been equally dismal since 2010. But the U.K.'s performance is more worrying, because the productivity slump during the recession suggested scope for a period of catch-up. In the U.S., by contrast, productivity surged during the recession as firms cut headcount sharply.
In one line: Manufacturing output has stalled; trade data point to downward Q3 GDP revision.
In one line: Stung by weakness in output of electronics and pharmaceuticals.
In one line: Consistent with falling manufacturing output and a small drop in the PMI.
In one line: Understating the upswing in output.
In one line: Don't take the sub-50 reading literally; output likely is recovering in May, albeit sluggishly.
In one line: Downside surprise all due to erratic construction output; the services sector still is coping well.
In one line: Supply chain disruptions to depress output in the spring.
In one line: Calendar quirks explain the drop in manufacturing output; expect a rebound in May.
In one line: Resilient manufacturing output offsets weakness elsewhere.
In one line: Don't take the sub-50 reading literally; output likely is recovering in May, albeit sluggishly.
In one line: A sharp Covid-related increase, but the large output gap should push inflation down soon.
In one line: An ugly end to the first quarter, but output likely will stabilize in Q2.
In one line: A mixed industrial picture; manufacturing output is weakening, but other sectors seem to be reviving.
Yesterday's Brazilian industrial production data continue to tell a story of a slow business cycle upturn. Output rose 0.2% month-to-month in November, after a downwardly revised 1.2% plunge in October. The year-over-year rate, though, jumped to -1.1%, from -7.3% in October. The underlying trend is now on the mend, following weakness in Q3 and early Q4. Output rose in November three of the four major categories and in 13 of the 24 sectors.
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.
The Eurozone construction sector ground to a halt at the start of 2017. Data on Friday showed that output plunged 2.3% month-to-month in January, pushing the year-over-year rate down to -6.0%, from a revised +3.0% in December. The weakness was broad-based across the major economies, but it was concentrated in France and Spain where output fell by 3.5% and 3.8%, respectively.
We continue to see signs of a strengthening upturn in Eurozone construction. Output in construction rose 0.3% month-to-month in April, pushing the year-over-year rate down to 3.2%, from an upwardly revised 3.8% in March.
Construction in the Eurozone had a decent start in the third quarter. Output rose 0.5% month-to- month in July, pushing the year-over-year rate down to 1.9% from 2.8% in June.
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.
Brazil's economic performance has improved marginally in recent months, with inflation falling and economic activity and sentiment data stabilizing, or even increasing modestly. The latest regional economic activity report, for instance, showed that although overall output declined again on a sequential basis in March-to-May, three of the five regions expanded.
Yesterday's EZ construction data confirmed that capex in the building sector plunged in the second quarter. Construction output fell 0.5% month-to-month in May, pushing the year-over-year rate up trivially to -0.8%, from a revised -1.0% in April. Our forecast for construction investment in Q2 is not pretty, even after including our assumption that production rebounded by 0.5% month-to-month in June.
Friday's Brazil industrial production data were surprisingly upbeat. Output rose 0.1% month-to-month in July, slightly better than the consensus forecast for no change. July's modest gain was the fifth consecutive increase, confirming that industrial output in Brazil is stabilizing, and it paints a less grim picture of GDP growth at the start of Q3.
Chile's economic indicators for July were unreservedly weak, confirming that the economic recovery remains sluggish. The industrial production index--comprising mining, manufacturing, and utility output--fell by 5.2% year-over-year in August, after a 1.7% contraction in July. Mining production suffered a sharp 9.3% year-over-year contraction, due mainly to an 8.3% fall in copper production, as strikes and maintenance works badly hit the industry.
Brazil's recession is getting uglier. Real GDP in Brazil fell 1.7% quarter-on-quarter in Q3, much worse than expected, though marginally less terrible than the downwardly revised 2.1% contraction in Q2. Year-over-year, the economy plunged by 4.5% in the third quarter, down from -3.0% in Q2, and -2.5% in the first half. The disappointment was widespread in Q3; though rising mining output was a positive, the underlying trend in mining is still falling. The key story here, though, is that the economy has sunk into its worst slump since the Great Depression.
Chile's activity numbers at the beginning of Q3 were mediocre, suggesting that the economy remains sluggish. The industrial production index--comprising mining, manufacturing, and utility output--fell by 1.7% year-over-year in July, reversing a 1.6% expansion in June. A disappointing 4.5% year-over-year contraction in mining activity depressed the July headline index, following a 1.4% increase in June. The moderation in output growth was due to maintenance-related shutdowns at key processing plants, and disruptions from labor strikes, especially a three-week strike by contract workers at Codelco--the state-owned mining firm--which badly hit production.
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.
Markets tend to ignore Eurozone construction data, but we suspect today's report will be an exception to that rule. Our first chart shows that we're forecasting a 8.5% month-to-month leap in February EZ construction output, and we also expect an upward revision to January's numbers.
Taken at face value, the GDP data continue to suggest that the Brexit vote has had no adverse consequences for the economy. The official estimate of quarter-on-quarter GDP growth in Q4 was revised up yesterday to 0.7%, from 0.6%. The revision had been flagged earlier this month by stronger industrial production and construction output figures.
Construction in the euro area stumbled at the end of last year. Output fell 0.2% month-to-month in December, but the year-over-year rose to 2.4%, from a revised 1.6% in November.
Brazilian February industrial production data, released yesterday, were relatively positive. Output rose 0.1% month-to-month, pushing the yearover- year rate down to -0.8% from 1.4% in January. Statistical quirks were behind February's year-over-year fall, though.
The national accounts look set to show that GDP growth in the fourth quarter was even stronger than previously estimated. Earlier this month, quarter-on-quarter growth in construction output in Q4 was revised up to 1.2%, from 0.2%. As a result, construction's contribution to GDP growth will rise by 0.07 percentage points.
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.
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.
Brazil's economic and fiscal outlook has worsened in recent months, and economic activity will likely contract even further in the short-term. Some of last week's economic reports, however, were a bit less bad than of late. The latest industrial production data were less bad than expected in August, but the picture is still very grim. Industrial output plunged 1.2% month-to-month, above the consensus, and allowing the annual rate to stabilize at -9% year-over-year.
Brazil industrial production continues to edge lower, falling 1.2% month-to-month in April, a 7.6% year-over-year drop. In March, output was down only 3.4% year-over-year, but the data are volatile in the short-term. The trend is about -7%, down from -3.8% in the second half of last year.
Brazil's industrial sector continued to support the economy in Q3. The underlying tr end in output is rising and leading indicators point to further growth in the near term.
The IFO did its part to alleviate the stock market gloom yesterday, with the business climate index rising slightly to 108.3 in August from 108.0 in July. The August reading doesn't reflect the panic in equities, though, and we need to wait until next month to gauge the real hit to business sentiment. The increase in the headline index was driven by businesses assessment of current output, with the key expectations index falling trivially to 102.2 from a revised 102.3 in July. This survey currently points to a stable trend in real GDP growth of about 0.4% quarter-on-quarter, consistent with our expectation of full year growth of about 1.5%.
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.
Yesterday's PMI reports repeated the message of a firm cyclical Eurozone recovery, despite investors' angst over deflation and the underwhelming Q3 GDP data earlier this month. The composite index in the zone rose to a 54-month high of 54.4 in November from 53.9 in October, lifted by strong output and solid new business growth. Our first chart shows the rise in the PMI points to slight upside risks in Q4 to the four quarter trend in real GDP growth of 0.4% per quarter.
Japanese data continue to come in strongly for the second quarter. The manufacturing PMI points to continued sturdy growth, despite the headline index dipping to 52.0 in June from 53.1 in May. The average for Q2 overall was 52.6, almost unchanged from Q1's 52.8, signalling that manufacturing output growth has maintained its recent rate of growth.
The preliminary estimate of GDP showed that the economy finished 2016 on a strong note. Output increased by 0.6% quarter-on-quarter, the same rate as in the previous two quarters. The year-over-year growth rate of GDP in 2016 as a whole--2.0%--was low by pre-crisis standards, but it likely puts the U.K. at the top of the G7 growth leaderboard. We cannot tell how well the economy would have performed had the U.K. not voted to leave the EU in June, but clearly the threat of Brexit has not loomed large over the economy.
Is the monetary easing cycle in Brazil over?
Chief U.K. Economist Samuel Tombs on U.K. Manufacturing
Chief U.K. Economist Samuel Tombs on U.K. construction
Chief U.K. Economist Samuel Tombs comments on U.K. Manufacturing
Chief U.K. Economist Samuel Tombs on U.K Manufacturing in May
Chief U.K. Economist Samuel Tombs on U.K. Industrial Production
Chief U.K. Economist Samuel Tombs on U.K. GDP
Senior International Economist Andres Abadia on Chile GDP.
Chief U.K. Economist Samuel Tombs on U.K. Unemployment
Chief U.K. Economist Samuel Tombs on U.K. Q2 GDP
Chief U.K. Economist Samuel Tombs on U.K. Manufacturing
Ian Shepherdson's mission is to present complex economic ideas in a clear, understandable and actionable manner to financial market professionals. He has worked in and around financial markets for more than 20 years, developing a strong sense for what is important to investors, traders, salespeople and risk managers.
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