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2172 matches for " price":
The jump in oil prices over the past two trading days eventually will lift retail gasoline prices by about 35 cents per gallon, or 131⁄2%.
April's consumer price figures, released on Tuesday, look set to reveal that CPI inflation jumped to 2.7%--its highest rate since September 2013--from 2.3% in March. Inflation likely will be driven up entirely by a jump in the cor e rate to 2.3%, from 1.8% in March.
A modest dip in gasoline prices will hold down the October CPI, due today, but investors' attention will be on the core, after five undershoots to consensus in the past six months.
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.
House prices continue to struggle for momentum, instilling caution among households. Admittedly, Halifax reported yesterday that its index jumped by 1.5% month-to-month in May.
The price of Brent oil has fallen sharply to $40 per barrel from about $50 just a month ago, and speculation is mounting that it could plunge to $20 soon. But CPI inflation should still pick up over coming months, provided oil prices remain above $30. And the absence of "second-round" effects of lower oil prices this year should reassure the Monetary Policy Committee that lower oil prices won't bear down on inflation over the medium-term.
Mortgage lender Halifax reported yesterday that the rate of increase in house prices has picked up since the summer.
The combination of unexpectedly strong auto sales and rising gas prices should generate strong-looking headline retail sales numbers for October. We have no idea what to expect for November, with two-thirds of the month coming after the election, but the final pre- election sales report will look good.
Eurozone manufacturing selling prices remain under pressure from deflationary headwinds. The PPI index, ex-construction, in the euro area fell 4.2% year-over-year in March, matching February's drop. Weakness in oil prices continues to drive the headline.
The strong dollar is pushing down goods prices, but not very quickly. As a result, the sustained upward pressure on rents is gradually nudging core CPI inflation higher. It now stands at 1.9%, up from a low of 1.6% in January, and even relatively modest gains over the third quarter will push the rate above 2% by year-end. We can't rule out core CPI inflation ending the year at a startling 2.3%.
Today's Case-Shiller report on existing home prices will likely show that August prices were little changed, month-to-month, for the fourth straight month. The slowdown in the pace of price gains since the first quarter, when price gains averaged 1.0% per month, has been startling. In all probability, though, the apparent stalling is a reflection of the quality of the data rather than the underlying reality in the housing market.
German data yesterday indicate that inflation pressures have, so far, been resilient in the face of the recent collapse in oil prices. Inflation rose to 0.5% year-over-year in January from 0.3% in December, partly due to base effects pushing up the year-over-year rate in energy prices, but core inflation rose too. The detailed state data indicate that almost all key components of the core index contributed positively, lead by leisure and recreation and healthcare.
The acceleration in real consumption over the past year reflects the upturn in real after-tax income growth. This, in turn, is mostly a story of falling gasoline prices, which have depressed the PCE deflator. Gross nominal incomes before tax rose 4.2% year-over-year in the three months to September, exactly matching the pace in the three months to September 2014. But real income growth, after tax, accelerated to 3.3% from 2.5% over the same period, as our first chart shows.
Volatile commodity prices make this week's inflation data in Germany and the Eurozone a wild card. Crude oil in euro terms is down about 20% month-to-month in July, which will weigh on energy prices. In Germany, though, we think higher core inflation offset the hit from oil, pushing inflation slightly higher to 0.4% year-over-year in July from 0.3% in June.
Covid-19 has taken a large and immediate toll on house prices, but bigger damage likely lies ahead.
The recent surge in equity prices is not a game- changer for the outlook for households' spending. Like last year, slowing growth in real disposable incomes and house prices will have a far greater impact on spending than rising paper wealth.
The recent surge in the oil price has added to the headwinds set to batter the economy over the next year. The price of Brent crude has jumped by $10 since September to $64, its highest level since June 2015.
In one line: Deflation in Japan is looming, due to the collapse in oil prices
August's consumer price figures, released today, likely will show that households' spending power is being increasingly eroded by rising inflation. We think CPI inflation picked up to 0.8%, from 0.6% in July, exceeding the consensus, 0.7%, for the third consecutive month.
In one line: London prices had begun to outperform before the virus shock.
In one line: Core services prices jump, but it's noise not signal.
In one line: The intensity of the immediate downward shock to prices won't persist.
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."
Oil prices remain sticky, poised to hover close to a four-year high for the rest of the year.
Retail sales have consistently disappointed markets this year, but investors' concerns are misplaced. The rate of growth of core sales has slowed because the strength of the dollar has pushed down the prices of an array of imported consumer goods, and people appear to have spent a substantial proportion of the saving on services.
In one line: Noisy components depress the headlines, but hospital prices are accelerating.
In one line: Used car prices a drag yet again, but they'll stop falling soon.
In one line: The wage-price link is firmly intact; the MPC's hands are tied.
The medium-term outlook in most LatAm economies is improving, though economic activity is likely to remain anaemic in the near term. The gradual recovery in commodity prices is supporting resource economies, while the post-election surge in global stock prices has boosted confidence. But country-specific domestic considerations are equally relevant; the growth stories differ across the region.
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.
In one line: Ignore the downward impact of lower energy prices; DGI is rising.
Japanese headline PPI inflation will edge higher in coming months as last year's rise in oil prices feeds through. But inflation in manufacturing goods, excluding processing, is microscopic and should soon roll over as pipeline pressures wane.
In one line: Falling mortgage rates are bolstering prices.
In one line: Near-flat trend in prices unlikely to improve soon.
Housing market data yesterday fostered the view that prices are vulnerable to a fall following April's increase in stamp duty--a transactions tax-- and before the E.U. referendum in June. Political uncertainty, however, has rarely had a pervasive or sustained impact on prices in the past.
Our forecast that CPI inflation will shoot up to about 3% in the second half of 2017, from 0.6% last month, assumes that pass-through from the exchange rate to consumer goods prices will be as swift and complete as in the past. Our first chart shows that this relationship has held firm recently, with core goods prices falling at the rate implied by sterling's appreciation in 2014 and 2015.
A slew of Asian price numbers are due this Friday, and they will all likely show that price gains softened further in January.
Mexican policymakers held an emergency meeting yesterday in the wake of DM easing, global fiscal stimulus, plunging oil prices, and the pandemic crisis, slashing interest rates to their lower level since early 2017.
The sharp downtrend in commodity prices in recent months is alarming from a LatAm perspective.
Japan's trade surplus is set to fall in coming months, as domestic demand remains robust, while recent oil price increases will be a drag, lifting imports.
House prices are on course to rise only by around 2% this year, the smallest increase for five years.
Even the most bullish estate agent in Britain would struggle to put a positive spin on the latest housing market news. The latest levels of the official, Nationwide, and Halifax measures of house prices all are below their peaks.
The renewed slide in oil prices in recent weeks will crimp capital spending, at the margin, but it is not a macroeconomic threat on the scale of the 2014-to-16 hit.
Oil prices have risen by about $20 per barrel since last fall.
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.
If you gave us $100, we'd put $90 on inflation, headline and core, being higher a year from now than it is today. Our view, however, is not universally shared, and some commentators continue to argue that the U.S. faces deflation risks. Exhibit one for this view is our first chart, which shows a high correlation between the PPI for finished goods prices and the CPI inflation rate, ex-shelter.
Gasoline prices dropped sharply last month, but the 4½% seasonally adjusted fall we expect to see in the December CPI report today was rather smaller than the 9% collapse in December 2014, so the year-over-year rate of change of gas prices will rise, to -20% from -24% in November. This means headline inflation will rise too, though the extent of the increase also depends on what happens to the core rate.
House price inflation in tier-one cities has been crushed by China's most recent monetary tightening. This is a sharp turnaround from the overheating mid-way through last year. Unlike in previous cycles, interest rates are probably more important for house prices than broad money growth.
April's consensus-beating retail sales figures fostered an impression that the recovery in consumer spending is in fine fettle, even though the rest of the economy is suffering from Brexit blues. Retailers have stimulated demand, however, by slashing prices at an unsustainable rate. With import prices and labour costs now rising, retailers are set to increase prices, sapping the momentum in sales volumes.
The MPC likely will raise interest rates today, but as we explained here, it probably will revise down its medium-term inflation forecast, signalling that it is content with the further 35bp tightening currently priced-in by markets for 2018.
July's consumer price figures--published on August 15th, while we are on vacation--look set to show that June's drop in CPI inflation was just a blip. We think that CPI inflation ticked up to 2.7% in July, from 2.6% in June, on track to slightly exceed 3% toward the end of this year.
Under normal circumstances, the boost to consumption from the astonishing collapse in oil prices would act as a substantial--though not complete--offset to the hit to capital spending in the shale business.
Dire warnings that the plunge in s tock prices would depress consumers' confidence and spending have not come to pass. It's too soon to draw a definitive conclusion--the S&P hit its low as recently as the 11th--but peoples' end-February brokerage statements are on track to look less horrific than the end-January numbers, provided the market doesn't swoon again over the next few days.
Chinese residential property prices appear to be staging a comeback, with new home prices rising 1.1% month-on-month in June, faster than the 0.8% increase in May.
Japanese services price inflation edged down in May as the twin upside drivers of commodity price inflation and yen weakness began to lose steam. We expect wage costs to begin edging up in the second half but this will provide only a partial counterbalance.
The collapse in oil prices looks near-certain to pull Japan back into deflation in the next few months, though the BoJ normally looks through oil-induced swings in its target inflation measure.
The rise in oil prices to a four-year high of $82 will slow the pace at which inflation falls back over the next year only modestly.
The last time oil prices fell sharply, from mid-2014, when WTI peaked at $107, through early 2016, when the price reached just $26, the U.S. economy slowed dramatically.
House prices look set for another growth spurt, pushing the house price-to-earnings ratio--the most widely used measure of valuation sustainability--close to levels seen shortly before the late-2000s crash. But we don't place much store by the price-to-earnings ratio. Better, more reliable indicators suggest that a higher level of house prices will prove sustainable.
Last week's import price data, showing prices excluding fuels and food fell in January for the fourth month, support our view that the goods component of the CPI is set to drop sharply this year.
Japan's PPI inflation likely has peaked, with commodities still in the driving seat. Manufactured goods price inflation will soon start to slow, following the downshift in China's numbers.
Sharp falls in energy prices have been a boon for consumers, freeing up considerable funds for discretionary purchases. Domestic energy and motor fuel absorbed just 4.7% of consumers' spending in Q2, the lowest proportion for 12 years and well below the 6.7% recorded three years ago.
Today brings more housing market data, in the form of the Case-Shiller home price report for April.
Take China's data dump last Friday with a pinch of salt, as Chinese New Year--CNY-- effects look to have distorted January's money and price data.
The recent plunge in oil prices is another positive development, alongside looser fiscal policy and the striking of a Brexit deal with the E.U., pointing to scope for GDP growth to pick up next year.
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.
The contribution of energy prices to CPI inflation is set to increase over the coming months, following the pick-up in Brent oil prices to $74 per barrel, from $65 at the beginning of March.
The MPC's forecast in August, which predicted that inflation would overshoot its 2% target over the next two years only modestly--giving it the green light to ease policy--assumed that inflation in sectors insensitive to swings in import prices would remain low. We doubt, however, that domestically generated inflation will remain benign.
According to Brazil's mid-August inflation reading, which is a preview of the IPCA index, overall inflation pressures are easing. But some price stickiness remains, due to inertia and temporary shocks, despite the severity of the recession and the rapid deterioration of the labour market in recent months.
The downturn in equity prices deepened yesterday, with the FTSE 100 index closing at 5,537, 22% below its April 2015 peak. We remain unconvinced, however, that financial market turmoil is set to push the U.K. economy into a recession. We continue to take comfort from the weakness of the past relationship between equity prices and economic activity.
Japan's PPI data yesterday confirmed that October was a turning point for prices--due to the consumption tax hike--despite the surprising stability of CPI inflation in Tokyo for the same month.
For some time now we have argued that the forces which have depressed business capex--the collapse in oil prices, the strong dollar, and slower growth in China--are now fading, and will soon become neutral at worst. As these forces dissipate, the year-over-year rate of growth of capex will revert to the prior trend, about 4-to-6%. We have made this point in the context of our forecast of faster GDP growth, but it also matters if you're thinking about the likely performance of the stock market.
The big story in global macro over the past 18 months or so has been the gigantic transfer of income from oil producers to oil consumers. The final verdict on the net impact of this shift--worth nearly $2T at an annualized rate--is not yet clear, because the boost to consumption takes longer than the hit to oil firms ' capex, which began to collapse just a few months after prices began to fall sharply. But our first chart, which shows oil production by country as a share of oil consumption, plotted against the change in real year-over-year GDP growth between Q2 2014 and Q2 2015, tells a clear story.
Chinese PPI inflation was unchanged at 5.5% in July; it had been expected to rise modestly. Officially, inflation peaked at 7.8% in February, but we think this peak was artificially high, thanks to seasonal effects. The slowing in PPI inflation since the peak appears to suggest that monthly price gains have slowed sharply. We find little evidence to support this.
It's probably too soon to expect to see a meaningful reaction in the NFIB small business survey to the drop in stock prices, but it likely is coming, and a hit in today's March report can't be ruled out entirely.
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.
Investors have lowered once again their expectations for official interest rates and now do not anticipate any rate hikes this year. Markets appear to have judged that the plunge in oil prices will ensure that inflation is too low for the Monetary Policy Committee to tighten policy. Oil prices, however, are not the be-all and end-all for inflation or monetary policy, and we doubt they will distract the MPC from the continued firming of domestic price pressures this year.
A plunge in apparel prices attracted most of the attention after the release of the March CPI report, but it was not, in our view, the most important number.
The relatively upbeat message from a plethora of Eurozone data this week remains firmly sidelined by chaos in equity and credit markets. EZ Equities struggled towards the end of last year in the aftermath of the disappointing ECB stimulus package, and now, renewed weakness in oil prices and further Chinese currency devaluation have added pressure, by refocusing attention on already weak areas in the global economy.
If Brent oil prices remain at their current $41 through the end of the second quarter--a big ask, we know, but you have to start with something--the average price of petroleum products imported into the U.S. will rise at an annualized rate of about 70% from their first quarter level.
The U.K. is one of the smallest winners among advanced economies from the precipitous decline in oil prices. British oil production still fulfils about 55% of the U.K.'s demand, even though it has declined by two-thirds since its 1999 peak. Oil consumption therefore exceeds production by a much smaller margin in the U.K. than in most other European countries. As a result, the boost to the U.K. economy from the $10 decline in oil prices over the last month isn't much to write home about.
Chief U.K. Economist Samuel Tombs on U.K. Halifax House Prices
Samuel Tombs on U.K. House Prices
Samuel Tombs on Halifax House Price Index in May
Chief U.K. Economist Samuel Tombs on U.K House Prices
Samuel Tombs on U.K. House Prices
In one line: Low inflation entirely due to non-core components.
In one line: Still misleadingly upbeat.
In one line: Still implausibly strong.
In one line: Calamitous, but the core won't keep falling at this pace.
In one line: Still essentially flat, but the impending fall in mortgage rates will help.
In one line: Still flat, but the trend should improve modestly later this year.
In one line: Still flat, but lower mortgage rates point to gains ahead.
In one line: Healthcare inflation is accelerating; will it be sustained?
In one line: Driven lower by the volatile airline fares and hotels components; expect a rebound in Q1.
In one line: Slower growth reported following methodological improvements.
In one line: Still on track for a near-zero rate in Q3.
In one line: Core inflation is stable for now, but will rise in H1.
In one line: Underlying PPI trends aren't as weak as Nov headlines; claims hit holdiay seasonal noise.
In one line: Rising services inflation strengthens the case against a rate cut.
In one line: No overall PPI threat, but airline fares jump will lift the core PCE deflator.
In one line: Starting to converge with other weaker measures.
In one line: Irreconcilable with all other evidence.
In one line: Marginal decline a prelude to a big drop ahead.
In one line: The last Covid-driven monthly drop in the core?
In one line: Weighed down by political uncertainty.
In one line: Expect a rebound in the October core; too late to prevent a Fed easing this month.
In one line: Still broadly flat, as Brexit risk offsets support from solid wage growth.
In one line: Close to the nadir.
In one line: Looks bad, but the trend is not--yet--running at 0.3% per month.
In one line: Starting to shift down; weak confidence points to further falls.
In one line: Stimulus from lower mortgage rates is starting to filter through.
In one line: Not yet an accelerating trend, but labor cost and tariff pressures are visible.
In one line: More evidence of a strong pre-virus recovery.
In one line: Two large consecutive falls aren't a fluke.
In one line: Another positive housing market signal.
In one line: Details indicate that downside pressure is much less than headlines suggest.
In one line: Recent declines in y/y rates for core goods and services won't continue.
In one line: Treading water, but falling mortgage rates will help soon.
The Monetary Policy Committee of the Reserve Bank of India voted unanimously on Friday to cut interest rates at a fifth straight meeting, as expected.
In one line: Tariffs, labor costs, and tight rental home supply pushing up core inflation, plus some noise.
In one line: No longer slowing; lower mortgage rates are helping.
In one line: Expect the market to continue to strengthen.
In one line: Goods inflation falling; some signs of upward pressure in services.
In one line: Flat for six months, but modest growth likely ahead.
In one line: Recovery primarily driven by lower mortgage rates.
In one line: Rising "underlying" services inflation points to the MPC retaining its tightening bias.
In one line: Lower mortgage rates are working their magic.
In one line: Further evidence that the housing market already had regained momentum before the election.
In one line: Upside inflation risks are elsewhere.
In one line: Weakness reflects pre-election nerves; Covid-19, however, has re-written the post-election script.
In one line: Cash positions were built up rapidly heading into the crisis.
In one line: A big leap towards zero by the summer.
In one line: Rising domestically-generated inflation limits the MPC's options.
Another day, another sharp drop in the stock market, and another wavelet of commentary suggesting recession and deflation are just around the corner. We have no argument with the idea that the manufacturing sector could contract over, say, the next six months. But the other 88% of the economy--apart from the 1½% of GDP generated by oil extraction-- is benefiting from the strong dollar and cheap fuel.
It's hard to have much conviction in any forecast for September retail sales, as the relationship between the official data and the surveys has weakened considerably.
A very light week for U.S. data concludes today with four economic reports, which likely will be mixed, relative to the consensus forecasts. The recent run of clear upside surprises and robust-looking headline numbers is likely over, for the most part.
Reforms to Stamp Duty Land Tax paid by first-time buyers likely will take centre stage in the Budget. At the Conservatives' party conference, Theresa May pledged another £10B to expand the Help to Buy Scheme, which helps first-time buyers obtain a mortgage which just a 5% deposit.
Existing home sales peaked last February, and the news since then has been almost unremittingly gloomy.
Recent global developments lead us to intensify our focus on trade in LatAm.
Venezuela is on the brink o f economic and social collapse. Looting, food scarcity, power rationing, and other problems have become rampant. This week, Venezuela's government allowed citizens to flock across the Colombian border to shop for food and medicine, for the second time this month. Last year, Venezuela's President Maduro shut the border in a bid to crack down on smuggling of subsidized products.
We have been arguing for some time that the drag on growth from falling capital spending in the oil sector would fade to nothing in the third quarter, and would then likely be followed by a small increase in the fourth quarter. But we seem to have been too cautious. It now seems much more likely that oil capex will rebound strongly as soon as the third quarter, following the clear upturn in the rig count data produced by Baker Hughes, Inc.
In the wake of last week's strong core retail sales numbers for November, the Atlanta Fed's GDPNow model for fourth quarter GDP growth shot up to 3.0% from 2.4%.
In one line: No case for cutting Bank Rate based on the outlook for inflation.
CPI inflation held steady at -0.1% in October, matching its lowest rate since March 1960. We had expected the rate to tick down to -0.2%, but the rebound in clothing inflation in October, following a period of discounting in September, was larger than we had anticipated. Looking ahead, we can be fairly confident that CPI inflation will pic k up sharply over the coming months.
October's colossal 1.9% month-to-month jump in retail sales volumes greatly exceeded the 0.5% consensus and even our own top-of-the- range 1.0% forecast.
Colombia's oil industry--one of the key drivers of the country's economic growth over the last decade--has been stumbling over recent months, raising concerns about the country's growth prospects. But the recent weakness of the mining sector is in stark contrast with robust internal demand and solid domestic production.
A November interest rate rise is far from the done deal that markets still anticipate, even though CPI inflation rose to 3.0% in September from 2.9% in August.
Friday's economic data suggest that the downtrend in German PPI inflation is reversing.
The FTSE 100 has dropped by 7% since the end of September--leaving it on course for its worst month since May 2012--and now is 12% below its May peak.
Friday's inflation and labour market data in the Eurozone were dovish.
Former Treasury Secretary and thwarted would-be Fed Chair Larry Summers has been arguing for some time that the Fed should not raise rates "...until it sees the whites of inflation's eyes". As part of his campaign to persuade actual Fed Chair Yellen of the error of her intended ways, he argued at the World Economic Forum in September that the strong dollar has played no role in depressing inflation. Never one to miss an opportunity to diss the competition, he wrote that Stanley Fischer's view that the dollar has indeed restrained inflation is "substantially weakened" by the hard evidence. Dr. Summers' view is that inflation is being held down by other, longer-lasting factors, principally the slack in the lab or market, rather than the "transitory" influences favored by the Fed.
The ECB left its key interest rates unchanged yesterday, and maintained the pace of QE at €60B a month, but increased the issue limit to 33% from 25%. The updated staff projections revealed a downward adjustment of the central bank's inflation and growth forecasts across all horizons up to 2017. These forecasts were accompanied by a very dovish introductory statement, noting disappointment with the pace of the cyclical recovery, and emphasizing renewed downside risks to the economy and the inflation outlook.
This Monitor provides a summary of the main points of interest over the two weeks we were out. The Chinese Caixin manufacturing PMI, published last Friday, confounded expectations for a modest fall, rising to 51.6 in August from 51.1 in July.
Investors have stuck to their view that interest rates are just as likely to rise this year as not, despite the soft round of PMIs released this week.
The run of above-consensus news on the U.K. economy came to an abrupt end last week, as a series of survey indicators for January took a turn for the worse. After six months of breathing space, the economic consequences of the Brexit vote are increasingly being felt.
MPs will be asked today to approve the PM's motion, proposed in accordance with the Fixed-term Parliaments Act--FTPA--to hold a general election on December 12.
Last week's GDP figures illustrated that the economy is extremely vulnerable to a slowdown in households' spending. Our chart of the week, on page three, shows that consumers were alone in making a significant positive contribution to GDP growth last year.
July's mortgage approvals data from the BBA brought clear evidence that households have held off making major financial commitments as a result of the Brexit vote. Following a 5% month-to-month fall in June, approvals fell a further 5.3% in July, leaving them at their lowest level since January 2015 and down 19% year-over-year.
Japan's CPI inflation jumped to 1.3% in August, from 0.9% in July.
Today's advance inventory and international trade data for December could change our Q4 GDP forecast significantly.
In recent months we have argued that housing market activity has peaked for this cycle, with rising mortgage rates depressing the flow of mortgage applications.
In our view, the chances of a no-deal Brexit on October 31 have not surged just because Boris Johnson has become Prime Minister and is gesticulating wildly at the Despatch Box.
The euro area's trade surplus slipped further mid- way through the second quarter; falling to a 15-month low of €16.9B in May, from a downwardly-revised €18.0B in April, and extending its descent from last year's peak of nearly €24.0B.
October's retail sales figures confirm that consumers have adopted a more cautious mindset since the summer, when retail sales increased at a faster rate than incomes.
In one line: Downside surprise due to unsustainably low core goods inflation.
At first glance, the continued weakness of domestically-generated inflation, despite punchy increases in labour costs, is puzzling.
The CPI report due today will be released on schedule, because the Bureau of Labor Statistics, which compiles the data, remains open during the partial government shutdown.
Yesterday's economic activity data from Peru signalled that the relatively firm business cycle continues. The monthly GDP index accelerated to 3.6% year-over-year in November, rising from 2.1% in October, but marginally below the 4.4% on average in Q3. Growth continued to be driven by mining output, including oil and gas, which rose 15% year-over- year. The opening of several new mines explains the upturn, and we expect the sector to remain key for the Peruvian economy this year.
Core PPI inflation has risen relentlessly, though not rapidly, over the past two-and-a-half years.
In one line: Flat in Q1, but scope for modest gains ahead.
The likely dip in the headline NFIB index of small business sentiment and activity today will tell us that business owners are unhappy and nervous about the potential impact of the latest China tariffs on their sales and profits.
The monthly survey of small businesses conducted by the National Federation of Independent Business is quite sensitive to short-term movements in the stock market, so we're expecting an increase in the November reading, due today.
China's trade data looked more normal in April. The trade balance rebounded to a surplus of $28.8B in April, from a deficit of $5.0B in March. Exports also bounced back, rising 12.9% year-over-year in April, after a 2.7% decline in March.
In one line: The lagged oil drag is now receding
German exports had a sluggish start to the fourth quarter, falling 1.2% month-to-month in October. The monthly drop pushed the year-over-year rate down to 3.0% from 4.2% in September, well down from the 5.6% third quarter average and extending the loss of momentum in recent months. Imports fell 3.6%, so net exports rose, but it's too early to make any useful estimates of net trade in the fourth quarter as a whole.
Yesterday's CPI report in Mexico showed that inflation remains high, but we are confident that it will start to fall consistently during Q1, thanks chiefly to a favourable base effect.
The only way to read the December NFIB survey and not be alarmed is to look at the headline, which fell by less than expected, and ignore the details.
June's RICS Residential Market Survey brings hope that the housing market already is over the worst.
After last week's relatively light flow of data, today brings a wave of information on both the pace of economic growth and inflation. The markets' attention likely will fall first on the September retail sales numbers, which will be subject to at least three separate forces. First, the jump in auto sales reported by the manufacturers a couple of weeks ago ought to keep the headline sales numbers above water.
We have no real argument with the consensus forecasts for the January CPI, with the headline likely to rise by 0.3%, with the core up 0.2%.
The reported drop in mortgage applications over the holidays is now reversing, not that it ever mattered.
The FTSE 100 fell further yesterday, briefly to levels not seen since November 2012, but its drop over recent months is not a convincing signal of impending economic disaster. The economic recovery is likely to slow further, but this will reflect the building fiscal squeeze and the sterling-related export hit much more than the wobble in market sentiment.
In one line: The inflation outlook still does not warrant lower interest rates.
The housing market appears to be emerging gradually from the coma induced by Brexit uncertainty at the start of the year.
Overall, the Chinese October data paint a picture of continued weakness in trade, with PPI inflation still high but the rate of increase finally slowing.
The pick-up in CPI inflation to 3.1% in November--its highest rate since March 2012-- from 3.0% in October, shouldn't alarm the MPC at this week's meeting.
Whatever happened to consumers' sentiment in March, the level of University of Michigan's index will be very high, relative to its long-term average.
Straight-line extrapolations are always risky--nothing lasts forever--but if you allow us the indulgence, our first chart suggests that domestic U.S. oil production will breach 10M barrels per day by the summer.
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%.
Britain's housing market appears to be going from bad to worse.
Data this week look set to emphasise that heat is returning to the housing market, again. The Financial Policy Committee--FPC--still has additional tools it could deploy to cool housing demand. But the root cause of surging house prices remains very cheap debt. Alongside the inflation risk posed by the labour market, the case for the MPC to begin to raise interest rates to prevent a widespread debt problem is becoming compelling.
The bad economic news in Brazil is unstoppable. The mid-month CPI index rose 1.3% month-to-month in February, as education, housing, and transport prices increased. School tuition fees jumped 6% month-to-month in February, reflecting their annual adjustment, and transport costs rose by 2% due to an increase in regulated gasoline prices.
If you want to know what's going to happen to the real economy over, say, the next year, don't look to the stock market for reliable clues. The relationship between swings in stock prices over single quarters and GDP growth over the following year is nonexistent, as our next chart shows.
Inflation pressures in Brazil are still easing rapidly. The mid-May unadjusted IPCA- 15 index rose just 0.2% month-to-month, much less than the 0.6% historical average for the month. Base effects pushed the year-over-year rate down to 3.8% from 4.1% in April. Food prices, healthcare and personal costs were the main drivers of the modest month-to-month increase.
CPI inflation remained at 0.3% in February, below the consensus, 0.4%, and our own expectation, 0.5%. All the unexpected weakness, however, was in food and core goods prices, and past movements in commodity and import prices suggest that this will be fleeting
If we are right in our view that the lag between shifts in gasoline prices and the response from consumers is about six months--longer than markets seem to think--then the next few months should see spending surge.
Economists' forecasts are changing almost as quickly as market prices these days, and not for the better.
August's consumer price figures caught everyone by surprise. CPI inflation increased to 2.7%, from 2.4% in July, greatly exceeding the consensus and the MPC's forecast, 2.4%.
German producer price inflation fell last month, following uninterrupted gains since the beginning of this year. Headline PPI inflation fell to 2.8% year-over- year in May, from 3.4% in April, constrained by lower energy inflation, which slipped to 3.0%, from 4.6% in April. Meanwhile, non-energy inflation declined marginally to 2.7%, from 2.8%.
Colombia is one of the few larger economies in Latin America to have enjoyed solid, positive economic growth over the past two years. But lower commodity prices and last year's central bank tightening, to curb high inflation generated by strong growth, have started to become visible in the main economic data.
Producer prices in Germany rose 0.4% month-to-month in May, stronger than the consensus expectation of a 0.3% gain, and we think further upside surprises are likely in coming months. The headline was boosted by a 0.7% jump in energy prices, but food and manufacturing goods prices also rose.
February's consumer price figures, released tomorrow, are likely to show that CPI inflation has picked up again, perhaps to 0.5%--the highest rate since December 2014--from 0.3% in January. This will give the Monetary Policy Committee more confidence in its judgement that CPI inflation will be back at the 2% target in two years' time.
February's consumer price figures give the MPC reason to doubt the case for raising interest rates again as soon as May.
So far, the surge in retail spending promised by the plunge in gasoline prices has not materialized. The latest Redbook chain store sales numbers dipped below the gently rising trend last week, perhaps because of severe weather, but the point is that the holiday season burst of spending has not been maintained.
After soaring in the Spring, inflation has slipped back in the Summer. July's consumer prices report, released while we were away last week, showed that CPI inflation held steady at 2.6% in July, one -tenth below the consensus and three tenths below May's year-to-date peak.
We expect April's consumer price figures, due on Wednesday, to show that CPI inflation leapt to 2.3%, from 1.9% in March, exceeding the MPC's 2.2% forecast in the latest Inflation Report.
China's property market is slowly finding its feet, following a marked and consistent moderation in monthly price gains from mid-2018 to early this year.
The consensus view on the Monetary Policy Committee, that it will take two years for CPI inflation to return to the 2% target, looks complacent. Leading indicators suggest that price pressures will return faster than both policymakers and markets expect. Interest rates are therefore likely to rise in the first half of 2016, even if the recovery loses momentum.
August inflation surprised to the downside across most of LatAm, as food price surges proved transitory, and the lagged effect of the FX depreciations last year faded. Brazil appeared to be the exception last month, but the underlying trend in inflation is downwards.
February's consumer price figures, released yesterday, put more pressure on the MPC to stick to its plans for an "ongoing" tightening of monetary policy, despite the uncertainty created by the Brexit chaos.
April's consumer price figures, due on Wednesday, are set to show that CPI inflation has fallen, primarily due to the earlier timing of Easter this year than last. We
Growth in South America disappointed last year, but prospects are gradually improving on the back of rising commodity prices and the global manufacturing rebound. These factors will help to ease the region's external and fiscal vulnerabilities, particularly over the second half of the year. On the domestic front, though, the first quarter has proved challenging for some countries, hit by temporary supply factors such as a mine strikes, floods, and wildfires.
Yesterday's sole economic report in the Eurozone showed that German producer price inflation edged lower at the end of 2018.
February's consumer price figures provided hard evidence that the import price shock, caused by sterling's depreciation last year, is filtering through faster than the MPC expected. We expect CPI inflation to continue to exceed the forecast set out in February's Inflation Report.
In recent years only one event has made a material difference to the growth path of the U.S. economy, namely, the plunge in oil prices which began in the summer of 2014. The ensuing collapse in capital spending in the mining sector and everything connected to it, pulled GDP growth down from 2½% in both 2014 and 2015 to just 1.6% in 2016.
Japan's headline CPI inflation is set to edge down in coming months, thanks to non-core prices.
Here's something we didn't expect to write: The CPI measure of goods prices, excluding food and energy, rose in the three months to January, compared to the previous three months. OK, the increase was marginal, a mere 0.3%, but conventional wisdom has assumed for some time that the strong dollar would push goods prices down indefinitely.
The period of surprisingly low inflation following sterling's plunge when the UK left the Exchange Rate Mechanism in September 1992 appears to challenge our view that inflation will overshoot the MPC's 2% target over the next couple of years. As our first chart shows, CPI inflation averaged just 2.5% in 1993 and 2% in 1994, even though trade-weighted sterling plunged by 15% and import prices surged.
Retail sales volumes held steady in September, undershooting the consensus, 0.3%, and they were unchanged in August too. At this stage, evidence of a slowdown in retail sales growth is only tentative, but the trend will weaken decisively when retailers raise prices sharply next year.
German producer price inflation rebounded last month. The headline PPI index rose 2.6% year-over-year in August, up from a 2.3% increase in July, driven almost exclusively by a jump in energy inflation.
Brazil's mid-April inflation report delivered more evidence that inflation is decelerating; it fell to 9.3% from 10.0% in March, reaching the slowest pace since July 2015. The unadjusted month-to-month increase surprised marginally to the upside, but the key story is of a declining year-over-year trend. Core inflation, which is a lagging indicator of the business cycle, slowed again, in line with the decline in services and market prices inflation.
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.
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.
The recovery of some key commodity prices, policy action in China, and stronger expectations that the U.S. Fed will start hiking rates later during the year, have helped reduce volatility in LatAm financial markets. Oil prices have rise by around 20% year-to-date, iron ore prices are up about 60% and copper has risen by 7%.
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.
January CPI data in Colombia, released on Saturday, confirmed that inflation pressures eased last month, but the details weren't as good as the headline. Inflation fell to 5.5% year-over-year, from 5.8% in December, as a result of falling food inflation-- helped mainly by a favourable base effect--and lower clothing prices.
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.
Mexican asset prices and sentiment have been helped in recent weeks by less-harsh rhetoric from the Trump administration. The headline consumer confidence for February, reported yesterday, rose to 75.7 from 68.5 in January; all the sub-components improved. The data are not seasonally adjusted, so most local analysts look at the data in year-over-year terms.
Favourable inflation conditions in Mexico remain in place with June consumer prices increasing just 0.1% month-to-month, unadjusted, better than expected. A modest gain in core prices was largely offset by falling non-core prices, so year-over-year inflation edged down to 2.5% from 2.6% in May.
...The Fed did nothing, surprising no-one; the labor market tightened further; the housing market tracked sideways; survey data mostly slipped a bit; and oil prices jumped nearly $4, briefly nudging above $50 for the first time since May.
Chile's economy started the third quarter decently, after taking a series of hits, including low commodity prices and the slowdown of the global economy.
...Third quarter growth was revised up sharply and the prospects for fourth quarter consumption improved substantially. Less positively, the first signs of faltering capex in the wake of the plunge in oil prices emerged in the macro data, and the ISM manufacturing index began to reverse its run of absurd, seasonally-assisted, "strength".
The current momentum in house prices partly reflects a dearth of homes offered for sale by existing homeowners. This scarcity reflects a series of constraints, which we think will ease only gradually. Further punchy gains in house prices therefore look sustainable and we expect average prices to rise by about 8% next year.
Barclays hit the headlines yesterday with an announcement that it is bringing back no-deposit mortgages for first-time buyers and raising its maximum loan-to-income ratio for borrowers with an income of more than £50K to 5.5, from 4.4. With other lenders likely to follow suit and the supply of homes for sale still extremely low, house price inflation likely will remain brisk this year.
We don't directly plug the ADP employment data into our model for the official payroll number. ADP's estimate is derived itself from a model which incorporates lagged official payroll data, because payrolls tend to mean-revert, as well as macroeconomic variables including oil prices, industrial production and jobless claims -- and actual employment data from firms which use ADP's payroll processing services.
Colombia started the second quarter strongly, with the ISE economic activity indicator--a monthly proxy for GDP--expanding a solid and surprising 3.6% year-over-year in April, up from 2.9% in March. The rate of growth is well above the 2.8% gain in Q1, con firming the country's resiliency in the face of lower oil prices. Still, growth has slowed sharply since the 4.4% increase in activity in 2014, as our first chart shows.
Many observers hoped that the silver lining of a slowdown in house price growth this year would be that more first-time buyers could step onto the first rung of the housing ladder. Instead, purchasing a first home has become even harder for FTBs with modest deposits.
Colombia's economy has continued to slow, due mainly to lagged effect of the oil price shock since mid-2014, and stubbornly high inflation, which has triggered painful monetary tightening. Modest fiscal expansion and capital inflows have helped to avoid a hard landing, but the economy is still feeling the pain of weakening domestic demand. And the twin deficits--though improving--remain a threat.
Short-term trends in Chinese industry continued to soften in May, with catch-up growth fading, No noticeably May Day lift, as retail sales in China continue to fall behind, Chinese investment looks to have taken a breather in May, Don't put too much stock into the stronger increase in Chinese home prices, Japan's tertiary index should rebound from April, but Q2 is a write-off
China's firms aren't passing on tax hikes after all. China takes full advantage of previous oil price declines. Japan's core machine orders better than expected, but that won't help Q2. Japan is heading for a spell of sustained PPI deflation in H2. Better May jobs report will help to keep any BoK rate cuts at bay.
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.
Japan's machinery orders boosted by one-off transportation spike. Japanese PPI ticks higher on commodities. China's new home price rises should remain on the tepid side for now .
China's house price rises should continue slowing
Three of the big LatAm economies-- Brazil, Colombia and Chile--released October inflation last week; the data are still showing the pass-through effects of currency depreciation during the first half of the year into prices, though, at different degrees. LatAm currencies have been hit by the weakness in commodity prices and negative sentiment towards EM generally.
Core producer price inflation is falling, and it probably has not yet hit bottom.
Andean inflation remains under control, due to subpar growth, modest pressures on prices for nontradeables, and broadly stable currencies.
OPEC's decision at the weekend to turn the oil market into a free-for-all means that the rebound in headline inflation over the next few months will be less dramatic than we had been expecting. Falling retail gas prices look set to subtract 0.2% from the headline index in both November and December, and by a further 0.1% in January. These declines are much smaller than in the same three months a year ago, so the headline rate will still rise sharply, to about 1.3% by January from 0.2% in October, but it won't approach 2% until the end of next year or early 2017,
The Mexican inflation rate soared at the start of 2017, but this is yesterday's story; the headline will stabilize soon and will decline slowly towards the year-end. May data yesterday showed that inflation rose to 6.2%, from 5.8% in April. Prices fell 0.1% month-to-month unadjusted in May, driven mainly by lower non-core prices, which dropped by 1.3%, as a result of lower seasonal electricity tariffs.
The collapse in capital spending in the oil sector last year was the biggest single drag on the manufacturing sector, by far. The strong dollar hurt too, as did the slowdown in growth in China, but most companies don't export anything. Capex has fallen in proportion to the drop in oil prices, so our first chart strongly suggests that the bottom of the cycle is now very near.
Colombia's disinflation since mid-2016 has been driven by easing pressures on food prices, weak demand, and the better performance of the COP. But higher regulated prices at the start of the second quarter have triggered a pause in the downward trend.
LatAm data in recent days have confirmed that efforts to contain the coronavirus, plunging global trade, and the collapse in oil prices, are dealing a severe economic and financial blow.
Brazil is now paying the price of President Rousseff's first term, which was characterized by unaffordable expansionary policies. As a result, inflation is now trending higher, forcing the BCB to tighten at a more aggressive pace than initially intended--or expected by investors--depressing business and investment confidence.
At first glance, the U.K. consumer price data show a perplexing absence of domestically generated inflation.
Housebuilders were one of the biggest winners from the post-election relief rally in U.K. equity prices.
Recent data have confirmed that Colombian economic activity is still fragile, and that downside risks increased in Q1 as oil prices hav e slipped. The ISE economic activity index rose just 1.0% year-over-year in January, down from a 1.6% average gain in Q4.
We have been waiting a long time to see signs that business investment spending is becoming less reliant on movements in oil prices.
Mexico's inflation has started to edge higher due mainly to an unfavorable base effect and pressures on food prices. The bi-weekly headline CPI for the first half of February edged up to 2.9% year-over-year and up from 2.7% in January and the record low of 2.3% in December.
The expectations components of both the Michigan and Conference Board measures of consumers' confidence have risen sharply since gasoline prices rolled over.
Brazil's external accounts have recovered dramatically this year, and we expect a further improvement--albeit at a much slower pace--in the fourth quarter. The steep depreciation of the BRL last year, and the improving terms of trade due to the gradual recovery in commodity prices, drove the decline in the current account deficit in the first half.
Brazil's central bank is desperately trying to get a grip on inflation. It has raised the Selic rate by 225bp, to 13.25%, in just the last six months, and real rates now stand at a hefty 5.0%. And, at last, we are seeing tentative signs that policymakers and the government, after hiking rates and adjusting regulated prices, are making some headway.
Mexican inflation fell sharply in the first two weeks of January, dipping by 0.2% from two weeks earlier, thanks to lower energy prices and a reduction in long-distance phone tariffs. Telecom reform explains about 15bp of the headline reduction.
Federal Reserve Chair Janet Yellen's testimony this week reinforced our view that the first U.S. rate hike will be in June. The transition to higher U.S. rates will require an unpleasant adjustment in asset prices in some LatAm countries.
The Fed wants price stability--currently defined as 2% inflation--and maximum sustainable employment.
The further decline in mortgage approvals in August shows that housing market activity remains very subdued. The recent fall in mortgage rates likely will prop up demand soon, but the poor outlook for households' real incomes suggests that both activity and prices will revive only modestly over the next year.
Japan's CPI inflation jumped to 1.0% in December from 0.6% in November, driven by food prices.
Households' inflation expectations have fallen again over the last few months, but we doubt they will constrain the forthcoming rebound in actual inflation. Past experience shows that inflation expectations are more of a coincident than a leading indicator of inflation. In addition, inflation is weakest right now in sectors where demand is relatively insensitive to price changes, so, when retailers' costs rise, they won't pay much heed to households' expectations.
Europeans, who usually save more of their income than Americans, have spent all the windfall from falling gas prices. Americans have not. It is tempting, therefore, to argue that perhaps Americans have come to see the error of their low-saving ways, and are now seeking to emulate the behavior of high-saving Europeans. Undeniably, the plunge in gas prices has given Americans the opportunity to save more without making hard choices.
Renewed weakness in food and energy prices weighed on Eurozone inflation in July, but core inflation probably rose slightly. German inflation fell to 0.2% year-over-year in July, down from 0.3% in June. The hit came entirely from falling energy and food inflation, though, with the jump in services inflation suggesting rising core inflation.
Investors have revised down their expectations for interest rates since the November Inflation Report and now only a 50% chance of a 25bp hike in Bank Rate is priced-in by the end of this year.
A cluster of surveys suggest that the manufacturing sector finished 2016 with a flourish, after a dismal performance for most of the year. But momentum will drain away from the sector's recovery in 2017, as higher oil prices make low value-added work unprofitable again and resurgent inflation causes domestic consumer demand to crumble.
The Caixin manufacturing headline was unremarkable, but the input price index signals that PPI inflation is set to rise again in May, to 4.0%-plus, from 3.4% in April.
The upward trend in German inflation stalled temporarily in August, with an unchanged 0.4% year-over-year reading in August. A dip in core inflation likely offset a continued increase in energy price inflation. The detailed final report next month will give the full story, but state data suggest that the core rate was depressed by a dip in price increases of household appliances, restaurant services, as well as "other goods and services."
The massive hit from low oil prices, Covid-19 and President AMLO's willingness to call snap referendums on projects already under construction is putting pressure on Mexico's sovereign credit fundamentals and ratings.
One of the questions we have been asked recently is when inflation in the euro area will trough this year. This is difficult to answer without a look at the structural drivers of price pressures in Europe.
CPI inflation looks set to remain below the 2% target this year, driven by sterling's recent appreciation and lower energy prices.
The startling 5.5% drop in auto sales in March left sales at just 16.5M, well below the 17.4M average for the previous three months and the lowest level since February last year. A combination of the early Easter, which causes serious problems for the seasonal adjustments, and the lagged effect of the plunge in stock prices in January and February, likely explains much of the decline.
Producer price inflation in the euro area almost surely peaked over the summer.
LatAm currencies and stock markets have suffered badly in recent weeks, but Monday turned into a massacre with the MSCI stock index for the region falling close to 4%. Markets rebounded marginally yesterday, but remain substantially lower than their April-May peaks. Each economy has its own story, so the market hit has been uneven, but all have been battered as China's stock market has crashed. The downward spiral in commodity prices--oil hit almost a seven-year low on Monday--is making the economic and financial outlook even worse for LatAm.
Data on Friday showed that German producer price inflation is now in free-fall.
China's PPI deflation deepened in August, with prices dropping 0.8% year-over-year, after a 0.3% decline in July.
In yesterday's Monitor, we argued that if the upside risk in an array of core CPI components crystallised in January, the month-to-month gain would print at 0.3%, for the first time since August. That's exactly what happened, though we couldn't justify it as our base forecast. A combination of rebounding airline fares, apparel prices, new vehicle prices, and education costs conspired to generate a 0.31% gain, lifting the year-over-year rate back to the 2.3% cycle high, first reached in February last year.
Core CPI inflation plunged in the aftermath of the crash, reaching a low of 0.6% in October 2010. It then rebounded to a peak of 2.3% in the spring of 2012, before subsiding to a range from 1.6-to-1.9%, held down by slow wage gains and the strengthening dollar, until late last year. Faster increases in services prices and rents lifted core inflation to 2.3% in February, matching the 2012 high, but it has since been unchanged, net.
People don't like to see the value of their portfolios decline, and it is just a matter of time before the benchmark measures of consumer sentiment drop in response to the 7% fall in the S&P since mid-August. Sometimes, movements in stock prices don't affect the sentiment numbers immediately, especially if the market moves gradually. But the drop in the market in August was rapid and dramatic, and gripped the national media.
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.
After wobbling immediately after the referendum, house prices appear to be back on a rising trajectory. The Halifax measure of house prices, which is based on the lenders' mortgage offers, rose by 1.4% month-to-month in October, following a 0.3% increase in September.
Swap markets currently price-in RPI inflation falling to 3.0% this time next year, from 3.2% in November, before recovering to 3.8% at the start of 2020.
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
December's consumer price figures, released tomorrow, likely will reveal that CPI inflation rose to 1.4%--its highest rate since August 2014--from 1.2% in November. Inflation will take even bigger upward steps over the coming months as the anniversary of sharp falls in commodity prices is reached and retailers pass on hefty increases in import prices to consumers.
October's consumer prices report, released on Wednesday, likely will show that CPI inflation has continued to drift further below the 2% target
We fully expect to learn today that import prices rose in March for the first time since June last year. Our forecast for a 1% increase is in line with the consensus, but the margin of error is probably about plus or minus half a percent, and an increase of more than 1.2% would be the biggest in a single month in four years. Most, if not all, of the jump will be due to the rebound in oil prices.
CPI inflation held steady at 2.3% in March, as we and the consensus had expected. Nonetheless, the consumer price figures boosted sterling and bond yields, as the details of the report made it clear that inflation is on a very steep upward path.
January's consumer price figures, due on Tuesday, likely will show that CPI inflation held steady at December's 3.0% rate.
We expect today's consumer price figures to show that CPI inflation remained at 1.0% in October, after jumping in September from 0.6% in August.
It's hard to know what will stop the correction in the stock market, but we're pretty sure that robust economic data--growth, prices and/or wages--over the next few weeks would make things worse.
The consequences of the collapse in oil prices continue to reverberate through the sector. The number of rigs in operation is still falling rapidly, but the rate of decline is slowing. According to data from Baker Hughes, Inc., an average of 23 rigs per week have ceased operation over the past four weeks, the slowest decline since December.
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.
The headline CPI inflation rate almost certainly dipped below zero in September, barring a startling and deeply improbable surge in the core. We look for a 0.4% month-to-month headline drop, driven by an 11% plunge in gasoline prices, pushing the year-over-year rate to -0.3%. This is of no real economic significance, not least because hugely unfavorable base effects mean the year-over-year rate almost certainly will rise sharply over the next few months, reaching about 1¾% as soon as January.
Brazil's benchmark inflation index, the IPCA, rose 0.5% unadjusted month-to-month in July, pushing the year-over-year rate down marginally to 8.7%, from 8.8% in June. Overall inflation pressures in Brazil are easing, especially in regulated prices, which have been the main driver of the disinflation trend this year. But market-set prices are still causing problems.
A 45bp rise in long-term interest rates--the increase between mid-August and last week's peak--ought to depress stock prices, other things equal.
Today's consumer prices figures likely will show that CPI inflation increased to 3.1% in November, from 3.0% in October.
We expect June's consumer prices report, released on Wednesday, to show that CPI inflation increased to 2.7%, from 2.4% in May, above the consensus, 2.6%, and the Bank of England's forecast, 2.5%.
We expect June's consumer prices report, due on Wednesday, to show that CPI inflation fell to 1.9%, from 2.0% in May.
The recent FX depreciation and falling oil prices are driving the dynamics of inflation across the Andean economies.
The September core CPI was held down by prescription drug prices, which fell by 0.6%, and vehicle prices, which fell by 0.4%.
Markets' inflation expectations have fallen in recent weeks, maintaining the trend seen over the previous 18 months. The fall in expectations for the next year or so is justified by the sharp fall in oil prices. But expectations for inflation further ahead have drifted down too, even though lower oil prices will have no effect on the annual comparison of prices beyond a year or so from now.
Analysts' forecasts for January's consumer prices report, released on Wednesday, are unusually dispersed.
Consumer price figures for March, released on Tuesday, likely will show that CPI inflation has taken another step up, probably to 0.4% from 0.3% in February. This should jettison lingering fears that the U.K. is mired in deflation and bolster the Monetary Policy Committee's conviction that inflation will hit the 2% target within the next two years.
The headline April CPI, due today, will be boosted slightly by rising gasoline prices.
The most eye-catching aspect of December's consumer prices report was the pick-up in core inflation to 1.9%, from 1.8% in November, above the no-change consensus.
Inflation pressures are gradually easing in Mexico, opening the door for rate cuts as early as next month. The June CPI report, released yesterday, showed that prices rose 0.1% month-to-month unadjusted in June, in line with market expectations.
The collapse in oil prices was the immediate trigger for the 7.6% plunge in the S&P 500 yesterday, but the underlying reason is the Covid-19 epidemic.
Eurozone inflation continued its slow rebound last month. Final CPI data showed that inflation rose marginally to 0.2% in November from 0.1% in October, a bit higher than the initial estimate of 0.1%. The upward revision was due to marginally higher services inflation at 1.2%, compared to the initial 1.1% estimate. Non-energy goods inflation eased slightly to 0.5% from 0.6% last month. We have received push-back on our call for higher inflation next year, but core inflation is a lagging indicator, and it can rise independently of the story told by GDP or survey data. Core inflation tends to peak during recessions, and only starts falling later as prices are adjusted downwards, with a lag, to the cyclical downturn.
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.
Chinese PPI inflation fell to 4.9% in December, from 5.8% in November. The decline was expected, but underneath the slowdown in commodity price inflation, the rate of increase of manufacturing goods prices is slowing sharply too.
Final May CPI data in the Eurozone today likely will confirm that inflation pressures edged marginally higher last month. We think inflation increased to -0.1% year-over-year, from -0.2% in April, as a result of slightly higher services inflation, and a reduced drag from falling energy prices.
The latest IPCA inflation data in Brazil show the year-over-year rate fell to 8.8% in June from 9.3% in May. This is the slowest pace since May 2015, with inflation pulled lower by declines across all major components, except food. Indeed, food prices were the main driver of the modest 0.4% unadjusted monthto-month increase, rising by 0.7%, following a 0.8% jump in May. The year-over-year rate rose to 12.8% in June from 12.4%.
Collapsing oil prices add fresh deflationary pressure on China.
The undershoot in the April core CPI wasn't a huge surprise to us; the downside risk we set out in yesterday's Monitor duly materialized, with used car prices dropping by a hefty 1.6% month-to-month, subtracting 0.05% from the core index.
The coronavirus outbreak and its associated movements in asset prices have radically changed the outlook for CPI inflation, which ultimately the MPC is tasked with targeting.
PPI inflation in Asia looks set to go from bad to worse, following June's poor numbers, which showed that the weakness in commodity prices is feeding through quicker than expected.
October's consumer price figures, to be released tomorrow, look set to show CPI inflation easing to -0.2%, from -0.1%, below the no-change consensus and the lowest rate since March 1960. No doubt this will spark more hyperbolic headlines about the U.K.'s descent into pernicious deflation; ignore them. October's print will almost certainly represent the nadir and we think it will take only a year for CPI inflation to return to the MPC's 2% target.
Two key points can be extracted from the minutes of the last BCB meeting, when policymakers increased the Selic interest rate by 50bp to 12.75%. First, the bank recognized that the balance of risks to inflation has deteriorated, due to the huge adjustment of regulated prices and the BRL's depreciation, but it specifically referred only to "this year" in the communiqué.
Yesterday's price data for China showed continued declines in both CPI and PPI inflation.
The German inflation rate soared at the start of 2017, but it likely will fall in the next few months. Final February data yesterday showed that inflation rose to 2.2% in February, from 1.9% in January, consistent with the initial estimate. Since December, headline inflation in Germany, and in the EZ as a whole, has been lifted by two factors. Base effects from the 2016 crash in oil prices have pushed energy inflation higher, and a supply shock in fresh produce--due to heavy snowfall in southern Europe--has lifted food inflation.
This week's wave of data starts today, but most of the attention will fall on just one report, February retail sales. We expect weak-looking numbers, thanks to the plunge in gas prices, which likely will subtract some 0.6% from the non-auto sales number.
A dearth of properties for sale has helped to ensure that house prices have continued to rise since the Brexit vote, despite weaker demand. But now, signs are emerging that demand and supply are coming closer to balance
The final June inflation report from Germany yesterday confirmed that pressures are rising. Inflation rose to 0.3% year-over-year in June, up from 0.1% in May, mainly due to higher energy prices. Household energy prices--utilities--fell 4.9% year-over-year, up from a 5.7% decline in May, while deflation in petrol prices eased to -9.4%, up from -12.1% in May.
Inflation in Germany rebounded last month, rising to plus 0.1% year-over-year in May, from minus 0.1% in April. We think the economy has escaped the claws of deflation, for now. Household energy prices fell 5.7% year-over-year in May, up from a 6.3% decline in April, and the rate will rise further. Base effects and higher oil prices point to a surge in energy inflation in the next three-to-six months.
The Fed rate hike on Wednesday is fully priced in to LatAm markets, so we expect no significant immediate reaction when the trigger is pulled. But as markets gradually come around to our view that future U.S. rate risk is to the upside, markets will come under renewed pressure.
Japan's producer price inflation levelled off in June and, for now, both commodity prices and currency moves in the first half imply that inflation should fall in the second half.
Over the last decade, the MPC has underestimated the extent and duration of departures of CPI inflation from the 2% target. Inflation exceeded the MPC's expectations in the early 2010s, as policymakers underestimated the impact of sterling's prior depreciation and overestimated the role that slack would play in stifling price pressures. Inflation also undershot the MPC's forecast between 2014 and 2016, when sterling's appreciation reduced import prices.
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.
November's consumer price report likely will show that October's dip in CPI inflation was just a blip against a strong upward trend. We think that CPI inflation picked up to 1.1% in November, from 0.9% in October, in line with the consensus.
Most of the time we don't pay much attention to the monthly import and export prices numbers, which markets routinely ignore. Right now, though, they matter, because the plunge in oil prices is hugely depressing the numbers and, thanks to a technical quirk, depressing reported GDP growth.
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.
May's consumer prices figures bolster the case for the MPC to sit tight and wait until next year to raise interest rates, when the economy should have more momentum.
January's consumer price report, released today, likely will show that CPI inflation jumped to 1.9%--its highest rate since June 2014--from 1.6% in December. Inflation will continue to take big upward steps over the coming months, as retailers pass on to consumers large increase in import prices and energy companies increase tariffs.
Since January 2015, Core CPI inflation has risen to 2.3% from 1.6%, propelled by a combination of accelerating rents, a substantial rebound in the rate of increase of healthcare costs, and a modest-- though unexpected--upturn in core goods prices. It's always risky, though, simply to extrapolate recent trends and assume you now have a clear guide to the future.
The surge in gasoline prices triggered by refinery outages after Hurricane Harvey came much too late to push up the August PPI, but gas prices had risen before the storm so the headline PPI will be stronger than the core.
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.
Japanese PPI inflation continues to be driven mainly by imported metals and energy price inflation. Metals, energy, power and water utilities, and related items, account for nearly 30% of the PPI.
July's consumer price figures, released on Wednesday, look set to show that CPI inflation rose to 2.5%, from 2.4% in June.
November's consumer prices figures, released tomorrow, look set to show that the U.K.'s spell of negative inflation has ended. CPI inflation is set to pick-up decisively over the coming months, even if oil prices continue to drift down. In fact, fuel prices likely will contribute to the pick-up in inflation from October's -0.1% rate. November's 1.5% fall in prices at the pump was smaller than the 2.3% drop in the same month last year, so the year-over-year rate will rise. Fuel's contribution to CPI inflation therefore will pick up, albeit very marginally, to -0.47pp from -0.50pp in October.
German inflation pressures were unchanged last month. The CPI index rose 0.8% year-over-year, matching the increase in October, and in line with the consensus and initial estimate. Energy deflation intensified marginally, as a result of lower prices for household utilities.
Evidence that U.K. asset prices still are depressed by Brexit risk has become harder to find.
October's consumer price figures, released Tuesday, likely will show that CPI inflation increased to 3.1%, from 3.0% in September.
We expect July's consumer prices report, due on Wednesday, to reveal that CPI inflation dropped to 1.8% in July, from 2.0% in June.
We expect today's consumer prices figures to show that CPI inflation picked up to 0.5% in May, from 0.3% in April, exceeding the 0.4% rate anticipated by both the consensus and the MPC, in last month's Inflation Report. We expect the increase to be driven by a jump in the core rate to 1.4%, from 1.2% in April.
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.
January's consumer price data, released tomorrow, look set to reveal a third consecutive rise in CPI inflation, dampening speculation that the U.K. is stuck in a deflationary funk. Indeed, we think CPI inflation picked up to 0.4%, from 0.2% in December, above the consensus, 0.3%.
Falling gas prices will make themselves felt in the November CPI data today, with a likely 4% seasonally adjusted decline enough to subtract 0.2% from the month-to-month change in the headline index. But gas prices plunged by 7.2% in November last year, so in year-over-year terms gas prices will push aggregate headline inflation up. We look for the rate to rise to 0.4%, up from 0.2% in October and zero in September. The same story will play out in January and February too, by which time the headline rate should have risen to 1¼%, assuming a crude oil price of about $35 per barrel.
July's consumer price figures, due tomorrow, likely will bring early evidence that sterling's Brexit-driven depreciation already is pushing up inflation. We think that CPI inflation picked up to 0.6% in July from 0.5% in June, exceeding the consensus forecast for an unchanged reading. Experience of past depreciations suggests that July's figures likely won't be the last time the consensus is surprised by the speed of the rise in inflation.
December's consumer price figures, released on Tuesday, likely will show that CPI inflation fell more than most analysts expect.
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.
The downside surprise in the November core CPI, which rose by 0.1%, a tenth less than expected, was due entirely to an unexpected 1.3% drop in apparel prices. This alone subtracted 0.05% from the core, but we think the chance of a reversal in December is quite high.
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.
We expect May's consumer prices report, released on Wednesday, to show that the headline rate of CPI inflation fell to a four-year low of 0.4% in May, from 0.8% in April.
Let's be clear: The July retail sales numbers do not mean the consumer is rolling over, and the PPI numbers do not mean that disinflation pressure is intensifying. We argued in the Monitor last Friday, ahead of the sales data, that the 4.2% surge in second quarter consumption--likely to be revised up slightly--could not last, and the relative sluggishness of the July core retail sales numbers is part of the necessary correction. Headline sales were depressed by falling gasoline prices, which subtracted 0.2%.
We were right about the below-consensus inflation numbers for June, but wrong about the explanation. We thought the core would be constrained by a drop in used car prices, while apparel and medical costs would rebound after their July declines.
Friday's detailed October CPI report in Germany confirmed that inflation pressures are steadily rising. Inflation rose to 0.8% year-over-year in October, from 0.7% in September, lifted mostly by a continuing increase in energy prices.
Today's producer price report for March likely will show a further increase in core goods inflation, which already has risen to 2.0% in February, from 0.2% in the same month last year. The acceleration in the U.S. PPI follows the even more dramatic surge in China's PPI for manufactured goods, which jumped to 6.6% year-over-year in February, from minus 4.9% a year ago. China's PPI is much more sensitive to commodity prices than the U.S. series, so there's very little chance that core U.S. PPI goods inflation will rise to anything like this rate.
We remain confident--see here--that today's Q3 GDP report in Germany will be a shocker, but this already is priced-in by markets.
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.
The upward trend in CPI inflation likely reasserted itself in August, following a hiatus in the last two months due to the decline in oil prices.
German inflation pressures are rising. Yesterday's final September CPI report showed that inflation rose to 0.7% year-over-year, from 0.4% in August, chiefly as a result of continued easing of deflation in energy prices.
The number of existing homes for sale continued to fall in September, ensuring that modestly increasing demand is putting renewed upward pressure on prices.
Retail sales have lost steam over the past couple of months, even if you look through the headline gyrations triggered by swings in auto sales and gasoline prices.
May's consumer prices report contained few surprises. The fall in the headline rate of CPI inflation to 2.0%, from April's Easter-boosted 2.1%, matched the consensus, our forecast and the MPC's.
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.
Last week's events highlighted the seriously challenging global environment for LatAm equities and currencies. Trading in Chinese shares was stopped twice early last week, after falls greater than 7% of the CSI 300 index reverberated around the world. Markets were calmer on Friday but the volatility nevertheless reminded investors that LatAm's economies are floating in rough waters and their resilience will be put to the test again this year. The Fed's policy normalization, the unwinding of the leverage in EM, the continued slowdown of the Chinese economy, low commodity prices and currency depreciation are all real threats across the continent.
Colombia and Peru have been among the top performers in LatAm currency markets in recent weeks, both rising above 4% against the dollar. Higher commodity prices seem to be driving the rally as domestic factors haven't changed dramatically.
Markets usually ignore the monthly import price data, presumably because they are far removed, especially at the headline level, from the consumer price numbers the Fed targets.
The Eurozone is back in headline deflation, increasing the pressure on the ECB to deliver further easing when it meets next week. Inflation fell to -0.2% in February, from +0.3% in January, depressed by energy and food prices.
While Brexit news will dominate the headlines again--see here for why the odds remain against Mrs. May winning the third "meaningful vote"--February's consumer prices report is the highlight in this week's congested economic data calendar.
Comments by Mr. Draghi in Washington last week point to a high bar for an adjustment to the QE program. The ECB president noted that while asset purchases and negative interest rates have driven a notable improvement in confidence and asset prices, the real key to the central bank's policies' success is a lasting boost to investment, consumption and inflation.
September's consumer price figures helped to curb expectations that the MPC might raise Bank Rate again before the March Brexit deadline.
Most of the Andean economies have been hit by the turmoil roiling the global economy in the past few quarters. But modest recovery in commodity prices in Q3, and relatively solid domestic fundamentals helped them to avoid a protracted slowdown in Q2 and most of Q3.
The European financial sector was in the news again on Friday, propelled by further weakness in Deutsche Bank's share price. In our Monitor of September 27, we said that worries of a European "Lehman Moment" were overblown.
We have argued for some time that investors began much too soon to look for stronger consumption in the wake of the drop in gasoline prices. Typically, turning points in gas prices trigger turning points in the rate of growth of retail sales with a lag of six or seven months.
Final data for Eurozone inflation yesterday revealed that inflation fell slightly to 0.1% year-over-year in August, from 0.2% in July, a tiny downward revision from the original estimate of 0.2%. Depressed energy prices will continue to constrain inflation in coming months, but base effects will reduce this drag, and core inflation is rising. Nominal GDP growth accelerated to 2.9% year-over-year in Q2, up from 2.4% in Q1, sending a convincing signal of higher core inflation.
We expect August's consumer prices report, released on Wednesday, to reveal that CPI inflation dropped to 1.8% in August, from 2.1% in July, thereby undershooting the consensus, 1.9%.
We expect August's consumer price figures, released on Wednesday, to show that CPI inflation declined to 2.4%, from 2.5% in July, matching the consensus and the Bank of England's forecast.
Inflation in the Eurozone rose modestly last month. Yesterday's advance CPI report showed the headline rate rising to 0.6% year-over-year in November, from 0.5% in October, mainly because of a jump in fresh food inflation. Energy prices fell 1.1% year-over-year, slightly more than the 0.9% decline in October, but we expect a sharp increase over the next six months.
Yesterday's EZ producer price data showed that deflationary pressures in the manufacturing sector are fading. The headline PPI index fell 0.2% month- to-month in August, pushing the year-over-year up to -2.1%, from a revised -2.6% July.
New home price growth in China has held up longer than we expected.
In September last year, headline CPI inflation stood at exactly zero. Today, we expect to see a 1.5% print, thanks mostly to the fading impact of falling energy prices.
We expect today's consumer price figures to show that CPI inflation jumped to 0.9% in September, from 0.6% in August.
Brazil's economic data last week were appalling. The IPCA-15 price index rose 1.3% month-to-month, the fastest pace in 12 years, pushing the annual rate to 7.4% in mid-February from 6.7% in mid-January,well above the 6.5% upper bound of the BCB's target range.
Investors moved rapidly last week to price-in renewed easing by central banks around the world, in response to the rapid growth in coronavirus cases outside China and the resulting sell-off in equity markets.
Central banks in Mexico and Colombia kept their main interest rates on hold last week, due to recent volatility in the currency markets. Policymakers acknowledged the downside risks to growth, particularly from low commodity prices, but inflation fears, triggered by currency weakness, mean they will not be able to ease if growth slows.
Japanese CPI inflation jumped to 0.7% in August from 0.4% in July. The ris e in prices over the last year, however, was mainly driven by food and energy.
One of the most surprising features of the economic recovery has been that households have not responded to the surge in house prices by releasing housing equity to fund consumption. Housing equity rose to 4.2 times annual disposable incomes in 2015, up from 3.7 in 2012. It has more than doubled over the last two decades.
Commodity prices have started the year under further downward pressure. This is yet more negative news for LatAm, as most of the countries have failed to diversify, instead relying on oil or copper for a large share of exports and, critically, tax revenue. Venezuela is the biggest loser in the region from the oil hit, and, together with the worsening political and economic crisis, it has pushed the country even closer to the verge of collapse, threatening its debt payments. Venezuela's central bank last week released economic data for the first time since 2014, showing that inflation spiralled to 141% and that the economy shrank 4.5% in the first nine months of last year.
The 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.
China's property market continued to slow in August, with prices rising by just 0.2% month-on- month seasonally adjusted, half the July pace.
Rising mortgage rates appear to have triggered the start, perhaps, of a tightening in lending standards, even before Treasury yields spiked this month and stock prices fell.
The closer we look at the data, the more convinced we become that the rollover in CPI physicians' services prices, which has subtracted nearly 0.1% from core CPI inflation since January, is a response to sharply higher Medicare part B premiums, especially for new enrollees.
China's residential property market surprised again in August, with prices popping by 1.5% month- on-month, faster than the 1.2% rise in July, and the biggest increase since the 2016 boomlet.
June's consumer price figures threw a last minute curve-ball at the MPC ahead of its key meeting on August 2.
We doubt there will ever be a fail-safe leading indicator of when a recession is about to hit, but asset prices can help us to assess the risks, at least.
April's consumer prices report, released on Wednesday, likely will show that CPI inflation plunged and is heading quickly to a near-zero rate by the summer.
February's consumer price figures, released tomorrow, likely will show that CPI inflation fell to 2.8%--one tenth below the MPC's forecast--from 3.0% in January.
The Eurozone escaped deflation last month, and we doubt it will return in this business cycle. Inflation rose to 0.1% year-over-year in June, up from -0.1% in May; it was lifted chiefly by the gradual recovery in oil and other global commodity prices. Energy prices fell 6.5% in June, up from a 8.4% fall in May, and we think the recovery will accelerate in coming months.
We expect May's consumer prices report, released on Wednesday, to show that CPI inflation fell to 2.0% in May, from 2.1% in April.
Final German inflation data for May confirm that price pressures are gradually recovering in the Eurozone. Inflation rose to 0.7% in May, up from 0.5% in April, in line with the initial estimate. Headline inflation continues to move higher, a trend which will continue in the second half of the year as base effects push up energy inflation.
March's consumer price figures, released tomorrow, look set to show that inflation's ascent was kept in check by the later Easter this year compared to last. Nonetheless, CPI inflation will take big upward strides over the coming months, and it likely will exceed 3% by the summer.
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.
Yesterday's EZ CPI report points to a dovish backdrop for next week's ECB meeting. Advance data show that inflation was unchanged at 0.2% year-overyear in August, lower than the consensus, 0.3%. The headline was held back by a dip in the core rate to 0.8%, from 0.9% in July; this offset a lower deflationary drag from energy prices.
Halifax's house price index rose by an eye catching 1.5% month-to-month in March, superficially suggesting that the housing market is reviving.
The jump in CPI inflation to 2.7% in April, from 2.3% in March, was only partly to a temporary boost from the later timing of Easter this year. Indeed, inflation likely will rise further over the coming months as food, energy and core goods prices all continue to pick up in response to last year's depreciation of sterling.
The FTSE 100 has fallen by 4% over the last two weeks, exceeding the 1-to-3% declines in the main US, European and Japanese markets. The FTSE's latest drop builds on an underperformance which began in early 2014. The index has fallen by 10% since then--compared to rises of between 10% and 20% in the main overseas benchmarks--and has dropped by nearly 15% since its April 2015 peak. We doubt, however, that the collapse in U.K. equity prices signals impending economic misery. The economy is likely to struggle next year, but this will have little to do with the stock market's travails.
The first of this week's two July inflation reports, the PPI, will be released today. With energy prices dipping slightly between the June and July survey dates, the headline should undercut the 0.2% increase we expect for the core by a tenth or so.
Higher gasoline prices will lift today's headline October CPI, which should rise by 0.3%. Unfavorable rounding could easily push it to 0.4%, though, and year-over-year headline inflation should rise to 1.6% or 1.7%, from 1.5% in September and just 0.2% a year ago.
The manufacturing sector is much more exposed to external forces--the dollar, and global growth--than the rest of the economy. But much of the slowdown in the sector over the past year-and-a-half, we think, can be traced back to the impact of plunging oil prices on capital spending in the sector.
The case for the MPC to hold back from implementing more stimulus was bolstered by September's consumer prices figures.
Colombia was the fastest growing economy in LatAm last year but it faces major challenges. The collapse of oil prices--which account for about half of exports--the COP depreciation, rising inflation and Fed's impending monetary policy normalization, are dragging down economic activity and damaging confidence.
Retail sales account for some 30% of GDP--more than all business investment and government spending combined--so the monthly numbers directly capture more of the economy than any other indicator. Translating the monthly sales numbers into real GDP growth is not straightforward, though, because the sales numbers are nominal. Sales have been hugely depressed over the past year by the plunging price of gasoline and, to a lesser extent, declines in prices of imported consumer goods.
The consequences of sterling's sharp depreciation for inflation were brought home yesterday by the news that the iPhone 7 will cost more than its predecessor. The entry-level version is priced at £60 more than its iPhone 6S equivalent. Of course, the new version is more advanced, but the fact that the dollar price held steady, at $649, demonstrates the U.K. price hike entirely is due to the adverse impact of the weaker pound.
Chief U.K Economist Samuel Tombs on UK Halifax House Prices in July
Lower oil prices cut two ways for US economy
Chief U.K. Economist Samuel Tombs discussing U.K. House Prices
Chief U.S. Economist Ian Shepherdson on U.S. Producer Prices
The slowdown in households' real incomes has taken a swift toll on the housing market this year. Measures of house prices from Nationwide, Halifax, LSL and Rightmove essentially have flatlined since the end of 2016, following four years of rapid growth, as our first chart shows.
Colombia is one of the fastest growing economy in LatAm but over the last few quarters the collapse in oil prices, the depreciating currency--fearing higher U.S. interest rates--and rising inflation, have depressed confidence and dragged down economic activity.
Colombia is more vulnerable to falling oil prices than most other LatAm economies. That's why the COP has dropped by 20% since June, outpaced only by the rouble, which has problems beyond falling oil prices.
The resilience and adaptability that the Chilean economy has shown over previous cycles has been tested repeatedly over the last year. Uncertainty on the political front, falling metal prices, and growing concerns about growth in China have been the key factors behind expectations of slowing GDP growth.
Chief U.K. Economist Samuel Tombs on Nationwide's June House Price Index
We have set out in recent Monitors the differences in the economic and political environment across Latin America, but the plunge in oil prices adds a new element to the analysis.
Chief U.K. Economist Samuel Tombs on U.K. House prices
Judging from our inbox, the idea that the Fed might switch to some form of price level targeting, replacing its current 2% inflation target, is the big new idea for 2018.
Chief U.K. Economist Samuel Tombs on U.K. Price Increases
Chief U.K. Economist Samuel Tombs on Consumer Price Index, June
The plunge in gas prices since their peak last summer likely will exert modest downward pressure on core inflation by the end of this year, via reduced costs of production and distribution, but it probably is too soon to start looking for these effects now.
Chief U.K. Economist Samuel Tombs on U.K. House Prices
Mexico's policymakers are battling two opposing forces. First, inflation pressures are rising, on the back of the one-time increase in petrol prices and the lagged effect of the MXN's sell-off in Q4. These factors are pushing short-term inflation expectations higher, even though the MXN has remained relatively stable since President Trump took office and has risen by about 6% against the USD year-to-date.
Chief U.K. Economist Samuel Tombs on U.K. House Prices
Chief U.K. Economist Samuel Tombs on U.K. Nationwide House Prices
Chief U.K. Economist Samuel Tombs on U.K. House Prices
The response of U.K. producers and consumers to lower oil prices could not have been more different to those on the other side of the Atlantic. Counter-intuitively, U.K. oil production has grown strongly over the last year, while investment hasn't collapsed to the same extent as in the U.S., yet. Meanwhile, U.K. households have thrown caution to the wind and already have spent the windfall from the previous drop in oil prices, unlike their more prudent--so far--U.S. counterparts. With the costs still to come but most of the benefits already enjoyed, lower oil prices will be neutral for 2016 U.K. GDP growth, at best.
US home prices rose in November from October but the underlying trend continued to point to a slowdown in price gains, according to the S&P/Case-Shiller index released Tuesday
Samuel Tombs, Chief Eurozone Economist, discussing the Energy Price Cap on BBC News
Chief U.K. Economist Samuel Tombs on U.K. house prices
Collapsing oil prices continue to weigh on inflation pressures in Eurozone. Inflation was unchanged at a minimal 0.2% year-over-year in August, largely due to an accelerated fall in energy prices, which plunged 7.1%, down from a 5.6% drop in July. Base effects will offer support for year-over-year changes in energy prices starting in Q4, but our fir st chart show downside risks loom in the short run.
Producer Prices Edge Up Despite Slide in Cost of Gas
Housing market activity has weakened sharply over the last two months. Indeed, figures this week likely will reveal that mortgage approvals plunged in April and that house price growth slowed in May. The increase in stamp duty for buy-to-let purchases at the start of April and Brexit risk, however, entirely explain the slowdown.
Chief U.K. Economist Samuel Tombs discussing U.K. House Prices
December's consumer prices figures, released tomorrow, look set to show CPI inflation ticked up to 0.2% from 0.1% in November, despite the renewed collapse in oil prices. The further fall in energy prices this year means that the inflation print won't reach 1% until May's figures are published in June. But Governor Carney has emphasised that core price pressures will motivate the first rate hike--a focus he likely will reiterate in a speech on Tuesday-- meaning that a May lift-off is still on the table.
Chief U.K. Economist Samuel Tombs on U.K. House Prices
Chief U.K. Economist Samuel Tombs on U.K. House Prices
Chief U.K. Economist Samuel Tombs on U.K. House Prices
Chief U.K. Economist Samuel Tombs on U.K. House Prices
Chief U.K. Economist Samuel Tombs on the U.K. Halifax House Price Index in December
Ian Shepherdson, Pantheon Macroeconomics chief economist, discusses the economic impact of falling oil prices with Bloomberg's Joe Weisenthal and Scarlet Fu
Pantheon Macroeconomics Founder Ian Shepherdson discusses the price of oil, the U.S. economy and the Greek crisis. He speaks on "Bloomberg Surveillance."
Are there any signs of a Chinese recovery yet? Freya Beamish discusses
Chief U.K. Economist Samuel Tombs on U.K. Inflation Growth
Chief U.K. Economist Samuel Tombs on U.K. CPI
Senior International Economist Andres Abadia comments on the latest Inflation data for Chile
Chief U.K. Economist Samuel Tombs on U.K. Inflation
Chief U.K. Economist Samuel Tombs on U.K Inflation
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.
Brazil has made a convincing escape from high inflation in the past few months, laying the groundwork for a gradual economic recovery and faster cuts in interest rates. Mid-March CPI data, released this week, confirmed that inflation pressures eased substantially this month.
The downshift in core PCE inflation this year has unnerved the Fed, along with the intensification of the trade war and slower global growth.
The nominal value of orders for non-defense capital equipment, excluding aircraft, fell by 3.4% last year. This was less terrible than 2015, when orders plunged by 8.4%, but both years were grim when compared to the average 7.5% increase over the previous five years.
CPI inflation was steadfast at 1.9% in March, undershooting the consensus and our forecast for it to rise to 2.0%.
An array of data today will be mostly positive, and even the most likely candidate for a downside surprise--the October advance trade numbers--is very unlikely to change anyone's mind on the Fed's December decision. On the plus side, the first revision to third quarter GDP growth should see the headline number dragged up into almost respectable territory, at 2.4%, from the deeply underwhelming 1.5% initial estimate.
Yesterday's data were mixed, though disappointment over the weakening in the Richmond Fed survey should be tempered by a quick look at the history, shown in our first chart.
The minutes of the MPC's meeting in June indicated that several members' patience for tolerating for above-target inflation is wearing thin.
Mexico's retail sector is finally improving, following a grim second half last year.
The sharp decline in Mexico's leading indicators highlights the dramatic scale of the economic and financial hit from the coronavirus. High frequency data and the PMIs are the first numbers to capture the lockdown, and they signal that the services activity-- the bulk of Mexico's GDP--dropped sharply.
China's September activity data, released at the end of last week, back up our claim that GDP growth weakened in Q3, on a quarter-on-quarter basis.
The automotive sector accounts for 6.1% of total employment, and 4% of GDP, in the Eurozone.
The risk of higher US rates put LatAm currencies under pressure during the first half of the week, before the US FOMC meeting on Wednesday. But they recovered some ground yesterday, following the Fed's decision to leave rates on hold.
Sterling jumped last week to its highest level against the dollar since last October in response to news that a general election will be held on June 8. Markets are betting that the Conservative Government will sharply increase its majority, enabling Theresa May to ignore Eurosceptic backbenchers when she strikes a deal with the EU.
Korea's 20-day export growth came in weaker than we anticipated earlier this week. Granted, year-over- year growth rebounded to 14.8% in May, from 8.3% in April.
Industrial profits growth is closely watched by the Chinese authorities, even more so now that deleveraging is a prime policy aim.
CPI inflation dropped to 2.4% in April, from 2.5% in March, undershooting the no-change consensus and prompting many commentators to argue that the chances of an August rate hike have declined further.
The initial "official estimate" of the French presidential election--released 20.00 CET--suggest that the runoff will be between the centre-right Emmanuel Macron and Front National's Marine Le Pen. This is consistent with opinion polls. The average of five early estimates also suggests that Mr. Macron won the vote with 23.1% of the vote against Mrs. Le Pen's 22.5%.
All the regional PMIs and Fed business surveys are volatile in the short-term, so observations for single months need to be viewed with due skepticism.
The minutes of the May 2/3 FOMC meeting today should add some color to policymakers' blunt assertion that "The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term."
Brazil's central bank conformed to expectations on Wednesday, cutting the Selic rate by 75 basis points to 12.25%, without bias. Overall, the BCB recognises that the economic signals have been mixed in recent weeks, but the Copom echoed our view that the data are pointing to a gradual stabilisation and, ultimately, a recovery in GDP growth later this year.
We can't yet know how bad the spread of the coronavirus from the Chinese city of Wuhan will be.
GDP data for Q2 are due July 26; we expect the report to show a marginal dip in growth, to a seasonally adjusted 0.8% quarter-on-quarter, from 1.0% in Q1.
China's abysmal industrial profits data for October underscore why the chances of less- timid monetary easing are rising rapidly.
The trade war with China is a macroeconomic event, whose implications for economic growth and inflation can be estimated and measured using straightforward standard macroeconomic tools and data.
CPI inflation last Friday gave Japanese policymakers a break from the run of bad data, jumping to 0.9% in April, from 0.5% in March.
The Prime Minister's resignation and the stillborn launch of the Withdrawal Agreement Bill last week has forced us to revise our Brexit base case, from a soft E.U. departure on October 31 to continued paralysis.
Economic activity in Mexico during the past few months has been resilient, as external and domestic threats, particularly domestic political risks, appear to have diminished.
The deadline for registering to vote in the general election passed on Tuesday, with a record 660K people registering on the final day.
Chinese industrial profits growth officially edged down to 25.1% year-over-year in October, from 27.7% in September. This is still very rapid but we think the official data are overstating the true rate of growth.
Eurozone consumer confidence remained at its low for the year at the start of Q3.
We suspect that under the calm surface of the BoJ, a major decision is being debated.
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.
Mexico's political panorama seems to be becoming clearer, at least temporarily. This should dispel some of the uncertainty that has been hanging over the economy in recent months.
The minutes of Banxico's November 9 policy meeting were released yesterday, in which the Bank left the reference rate unanimously unchanged at 7.0%.
You could be forgiven for being alarmed at the 1.5% decline in the stock of outstanding bank commercial and industrial lending in the fourth quarter, the first dip since the second quarter of 2017.
Media reports suggest that the underlying trends in retailing--rising online sales, declining store sales and mall visits--continued unabated over the Thanksgiving weekend.
Data released yesterday in Brazil helped to lay the ground for interest rate cuts over the coming months.
The sluggishness of existing home sales in recent months, as exemplified by yesterday's report of a small dip in June, is due entirely to a sharp drop in the number of cash buyers.
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.
okThe weekend's election result in Spain provided relief for investors anxiously looking for another "surprise." Exit polls on Sunday showed a big majority for the anti-establishment party Podemos, but in the end Spanish voters opted for safety. The incumbent Partido Popular, PP, was the election's big winner compared with the elections six months ago, gaining 15 seats.
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.
Mexican consumers' spending improved toward the end of Q2. Retail sales jumped by 1.0% month-to-month in June, pushing the year-over-year rate up to 9.4%, from an already solid 8.6% in May. Still, private spending lost some momentum in the second quarter as a whole, rising by 2.5% quarter-on-quarter, after a 3.8% jump in Q1. A modest slowdown in consumers' spending had to come eventually, following surging growth rates in the initial phases of the recovery.
Japan's May retail sales rebound was underwhelming at a mere 0.3% month-on-month, after a 0.1% fall in April.
We are a bit troubled by the persistent weakness of the Redbook chain store sales numbers. We aren't ready to sound an alarm, but we are puzzled at the recent declines in the rate of growth of same-store sales to new post-crash lows. On the face of it, the recent performance of the Redbook, shown in our first chart, is terrible. Sales rose only 0.5% in the year to July, during which time we estimate nominal personal incomes rose nearly 3%.
Yesterday's June PMIs offered more of the same, insofar as the survey's key message goes in the past few months.
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.
While we were out last week, market nervousness over the Covid-19 outbreak intensified, though most key indicators of the spread of the infection continued to improve.
Japan's national CPI inflation has peaked, falling to 0.7% in May from 0.9% in April.
The public finances are in better health than appeared to be the case a few months ago.
Mexican policymakers likely will stick to the script tomorrow and vote by a majority to cut the main rate by 50bp to 5.00%, which would be its lowest level since late 2016.
If, like us, you have been cheered by the upturn in mortgage applications since November, you don't need to worry about the apparent drop in activity in the past couple of weeks. The numbers don't look great: The MBA's index capturing the number of applications for new mortgages to finance house purchase has dropped from a peak of 237.7 in the third week of January--ignoring September's spike, which was triggered by a regulatory change--to 213.3 last week.
China's industrial profits tanked in January/ February, falling 14.0% year-to-date year-over-year, after a 1.9% drop year-over-year in December.
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.
Industry estimates for August light vehicle sales suggest that the downshift in sales which began at the turn of the year is over, at least for now.
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.
Inflation in Mexico surprised to the upside in April, but the underlying picture has improved rapidly over recent months.
The Fed is on course to hike again in December, with 12 of the 16 FOMC forecasters expecting rates to end the year 25bp higher than the current 2-to-21⁄4%; back in June, just eight expected four or more hikes for the year.
Hong Kong delivered a resounding landslide victory to pro-Democracy parties in district council elections over the weekend.
In contrast to surveys of manufacturing activity and sentiment, the Conference Board's measure of consumer confidence rose sharply in August, hitting an 11-month high. People were more upbeat about both the current state of the economy and the outlook, with the improving job market key to their optimism. The proportion of respondent believing that jobs are "plentiful" rose to 26%, the highest level in nine years.
This week's data will offer the first clear hard evidence of the Covid-19 shock to the EZ economy. Thursday's calendar is the main event, with advance Q1 GDP data, March EZ unemployment numbers, and the April CPI report.
Data released in recent days are confirming the story of a struggling economy and falling inflation pressures in Mexico, strengthening our base case of interest rate cuts over the second half of the year.
When Fed Chair Powell said last week that the "surprise" weakness in the official retail sales numbers is "inconsistent with a significant amount of other data", we're guessing that he had in mind a couple of reports which will be updated today.
The Policy Board of the Bank of Japan stepped up its Covid-19 liquidity relief measures yesterday, while retaining its main policy settings--namely, the -0.10% balance rate and the ten-year yield target of "around zero percent".
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.
Venezuelan bond markets have been on a rollercoaster ride this year, with yields rising significantly in response to heightened political uncertainty and then declining when the government pays its obligations or when protests ease.
The past year has been difficult for Asian economies, with trade wars, natural disasters, and misguided policies, to name a few, putting a dampener on growth.
After three straight 1.3% month-to-month increases in core capital goods orders, we are becoming increasingly confident that the upturn in business investment signalled by the NFIB survey is now materializing.
Brazilian financial assets lately appear to be responding only to developments in the presidential election race and external jitters.
Last week's detailed Q3 GDP data in Germany verified that GDP fell 0.2% quarter-on-quarter, down from a 0.5% rise in Q2, a number which all but confirms the key story for the economy over the year as a whole.
The Conservatives have continued to gain ground over the last week, with support averaging 43% across the 13 opinion polls conducted last week, up from 41% in the previous week.
We were terrified by the plunge in the ISM manufacturing export orders index in August and September, which appeared to point to a 2008-style meltdown in trade flows.
The ECB broadly conformed to markets' expectations today. The central bank maintained its key refinancing and deposit rates at 0.00% and -0.4% respectively, and delivered the consensus package on QE.
The disappearance from the FOMC statement of any reference to global risks, which first appeared back in September, was both surprising and, in the context of this cautious Fed, quite bold. After all, one bad month in global markets or a reversal of the jump in the latest Chinese PMI surveys presumably would force the Fed quickly to reinstate the global get-out clause. So, why drop it now?
President Trump made official his plan to impose tariffs on up to $60B of annual imports from China, as well as limitations on Chinese investments in the U.S.
We're nudging down our estimate of Q2 GDP growth, due today, by 0.3 percentage points to 1.8%, in the wake of yesterday's array of data.
Banxico raised its benchmark interest rate by another 25bp to 7.0% at last Thursday's policy meeting. This hike follows nine previous increases, totalling 375bp since December 2015, in order to put a lid on inflation expectations and actual inflation. Both have been lifted this year by the lagged effect of the MXN's weakness last year, the "gasolinazo", and the minimum wage increase in January.
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 Mexican economy shrank by 0.2% quarter- on-quarter in Q2, according to the final GDP report, a tenth worse than the preliminary reading.
We remain negative about the medium-term growth prospects of the Mexican economy.
need to add docMea culpa: We failed to spot the press release from the Commerce Department announcing the delay of the release of the advance December trade and inventory data, due to the government shutdown.
Over the next 18 months we expect to see interest rates break out further on the upside. Initially, we expect developed market growth to be resilient to that.
Net foreign trade made a positive contribution of 0.2 percentage points to GDP growth in the second quarter, matching the Q1 performance.
Politics in Brazil has been busy in recent days, with local media reporting several items of interest.
the past few observations make clear. Real spending jumped by 0.5% in March, rebounding after its weather-induced softness in February, before stalling again in April. Then, in May, the s urge in new auto sales to a nine-year high lifted total spending again, driving a 0.6% real increase.
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.
The MPC held back last week from decisively signalling that interest rates would rise when it meets next, in May.
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.
Mexican policymakers yesterday voted unanimously to cut the policy rate by 50bp to 5.00%, the lowest level since late 2016.
The final numbers for China's balance of payments in the first quarter showed that the current account descended to a $34B deficit, from a surplus of $30B a year earlier.
Data last week confirmed that Peru's economic growth slowed sharply in the first half of the year, due to the damaging effects of the global trade war hitting exports.
We have argued for some time that the revival in nonoil capex represents clear upside risk for GDP growth next year, but it's now time to make this our base case.
On the face of it, the 25 basis points increase in 10-year German yields this month is modest. But the sell-off has reminded levered investors that trading benchmark securities in the Eurozone is not a one-way street. When yields are close to zero, investors also use leverage to enhance returns, and this increases volatility when the market turns.
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.
Data released yesterday in Brazil support our base case that the IPCA inflation rate will remain relatively stable over the coming months, hovering around 2%.
The COPOM meeting minutes, released yesterday, brought a balanced message aimed at curbing market pricing of further rate cuts, in our view.
Don't be alarmed by the second straight jump in consumers' inflation expectations, captured by the Conference Board's May survey, reported yesterday.
Mexico's external accounts remain solid, despite adverse global conditions over the past year. The current account decreased to USD9.5B, or 3.2% of GDP, in the first quarter, just down from 3.3% a year earlier. Shortfalls of USD10.3B in the income account and USD4.7B in goods and services--mostly the latter--were again the key driver of the overall deficit.
Today's FOMC announcement will be something of a non-event. Rates were never likely to rise immediately after December's hike, and the weakness of global equity markets means the chance of a further tightening today is zero.
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.
Political uncertainty is starting to dampen housing market activity again.
The flat trend in core capital goods orders continued through May, according to yesterday's durable goods orders report. We are not surprised.
We were wrong about headline durable goods orders in April, because the civilian aircraft component behaved very strangely.
The coronavirus pandemic looks set to spread rapidly throughout LatAm.
February's retail sales figures highlighted that consumers' spending was flagging even before the Covid-19 outbreak.
The speculation is over: 3.283 million people filed a new claim for unemployment benefits last week, nearly double the 1.7M consensus forecast, which looked much too low.
A series of events have forced markets and analysts to re-evaluate their assumption that Bank Rate will remain on hold throughout 2017. First, the minutes of the MPC's meeting had a hawkish tilt.
Whichever way you choose to slice the numbers, consumers' spending is growing much more slowly than is implied by an array of confidence surveys.
Guo Shuqing, head of the newly formed China Banking and Insurance Regulatory Commission, has been named as Party Secretary for the PBoC.
Data from trade body U.K. Finance show that mortgage lending has remained unyielding in the face of heightened economic and political uncertainty.
On Friday last week, the Chinese authorities suspended sales of domestic and international tours, in an effort to contain the spread of the coronavirus, which started in Wuhan.
The recovery in the composite PMI to 52.4 in January, from 49.3 in December, should convince a majority of MPC members to vote on Thursday to maintain Bank Rate at 0.75%.
It's pretty clear now that the President is not a reliable guide to what's actually happening in the China trade war, or what will happen in the future.
The rate of growth of Covid-19 cases outside China appears to have peaked, for now, but we can't yet have any confidence that this represents a definitive shift in the progress of the epidemic.
The stagnation in business investment since 2016 has been key to the slowdown in the overall economy since the E.U. referendum.
India's GDP report for the second quarter, due on Friday, is likely to show a decent rebound in growth from the first quarter.
The slide in global long-term bond yields, and flattening curves, have spooked markets this year, sparking fears among investors of an impending global economic recession.
This week's Mexican retail sales report for February offered more support to our view that domestic conditions improved at the end of Q1.
Since the Party Congress last month, China has made a number of bold moves in multiple policy fields, with a regularity that almost implies the authorities are working through a list.
Yesterday's State Council meeting significantly expanded support to the economy, through a number of channels.
Orders for non-defense capital goods, excluding aircraft, have risen in six of the past seven months. In the fourth quarter, orders rose at a 4.7% annualized rate, in contrast to the 5.3% year-over-year plunge in the first half of the year.
Yesterday's consumer sentiment data in the two major euro area economies were mixed, but they still support our view that a rebound in EZ consumption growth is underway.
Forecasting the health insurance component of the CPI is a mug's game, so you'll look in vain for hard projections in this note.
The dovish members of Banxico's board garnered further support on Friday for prolonging the current easing monetary cycle over coming meetings.
Today's wave of data will bring new information on the industrial sector, consumers, the labor market, and housing, as well as revisions to the third quarter GDP numbers.
Brazil's external accounts are well under control, despite the wider deficit in January, mainly driven by seasonal deterioration on the trade account.
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.
President Temer seems to be advancing on his reform agenda.
Mexico's inflation is heading down. Wednesday's advance CPI report showed that inflation pressures are finally fading, following temporary shocks in recent months, and the end of the "gasolinazo" effect.
The Covid-19 outbreak has rattled equity markets, but has not had a major bearing on DM currencies, yet.
Financial markets' inflation expectations have risen sharply since the spring. Our first chart shows that the two-year forward rate derived from RPI inflation swaps has picked up to 3.8%, from 3.5% at the end of April.
LatAm governments and central banks have been busy implementing additional measures to contain the spread of the virus, and acting rapidly to ease the effect on the economy.
If Japan's flash PMIs for March are a sign of things to come, then the government really should get moving on fiscal stimulus.
Data released yesterday in Mexico strengthened the case for interest rate cuts this year.
The latest data from container ports around the country are consistent with our view that imports are still correcting after the surge late last year, triggered by the hurricanes.
Data released this week in Brazil, coupled with the message from President Bolsonaro at the World Economic Forum, vowing to meet the country's fiscal targets and reduce distortions, support our benign inflation view and monetary policy forecasts for this year.
Yesterday's first batch of Q3 survey data in the Eurozone suggest that economic growth eased further, albeit it slightly, at the start of the quarter.
Japan's headline inflation will be volatile for the rest of the year, thanks to movements in the noncore elements.
Japan's CPI inflation was unchanged, at 0.2% in February.
The FOMC minutes confirmed that most FOMC members were not swayed by the weak-looking first quarter GDP numbers or the soft March core CPI. Both are considered likely to prove "transitory", and the underlying economic outlook is little changed from March.
Korean real GDP growth slumped in Q2 to 0.6% quarter-on-quarter, from 1.1% in Q1, as both the main drivers--construction and exports--ran out of steam simultaneously. Construction investment grew by 1.0%, sharply slower than the 6.8% in Q1 and contributing just 0.2% to GDP growth in Q2, a turnaround from the 1.1 percentage point contribution in the first quarter.
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.
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.
Mr. Draghi's speech yesterday in Portugal, at the ECB forum on Central Banking, pushed the euro and EZ government bond yields higher. The markets' hawkish interpretation was linked to the president's comment that "The threat of deflation is gone and reflationary forces are at play."
The weaker is the economy over the next few months, the more likely it is that Mr. Trump blinks and removes some--perhaps even all--the tariffs on Chinese imports.
Markets cheered soaring business surveys in the Eurozone earlier this week, and recent consumer sentiment data also have been cause for celebration. The advance GfK consumer confidence index in Germany rose to a record high of 10.4 in June, from 10.2 in May.
In a relatively light week in terms of economic indicators in Brazil, the inflation numbers and the potential effect of the recent BRL sell-off garnered all the attention.
On the face of it, the potential for a tangible boost to GDP growth from a revival in business investment after a no-deal Brexit has been averted appears modest.
The minutes of the Banxico's monetary policy meeting on February 7, when the board unanimously voted to keep the reference rate on hold at 8.25%, were consistent with the post-meeting statement.
Economic activity in Mexico during the past few months has been stronger than most observers expected. Growth has certainly moderated from the relatively strong pace recorded during the second half of last year, but data for January and February show that it is still quite strong.
A shutdown of the federal government, which could happen as early as this weekend, is a political event rather than a macroeconomic shock. But if it happens--if Congress cannot agree on even a shortterm stop-gap spending measure in order to keep the lights on after the 28th--it would demonstrate yet again that the splits in the House mean that the prospects of a substantial near-term loosening of fiscal policy are now very slim.
Korean real GDP growth--to be published on Thursday--should bounce back in Q1 to 1.0% quarter-on-quarter, after the 0.2% drop in Q4.
Financial market performance and economic survey data on the Brazilian economy have been better than many investors and commentators feared this year. The composite PMI has improved gradually since November last year, consumer sentiment has stabilized, and national business surveys have been less bleak.
Broad-based inflation pressures in Brazil remain tame despite the sharp BRL depreciation this year, totalling about 7% in the last three months alone.
It is often argued that the average weekly earnings--AWE--figures exaggerate the severity of the squeeze on households' incomes.
Consumer confidence in the Eurozone rose marginally at the start of Q4, though it is still down since the start of the year.
Chinese industrial profits growth rose to 16.7% year-on-year in May, from 14.0% in April. But this headline is highly misleading. Profits growth data are about as cyclical as they come so taking one point in the year and looking back 12 months is very arbitrary. Moreover, the data are very volatile over short periods.
Mexico's inflation has been LatAm's odd one out over the last few years. In the decade through 2014, Mexico's inflation rate was broadly in sync with those of its regional fellows, as shown in our first chart.
A downbeat French INSEE consumer sentiment report yesterday continued the run of poor survey data this week. The headline index fell to 95 in February from 97 in January, indicating downside risk f or Q1 consumers' spending. But we remain optimistic that private consumption will rebound solidly, following a 0.4% quarter-on-quarter fall in Q4.
Sterling weakened further yesterday in response to the perception that the odds of the U.K. leaving the E.U. in the June referendum are rising. Cable fell to $1.39, its lowest level since March 2009. It is now $0.12 below the level one would anticipate from markets' expectations for short rates, as our chart of the week on page three shows.
China's 2018 property market boomlet let out more air last month.
Yesterday's stock market bloodbath stands in contrast to the U.S. economic data, most of which so far show no impact from the Covid-19 outbreak.
We find it remarkable, after the market volatility induced by the two Brexit deadlines in 2019, that investors do not foresee another bump in the road at the end of this ye ar, when the Brexit transition period is due to end.
The Monetary Policy Board of the Bank of Korea is likely to keep its benchmark base rate unchanged, at 1.25%, at its meeting this week.
Brazil's inflation rate remained well under control over the first half of February.
Mexican economic data was surprisingly benign last week.
The hefty upward revision to Q3 inventories means we have to lower our working assumption for fourth quarter GDP growth, because the year-end inventory rebound we previously expected is now much less likely to happen. Remember, the GDP contribution from inventories is equal to the change in the pace of inventory accumulation between quarters, and we're struggling to see a faster rate of accumulation in Q4 after the hefty revised $90B third quarter gain. Inventory holdings are in line with the trend in place since the recession of 2001; firms don't need to build inventory now at a faster pace.
The Colombian economy was relatively resilient at the end of last year, but economic reports released during the last few weeks indicate that growth is still fragile, and that downside risks have increased. Real GDP rose 1.0% quarter-on-quarter in Q4, pushing the year-over-year rate up to 1.6% from 1.2% in Q3.
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.
Hard economic data for the first quarter will appear over the next few weeks, but the EC sentiment survey later today gives a useful overview of how the euro area economy started the year.
The E.C.'s Economic Sentiment Indicator for the U.K., released yesterday, painted an upbeat picture of the economy's recent performance. The ESI picked up to 109.4 in February from 107.1 in January; its average level since 1990 is 100. February's reading was the highest since December 2015, and it slightly exceeded the E.U.'s average of 108.9.
In our Webinar--see here--we laid out scenarios for Chinese GDP in Q1 and for this year.
The spread of the Covid-19 virus remains the key issue for markets, which were deeply unhappy yesterday at reports of new cases in Austria, Spain and Switzerland, all of which appear to be connected to the cluster in northern Italy.
Sterling's depreciation, which began over two years ago, has inflicted pain on consumers but fostered a negligible improvement in net trade.
Yesterday's advance CPI data in Germany and Spain suggest that inflation in the Eurozone as a whole dipped slightly in February.
All eyes will be on the core PCE deflator data today, in the wake of the upside surprise in the January core CPI, reported last week. The numbers do not move perfectly together each month, but a 0.2% increase in the core deflator is a solid bet, with an outside chance of an outsized 0.3% jump.
Yesterday's money supply data gave some respite after last month's disappointing slowdown. Broad money growth--M3--rose to 5.0% year-over-year, from 4.7% in December, but the details were less encouraging. The rebound was solely due slower declines in medium-term deposits, short-term debt issuance, and repurchase agreements.
The BoK surprised markets and commentators by keeping rates unchanged at 1.25% yesterday, rather than cutting to 1.0%.
Data released yesterday confirmed that the Mexican economy ended Q4 poorly; policymakers will take note.
Korean GDP unexpectedly declined in Q4, for the first time since the financial crisis, falling 0.2% quarter-on-quarter after a 1.5% jump in Q3.
The Fed will soon have to step in to try to put a firebreak in the stock market.
After many years in which the phrase "twin deficits" was never mentioned, suddenly it is the explanation of choice for the weakening of the dollar and the sudden increase in real Treasury yields since the turn of the year, shortly after the tax cut bill passed Congress.
Friday's final CPI report in the Eurozone confirmed that inflation dipped marginally in January, by 0.1 percentage points, to 1.3%.
Japan's CPI inflation has risen sharply in recent months, driven by non-core elements. The headline faces cross-currents in coming months, but should remain high, posing problems for BoJ policy.
Data released yesterday confirmed that Mexico's economy ended Q4 poorly, confounding the most hawkish Banxico Board members.
As the situation with the coronavirus develops, and we gain more information on the authorities' response, it's becoming clear that the damage to Q1 GDP is going to be nasty.
Mortgage approvals by the main high street banks dropped to a five-month low of 38.5K in September, from 39.2K in August, according to trade body U.K.Finance.
PMI data in the Eurozone rebounded convincingly in October, as the composite index rose to a 10-month high of 53.7, from 52.6 in September. The gain fully reversed the weakness at the end of Q3.
Core durable goods orders in recent months have been much less terrible than implied by both the ISM and Markit manufacturing surveys.
The mortgage market is continuing to hold up surprisingly well, given the calamitous political backdrop.
The gaps in the third quarter GDP data are still quite large, with no numbers yet for September international trade or the public sector, but we're now thinking that growth likely was less than 11⁄2%.
This week's November mid-month inflation reports in Brazil and Mexico underscored their divergent trends. Inflation pressures are steadily falling in Brazil, but in Mexico, the pass-through from the MXN's sell- off is driving up inflation and inflation expectations.
Mexico's central bank, Banxico, will hold its first monetary policy meeting of this year tomorrow. It will break with tradition, holding the meeting on Thursday at 1:00 p.m, local time, instead of the previous 9:00 a.m slot.
When you read between the lines of its public statements on Brexit, the Government appears to be prioritising controlling immigration over maintaining unfettered access to the single market, much to the chagrin of the financial sector.
Inflation in Brazil and Mexico is ending Q3 under control, allowing the central banks to keep easing monetary policy.
Rising inflation is pressuring some LatAm central banks to take a cautious stance at a time when growth is subpar, particularly in the two biggest economies of the region.
News that the Covid-19 virus has spread to more countries frayed investors' nerves further yesterday, with the FTSE 100 eventually residing 5.3% below its Friday close.
All the evidence indicates that growth in Mexican consumers' spending is slowing, despite the better- than-expected November retail sales numbers, released yesterday.
The key data today, covering March durable goods orders and international trade in goods, should both beat consensus forecasts.
The good news in today's March durable goods report is that a rebound in orders for Boeing aircraft means February's 3.0% drop in headline orders won't be repeated. The company reported orders for 69 aircraft in March, compared to just one in February.
Japan's September PMI report showed some slippage, but overall, it suggests that GDP growth in Q3 was a little stronger than the 0.3% quarter- on-quarter rate in Q2.
Inflation in Mexico surprised to the downside in late Q3, supporting our core view that it will continue to fall gradually over the coming months.
In his opening speech at the Party Congress, President Xi received warm applause for his comment that houses are "for living in, not for speculation".
Japan's official adjusted surplus rose in October but we think the September figure was an understatement. On our adjustment, the surplus was little unchanged at ¥360B in October.
The national February inflation data are due this Friday, a couple of weeks after the Tokyo report, as usual.
We have been puzzled in recent months by the sudden and substantial divergence between the Redbook chainstore sales numbers and the official data.
The euro area's trade advantage with the rest of the world slipped at the start of the year.
China announced the appointment of key political and financial jobs yesterday.
Chile's central bank cut the policy rate 25bp last week to 3.0%, in line with consensus, amid easing inflationary pressures. The timing of the rate cut was no surprise; in January, the BCCh cut rates for the first time in more than two years, and kept a dovish bias.
Friday's CPI data for April provided the final piece of evidence for the significant Easter distortions in this year's data.
Hard data released in Argentina over the last month showed that the economy was struggling in early Q1, even before the Covid-19 hit.
Leading indicators are giving conflicting signals regarding the outlook for core goods CPI inflation.
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.
The recent increases in single-family housing construction are consistent with the rise in new home sales, triggered by the substantial fall in mortgage rates over the past year.
Prospects for further rate cuts in Brazil, due to the sluggishness of the economic recovery and low inflation, have played against the BRL in recent weeks.
Economic and financial conditions continue to deteriorate sharply in LatAm.
Brace yourselves; GDP growth forecasts are being slashed left and right, as our colleagues take stock of the economic damage Covid-19 likely will inflict in the U.S. and across Europe, where outbreaks and containment measures have escalated significantly.
Argentina's inflation ended 2019 badly, and it is still too early to bet on a protracted downtrend, even after the renewed economic slowdown.
Friday's detailed euro area CPI report for December confirmed that inflation pushed higher at the end of last year. Headline inflation increased to 1.3% year-over- year, from 1.0% in November, lifted primarily by higher energy inflation, rising by 3.4pp, to +0.2%. Inflation in food, alcohol and tobacco also rose, albeit marginally, to 2.1%, from 2.0% in November.
Expectations that the MPC will cut Bank Rate at its meeting on January 30 received a further shot in the arm at the end of last week, when December's retail sales figures were released.
Peru's economic recovery gathered strength late last year.
The imminent boost to lending rates from the shut- down of the Term Funding Scheme at the end of this month is widely under-appreciated.
Brazilian inflation is off to a good start this year, and we think more good news is coming. The January mid-month IPCA-15 index rose an unadjusted 0.3% month-to-month, a tenth less than expected. This was the smallest gain for January since 1994 and the sixth consecutive month in which the number came in below expectations.
The ECB is unlikely to make any changes to its policy stance today. We think the central bank will keep its refinancing and deposit rates at 0.00% and -0.4%, respectively, and maintain the pace of QE at €60 per month until the end of the year. We also don't expect any substantial change in the language on forward guidance and QE.
Japan's trade balance deteriorated sharply in May, flipping to a ¥967B deficit from the modest ¥57B surplus in April.
June's 0.5% month-to-month fall in retail sales volumes does little to change the picture of recent strength.
Japan's trade surplus has whipsawed recently. Sharp changes are to be expected in January and February, due to the shifting timing of Chinese New Year.
Surveys suggest that today's retail sales figures will show that sales volumes increased by around 1% month-to-month in June, significantly exceeding the consensus, 0.4%. But the pickup in June likely will be just a blip; the further intensification of the squeeze on real wages and a tightening of unsecured lending standards will keep retail sales on a flat path in the second half of 2017.
In the years before the crash of 2008, if you wanted to know what was likely to happen to the pace of U.S. economic growth, all you needed to know was what happened to corporate bond yields a year earlier. The correlation between movements in BBB industrial yields--not spreads--and the changes in the rate of GDP growth, lagged by a year, was remarkably strong from 1994 through 2008, as our first chart shows. Roughly, a 50 basis point increase in yields could be expected to reduce the pace of year-over-year GDP growth--the second differential, in other words--by about 1.5 percentage points.
Argentina's economy is firing on all cylinders, thanks to improving fundamentals and a positive external backdrop.
Today's advance EZ PMIs will be watched more closely than usual.
Once again, Chinese January data released so far suggest that the Phase One trade deal was the dominant factor dictating activity for the first two- thirds of the month, with the virus becoming a real consideration only in the last third.
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.
This is the final report before we dial down for our Christmas break, and we are happy to report that the economic calendar will be almost empty in our absence.
The minutes of this week's MPC meeting indicate that it won't waste any time to raise interest rates after MPs finally have signed off a Brexit deal.
Brazil's current account data last week provided further evidence of stabilisation in the economy, despite the modest headline deterioration. The unadjusted current account deficit increased marginally to USD5.1B in January, from USD4.8B in January 2016, but the underlying trend remains stable, at about 1.3% of GDP. Our first two charts show that the overall deficit began to stabilize in mid-2016, as the rate of improvement in the trade balance slowed, reflecting the easing of the domestic recession.
Argentina's latest hard data suggest that activity is softening, but we don't see the start of a renewed downtrend.
Financial markets have put maximum pressure on the ECB going into today's meeting, but we doubt it will be enough to spur the governing council into action so soon after announcing additional stimulus in December. We think the central bank will keep its refi and deposit rate unchanged at 0.05% and -0.3% respectively, and maintain the pace of asset purchases at €60B a month.
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.
With a no-deal Brexit still a potential outcome and just over five weeks to go until the U.K. is scheduled to leave, it's about time we put some numbers on how high inflation could get in this worst-case scenario.
Today's housing market data likely will look soft, but will probably not be representative of the underlying story, which remains quite positive.
Chile's Q2 GDP report, released yesterday, confirmed that the economy gathered strength in the first half of the year, consolidating a strong recovery that started in Q3 2017.
Chile's Q2 GDP report, released on Friday, confirmed that the economy gathered momentum in recent months, following an alarmingly weak start to the year.
On the official gauge, China's real GDP growth fell minimally to 6.8% year-on-year in Q3, from 6.9% in Q2. Growth edged down to 1.7% quarter-on-quarter from an upwardly revised 1.8% in Q2.
Recent economic indicators in Brazil have undershot consensus in recent weeks, but the economy nonetheless continues to recover.
As we write, 25 Conservative MPs have confirmed publicly that they have submitted no-confidence letters to the Chairman of the 1922 Committee. That's 23 short of the 48 required to trigger a leadership contest, though some MPs might have submitted letters without making it public.
The media and markets are waking up to the idea that the housing market has peaked in the face of higher mortgage rates and slightly--so far--tighter lending standards.
Looking through recent supply disruptions, Japan's adjusted trade balance seems likely to remain in the red until the new year.
Banxico's tightening cycle has totalled 400 basis points, lifting rates to 7.0%. Since late 2015, Banxico has followed the Fed closely, but other external factors also have guided many of its decisions.
August's retail sales figures, released today, look set to show that growth in consumers' spending has remained subpar in Q3, casting doubt over whether the MPC will conclude that the economy can cope with a rate hike this year.
We're expecting to learn today that existing home sales rose quite sharply in July, perhaps reaching the highest level since early 2018.
We still don't have the complete picture of what happened to the EZ construction sector in Q2, but we have enough evidence to suggest that it rolled over.
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.
Greek Finance Minister Yanis Varoufakis' letter requesting a six-month loan extension has been interpreted widely as Syriza throwing in the towel. But we don't see this way. The best possible outcome for Greece is to be able to participate in the ECB's sovereign QE program, and to negotiate a new deal with the Troika; the request for an extension could very well achieve both.
Wednesday's State Council meeting implies that the authorities are starting to take more serious coordinated fiscal measures to counter the virus threat to the labour market and to banks.
Mexico's election results are not available as we go to press, but we're expecting a comfortable win for the left-wing populist candidate, AMLO.
May's money and credit data indicate, reassuringly, that the economy still is growing at a steady, albeit unspectacular, rate, despite the endless uncertainty created by Brexit.
Markets now think the Fed is done.
The economy's fragility was underlined by the Q3 national accounts, released just before the Christmas break.
Most of the data were consistent with the idea that fourth quarter growth will be a two-part story, with real strength in domestic final demand partly offset by substantial drags from net foreign trade and inventories.
We anticipated that the G20 meeting at Osaka over last weekend would be a potentially important mark of thawing relations between China and the U.S., with the hotly awaited meeting between Messrs. Xi and Trump.
The truce in trade relations between the U.S. and China, agreed at the G20, is good news for LatAm, at least for now.
Japan's labour data threw another January curve ball this year--last year it was wages--with a change in the standards for job openings.
Manufacturers in China continued to trudge along in May, with their post-lockdown recovery looking increasingly fragile.
Colombian policymakers on Friday cut the reference rate by 50bp, for a third straight month, to 2.75%.
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 economy slowed less than we expected in 2017.
China's official PMIs paint a picture of robust momentum going into 2018 but we find this difficult to reconcile with the other data.
Financial markets are pricing in a 20% chance that the Monetary Policy Committee will cut official interest rates during the next six months, broadly the same odds they ascribe to a rate increase. We think the probability of further easing is much slimmer than the market believes.
The deterioration of the Markit/CIPS manufacturing survey in November should temper optimism about the potential benefits of sterling's depreciation. The PMI fell to 53.4 in November, from 54.2 in October.
LatAm assets and currencies had a bad November, due to global trade war concerns, the USD rebound and domestic factors.
Japan's jobless rate was unchanged, at 2.4% in October, as the market took a breather after September's job losses.
The key detail in Friday's barrage of economic data was the above-consensus increase in EZ inflation.
Expectations are running high that the MPC will strike a more hawkish tone today in the minutes of this month's meeting and in the quarterly Inflation Report. Investors are pricing in a 45% chance of the MPC raising interest rates before the end of 2017, up from 30% before the last Report in November.
The FOMC statement did enough to keep alive the idea that rates could rise in March, but the ball is now mostly in Congress' court. If a clear plan for substantial fiscal easing has emerged by the time of the meeting on March 15, policymakers can incorporate its potential impact on growth, unemployment and inflation into their forecasts, then a rate hike will be much more likely.
While were out over the holidays, the single biggest surprise in the data was yet another drop in imports, reported in the advance trade numbers for November.
The 2010s were the first decade since reliable records begin--in the 1700s--in which a recession was completely avoided
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.
Holiday effects are tedious and you are going to hear us talking about them until the March data come through.
The number of Covid-19 cases is increasing at a faster rate, though 89% of the new cases reported Saturday were in China, South Korea, Italy and Iran.
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.
Banxico cut its policy rate by 25bp to 7.25% yesterday, as was widely expected, following similar moves in August, September and November.
The BoJ held firm, for the most part, during this year's bout of central bank dovishness.
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.
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.
Inflation in the Eurozone eased at the start of Q3.
The run of weak retail sales figures continued yesterday, with the release of November's official data.
BanRep surprised the markets on Friday with a 25bp interest rate cut, bringing rates to 7.50%. We expected the Colombian central bank to start easing in January, due to the uncertainties surrounding the tax reform package and the ongoing minimum wage negotiations.
This year has been sobering for Eurozone equity investors.
CPI inflation fell to 2.3% in November--its lowest rate since March 2017--from 2.4% in October, and it remains on track to fall rapidly over the winter.
The PBoC late on Wednesday announced measures to provide medium-term funding for smaller businesses.
The single most important number in the housing construction report is single-family permits, because they lead starts by a month or two but are much less volatile.
Argentina's government continues to show signs of reining in fiscal policy, with the primary budget balance improving steadily over the last year.
We understand the desire of investors and individuals to see the economy re-opening as soon as possible, but the data right now support only a limited opening in some parts of the country and, hence, a limited late spring/summer rebound in the economy.
Korean exports continued to fall year-over-year in April, but the story isn't as bleak as the headlines suggest.
We expect the BoK to hike this month, believing that it's necessary to curtail household debt growth now, in order to prevent a sharper economic slowdown as the Fed hiking cycle continues, China slows, and trade risks unfold.
Advance inflation data in the Eurozone will likely surprise to the upside today. The consensus forecast expects inflation to rise slightly to -0.5% year-over-year in February from -0.6% in January, but we expect a much bigger jump, to -0.2% year-over-year.
We'll cover Friday's barrage of EZ economic data later in this Monitor, but first things first. We regret to inform readers that the ECB is behind the curve. Last week, Ms. Lagarde downplayed the idea that the central bank will respond to the shock from the Covid-19 outbreak.
After a slew of media reports in recent days, we have to expect that the president will today announce that Fed governor Jerome Powell is his pick to replace Janet Yellen as Chair.
China's Caixin manufacturing PMI was unchanged at 51.0 in October, continuing the sideways trend this year.
China's September PMIs, most of which were released over the weekend, mark out a clear downtrend in activity since late last year.
Friday's inflation data in the Eurozone added a dovish twist to the story ahead of the key ECB meeting later this month.
Renewed stockpiling ahead of the October Brexit deadline finally appears to be providing some near-term support to manufacturing output.
Brazil's industrial production rose 0.8% month- to-month in August, well above our call, and the consensus, for a trivial increase.
Data released on Friday confirmed that Colombian activity remained strong in Q4.
Forecasting BoJ policy for this year is trickier than it has been in a long time.
The trend rate of increase in private payrolls in the months before Hurricane Katrina in 2005 was about 240K per month.
The BoJ kept policy unchanged yesterday, with the policy balance rate remaining at -0.1% and the 10-year yield target remaining around zero.
Public borrowing was below consensus expectations in August, fuelling speculation that the Chancellor might pare back the remaining fiscal tightening in the Autumn Budget on November 22.
Germans head to the polls on Sunday to elect representatives for the national parliament. The media has tried to keep investors on alert for a surprise, but polls indicate clearly that Angela Merkel will continue as Chancellor.
China's real GDP growth officially slowed to 6.5% year-over-year in Q3, from 6.7% in Q2.
Before this week's earthquake, the resilience of Mexico's economy in the face of a volatile and challenging global backdrop owed much to the strength of domestic demand, especially private consumption.
Yesterday's economic data provided the first glimpse of the crash in EZ sentiment at the start of Q2, ahead of today's more substantial barrage of numbers, including French INSEE data, GfK confidence numbers in Germany and the advance PMIs.
The beginning of the electoral campaign last week in Brazil bodes uncertain results and a very close competition for the presidential elections on October 7.
Inflation pressures in Brazil and Mexico are well under control, with the August mid-month readings falling more than expected, strengthening the case for the BCB and Banxico to cut interest rates in the near term.
It's going to be very hard for Fed Chair Powell's Jackson Hole speech today to satisfy markets, which now expect three further rate cuts by March next year.
Inflation in Brazil remained subdued at the start of the second quarter, strengthening the odds for an additional interest rate cut next month, and opening the door for further stimulus in June.
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.
Korea's trade figures for the first 20 days of November, published yesterday, gave the first real glimpse in a long time of how its exporters are truly performing.
On a trade-weighted basis, sterling has dropped by only 1.5% since the start of the month, but it is easy to envisage circumstances in which it would fall significantly further.
We still don't have the complete picture of what happened to EZ consumers' spending in Q1, but the initial details suggest that growth acceleretated slightly at the start of the year.
Data released on Monday showed that Chile's external accounts remained under pressure at the start of the year, and trade tensions mean that it will be harder to finance the gap.
Fed policymakers surprised no one with their May 1 statement, which acknowledged the surprisingly "solid " Q1 economic growth--at the time of the March 19-to-20 meeting, the Atlanta Fed's GDPNow model suggested Q1 growth would be just 0.6%--but stuck to its view that low inflation means the FOMC can be "patient".
Japan's trade surplus rebounded to ¥522B in April, on our adjustment, from ¥390B in March, around the same level as the official version, though from a higher base.
The coronavirus pandemic is wreaking havoc in Brazil.
Japan's export data for April unsurprisingly were abysmal, driving a massive deterioration in the trade balance, which flipped from a modest ¥5B surplus in March, to a ¥930B deficit.
Today brings a wave of data, some brought forward because of Thanksgiving. We are most interested in the durable goods orders report for October, which we expect will show the upward trend in core capital goods orders continues.
Most LatAm currencies have been under pressure recently, with the Brazilian real and the Chilean peso breaking all-time lows versus the USD in recent weeks.
The 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.
Core inflation has risen, albeit modestly, in the past two months. The uptick, to 1.8% in March from 1.6% in January, has come as something of a surprise. The narrative in the media and markets remains, as far as we can tell, one of downward pressure on inflation and, still, fear of possible deflation.
Yesterday's German IFO survey broadly confirmed the bullish message from the PMIs earlier this week. The headline business climate index rose to 111.0 in February from a revised 109.9 in January, boosted by increases in both the current assessment and the expectations index.
The PBoC managed to keep interest rates well- anchored around the Chinese New Year holiday, when volatility is often elevated.
The drop in the flash composite PMI in March will be one for the record books, unfortunately. We look for an unprecedented drop to 43.0, from 53.3 in February, which would undershoot the 45.0 consensus and signal clearly that a deep recession is underway.
Under normal circumstances, we would expect today's retail sales figures to reveal that volumes rebounded in February, following the 2.7% fall over the previous three months. But the continued weakness of spending surveys suggests that we should brace for another soft report.
Policymakers and governments are gradually deploying major fiscal and monetary policy measures to ease the hit from Covid-19 and the related financial crisis.
2016 has been another terrible year for Venezuela, and we have no hope that the country's economic and political situation will improve in the near-term. Economic mismanagement, authoritarianism, corruption, violent looting and social unrest are the norm.
With most poll-of-poll measures showing a very narrow margin in the U.K. Brexit referendum, while betting markets show a huge majority for "Remain", today brings a live experiment in the idea that the wisdom of crowds is a better guide to elections than peoples' preferences.
Yesterday's public finance figures brought more good news for the Chancellor.
Japanese policymakers will have been scouring yesterday's data for signs that the trade situation is improving.
October likely was the peak in Japanese CPI inflation, at 1.4%, up from 1.2% in September. The uptick was driven by the non-core elements, primarily food.
Yesterday's advance consumer sentiment index in the Eurozone confirmed the upside risks for consumers' spending in Q4. The headline index rose to a 17- year high of +0.1 in November, from -1.0 in October.
It's hard to read the minutes of the April 30/May 1 FOMC meeting as anything other than a statement of the Fed's intent to do nothing for some time yet.
CPI inflation rose only to 2.1% in April, from 1.9% in March, undershooting the 2.2% consensus and MPC forecasts, as well as our own 2.3% estimate.
We are intrigued by the idea that the rollover in oil firms' capital spending on equipment might already be over, even as spending on new well-drilling--captured by the still-falling weekly operating rigs data--continues to decline. The evidence to suggest equipment spending has fallen far enough is straightforward.
Recent data in Colombia have confirmed that virus containment measures caused much bigger declines in activity in early Q2 than initially expected.
Brazil's central bank is finally decisively facing its demon, persistently high inflation. The eight-member policy board, known as Copom, decided unanimously on Wednesday to increase the Selic rate by 50bp to 12.25%, the highest level in more than three years, in line with the consensus.
Further evidence that the general election has transformed business confidence emerged yesterday, in the form of January's CBI Industrial Trends survey.
The Conference Board's index of leading economic indicators appears to signal that the U.S. economy is plunging headlong into recession.
GDP growth in Korea surprised to the upside in the fourth quarter, with the economy expanding by 1.2% quarter-on-quarter, three times as fast as in Q3, and the biggest increase in nine quarters.
Chile's central bank cut the country's main interest rate by 25bp to 3.25% last Thursday. The easing was expected, as the board adopted a dovish bias last month, after keeping a neutral stance for most of 2016. Last week's move, coupled with the tone of the communiqué, suggests that further easing is coming, as growth continues to disappoint and inflation pressures are easing.
The Eurozone has come under the spotlight for its growing external surplus, but domestic households have been doing the heavy lifting for GDP growth in this business cycle. During the last four quarters, consumers' spending has boosted year-over-year GDP growth by an average of 1.0 percentage points, in contrast to a 0.4pp drag from net exports.
The Eurozone's current account surplus extended its decline in May, falling to a nine-month low of €22.4B, from €29.6B in April.
Friday's inflation data in Brazil confirmed that the ripples from the truckers' strike in May were still being felt at the start of the third quarter.
We expect the Mexican economy to continue growing close to 2% year-over-year in 2019, driven mainly by consumption, but constrained by weak investment, due to prolonged uncertainty related to trade.
Today's data likely will show that EZ households' sentiment remained close to a record high at the start of the year.
April's retail sales figures, due Thursday, likely will show that spending recovered from snow-induced weakness in March.
The Eurozone's current account surplus remained close to record highs at the end of Q1, despite dipping slightly to €34.1B in March, from a revised €37.8B in February. A further increase in the services surplus was the key story.
Exports rebounded sharply in Q3 so far, after the Q2 weakness. This will be a useful boost to GDP growth in Q3, as domestic demand likely will soften.
The New York Fed tweeted yesterday that "Housing market fundamentals appear strong.
Brazil's monetary policy committee, the Copom, cut the Selic rate by 25bp to 14.0% in a unanimous decision, without bias, on Wednesday. This marks the start of the first easing cycle since 2012, and it arrives after 15 months with rates held at 14.25%.
PPI inflation in Korea slowed sharply in October, to a five-month low of 2.2%, from 2.7% in September.
The French economy has suffered from weakness in manufacturing this year, alongside the other major EZ economies.
Consumer sentiment in the euro area has slipped this year, though the headline indices remain robust overall.
The trend in public borrowing has improved significantly over recent months, but it is far too soon to conclude that the Chancellor is on track to meet his goal of running a budget surplus by the end of this decade. The recent economic slowdown has not impacted the public borrowing numbers, yet.
Mexican retail sales jumped 1.0% month-to-month in October, the biggest gain since February, following a poor performance in Q3.
Brazil's recent political and economics news has shifted the near-term outlook from bad to worse. President Rousseff on Friday replaced hawkish Finance Minister Joaquim Levy, appointed just over a year ago, with a close partner, Planning Minister Nelson Barbosa. Mr. Levy resigned after continued conflicts with the government, including frustration by the Congress of his attempts to rein in the fiscal mess. Mr. Barbosa is known to be less market friendly, and will likely defend countercyclical measures, delaying any rapid fiscal consolidation. The appointment will deteriorate investors' confidence even further, placing the markets under enormous strain.
Fed Chair Yellen said in her press conference last week that she has "...been surprised that housing hasn't recovered more robustly than it has. In part I think it reflects very tight credit--continuing tight credit conditions for any borrower that doesn't have really pristine credit... my hope is that that situation will ease over time".
It would be easy to characterize the Fed as quite split at the July meeting.
The resilience of the banking system will be in focus today when the results of this year's Bank of England stress test are published alongside its Financial Stability Report.
Japanese trade remained in the doldrums in October, keeping policymakers on their toes as they repeat the refrain of "resilient" domestic demand.
The startling jump in the Philly Fed index in May, when it rose 11.2 points to a 12-month high, seemed at first sight to be a response to fading tensions over global trade.
It is looking increasingly likely that core inflation, which already has fallen to 2.1% in May, from a peak of 2.7% last year, will slip below 2% next year.
LatAm investors' concerns about U.S. monetary policy expectations and the broad direction of the USD should on the back burner until the Fed hikes again, likely in September. This will leave room for country-specific drivers to take centre stage. That should support Mexico's MXN, which already has risen 14% year-to-date against the USD, erasing its losses after the US election last November.
If the only things that mattered for the housing markets were the obvious factors--the strength of the labor market, and low mortgage rates--the sector would be booming. Activity is picking up, with new and existing home sales up by 23% and 9% year-over-year respectively in the three months to May, but the level of transactions volumes remains hugely depressed. At the peak, new home sales were sustained at an annualized rate of about 1½M, but May sales stood at only 546K. Adjusting for population growth, the long-run data suggests sales ought to be running at close to 1M.
The risk of political change in Venezuela is coming to a boil, following President Maduro's plans for a new constituent assembly that has the power to rewrite the constitution and scrap the existing National Assembly.
On the face of it, BoJ policy seems to be to change none of the settings and let things unfold, hoping that the trade war doesn't escalate, that China's recovery gets underway soon, and that semiconductor sales pick up in the second half.
Fed Chair Yellen made it clear in last week's press conference that she is not convinced the increase in core inflation will persist: "I want to warn that there may be some transitory factors that are influencing [the rise in core inflation]... I see some of that is having to do with unusually high inflation readings in categories that tend to be quite volatile without very much significance for inflation over time.
CPI inflation took a big step in April towards the near-zero rate we anticipate by the summer.
Yesterday's final CPI report for April confirmed that the Eurozone is edging towards deflation.
Mexico's central bank last week left its policy rate at 7.0%, the highest level since early 2009.
The Brazilian BRL has remained relatively stable year-to-date, following a strong rebound in January. But downward pressures have re-emerged over the last two months, as shown in our first chart.
Sentiment in the French business sector ended this year on a high. The headline manufacturing index fell slightly to 112 in December, from an upwardly-revised 113 in November, but the aggregate sentiment gauge edged higher to a new cycle high of 112.
This is the final U.S. Economic Monitor of 2017, a year which has seen the economy strengthen, the labor market tighten substantially, and the Fed raise rates three times, with zero deleterious effect on growth.
Speculation that the ECB is considering a rethink of its inflation target has intensified in the past few weeks.
Brazil's central bank kept the SELIC rate on hold on Wednesday at 14.25% for the eight consecutive meeting. The decision, which was widely expected, was unanimous, but the post-meeting statement was more detailed and informative than the central bank's June communiqué. We think the shift was intentional; the central bank's new board, headed by Mr. Ilan Goldfajn, is eager to strengthen the institution's credibility and transparency.
With Fed officials now in pre-FOMC meeting blackout mode, this week will not bring a repeat of Friday's confusion, when the New York Fed felt obligated to issue a clarification following president William's speech on monetary policy close to the zero bound.
Chinese GDP numbers always require a great deal of detective work, and yesterday's needed more than the norm; multiple rounds of revisions needed decoding.
As we reach our Sunday afternoon deadline, no deal has been reached to re-open the federal government.
Korea's preliminary export numbers rebounded quite spectacularly in June, with growth at 24.4% year-on-year, compared with just 3.4% in May. This reading is important as it comes early in the monthly data cycle. Korea's position close to the beginning of the global supply chain, moreover, means its exports often lead shifts in global trade.
Brazil's central bank looked through the recent dip in the BRL and left interest rates at 6.50% at Wednesday's Copom meeting, in line with the consensus.
The recent revival in housing market activity reflects more than just a temporary boost provided by imminent tax changes. The current momentum in market activity and lending likely will fade later this year, but we think this will have more to do with looming interest rate rises than a lull in activity caused by a shift in the timing of home purchases.
We pointed out in yesterday's Monitor that Fed Chair Yellen appears to be putting a good deal of faith in the idea that the recent upturn in core inflation is temporary. She argued that "some" of the increase reflects "unusually high readings in categories that tend to be quite volatile without very much significance for inflation over time".
The newest cluster of Covid-19 in China has reignited concerns over a second wave. On June 11, Beijing confirmed its first infection in nearly 60 days, originating reportedly from Xinfadi market, a wholesaler which supplies about 80% of the capital's produce.
Korean trade activity is slowing.
Recent global developments lead us to intensify our focus on trade in LatAm.
Yesterday's ECB meeting provided no immediate relief to nervous investors. The central bank kept its main interest rates unchanged, and maintained the pace of QE purchases at €60B per month. Mr. Draghi compensated for the lack of action, however, by hinting heavily at further easing at its next meeting. The president emphasized that the ECB's policies will be "reviewed and reconsidered" in light of the March update to the staff projections. Mr. Draghi also admitted that inflation has been "weaker than expected" since the last meeting, and that downside risks have increased further. The central bank does not pre-commit, but we think it is a good bet that the ECB will do more in March.
Brazil's inflation rate remained well under control over the first half of February.
Yesterday's data presented Eurozone investors with an unfamiliar sight; a big downside surprise in the survey data.
Our view that EZ survey data would take a step back in February was severely challenged by yesterday's PMI reports. The composite index in the Eurozone rose to 56.0 in February, from 54.4 in January, lifted by a jump in the services index and a small rise in the manufacturing index.
Colombia's central bank, BanRep, increased the monetary policy rate by 25bp to 6.25% on Friday, as expected, and also announced budget cuts and a new FX strategy to try to protect the COP. These measures are similar to those taken by Banxico on Wednesday. The press release, and the tone of the conference after the decision, suggest that more hikes are coming.
Yesterday's Japanese activity data were grim.
High interest rates and inflation, coupled with increasing uncertainty, put Mexican consumption under strain last year.
We're expecting a substantial inventory hit in the fourth quarter, subtracting about 1¼ percentage points from headline GDP growth. Businesses very likely added to their inventories in Q4, in real terms, but the we reckon the increase was only about $30B, annualized, compared to the $85.5B jump in the third quarter. Remember, the contribution to GDP growth is the change in the pace of inventory-building between quarters.
November's labour market report provided timely reassurance, after last week's downside data surprises, that the economy did not grind to a halt at the end of last year.
The weather-driven surge in December housing starts, reported last week, is unlikely to be replicated in today's existing home sales numbers for the same month.
The BoJ kept its main policy settings unchanged yesterday, in another 7-to-2 split.
Idiosyncratic developments have driven market volatility in LatAm in recent weeks.
Inflation in the Eurozone tumbled last month, increasing the pressure on Mr. Draghi to deliver another dovish message when the central bank meets on Thursday.
We chose last week to ignore the payroll warning signal from the ISM non-manufacturing employment index, which rolled over in January and February, because the danger seemed to have passed. The ISM is not always a reliable indicator--the drop in the index in early 2014 was not replicated in the official data, but the plunge in early 2015 was--and usually it operates with a very short lag, just a month or two.
In today's Monitor, we'll let the economy be, and focus instead on what are fast becoming the two defining political issues for the EU and its new Commission, namely migration and climate change.
We are sticking to our call for a weak first half in Japan, despite likely upgrades to Q1 GDP on Monday.
Revisions to the first quarter productivity numbers, due today, likely will be trivial, given the minimal 0.1 percentage point downward revision to GDP growth reported last week.
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.
Data released on Wednesday, along with the BCB's press release on Tuesday, supported our longstanding forecast of further rate cuts in Brazil in the very near term.
Chancellor Sunak faces a tough first gig on Wednesday, when he delivers the long-awaited Budget.
Friday's CPI data in the euro area confirmed our expectation that inflation jumped last month.
LatAm assets have struggled in recent days as it has become clear that the Fed will hike next week. But we don't expect currencies to collapse, as domestic fundamentals are improving and the broader external outlook is relatively benign.
Fed Chair Yellen's speech Friday was remarkably blunt: "Indeed, at our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate."
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.
It's probably happening a decade too late, but the EU is now moving in leaps and bounds to restructure the continent's weakest banks. Yesterday, the Monte dei Paschi saga reached an interim conclusion when the Commission agreed to allow the Italian government to take a 70% stake in the ailing lender.
China's service sector slowed again in June, with the Caixin PMI falling to 51.6 from 52.8 in May. The Q2 average of 52.0 was only minimally lower than the 52.6 in Q1.
The latest PMIs suggest that investors have jumped the gun in pricing-in a 50% chance of the MPC raising interest rates again as soon as May.
We are not concerned by the very modest tightening in business lending standards reported in the Fed's quarterly survey of senior loan officers, published on Monday.
The jump in the Caixin services PMI in the past two months looks erratic, with holiday effects playing a role, though there could be more going on here.
The record 1,178-point drop in the Dow will garner all the headlines today, but a sense of perspetive is in order, despite the chaos. The 113-point, or 4.1%, fall in the S&P 500 was very startling, but it merely returned the index to its early December level; it has given up the gains only of the past nine weeks.
The post-election run of upbeat business surveys was extended yesterday, with the release of the final Markit/CIPS services PMI for January.
Taken at face value, the retail sales data in the euro area suggest that consumers' spending hit a brick wall at the end of 2018.
Late last year, China said it would scrap residency restrictions for cities with populations less than three million, while the rules for those of three-to-five million will be relaxed.
November's monetary indicators provide an upbeat rebuttal to the swathe of downbeat business surveys. Year-over-year growth in the MPC's preferred measure of broad money--M4 excluding intermediate other financial corporations--rose to a 19-month high of 4.0% in November, from 3.5% in October.
The economic calendar in Mexico was relatively quiet over Christmas, and broadly conformed to our expectations of poor economic activity in Q4.
Friday's early EZ CPI data for December were red hot. Headline HICP inflation in Germany jumped to 1.5%, from 1.3% in November, while the headline rate in France increased by 0.4pp, to 1.6%.
It's hard to overstate the geopolitical importance of Friday's assassination of Qassim Soleimani, architect of Iran's external military activity for more than 20 years and perhaps the most powerful man in the country, after the Supreme Leader.
Today's April ADP employment report likely will understate the scale of the net payroll losses which will be reported Friday by the BLS.
The collapse in global demand last month will have derailed China's trade recovery, causing exports to drop unpleasantly month-on-month after the bounce of around 45% in March; the January/February breakdown is not provided, so we can't be sure of the extent of the March rebound.
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.
Nobody knows the damage China's virus- containment efforts will have on GDP, and we probably never will, for sure, given the opacity of the statistics.
The Brazilian central bank cut the benchmark Selic interest rate by 25bp, to 4.25%, on Wednesday night, as expected.
Chile's central bank, the BCCh, held its reference rate unchanged at 2.75% on Tuesday, in line with the majority of analysts' forecasts.
It would be a mistake to conclude from July's car registrations data that the market finally has turned a corner.
The sell-off in equity markets and increases in volatility have put EM assets under pressure. EM equities and bonds, however, have been outperforming their U.S. and global market counterparts.
As things stand, we see little reason to revise down our forecasts for the U.K. economy in response to the tailspin in equity markets
Evidence that mounting concerns about Brexit have caused the economy to slow to a near-halt continued to accumulate last week.
China's Caixin services PMI for December surprised well to the upside, providing a glimmer of hope that the economy isn't losing steam on all fronts.
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.
Our chief economist, Ian Shepherdson, set out our initial thoughts on the rising tensions between U.S. and Iran here.
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.
Chile's economy remains under pressure, at least temporarily. After signs of recovery in Q1, activity deteriorated in Q2 and at the start of the third quarter. The sluggish global economy--especially China, Chile's main trading partner--is exacerbating the domestic slowdown, hit by low business and consumer confidence.
Markets have interpreted the Monetary Policy Committee's "Super Thursday" releases as an endorsement of their view that interest rates will remain on hold for another year. We think the Committee's communications were more nuanced and believe the door is still open to an interest rate rise in the second quarter of next year.
The MPC's penchant for providing interest rate guidance reached new heights last week.
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.
October's Markit/CIPS services survey suggests that the PM's new Brexit deal has had a lukewarm reception from firms.
Emerging evidence suggests that the economy has passed the period of peak Covid-19 pain.
Inflation in Colombia right now is under control but risks are increasing rapidly, and the outlook for next year has deteriorated significantly.
Political risks have been making an unwelcome comeback in the Eurozone in the past month. In Germany, last month's parliamentary elections--see here--has left Mrs. Merkel with a tricky coalition- building exercise.
The services sector in China is notoriously difficult to track, with the major aggregate statistics published only on a quarterly or even annual basis.
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.
A growing number of economists have marked down their forecasts for Chinese growth next year to below the critical 6% year-over-year rate, required to ensure that the authorities meet their implicit medium- term growth targets.
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.
Korea's trade data for January provided the first real glimpse of the potential hit to international flows from the disruptions caused by the outbreak of the coronavirus.
November's Markit/CIPS surveys for the manufacturing, construction and services sectors suggest that GDP growth is on track to strengthen a touch in Q4.
Just how low would sterling go in the event of a no-deal Brexit? When Reuters last surveyed economists at the start of June, the consensus was that sterling would settle between $1.15 and $1.20 and fall to parity against the euro within one month after an acrimonious separation on October 31.
Yesterday's EZ consumers' spending data were mixed. Retail sales in the euro area fell by 0.3% month-to-month in May, extending the slide from a revised 0.1% dip in April.
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.
Headline Eurozone PMI data have declined steadily since the beginning of the year, but the June numbers stopped the rot.
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.
The Conservatives' opinion poll lead continued to decline over the last week, suggesting that a landslide victory on Thursday no longer is likely. Indeed, the Tories' average lead over Labour in the 10 most recent opinion polls has fallen to just 6%, down from a peak of nearly 20% a month ago.
If you were looking just at investor sentiment in the Eurozone, you would conclude that the economy is in recession.
The violence of recent bond market weakness likely has been driven mainly by reduced liquidity, and a squeeze in crowded positions. But we also think that it can be partly explained by an adjustment to higher inflation expectations. The latest ECB staff projections assume the average HICP inflation will be 0.3% this year, up from the zero predicted in March. Allowing for a smooth increase over the remainder of the year, this implies a year-end inflation rate of 0.8%.
We set out the reasoning behind the big upward revision to our payroll forecast yesterday, in the wake of the much better-than-expected ADP report.
With campaigning for the general election intensifying last week, it was unsurprising that October's money and credit release from the Bank of England received virtually no media or market attention.
The flow of downbeat business surveys continued yesterday, with the release of the Markit/CIPS construction survey.
The slowdown in quarter-on-quarter growth in households' real spending to 0.4% in Q1--just half 2016's average rate--was driven entirely by a 0.1% fall in purchases of goods. Households' spending on services, by contrast, continued to grow briskly. Indeed, the 0.8% quarter-on-quarter rise in households' real spending on services exceeded 2016's average 0.5% rate.
The June ISM manufacturing index signalled clearly that the industrial recovery continues, with the headline number rising to its highest level since August 2014, propelled by rising orders and production. But the industrial economy is not booming and the upturn likely will lose a bit of momentum in the second half as the rebound in oil sector capex slows.
The Budget on March 11 will be the first time that the new government's ambition and bluster collide with reality.
Colombia's BanRep stuck to the script on Thursday by leaving the policy rate on hold at 4.25%.
Brazil's December industrial production report, released yesterday, confirmed that the recovery was stuttering at the end of last year.
The violent protests in France claimed their first victims over the weekend, providing sombre evidence of the severity of the situation for the government.
The key data originally scheduled for today--ADP employment and the ISM non-manufacturing survey, and the revised Q3 productivity and unit labor costs-- have been pushed to Thursday because the federal government will be closed for the National Day of Mourning for president George H. W. Bush.
We very much doubt that Fed Chair Powell dramatically changed his position last week because President Trump repeatedly, and publicly, berated him and the idea of further increases in interest rates.
Yesterday's final PMI data added to the evidence that the EZ economy was firing on all cylinders at the end of last year. The composite PMI in the euro area rose to an 11-year high of 58.5 in December, from 57.5 in November, in line with the initial estimate.
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%.
December's Markit/CIPS surveys for the manufacturing, construction and services sectors suggest that the economy ended 2017 on a lacklustre note.
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.
LatAm financial markets have performed solidly in the first sessions of the year, with most regional currencies trading more strongly against the USD.
Speculation mounted yesterday that the MPC will follow the U.S. Fed and cut interest rates before its next meeting on March 26.
China's National People's Congress is set to convene its annual meeting next week.
When the BoJ tweaked policy back in July, we think the increase in flexibility in part was to lay groundwork for the BoJ to respond to the Fed's ongoing hiking cycle.
Brazil heads to the polls on Sunday, followed by an expected run-off on October 28.
The latest PMIs indicate that the economy remained listless in Q3, undermining the case for a rate rise before the end of this year. The business activity index of the Markit/CIPS services survey rose trivially to 53.6 in September, from 53.2 in August.
Japan's Nikkei services PMI dropped to 51.0 in September from 51.6 in August, continuing the downtrend since June. For Q3 as a whole, the headline averaged 51.5, down from 52.8 in Q2; that's a clear loss of momentum.
Yesterday's economic reports in the Eurozone will rekindle the debate on hard versus soft data. The final composite PMI rose to 56.7 in September, from 55.7 in August, in line with the first estimate.
The CPI inflation rate for non-energy industrial goods--core goods, for short--has tracked past movements in trade-weighted sterling closely over the last ten years, because virtually all goods in this sector are imported.
Headline GDP growth in Korea was revised down, to a seasonally-adjusted 0.6% quarter-on-quarter in Q2, from 0.7% in the preliminary report.
For sterling traders, no election news is good news.
Brazil's industrial sector is on the mend, but some of the key sub-sectors are struggling.
We have consistently flagged the likelihood that Japan's government would boost spending after the consumption tax hike was implemented.
The rise in the Markit/CIPS services PMI to a nine-month high of 51.4 in July, from 50.2 in June, isn't a game-changer, though it does provide some reassurance that the economy isn't on a downward spiral.
Chile's unadjusted unemployment rate fell to 7.1% in July-to-September, from 7.3% in June-to-August, but it was up from 6.7% in September last year.
News last week increased our conviction that the economy will struggle over the coming months, but then will have a spring in its step next year.
The economic slowdown in China is old news for Eurozone investors.
The simultaneous weakening of the ISM manufacturing and non-manufacturing surveys in recent months is one of the more disconcerting shifts in the recent macro data.
February's Markit/CIPS construction survey brought further evidence that the economy is being weighed down by Brexit uncertainty.
The apparently imminent imposition of 25% tariffs on imported steel and 10% on aluminum does not per se constitute a serious macroeconomic shock.
The recent March economic activity reports for Chile have been terrible, showing the first signs of the Covid-19 shock, and worse is to come.
We're very comfortable with the idea that the coronavirus is a broad deflationary shock to the U.S. economy.
Support in opinion polls for both the Conservatives and Labour has been increasing steadily.
Economic conditions are deteriorating rapidly in Chile, despite the relatively decent Imacec reading for Q3.
Services will bear the brunt of the Covid-19 shock in the euro area, but manufacturing is not far behind.
Korea's manufacturing PMI fell for a fourth straight month in April, dropping to 41.6, which is the lowest reading since January 2009.
The Imacec data released on Wednesday provided further evidence that the Chilean economy grew at a decent pace in the second quarter, following a very sluggish first quarter.
Mexico's survey data have improved significantly over the last few months, reaching levels last since before Donald Trump won the U.S. election in November. This suggest that the economy is in much better shape than feared earlier this year. Consumer confidence, for instance, has continued its recovery.
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.
Colombian inflation ended 2017 slightly above the central bank's 2-to-4% target range, after a year in which policymakers cut interest rates to boost economic growth.
The MPC signalled yesterday that it is actively considering a May rate hike, stating that rates likely will "...need to be tightened somewhat earlier and by a somewhat greater degree over the forecast period than anticipated at the time of the November Report".
In contrast to the strong December trade numbers in France--see here--yesterday's German data were soft. The seasonally adjusted trade surplus dipped to €21.5B in December, from €22.3B in November.
China's trade surplus tumbled to $20.3B in January, from $54.7B in December, surprising the consensus for little change.
We already know that the month-to-month movements in the key labor market components of the December NFIB small business survey were mixed; the data were released last week, ahead the official employment report, as usual.
When trade-weighted sterling fell by 20% in 2016, it was widely expected that net trade would cushion GDP growth from the hit to households' real incomes.
China's official manufacturing PMI slipped in June, but the overall picture for Q2 is sound despite the uncertainty posed by rising trade tensions with the U.S.
The first round of trade talks between the U.S.and China kicked off in Beijing on Monday, marking the first face-to-face meeting between the two sides since Presidents Donald Trump and Xi Jinping struck a "truce" in December.
Yesterday's manufacturing data in Germany provided alarming evidence of a much more severe slowdown in the second half of last year than economists had initially expected.
Brazil's industrial sector is still struggling, despite recent signs of better economic and financial conditions.
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.
Last week's data supported our view that monetary policy across LatAm will continue to diverge in the short term. Brazil will have to prolong its monetary tightening cycle, while economies such as Colombia and Chile will remain on hold despite the recent slowdowns in their economic cycle.
The headline Chinese trade numbers are beginning to come into line with the story we have been telling about the more recent trends.
Inflation pressures in Colombia cooled considerably last month. Saturday's CPI report showed that inflation fell to 3.4% year-over-year in July, its lowest level since 2014, from 4.0% in June.
Financial markets have gone into another tailspin over the last fortnight, triggered by rising concern about the possibility of a no-deal Brexit and President Trump's threat of further tariffs on Chinese goods.
The recovery in small business sentiment since the fourth quarter rollover has been extremely modest, so far.
Colombia and Chile faced similar broad trends through most of 2018.
Core PPI inflation has risen steadily this year, with month-to-month increases of 0.3% or more in five of the past six months.
We have two competing explanations for the unexpected leap in November payrolls. First, it was a fluke, so it will either be revised down substantially, or will be followed by a hefty downside correction in December.
Core inflation--a long lagging indicator in the euro area-- will rise next year, in response to surging consumers' spending. Our first chart shows that services inflation likely will be a key theme in this story. Even allowing for a structural drag on inflation due to high unemployment outside Germany, cyclical risks to services inflation are tilted firmly to the upside.
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.
Data released on Friday showed that November inflation was in line with, or below, expectations in Brazil, Colombia and Chile.
The 7.8% month-on-month plunge in Japan's core machine orders in May re-emphasises the underlying weakness that we have been worrying about, after the 5.2% jump in April.
The rollover in bank lending to commercial and industrial companies probably is over. On the face of it, the slowdown has been alarming, with year-over-year growth in the stock of lending slowing to just 2.6% in April, from a sustained peak of more than 10% in the early part of last year.
Fed Chair Powell did not specify how many bills the Fed will buy in order boost bank reserves sufficiently to remove the strain in funding markets, but we'd expect to see something of the order of $500B.
Recent inflation numbers across LatAm have surprised, in both directions. On the upside, Brazil's IPCA index rose 0.2% month-to-month in September, above the market consensus forecast of 0.1%.
Japan's current account surplus has been broadly stable in absolute terms in the last couple of years, though it has retreated as a share of GDP.
Chile's inflation outlook remains benign, allowing policymakers to cut interest rates if the economic recovery falters.
The verdict is not yet definitive, but prudence dictates we must now assume victory for Donald Trump. The immediate implication of President Trump is global risk-off, with stocks everywhere falling hard, government bonds rallying, alongside gold and the Swiss franc. The dollar is the outlier; usually the beneficiary when fear is the story in global markets, it has fallen overnight because the risk is a U.S. story.
Since April, the presidential elections in Brazil have dominated local discourse, prompting several market moves.
Inflation in most economies in LatAm is well under control, allowing central banks to keep a dovish bias, and giving them room for further rate cuts.
April's RICS Residential Market survey confirmed that housing market activity collapsed to negligible levels during the lockdown, which prohibited property viewings, depleted the work forces of lenders and prompted many people to defer big financial decisions.
Easing of curbs so far won't slow property decline
Political developments are clouding the horizon in Mexico, at least temporarily. Mexico's Finance Minister Luis Videgaray, the mastermind behind President Enrique Peña Nieto's most important economic reforms, resigned on Wednesday. José Antonio Meade, a former finance chief, has been tapped to replace him.
Inventories subtracted 1.3 percentage points from headline GDP growth in the second quarter and were by far the biggest constraint on the economy. This was the fifth straight drag from inventories, but it was more than twice the average hit over the previous year.
Convention dictates that we lead with yesterday's Fed meeting, but it's hard to argue that it really deserves top billing.
China's official, unadjusted trade data for October grabbed the headlines, as they look great at first glance.
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 coronavirus outbreak has pushed inflation lower in the Andean economies as the shock drives them into the deepest recession on record.
China's trade surplus jumped to a record high in May, defying expectations for a fall by spiking to $69.2B.
Resistance is futile.
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.
Brazil's central bank is in a very delicate situation. The economy is on the verge of another recession, but at the same time the BRL is falling, inflation expectations are rising and the inflation rate is overshooting. Fiscal policy is also tightening to restore macro stability magnifying the squeeze on growth.
News on Mr. Bolsonaro's economic plans and announcements on key names for his government this week are helping the currency and easing risks perception in Brazil.
China's trade surplus collapsed unexpectedly in April, to $13.8B, from a trivially-revised $32.4B in March.
March economic activity in Chile expanded by a solid 4.6% year-over-year, pointing to Q1 real GDP growth of 4.0%, the fastest pace since Q3 2013, up from 3.3% in Q4.
The Prime Minister has argued repeatedly during the general election campaign that Britain will prosper under a "strong and stable" Conservative government with a large majority. "Division in Westminster," she argued when calling the election last month, "...will risk our ability to make a success of Brexit and it will cause damaging uncertainty and instability to the country."
March payrolls were constrained by both the impact of colder and snowier weather than usual in the survey week, and a correction in the construction and retail components, which were unsustainably strong in February.
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.
The external environment was relatively benign for China in July. The euro and yen appreciated as markets began to question how long policy can remain on their current emergency settings.
The NFIB survey of small businesses today will show that July hiring intentions jumped by four points to +19, the highest level since November 2006. The NFIB survey has been running since 1973, and the hiring intentions index has never been sustained above 20.
Fears of a Chinese hard landing have roiled financial and commodity markets this past year and have constrained the economic recovery of major raw material exporters in LatAm.
Brazil's benchmark inflation index, the IPCA, fell 0.1% month-to-month unadjusted in August, below market expectations.
Japanese labour cash earnings data threw analysts another curveball in July, falling 0.3% year-over-year. At the same time, June earnings are now said to have risen by 0.4%, compared with a fall of 0.4% in the initial print.
The run-up to the release of the official retail sales figures has become so congested with other indicators, following alterations by the ONS to its publication schedule, that we now have to preview the data earlier than usual.
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.
The trade war with the U.S. has taken its toll on the RMB.
Colombia was the fastest growing LatAm economy in 2019, due mostly to strong domestic demand, offsetting a sharp fall in key exports.
The MPC's interest rate cut in August, and the continued willingness of banks to lend, bolstered the housing market immediately after the referendum. But the latest indicators suggest that the market is slowing again, as the financial pressures on households' incomes intensify.
The Brazilian central bank cut its benchmark Selic interest rate by 50bp, to 7.0%, on Thursday night and confirmed our view that the end of the easing cycle is not far off.
The two major EZ economic reports released while we were away conformed to the consensus. Advance data suggest that real GDP in the euro area rose 0.3% quarter-on-quarter in Q3, the same pace as in Q2, and the year-over-year rate was similarly unchanged at 1.6%.
No single measure of labor demand is always a reliable leading indicator of the official payroll numbers, which is why we track an array of private and official measures.
Monday will see 5% tariffs going into effect on Mexican exports to the U.S.--which totalled about USD360B last year--unless President Trump steps back from the brink.
The headline hourly earnings data for May were dull, showing the year-over-year rate unchanged at 2.5%. That's up from 2.1% in the year to May 2015, but it's not an alarming rate of increase. But the Atlanta Fed's median hourly earnings data, which track the wages of individuals from year-to-year, show wages up 3.4% year-over-year, the fastest rate of increase since February 2009.
The Monetary Policy Committee of the Reserve Bank of India voted yesterday to cut the benchmark repo rate by a further 25 basis points, to 5.75%, a nine-year low.
In the wake of Wednesday's ADP report, showing a mere 27K increase in private payrolls, we cut our payroll forecast to 100K.
At first glance, car sales appear to be staging a strong recovery, mirroring the better news on high street spending in Q2.
In his second confirmation hearing, Governor Kuroda continued his dance with markets, dialling down the exit talk.
Korea's final GDP report for Q4 was little changed, in the end.
Argentina's central bank likely will leave its main interest rate at 27.75% tomorrow at its biweekly monetary policy meeting.
The downturn in car sales is showing no sign of abating. Data released yesterday by the Society of Motor Manufacturers and Traders showed that private registrations fell 10.1% year-over-year in October, much worse than the 6.6% average drop in the previous 12 months.
India's PMIs for October were grim, indicating minimal carry-over of energy from the third quarter rebound.
The economic data calendar for next week is so congested that we need to preview early September's GDP report, released on Monday.
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.
Friday's final EZ inflation report of 2017 sent a dovish signal to bond markets.
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.
Headline inflation in Brazil remained low in October, and even breached the lower bound of the BCB's target range.
The 10.3% year-over-year decline in private new car registrations in April likely is not a sign that the trend in either vehic le sales or consumers' overall spending is taking a turn f or the worse.
Economic growth in Chile slowed in Q1, despite a relatively strong end to the quarter, and the chances of an accelerating recovery remains disappointingly low, due to both global and domestic headwinds.
We're looking forward to today's April NFIB survey of activity and sentiment in the small business sector with some trepidation.
Markets clearly love the idea that the "Phase One" trade deal with China will be signed soon, at a location apparently still subject to haggling between the parties.
The RMB has been on a tear, as expectations for a "Phase One" trade deal have firmed.
Brazil's improving economic and political situation allowed the BCB to cut the Selic rate by 100bp to 8.25% at its Wednesday meeting, matching expectations.
September PMI surveys in Mexico continued to bolster our argument for a subpar recovery in the second half of the year.
Recent economic indicators in Mexico have been mixed, distorted by temporary factors, including the effect of the natural disasters in late Q3. Private consumption has lost some momentum, hit by the lagged effect of high interest rates and inflation, as well as the earthquakes.
The impending retirement of New York Fed president Dudley creates yet another vacancy on the FOMC.
With little reason to doubt that interest rates will remain at 0.50% on Thursday, focus has turned to what signal the MPC will give about future policy, via its economic forecasts and commentary.
This week's MPC meeting and Inflation Report likely will support the dominant view in markets that the chances of a 2017 rate hike are remote, even though inflation will rise further above the 2% target over the coming months. Overnight index swap markets currently are pricing-in only a 20% chance of an increase in Bank Rate this year.
Colombia was one of the fastest growing economies in LatAm in 2018, and prospects for this year have improved significantly following June's presidential election, with the market-friendly candidate, Iván Duque, winning.
If you need more evidence that the U.S. economy is bifurcating, look at the spread between the ISM non- manufacturing and manufacturing indexes, which has risen to 3.5 points, the widest gap since September 2016.
The housing market perhaps is where the adverse impact of Brexit uncertainty can be seen most clearly.
Japan's services sector PMI last week was disappointing.
One of the main reasons we expect the Reserve Bank of India to roll back at least one of this year's rate cuts before the end of the year is the likely further rise in food inflation.
The ECB will keep all its policy parameters unchanged today. The refi and deposit rates will be maintained at 0.00% and -0.4%, respectively, and the pace of QE will stay at €60B per month, running until the end of the year.
At their March meeting FOMC members' range of forecasts for the unemployment rate in the fourth quarter of this year ranged from 4.4% to 4.7%, with a median of 4.5%. But Friday's report showed that the unemployment rate hit the bottom of the forecast range in April.
Our below-consensus 125K forecast for today's February payroll number is predicated on two ideas.
Brazil's interim government has been trying to put the kibosh on the vicious circle of recession, capital outflows, and political pandering that has dogged the country for so long. In his first few weeks at the helm, despite the political turmoil, Mr. Temer has started to tackle Brazil's fiscal mess, the country's biggest headache.
The latest iteration of the Atlanta Fed's GDPNow model of second quarter GDP growth shows the economy expanding at a 4.5% annualized rate.
Peru's inflation continues to surprise to the downside, paving the way for an additional rate cut next week.
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 data in LatAm have been all over the map in recent weeks. Brazil's cyclical stabilization continues, while Mexican numbers confirm that the economy has come under pressure in recent months.
The Caixin manufacturing PMI picked up to 51.5 in December from 50.8 in November. But the jump looks erratic and we expect it to correct in January.
The substantial gap between the key manufacturing surveys for the U.S. and China, relative to their long-term relationship, likely narrowed a bit in December.
The data in LatAm were all over the map while we were out.
December's money and credit data support the MPC's decision last week to hold back from providing the economy with more stimulus.
The Eurozone manufacturing sector finished 2017 on a strong note. The headline PMI increased to a cyclical high of 60.6 in December, from 60.1 in November, in line with the initial estimate.
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.
Yesterday's sole economic report in the Eurozone confirmed that the economy slowed further at the end of 2018.
The U.K.'s balance of payments leaves little room for doubt that sterling would sink like a stone in the event of a no-deal Brexit.
China's Caixin manufacturing PMI doused hopes of turning over a January new leaf; it dropped to 49.7 in November, from 50.2 in December.
The Manufacturing Upswing Continues; no Sign of Weakening
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 Bank of Korea finally pulled the trigger, raising its base rate to 1.75% at its meeting on Friday. After a year of will-they-or-won't-they, five of the Monetary Policy Board's seven members voted to add another 25 basis points to their previous hike twelve months ago.
With almost two thirds of the nominal data for the third quarter now available, we can make a stab at the contribution of inventories to real GDP growth.
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.
China is set to ease reserve requirements for banks lending to small businesses. In a statement after the State Council meeting yesterday, Premier Li Keqiang said that commercial banks would receive a cut in their RRR , from 17% currently, based on how much they lend to businesses run by individuals.
We want to revisit remarks from Fed Vice-Chair Clarida last week.
Tokyo CPI inflation jumped to 1.5% in October, from 1.2% in September. That
China's economic targets are AWOL this year, thanks to Covid-19 disruptions to the legislative calendar... and because policymakers seem unsure of what targets to set in such uncertain times.
Why should Japan, the U.S., the Euro Area, the U.K. and Japan all have the same inflation target?
President Trump tweeted yesterday that he wants to re-introduce tariffs on steel and aluminium imports from Brazil and Argentina, after accusing these economies of intentionally devaluing their currencies, hurting the competitiveness of U.S. farmers.
China's manufacturing PMIs put in a better performance in November, with the official gauge ticking up to 50.2 in November, from 49.3 in October, and the Caixin measure little changed, at 51.8, up from 51.7.
The Redbook chainstore sales survey today is likely to give the superficial impression that the peak holiday shopping season got off to a robust start last week.
The political momentum in the run-up to the election now lies with Labour.
We expect China's quarterly real GDP growth in the second quarter to edge down from Q1, but only because Q1 growth was unsustainable. The official data shows real GDP growth at 1.3% quarter-onquarter in Q1.
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".
We're fully expecting to see a hit to September payrolls from Hurricane Florence, which struck during the employment survey week.
Yesterday's final EZ manufacturing PMIs for August provided little in the way of relief for the beleaguered industrial sector.
One of the more disheartening aspects of the Q2 national accounts, released last week, was the downward revision to business investment. Quarteron-quarter growth was revised to -0.7%, from +0.5% previously.
Korean industrial production surprised to the upside in August, according to data released yesterday.
The Asian PMIs point to a strengthening manufacturing sector in September but external demand is the driver.
Data released on Friday show that the Chilean economy had a weak start to the second half of the year.
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.
It's pretty easy to spin a story that the recent core PCE numbers represent a sharp and alarming turn south.
Britain now looks set to flirt with deflation in the summer.
We are all for ambitious economic targets, but the ECB's pledge to drive EZ core inflation in the Eurozone up to "below, but close to" 2% is particularly fanciful.
Today's ECB meeting will be accompanied by an update of the staff projections, where the inflation outlook will be in the spotlight. The June forecasts predicted an average inflation rate of 0.3% year-over-year this year, currently requiring a rather steep increase in inflation towards 1.1% at the end of the year. We think this is achievable, but we doubt the ECB is willing to be as bold, and it is reasonable to assume this year's forecast will be revised down a notch.
Colombia's Central Bank is facing a short-term test. The recent fall in inflation was interrupted in August--data due on Thursday will show another increase in September--while economic growth, particularly consumption, is struggling, at least for now.
This week's main economic data from Korea--the last batch before the BoK meets on the 16th--missed consensus expectations, further fuelling speculation that it will cut rates for a second time, after pausing in August.
We're expecting ADP today to report a 10M drop in private payrolls in May, but investors should be braced for surprises, in either direction, because ADP's methodology is not clear.
Chile's near-term economic outlook is still negative after a sharp resurgence of coronavirus cases.
The chance of a self-inflicted, unnecessary weakening in the economy this year, and perhaps even a recession, has increased markedly in the wake of the president's announcement on Friday that tariffs will be applied to all imports from Mexico, from June 10.
The sharp fall in China's manufacturing PMI in May makes clear that its recovery is nowhere near secured.
Today brings an array of economic data, including the jobless claims report, brought forward because July 4 falls on Thursday.
It has been a nasty start to the year for LatAm as markets have been hit by renewed volatility in China, triggered by the coronavirus.
Last week we made a big call and further downgraded our China GDP forecasts for Q1; daily data and survey evidence suggested that our initial take, though grim, had not been grim enough.
The MPC restated its commitment to an "ongoing tightening of monetary policy" yesterday, but provided no new guidance to suggest that the next hike is imminent.
Modern Money Theory has come up at two consecutive BoJ press conferences.
The Markit/CIPS manufacturing PMI shot up to a three-year high of 57.3 in April, from 54.2 in March, bringing an end to the run of downbeat news on the economy. The performance of the U.K. manufacturing sector, however, remains underwhelming, given the magnitude of sterling's depreciation.
The Bank of England issued a statement yesterday that it is "working closely with HM Treasury and the FCA--as well as our international partners--to ensure all necessary steps are taken to protect financial and monetary stability".
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.
Monetary policy usually is the first line of defence whenever a recession hits.
The real Boris Johnson will have to stand up this year.
Brazil's external accounts were a bright spot last year, again.
The Fed will do nothing to the funds rate or its balance sheet expansion program today.
Brazil's external accounts were a relatively bright spot again last year.
Mr. Draghi snubbed investors looking for hints on policy and the euro in his Jackson Hole address--see here--on Friday.
Money supply data in the EZ continue to suggest that headline GDP growth will slow soon.
China's industrial profits data for December showed continued weakness in the sector, with no clear signs that a turnaround is in the offing.
Households' saving decisions will play a key role in determining whether the economy slips into recession over the next year. Indeed, all of the last three recessions coincided with sharp rises in the household saving rate, as our first chart shows. Will households save more in response to greater economic uncertainty?
The MPC won't seek to make waves on Thursday.
Brazil's external accounts remain solid, despite the recent modest deterioration, making it easier for the country to withstand external and domestic risks.
The advance international trade data for December were due for publication today, but the report probably won't appear.
The terrible scenes from Texas will play out in the economic data over the next few weeks.
The MPC likely will vote unanimously to keep Bank Rate at 0.75% on Thursday.
Survey data in Germany showed few signs of picking up from their depressed level at the start of Q4.
Recent export performance has been poor, but the export orders index in the ISM manufacturing survey-- the most reliable short-term leading indicator--strongly suggests that it will be terrible in the fourth quarter.
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.
China's official real GDP growth slowed to 6.0% year-over-year in Q3, from 6.2% in Q2 and 6.4% in Q1. Consecutive 0.2 percentage points declines are significant in China.
The latest profits data out of China were grim, as we had expected.
Two entirely separate factors point to significant upside risk to the first estimate of third quarter GDP growth, due today. First, we think it likely that farm inventories will not fall far enough to offset the unprecedented surge in exports of soybeans, which will add some 0.9 percentage points to headline GDP growth.
The preliminary estimate of Q3 GDP, showing quarter-on-quarter growth slowing only to 0.5% from 0.7% in Q2, has kiboshed the chance that the MPC cuts Bank Rate next Thursday.
German labour market data continue to break records on a monthly basis. The unemployment rate was unchanged at 6.2% in A pril, with jobless claims falling 16,000, following a revised 2,000 fall in March. March employment rose 1.2% year-over-year, down slightly from 1.3% in February, but the total number of people in jobs rose to a new high of 43.4 million.
Sterling's shaky performance so far this year-- the trade-weighted index currently is 3% below its end-2019 level and was down 8% at the peak of the mid-March market frenzy--raises the question of whether a renewed depreciation would have a better chance of boosting GDP growth than last time.
Inflation in Brazil remained subdued at the start of the second quarter, strengthening the odds for an additional interest rate cut next month, and opening the door for further stimulus in June.
The persistence of no-deal Brexit risk has taken a toll on confidence across the economy over the last month.
The MPC's hawks are framing the interest rate increase they want as a "withdrawal of part of the stimulus that the Committee had injected in August last year", arguing that monetary policy still would be "very supportive" if rates rose to 0.5%, from 0.25%.
The third estimate of first quarter GDP growth, due today, will not be the final word on the subject. Indeed, there never will be a final word, because the numbers are revised indefinitely into the future.
Leading economic indicators in the Eurozone continue to send contradictory signals. Most of the headline surveys indicate that a further slowdown, and perhaps even recession, are imminent, while the money supply data suggest that GDP growth is about to re-accelerate.
Retail sales values in Japan plunged by 14.4% month-on-month in October, reversing September's 7.2% spike twice over.
Money supply data today should provide further confirmation of a moderate upturn in the Eurozone credit cycle. We think broad money growth, M3, accelerated to 5.0% year-over-year in April, up from 4.6% in March.
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.
The Monetary Policy Board of the Bank of Korea yesterday voted unanimously to lower its base rate by 25 basis points to a record low of 0.50%.
All seven of Britain's major banks passed the Bank of England's stress test this year, in the first clean sweep since the annual test began in 2014.
The stock market loved Fed Chair Powell's remarks on the economy yesterday, specifically, his comment that rates are now "just below" neutral.
We aren't convinced by the idea that consumers' confidence will be depressed as a direct result of the rollover in most of the regular surveys of business sentiment and activity.
Our analysis of the Q3 activity and GDP data in yesterday's Monitor strongly suggests that China's authorities will soon ready further stimulus.
Yesterday's EZ money supply data confirmed that liquidity conditions in the private sector improved in Q3, despite the dip in the headline.
Predictably, the Bank of England's estimate that GDP would plunge by 8% in the first year after a disorderly no-deal, no transition Brexit and that interest rates would need to rise to 5.5% to contain inflation grabbed the headlines yesterday.
We learned yesterday that the patchy but widespread reopening of the economy is triggering the first wavelet of rehiring.
Tokyo CPI inflation edged down to 0.4% in May, from 0.5% in April.
The publication yesterday of the first BCB quarterly inflation report under the new president, Ilan Golfajn, revealed his initial views on inflation, the currency, and monetary policy. Overall, Mr. Golfajn has taken a hawkish approach. We think Brazil's first rate cut will come no earlier than Q4, likely at the final meeting of the year, providing the government continues the fiscal consolidation process and inflation keeps falling.
French consumer sentiment dipped slightly in June, but we see no major hit from ongoing labour market disputes. The headline index slipped to 97 in June, from 98 in May; this is a decent reading given the fourpoint jump last month. The headline was constrained by a big fall in consumers' "major purchasing intentions," but this partly was mean-reversion following a surge last month.
Korea's government is mulling a further tightening of borrowing rules to mitigate the risks of an overheated property market.
Surveys released yesterday failed to support the MPC's view that the economy has bounced back in Q2.
Sterling found its feet yesterday, rising to $1.33 from Monday's 31-year low of 1.32, but it would be the height of folly to rule out a further short-term decline. By the end of this year, however, we think that sterling likely will have appreciated to around $1.38.
The national accounts, released today, likely will restate that quarter-on-quarter GDP growth held steady at 0.4% in Q4.
The newly-revised data on capital goods orders, released on Friday, support our view that sustained strength in business capex remains a good bet for this year.
Data yesterday revealed that headline inflation in Germany was unchanged in March at 1.5%, thanks mainly to higher energy inflation, which offset a dip in food inflation.
Banxico yesterday left its policy rate unchanged at 3%, the highest level in a decade.
The picture for Korean quarterly real GDP growth in Q4 was unchanged in the final reading, published yesterday, showing a contraction of 0.2%, after the 1.4% jump in Q3.
Recently data from Argentina continue to signal a firming cyclical recovery. According to INDEC's EMAE economic activity index, a monthly proxy for GDP, the economy grew 4.0% year-over-year in June, up from an already-solid 3.4% in May.
Yesterday's data in the French economy provided the final confirmation that growth remained sluggish in Q2, and showed that households had a slow start to the third quarter.
Let's say we are right, and global yields go up this year. Somewhere in the world, imbalances will be exposed, causing financial ructions and damaging GDP growth.
The economic calendar in Mexico was relatively quiet over Christmas, and broadly conformed to our expectations of resilient economic activity in Q4.
German inflation surged in December, pointing to an upside surprise in today's advance EZ report. The headline inflation rate rose to a three-year high of 1.7% year-over-year in December, from 0.8% in November. This was the biggest increase in the year- over-year rate since 1993.
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.
The days of +2% inflation in the Eurozone are long gone. Data on Friday showed that the headline rate slipped to 1.4% year-over-year in January, from 1.6% in December, thanks to a 2.9 percentage point plunge in energy inflation to 2.6%.
The 15% fall in the FTSE 100 since its May 2018 peak undoubtedly is an unwelcome development for the economy, but past experience suggests we shouldn't rush to revise down our forecasts for GDP growth.
The Tankan survey powered ahead in Q2, pulling away from Q1 and mostly beating consensus. This confirms our impression of the strength of the recovery ,just as Prime Minister Abe's Liberal Democratic Party is trounced at the polls in Tokyo. The drubbing is understandable as the main benefits of Abenomics have gone to the business sector, at the expense of the household sector.
The Caixin manufacturing PMI was steady in May, at 50.2, in contrast to the official gauge published on Friday, which dropped to 49.5, from April's 50.2.
The economy would have ground to a halt last year had households not reduced their saving rate sharply.
Data yesterday showed that Momentum in the EZ retail sector stumbled through middle of Q2.
Consumption remains an important source of economic growth in LatAm.
Retail sales data later today will provide further support for the upbeat consumer story in the Eurozone. We expect a third monthly gain in a row, taking retail sales to a 0.8% expansion quarter-on-quarter in Q4, the fastest since the end of 2006. We are seeing clear signs of improvement in the Eurozone economy, and the data are forcing us to recognise upside risks to our Q4 GDP forecast of 0.3-to-0.4%
January's Markit/CIPS manufacturing survey suggests that the outcome of the general election has brought manufacturers some momentary relief.
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.
Japan's labour market is already tight, but last week's data suggest it is set to tighten further.
Data released yesterday confirm that Brazil's recovery has continued over the second half of the year, supported by steady capex growth and rebounding household consumption.
2019 is a year many in the construction sector would prefer to forget.
Markets initially applauded the ECB for its bold actions, but the tune has changed recently. Negative interest rates, in particular, have been vilified for their margin destroying effect in the banking sector. Our first chart shows that the relative performance of financials in the EZ equity market has dwindled steadily in line with the plunge in yields.
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.
Colombia's central bank has found a relatively sweet spot.
The fundamentals underpinning our forecast of solid first half growth in consumers' spending remain robust.
The rebound in the ISM manufacturing index was a relief, after the sharp drop in October, though the strength in last week's Chicago PMI meant that it wasn't a complete surprise.
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.
The Fed is in a double bind.
The key story in Brazil this year remains one of gradual recovery, but downside risks have increased sharply, due mainly to challenging external conditions.
Activity data from Colombia over the past quarter have been strong. Real GDP expanded by a relatively robust 2.8% year-over-year in Q2, and is on track to post a 3.2% increase in Q3.
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.
Households' decision to reduce their saving rate sharply was the main reason why economic growth exceeded forecasters' expectations in the aftermath of the Brexit vote.
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.
Peru is now in the grip of a severe political storm that is shaking the country's foundations and darkening the already fragile economic outlook.
While we were out, most of the core domestic economic data were quite strong, with the exception of the soft July home sales numbers and the Michigan consumer sentiment survey.
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.
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.
The President's threat to impose tariffs on imported Chinese consumer goods on September 1 might yet come to nothing.
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.
Inflation pressures in the Eurozone edged higher last month, reversing weakness at the start of the year.
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 economic and political backdrop to this week's Monetary Policy Committee meeting is significantly more benign than when it last met on September 19.
Colombia's GDP growth hit a relatively solid 2.8% year-over-year in Q4, up from 2.7% in Q3, helped by improving domestic fundamentals, which offset the drag from weaker terms of trade.
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%.
We are revising down our forecasts for quarteron-quarter GDP growth in Q1 and Q2 to 0.3% and 0.2%, respectively, from 0.4% in both quarters previously, to account for the likely impact of the coronavirus outbreak.
We aren't in the business of trying to divine the explanation for every twist and turn in the stock market at the best of times, and these are not the best of times.
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.
The Eurozone enjoyed a strong start to 2017. Yesterday's advance data showed that real GDP rose 0.5% quarter-on-quarter in Q1, a similar pace to Q4, which was revised up by 0.1 percentage points. The year-over-year rate dipped to 1.7%, from an upwardly revised 1.8% in Q4.
The downturn in global trade looks set to turn a corner, at least judging by the outlook for Korean exports, which are a key bellwether.
In Friday's Monitor--see here--we argued that the official labour market data were less than accurate at the moment, and we'd make the same point about the CPI. The April report showed that EZ headline inflation fell to 0.4% year-over-year, from 0.7% in March, while the core rate dipped by 0.1pp, to 1.0%.
Korean exports hit a brick wall in April, unsurprisingly, as lockdowns across the non- China world dealt a body blow to demand.
We recommend that investors take yesterday's inflation data in the Eurozone with a pinch of salt. The headline rate slipped to 1.2% in April, from 1.4% in March, hit by a slide in core inflation to 0.7%, from 1.0%.
The MPC would have to change tack sharply on Thursday in order to live up to the markets' expectation that there is a near-zero chance of another rate cut within the next year.
The Japanese unemployment rate fell again in September, to 2.3% from 2.4%. In the same vein, the job-to-applicant ratio rose to 1.64, from 1.63.
Japanese retail sales were unchanged in October month-on-month, after a 0.8% rise in September.
Yesterday's November inflation reports from Germany and Spain suggest that today's data for the Eurozone as a whole will undershoot the consensus.
The models which generate the ADP measure of private payrolls will benefit in May from the strength of the headline industrial production, business sales and jobless claims numbers.
Leading indicators for consumers' spending in France are sending conflicting signals. Survey data suggest that households are in a spendthrift mood. Data yesterday showed that the headline consumer sentiment index was unchanged in March at 100, the cycle high.
The economic downturn and the Chancellor's unprecedented fiscal measures mean that public borrowing likely will be about four times higher, in the forthcoming fiscal year, than anticipated in the Budget just over two weeks ago.
Yesterday's advance inflation data in Germany fell short of forecasts--ours and the consensus--for a further increase. Inflation was unchanged at 0.8% year-over-year in November, but we think this pause will be temporary.
Markets see a strong possibility, though not a probability, that the BoJ will cut rates on Thursday.
French consumer confidence and consumption have been among the main bright spots in the euro area economy so far this year.
The stage is set for the Fed to ease by 25bp today, but to signal that further reductions in the funds rate would require a meaningful deterioration in the outlook for growth or unexpected downward pressure on inflation.
Britain looks set for a general election during the week commencing December 9, now that all main parties are pushing for a pre-Christmas poll.
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.
The downturn in LatAm is finally bottoming out, but the economy of the region as a whole will not return to positive year-over-year economic growth until next year. The domestic side of the region's economy is improving, at the margin, thanks mainly to the improving inflation picture, and relatively healthy labor markets.
The seasonal adjustment problems which tend to drive up the national ISM manufacturing survey in late spring and summer are more or less absent from the Chicago PMI, which will be released today. As far as we can tell, the biggest short-term influence on the Chicago number is variations in the order flow for Boeing aircraft; the company moved its headquarters to the city from Seattle in 2001.
The 0.18% increase in the core PCE deflator in December was at the lower end of the range implied by the core CPI. It left the year-over-year rate at just 1.5%.
Tokyo inflation surprised us on Friday, rising to 0.9% in July, from 0.6% in June.
We were nervous ahead of the GDP numbers on Friday, wondering if our forecast of a 1.5 percentage point hit from foreign trade was too aggressive. In the event, though, the trade hit was a huge 1.7pp, so domestic demand rose at a 3.5% pace.
Chancellor Javid told the Financial Times earlier this month that he wants to lift the rate of GDP growth to between 2.7% and 2.8%, the average rate in the 50 years following the Second World War.
Yesterday's FOMC , announcing a unanimous vote for no change in the funds rate, is almost identical to December's.
Japan returned the ruling LDP coalition to power in an upper house election over the weekend.
Advance country data indicate that headline EZ inflation fell slightly in June; we think the rate dipped to 1.3% year-over-year, from 1.4% in May.
Retail sales in Japan rose modestly in May, after collapsing in March and April, as the government tried to put a lid on the country's Covid-19 outbreak.
Yesterday's advance CPI data in Germany suggest that EZ inflation is now rebounding slightly.
Data released last week confirm that Argentina's economy remains a mess.
Brazil's unadjusted current account surplus soared to USD2.9B in May, its highest level since 2006, from USD1.1B in May 2016.
Chinese industrial profits continue to surge, rising 27.7% year-over-year in September, up from 24.0% in August.
The MPC likely will raise interest rates on Thursday, for the first time since July 2007, in response to the uptick in GDP growth and the upside inflation surprise in Q3.
Covid-19 has cut short a nascent recovery in housing market activity.
On the face of it, the February consumer spending data, due today, will contradict the upbeat signal from confidence surveys. The dramatic upturn in sentiment since the election is consistent with a rapid surge in real consumption, but we're expecting to see unchanged real spending in February, following a startling 0.3% decline in January.
The virus outbreak has been relatively limited so far in Argentina, with 820 confirmed cases, but the numbers are rising rapidly.
The further depreciation of sterling yesterday, to its lowest level against the dollar and euro since March 2017 and September 2017, respectively, signified deepening pessimism among investors about the chances of a no-deal Brexit.
Japan's June retail sales data add to the run of numbers suggesting a strong rebound in real GDP growth in Q2, after the 0.2% contraction in activity in Q1.
Downside risks to our growth forecast for Brazil and Mexico for this year have diminished this week. In Brazil, concerns over the potential impact of the meat scandal on the economy have diminished. Some key global customers, including Hong Kong, have in recent days eased restrictions on imports from Brazil, and other counties have ended their bans.
Today's advance EZ CPI report likely will show that inflation pressures eased in May. We think inflation slipped to 1.5% year-over-year, from 1.9% in April, as the boost to the core rate from the late Easter faded.
In yesterday's Monitor we suggested that China's profits surge has been party dependent on developers' risky debt issuance practices.
Banxico's quarterly inflation report, released last week, underscored concerns over growth as well as the weakness of the MXN and the risks p osed by the Fed's imminent tightening. Policymakers downgraded Mexico's GDP forecast for 2017 to 2.3-to-3.3% year-over-year, from 2.5-to-3.5%. Weaker-than-expected U.S. manufacturing activity is behind the downshift.
Households' willingness to save a smaller fraction of their incomes goes a long way to explaining why the U.K. economy hasn't lost too much momentum since the Brexit vote.
The widespread view, which we share, that GDP will rebound in Q2 following the disruption caused by bad weather in Q1, was supported yesterday by the E.C.'s Economic Sentiment survey.
The pullback in CPI inflation in June and continued slow GDP growth in Q2 mean that the MPC almost certainly will keep Bank Rate at 0.25% on Thursday.
The jobless rate fell back to 2.8% in June after the surprise rise to 3.1% in May. This drop takes us back to where we were in April before voluntary unemployment jumped in May.
Today's advance CPI data will show that EZ inflation pressures rose further at the end of Q3. The headline number likely will exceed the consensus. We think inflation rose to 0.5% year-over-year in September from 0.2% in August, slightly higher than the 0.4% consensus.
China's industrial profits data for August were a mixed bag.
A dovish speech by external MPC member Michael Saunders was the primary catalyst for a renewed fall in interest rate expectations last week.
The modest overshoot to consensus in September's core PCE deflator won't trouble any lists of great economic surprises, but it did serve to demonstrate that the PCE can diverge from the CPI, in both the short and medium-term.
Data yesterday showed that German inflation roared higher at the start of the year, but the devil is in the detail.
The MPC's decision yesterday was a "dovish hold", designed to keep market interest rates at current stimulative levels and to preserve the option of cutting Bank Rate swiftly and without surprise, if the economy fails to rebound in Q1.
Japan's headline jobless rate edged up to 2.8% in December, from 2.7% in November, but the increase was negligible, with the rate moving to 2.76% from 2.74%.
The headline employment cost index has been remarkably dull recently, with three straight 0.6% quarterly increases. The consensus forecast for today's report, for the three months to December, is for the same again.
It's a myth that the 10-ye ar decline in the unemployment rate has not driven up the pace of wage growth.
Yesterday's first estimate of full-year 2019 GDP in Mexico confirmed that growth was extremely poor, due to domestic and external shocks.
Our hopes that tax cuts and lower energy inflation would lift French household consumption in Q4 were badly dented by yesterday's consumer sentiment report.
The BoJ is likely to be thankful next week for a relatively benign environment in which to conduct its monetary policy meeting.
Core machine orders in Japan collapsed in April, as expected, falling by 12.0% month-on-month, worse than the minor 0.4% slip in March.
Brazilian political risk remains high, due mainly to President Bolsonaro's gross mismanagement of the Covid-19 crisis, but, as we have argued in previous Monitors, it is unlikely to deter policymakers from further near-term monetary easing.
Judging by the headline performance metrics, EZ equity investors have little cause for worry.
Consumers' spending in the second quarter is still set to be less than great, thanks in part to unfavorable base effects from the first quarter, but a respectable showing of about 2¾% now seems likely. The core May retail sales numbers were a bit stronger than we expected, with gains in most sectors, and the upward revisions to April and March were substantial.
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.
It's hard to find anything to dislike in the February employment report.
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.
China's money and credit data for February were reassuring, at least when compared with the doomsday scenario painted, so far, by other key indicators for last month.
In March, CPI rents--the weighted average of primary and owners' equivalents rents--rose by 0.35% month- to-month.
China's PPI inflation has been trending down since early 2017.
Yesterday's accounts from the June ECB meeting broadly confirmed markets' expectations of further easing between now and the end of the year.
The announcement, late Tuesday, that the administration plans to impose 10% tariffs on some $200B-worth of imports from China raises the prospect of a substantial hit to the CPI.
The U.S. Commerce Department on Tuesday released a list of Chinese imports, with an annual value of $200B, on which it is threatening to impose a 10% tariff, after a two-month consultation period.
Brazil's political situation is steadily improving, with the latest events proving a step in the right direction.
Monthly core CPI prints of 0.3% are unusual; June's was the first since January 2018, so it requires investigation.
In yesterday's report we discussed the recent performance of current inflation and inflation expectations in the biggest economies in LatAm, highlighting that risks are tilted to the upside, given the recent FX sell-off and rising political and external risks.
China faces three possible macro outcomes over the next few years. First, the economy could pull off an active transition to consumer-led growth. Second, it could gradually slide into Japan-style growth and inflation, with government debt spiralling up. Third, it could face a full blown debt crisis, where the authorities lose control and China drags the global economy down too
China's Q2 official GDP growth, to be released on Monday, likely slowed to 6.2% year-over-year, from 6.4% in Q1.
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.
Brazilian inflation has been well under control in the past few months, laying the ground for a final rate cut at the monetary policy meeting on March 21.
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.
Financial assets of all stripes are, by most metrics, expensive as we head into year-end, but for some markets, valuations matter less than in others. The market for non-financial corporate bonds in the euro area is a case in point.
We have downgraded our 2019 and 2020 China GDP forecasts on previous occasions because monetary conditions have been surprisingly unresponsive to lower short-term rates.
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.
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.
Last week, the Chinese authorities were out in force, talking up the economy and markets, and bearing measures to support private firms.
To the extent that markets bother with the NFIB survey at all, most of the attention falls on the labor market numbers. But these data--hiring, compensation, jobs hard-to-fill--haven't changed much in recent months, and in any event most of them are released the week before the main survey, which appeared yesterday. The message from the labor data is unambiguous: Hiring remains very strong, employers are finding it very difficult to fill open positions, and compensation costs are accelerating.
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.
You may have seen the chart below, which shows what appears to be an alarming divergence between the official jobless claims numbers and the Challenger survey's measure of job cut announcements. We should say at the outset that the chart makes the fundamental mistake of comparing the unadjusted Challenger data with the seasonally adjusted claims data.
Yesterday marked President AMLO's first 100 days in office, with skyrocketing approval ratings and improving consumer confidence.
Monetary policy loosening over the last year implies that China's M1 growth already should be picking up.
The reported rebound in January retail sales was welcome, but the overshoot to consensus was matched, more or less, by the unexpected downward revisions to the December numbers.
Brazil's April CPI data this week showed that inflation pressures remain weak, supporting the BCB's focus on the downside risks to economic activity. Wednesday's report revealed that the benchmark IPCA inflation index rose 0.1% unadjusted month-to-month in April, marginally below market expectations.
The absence of a hawkish slant to the MPC's Inflation Report or the minutes of its meeting suggest that an increase in interest rates remains a long way off.
The 0.1% dip in the core CPI in March was the first outright decline in three years, but we expect another-- and bigger--decline in today's April numbers.
The Q1 GDP figures, released on Wednesday, likely will show that the quarter-on-quarter decline in economic activity eclipsed the biggest decline in the 2008-to-09 recession--2.1% in Q4 2008--even though the U.K. went into lockdown towards the very end of the quarter.
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.
Chair Yellen has become quite good at not giving much away at her semi-annual Monetary Policy Testimony.
Inflation in Brazil ended 2017 well under control, despite December's modest overshoot. This will allow the BCB to cut rates further in Q1 to underpin the economic recovery.
Chinese PPI inflation dropped again in March to 3.1%, from February's 3.7%. Commodities were the driver, but base effects should mean the headline rate won't fall further in coming months; it is more likely to rise in Q2.
The month-to-month core CPI numbers in March were consistent, in aggregate, with the underlying trend.
Another day, another downbeat survey. The British Chamber of Commerce's comprehensive and long-running Quarterly Economic Survey was published yesterday, and it added to evidence of a Q1 slowdown.
The sluggishness of consumers' spending and business investment in the first quarter means that hopes of a headline GDP print close to 2% rely in part on the noisier components of the economy, namely, inventories and foreign trade.
Inflation in Brazil surprised to the upside this week, with a sharp rebound that looks alarming at face value.
Yesterday's detailed CPI data in Germany and France broadly confirmed the message from the advance data in the Eurozone as a whole.
The E.U.'s decision to grant the U.K. a Brexit extension until October 31 does not extinguish the possibility that the MPC will raise Bank Rate before the end of the year.
CPI inflation in China surged to a five-month high of 2.3% in March, from 1.5% in February.
Mexico's inflation nudged up to a fresh 16-year high in August, but the details of the report confirmed that underlying pressures are easing, in line with our core view.
The August NFIB survey of activity and sentiment at small businesses was soft, but it could have been worse.
The undershoot in the September core CPI does not change our view that the trend in core inflation is rising, and is likely to surprise substantially to the upside over the next six-to-12 months.
Uncertainty about the U.S. economic and political outlook, following Donald Trump's presidential win, likely will cast a long shadow over EM in general and LatAm in particular. On the campaign trail, Mr. Trump argued for tearing up NAFTA and building a border wall.
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.
Recent inflation numbers across the biggest economies in LatAm have surprised to the downside, strengthening the case for further monetary easing.
Yesterday's economic reports in the Eurozone were ugly.
This week, Mexico's government unveiled its 2020 fiscal budget proposal.
We'd be surprised to see a repeat today of August's very modest 0.08% increase in the core CPI.
The latest GDP data continue to show that the economy is holding up well, despite the Brexit saga.
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.
The PBoC will find itself between a rock and a hard place in the coming months, as CPI inflation creeps further up towards its 3% target but PPI deflation deepens.
We're reasonably happy with the idea that business sentiment is stabilizing, albeit at a low level, but that does not mean that all the downside risk to economic growth is over.
Chair Powell broke no new ground in his semi-annual Monetary Policy Testimony yesterday, repeating the Fed's new core view that the current stance of policy is "appropriate".
In previous Monitors--see here--we've suggested that, thanks to the coronavirus, China simply will lose some of the spending that would have gone on during the holiday this year.
Mexico's central bank continues to diverge from its regional peers, tightening monetary policy further.
Chinese CPI inflation trends point to diminishing wage growth, as the services sector begins to struggle with the influx of labour displaced by the industrial productivity drive.
We're very interested in the detail of today's January NFIB survey; the headline index, not so much.
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.
Our suggestion that the ECB could still raise the deposit rate later this year, by 20bp to -0.4%, has met with strong scepticism in recent conversations with readers.
The latest GDP data confirm that the economy ended last year on a very weak note.
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.
Today's general election looks set to be a closer race than opinion polls suggested two weeks ago.
It's unrealistic to have a repeat of the second quarter's 4.2% leap in consumers' spending as your base case for the third quarter. It's not impossible, though, given the potential for the saving rate to continue to decline, and the apparently favorable base effect from the second quarter.
Q2's GDP figures create a terrible first impression, but a closer look suggests that the risk of a recession remains very low.
The FOMC did mostly what was expected yesterday, though we were a bit surprised that the single rate hike previously expected for next year has been abandoned.
Friday's inflation report for Brazil confirmed that inflation is rapidly falling towards the BCB's target range, helping to make the case for stepping up the pace of monetary easing to 50bp at the Copom's January meeting.
Mexico's economy is not accelerating, but it is holding up very well in difficult circumstances, with rising domestic political risk and stifling interest rates.
The overshoot in the November core PPI does not change the key story, which is that PPI inflation, headline and core, is set to fall sharply through the first half of next year, at least.
November's inflation data in Mexico, showing a modest increase in the headline rate, have strengthened the case for further monetary tightening. But we stick to our long-standing view that the Board will leave rates at 7.0% on Thursday.
Next week is a big one for China. The five yearly Party Congress opens on Wednesday, and on Thursday, the monthly raft of activity data is published, along with Q3 GDP.
Our forecast for a 0.3% increase in the September core PPI, slightly above the underlying trend, is even more tentative than usual.
Our default position for core durable goods orders over the next few months is that they will fall, sharply.
Data over the weekend revealed a further slowdown in China's CPI inflation, to 1.5% in February, from 1.7% in January.
Japan's Ministry of Finance yesterday admitted falsifying documents submitted to the country's parliament during a corruption probe last year.
Brazilian inflation has been well under control in the past few months, still laying the ground for rates to remain on hold for the foreseeable future.
The core CPI inflation rate rose in April to 2.1% from 2.0%, thanks to unfavorable rounding, despite the below consensus 0.14% month-to-month print.
China's money data continued to improve in April, bolstering the economy's recovery prospects.
The record 0.4% drop in the core CPI in April would have looked even worse had it not been for favorable rounding; it was just 0.002% away from printing at -0.5%.
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.
Today's February CPI report is very unlikely to repeat January's surprise, when the core index was reported up 0.3%, a tenth more than expected.
With rates now certain to rise this week, the real importance of the employment picture is what it says about the timing of the next hike. To be clear, we think the Fed will raise rates again in June, and will at that meeting add another dot to the plot, making four hikes this year.
Markets are still discounting Banxico rate increases in the near term, despite the fact that Mexico's inflation is under control. Unless the MXN goes significantly above 18.7 per USD in the near term, or activity accelerates, we see little scope for rate increases until after the Fed hikes. After May's soft U.S. payrolls, and in light of the economic and financial risk posed by the U.K. referendum, we think a hike this week is unlikely.
The core CPI rose only 0.1% in May, marking the fourth straight soft reading.
We held our breath this month.
LatAm governments and policymakers are bracing for a more dramatic and longer virus-led downturn than initially expected.
The measures to support the economy through the coronavirus crisis, unveiled by policymakers on Budget day, exceeded expectations.
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.
Germany's external surplus remained resilient at the start of the year. Data on Friday showed that the seasonally adjusted trade surplus rose marginally to €18.5B in January, from a revised €18.3B in December.
The NY Fed's announcement yesterday restarts QE. The $60B of bill purchases previously planned for the period from March 13 through April 13 will now consist of $60B purchases "across a range of maturities to roughly match the maturity composition of Treasury securities outstanding".
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.
Today's labour market report likely will show that employment continued to grow briskly over the summer, but that wage gains still are lagging well behind inflation.
Data released yesterday in Brazil are consistent with our view that private consumption will continue to drive the recovery over the second half, offsetting the ongoing weakness in private investment.
The third straight 0.3% increase in the core CPI-- that hasn't happened since 1995--was ignored by the Treasury market yesterday, which appeared to be focusing its attention on the ECB.
Now that the run of unfavorable base effects in the core CPI--triggered by five straight soft numbers last year--is over, we're expecting little change in the year- over-year rate through the remainder of this year.
China's M2 growth slowed to 8.2% year-over-year in August, from 8.5% in July
Japan's Q2 GDP was driven by the twin pillars of private consumption and capex.
The run of soft-looking headline retail sales numbers in recent months--the initial estimates for February, January and December were -0.6%, -0.8% and -0.9% respectively--will end today; the March number will look solid.
We're doing a wrap-up of the data that were released last week while we were away, and the Chinese numbers were both a hit and a miss.
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.
Three separate stories will come together to generate today's September core CPI number. First, we wonder if the hurricanes will lift the core CPI.
The political situation in Spain remains an odd example of how complete gridlock can be a source of relative stability.
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.
PM Abe last week asked the cabinet to put together a package of measures in a 15-month budget aimed at bolstering GDP growth through productivity enhancement, in addition to the shorter-term goal of disaster recovery.
The 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.
Banxico decided unanimously to hold its benchmark interest rate at 7.0% at last Thursday's policy meeting.
The worst phase of the squeeze on real wages is nearly over; CPI inflation looks set to peak at slightly above 3% in October, before falling back steadily to about 2% by the end of 2018.
In the olden days, by which we mean the 15 years or so leading up to the financial crisis, a 100bp rise in long yields would be enough to slow GDP growth by about three percentage points, other things equal, after a lag of about one year.
PPI inflation has finally started to soften, after having increased steadily from 2.0% in April, and holding steady at 3.0% in Q3.
In her inaugural Monitor, our Chief Asia Economist Freya Beamish plots three scenarios for the Chinese economy. The best-case scenario is that China makes a smooth transition to consumer-led growth.
Core inflation probably will remain close to June's 2.3% rate for the next few months.
While we were out, most of the action was on the political front, while the economic data mostly were unexciting.
The jump in core inflation in recent months is about as alarming as the sudden decline in the same period last year; that is, not very.
The Bank kept interest rates unchanged at 1.50% yesterday, but downgraded its inflation forecast for 2018 to 1.6% from 1.7%
The Brazilian central bank cut its benchmark Selic interest rate by 50bp to 4.50% on Wednesday night.
Today's November retail sales numbers are something of a wild card, given the absence of reliable indicators of the strength of sales over the Thanksgiving weekend, and the difficulty of seasonally adjusting the data for a holiday which falls on a different date this year.
One of the main conclusions we drew from last week's ECB meeting was that the QE program is here to stay for a while. If the economy improves, the central bank could reduce the pace of purchases further. But we struggle to come up with a forecast for growth and inflation next year that would allow the ECB to signal that QE is coming to an end.
The ECB and Ms. Lagarde played it safe yesterday.
We've been consistent in saying that Japanese capex would roll over this year, after strength in the first three quarters was seen by the authorities and many commentators as a sign of resilience.
Industrial production in Mexico surged 2.6% year-over-year in February, up from a 0.8% increase in January. A favourable calendar effect, however, is a key part of this story. Once adjusted for the leap year, which added an extra working day, industrial production rose only 0.8%, down from a 1.6% expansion in January.
The headline March retail sales numbers probably will look horrible, thanks to the unexpected drop in auto sales reported by the manufacturers earlier this month. Their unit sales data don't always move exactly in line with the dollar value numbers in the retail sales report, as our first chart shows, but it's hard to imagine anything other than a clear decline today.
Long-standing readers will know that we have been downbeat on the potential for net external trade to boost the economy following sterling's 2016 depreciation.
The Board of the Bank of Korea will meet again in less than a week's time for this year's penultimate meeting.
Data released yesterday support our view that the Brazilian retail sector has gathered strength in recent months, following a weak Q2, when activity was hit by the truckers' strike.
The imposition of 10% tariffs on $200B-worth of Chinese imports is not a serious threat either to U.S. economic growth--the tariffs amount to 0.1% of GDP--or inflation.
It's pretty easy to dismiss back-to-back 0.3% increases in the core CPI, especially when they follow a run of much smaller gains.
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 key piece of evidence supporting our view that housing market activity has peaked for this cycle is the softening trend--until recently--in applications for new mortgages to finance house purchase.
Chinese PPI inflation surprised analysts with a sharp rebound to 6.3% in August, from 5.5% in July, above the consensus, 5.7%.
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.
Japan's PPI inflation edged up further in November to 3.5%, from October's 3.4%. Energy was the main driver, with petroleum and coal contributing 0.8 percentage points to the year-over-year rate, up from a 0.7pp contribution in October.
China's GDP report for the fourth quarter, due on Friday, is likely to show that economic growth has stabilised, on the surface.
We will be paying special attention to the sentiment surveys for Argentina over the coming weeks.
The odds favor--just--an end to the three-month streak of solid 0.2% increases in the core CPI with the release of today's January report.
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.
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.
Official, real GDP growth was low in Q1, at 1.4% quarter-on-quarter, down from 1.6% in Q4.
Chair Yellen broke no new ground in her Testimony yesterday, repeating her long-standing view that the tightening labor market requires the Fed to continue normalizing policy at a gradual pace.
December's retail sales numbers are the most important of the year for retailers, but they don't necessarily tell us anything about the future prospects for consumers' spending or the broad economy. The December 2016 numbers, however, might be different, because they capture consumers' behavior in the first full month after the election.
Brexiteers have downplayed the economic consequences of a no-deal exit by arguing that a further depreciation of sterling would cushion the blow.
Jim Bullard, the St. Louis Fed president, said last week that Phillips Curve effects in the U.S. are "weak", and that nominal wage growth is not a good predictor of future inflation.
On the face of it, the upturn in initial jobless claims since late September appears to signal a softening in the economy.
China's October activity data showed signs of the infrastructure stimulus machine sputtering into life. Consensus expectations appear to hold out for a continuation into November, but we think the numbers will be disappointing.
Today's rate hike will be accompanied by a new round of Fed forecasts, which will have to reflect the faster growth and lower unemployment than expected back in September.
The falling unemployment rate and the threat it poses to the inflation outlook mean that the labor market numbers in the NFIB small business survey attract more attention than the other data in the report.
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.
Storm clouds gathered over Eurozone financial markets last week. The sell-off in equities accelerated, pushing the MSCI EU ex-UK to an 11-month low.
Japan's money and credit data have shown signs of life in recent months, but that's all set to change quickly, due to the disruptions caused by the outbreak of the coronavirus.
Quarter-on-quarter GDP growth last year was buffeted by the accumulation, and subsequent depletion, of inventories, around the two Brexit deadlines in March and October.
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.
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.
Core CPI inflation has been 2.1-to-2.2% year-over- year for the past seven months, a remarkably stable run which likely will persist for a few more months.
Brazil's economic activity data have disappointed in recent months, firming expectations that the Q1 GDP report will show another relatively meagre expansion.
China's FX reserves were relatively stable in March, with the minimal increase driven by currency valuation effects.
Official Chinese real GDP growth likely slipped to 6.3% year-over-year in Q1, the lowest on record, from 6.4% in Q4, which matched the trough in the Great Financial Crisis.
Our view that households will continue to spend more in the first half of this year, preventing the economy from slipping into a capex-led recession, was not seriously challenged yesterday by the BRC's Retail Sales Monitor.
June's trade figures yesterday highlighted that it takes more than just a few months for exchange rate depreciations to boost GDP growth. The trade-weighted sterling index dropped by 9% between November and June as the risk of Brexit loomed large and the prospect of imminent increases in interest rates receded.
Brazil's retail sales ended the second quarter on a less-bad footing. Sales volumes increased 0.1% month-to-month in June, pushing the year-over-year rate up to -5.3%, from -9.0% in May. Smoothed year-over-year growth in retail sales has improved to -7% from its cyclical trough of around -9% in the end of last year.
Surveys released over the last week have suggested that the housing market might be past the worst.
We expect Banxico to keep interest rates on hold at 7.50% at Thursday's meeting. But policymakers likely will adopt a slightly dovish tone, as inflation has fallen faster than they were expecting in their recent forecast.
Brazilian inflation hit its lowest rate in almost seven years in March, while Mexico's rate is the highest since July 2009. Yet we expect Mexico to tighten policy only modestly in the near term, while Brazil will ease rapidly.
The more headline hard data we see in the Eurozone, the more we are getting the impression that 2019 is the year of stabilisation, rather than a precursor to recession.
The BoJ yesterday kept the policy balance rate at -0.1%, and the 10-year yield target at "around zero", in line with the consensus.
The Brazilian Central Bank's policy board-- COPOM--voted unanimously on Wednesday to cut the Selic rate by 50bp to 5.00%, as expected.
In the absence of an unexpected surge in auto sales or a sudden burst of unseasonably cold weather, lifting spending on utilities, fourth quarter consumption is going to struggle to rise much more quickly than the 2.1% annualized third quarter increase.
The obsession of markets and the media with the industrial sector means that today's ISM manufacturing survey will be scrutinized far more closely than is justified by its real importance.
Yesterday's aggregate economic data for the euro area showed that inflation rose slightly in August. The headline rate rose to a four-month high of 1.5% in August from 1.3% in July. The rate was lifted mainly by energy inflation, rising to 4.6% from 2.2% in July, but we think the rebound will be short-lived.
The first round of Brazil's presidential elections will take place this Sunday, followed by a probable runoff on October 28.
China's official and Caixin manufacturing PMIs have diverged in the last couple of months.
The Conservatives successfully have defended their average poll lead over Labour of 10 percentage points over the last week.
Japan's GDP growth was revised up, to 0.4% quarter-on-quarter in Q3, from 0.1% in the preliminary reading.
For some time now we have argued that collapse in capital spending in the oil sector was the source of most of the softening of activity in the manufacturing and wholesaling sectors last year.
The year-long surge in CPI inflation in China will soon end.
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.
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.
Yesterday's economic data in Germany were stellar, but base effects mean that the story for Q4 as a whole is less upbeat.
Mexico's underlying inflation pressures and financial conditions are gradually stabilizing. Eventually, this will open the door for rate cuts in order to ease the stress on the domestic economy, particularly capex.
History is repeating itself in France. When the Republican Nicolas Sarkozy defeated the Socialist candidate Ségolène Royal in April 2007, consumer sentiment briefly soared to a six-year high, before plunging to an all-time low a year later.
Japan's regular wage growth continued to edge up in November, maintaining the rising trend. The headline is volatile, with growth in labour cash earnings rising to 0.9% year-over-year in November, up from a downwardly revised 0.2% in October.
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.
Fed Chair Yellen today needs to strike a balance between addressing investors' concerns over the state of the stock market and the risks posed by slower growth in Asia, and the tightening domestic labor market.
Friday was a busy day in the Eurozone. The final and detailed GDP report confirmed that growth in the euro area slowed to 0.2% quarter-on-quarter in Q3, from 0.4% in Q2, with the year-over-year rate slipping by 0.6 percentage points to 1.6%, just 0.1pp below the first estimate.
Demand for new mortgages to finance house purchase has rebounded somewhat in recent weeks, following an alarming dip in the wak e of October's stock market correction. At the low, in the third week in October, the MBA's index of applications volume was at its lowest since mid-February, when the reported numbers are substantially depressed by a long-standing seasonal adjustment problem.
Recent inflation and activity data in Mexico were dovish.
With the exception of Mexico, November inflation was or below expectations in LatAm. Mexico's overshoot increases the likelihood that Banxico will hike its reference rate at the next board meeting on December 20.
China's January trade data were scheduled for release on Friday, but instead, the customs authority delayed the publication, saying it would publish the numbers with the February data
Colombia's January inflation rate easily exceeded BanRep's 2-to-4% target range yet again, jumping to 7.5% from 6.8% in October, the fastest increase since December 2008. This is putting pressure on BanRep to continue tightening, following 150bp rate hikes, to 6.0%, since September.
The reported 225K jump in payrolls in January was even bigger than we expected, but it is not sustainable. The extraordinarily warm weather last month most obviously boosted job gains in construction, where the 44K increase was the biggest in a year
We can't quibble with the consensus that GDP likely rose by 0.2% month-to-month in December, reversing only two-thirds of November's drop.
We expect to see a 70K increase in October payrolls today.
The Office for Budget Responsibility has decided to press ahead with the publication of new fiscal forecasts on November 7, despite the government's decision to postpone the Budget until after the next election.
Japan's unemployment rate returned unexpectedly to its 26-year low of 2.3% in February, falling from 2.5% in January.
Yesterday's March labour market data in Germany were surprisingly strong
Data released this week in LatAm are the last calm before the coronavirus storm.
We agree wholeheartedly with the consensus view that the economy would enter a recession in the event of a no-deal Brexit on October 31.
Trade talks between the U.S. and China officially resumed this week, with the first face-to-face meeting of the main negotiators taking place yesterday in Shanghai.
The BoJ had two tasks at its meeting yesterday.
We're inclined to place little weight on July's E.C. Economic Sentiment Survey, which showed that consumers' confidence has picked up to its highest level since October 2016; see our first chart.
China's official manufacturing PMI, published on Monday, implies the industrial complex has maintained momentum going into Q3. The official manufacturing PMI moderated slightly to 51.4 in July from 51.7 in June. The July reading was unchanged from the average in Q2 and only modestly down from the 51.6 in Q1.
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.
Increased volatility has given equity investors a torrid start to the year, but economic reports have been strong, and yesterday's PMIs were no exception. The composite index in the Eurozone rose marginally to 54.3 in December from 54.2 in November, slightly higher than the initial estimate of 54.0. This is consistent with a continuing cyclical recovery, and real GDP growth of 0.4%-to-0.5% in Q4, modestly higher than the 0.3% rise in the third quarter.
The pitiful 0.7% expansion of the economy in the fourth quarter is not, in our view, a sign of things to come. It is also not, by any means, a definitive verdict on what happened in the fourth quarter; the data are subject to indefinite revision. As they stand, the numbers are impossible to square with the 2.0% annualized increase in payroll employment over the quarter, so our base case has to be that these data will be revised upwards.
With financial markets still turbulent and the Governor stating only two weeks ago that economic conditions do not yet justify a rate hike, the Inflation Report on Thursday will not signal imminent action. Nonetheless, higher medium-term forecasts for inflation are likely to imply that the Committee still envisions raising interest rates this year.
Samuel Tombs has more than a decade of experience covering the U.K. economy for investors. At Pantheon, Samuel's research is rigorous, free of dogma and jargon, and unafraid to challenge consensus views. His work focuses on what matters to professional investors: The links between the real economy, monetary policy and asset prices. He has a strong track record of getting the big calls right. The Sunday Times ranked Samuel as the most accurate forecaster of the U.K. economy in both 2014 and 2018. In addition, Bloomberg consistently has ranked Samuel as one of the top three U.K. forecasters, out of pool of 35 economists, throughout 2018 and 2019. His in-depth knowledge of market-moving data and his forensic forecasting approach explain why he consistently beats the consensus. Samuel's work on Brexit goes beyond simply reporting developments and is always analytical and unbiased, enabling investors to see through the noise of the daily headlines. While his analysis points to a particular path that politicians will take, he acknowledges the inherent uncertainty and draws out the economic and financial market implications of all plausible Brexit scenarios. Samuel holds an MSc in Economics from Birkbeck College, University of London and an undergraduate degree in History and Economics from the University of Oxford. Prior to joining Pantheon in 2015, he was Senior U.K. Economist at Capital Economics. In 2011, Samuel won the Society of Business Economists' prestigious Rybczynski Prize for an article on quantitative easing in the UK. He is based in London but frequently visits our other offices. Recent key calls include: 2018 - Correctly forecast that GDP growth would slow and inflation would undershoot the MPC's initial forecast, prompting the Committee to shock investors and almost other economists by waiting until August to raise Bank Rate, rather than pressing ahead in May. 2017 - Argued that the MPC was wrong to expect CPI inflation to stay below 3% following sterling's depreciation. He also highlighted that economic indicators pointed to the Conservatives losing their outright majority in the snap general election.
Data this week clearly hint at a cyclical trough in Eurozone inflation in the first quarter. The advance estimate for April shows year-over-year inflation rising slightly to zero, up from -0.1% in March.
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.
The outlook for Brazil's industrial economy is better than at any time since before the crisis. But data released this week highlighted that the recovery will be slow and bumpy.
...The data were all over the map, with existing home sales plunging while consumer confidence rose; Chicago-area manufacturing activity plunged but national durable goods were flat; real consumption rose at a decent clip but pending home sales dipped again. Markets, by contrast, are little changed from the week before the holidays. What to make of it all?
Markets were on the right side of the argument with economists about the outlook for monetary policy in 2015, but we doubt history will repeat itself this year. The consensus among economists a year ago was for interest rates to rise to 0.75% from 0.5% by the end of 2015, in contrast to the markets' view that an increase was unlikely.
Friday's data deluge suggests that EZ economic growth slowed less than we expected in the second quarter. The advance estimate indicates that real GDP in the euro area rose 0.3% quarter-on-quarter in Q2, down from a 0.6% jump in the first quarter. This was in line with the consensus, but it likely doesn't tell the whole story.
Yesterday was a good day for headline EZ economic data. GDP growth accelerated, inflation rose and unemployment fell further. Advance Q4 data showed that real GDP in the Eurozone rose 0.5% quarter-on-quarter in Q4, marginally faster than the upwardly revised 0.4% in Q3. Full-year growth in 2016 slowed slightly to 1.7% from 2.0% in 2015.
A quick rebound in growth, after the slowdown to a reported 2.6% in the fourth quarter, is unlikely.
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.
House purchase mortgage approvals by the main street banks jumped to 40.1K in January, from 36.1K in December, fully reversing the 4K fall of the previous two months, according to trade body U.K. Finance.
Brazil's GDP growth slowed to just 0.1% quarter- on-quarter in Q4, from a downwardly-revised 0.5% in Q3.
China's official manufacturing PMI implies a modest gain in momentum in Q2, at 51.4, compared with 51.0 on average in Q1.
Yesterday's Chinese PMI numbers disappointed forecasts across the board, failing to meet widespread expectations for either stability or a continued, albeit marginal, improvement in April.
On the face of it, the timing of the drop in the E.C.'s measure of consumers' confidence, to its lowest level since July 2016 in April, is peculiar.
We're expecting the April ISM report today to bring yet more evidence that the manufacturing cycle is peaking, though we remain of the view that the next cyclical downturn is still some way off.
All eyes today will be on the core PCE deflator for January, following the unexpectedly large 0.3% increase in the core CPI.
China's PMIs surprised the consensus forecasts to the downside for February. The manufacturing PMI dropped to 50.3 in February from 51.3 in January, while the non-manufacturing PMI fell to 54.4 from 55.3 in January.
Friday's inflation data in the Eurozone were a mixed bag.
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.
Headline inflation in the Eurozone eased at the start of the year, but leading indicators suggest that the dip will be short-lived.
Yesterday's EZ data showed that French households came out swinging as the economy reopened. Consumers' spending, ex-services, jumped by 36.6% month-to-month in May, driving the year-over-year rate up to -8.3%, from -32.7% in April.
Yesterday's national accounts showed that the downturn in the economy on the eve of the Covid-19 outbreak was sharper than first estimated.
The return of Chinese PPI inflation in 2016 helped to stabilise equities after the boom-bust of the previous year.
Yesterday's advance EZ CPI report bolstered the ECB doves' case for only marginal adjustments to the language on forward guidance at next week's meeting. Inflation in the euro area fell to 1.4% in May, from 1.9% in April, constrained by almost all the key components.
Mexico's central bank, Banxico, capitulated to the sharp MXN depreciation yesterday and increased interest rates by 50bp, for the second time this year, in a bid to support the currency. Raising rates to 4.25% was a brave step, as the economic recovery remains sluggish, thanks mostly to external headwinds. The hike demonstrates that policymakers are extremely worried about the decline in the MXN and its lagged effect on inflation.
For some time now, we have puzzled over the softness of small firms' capital spending intentions, as measured by the monthly NFIB survey.
Inflation in Mexico edged higher in the second half, but we expect both the headline and core rates to continue falling, allowing Banxico to keep interest rates on hold.
Mexico's inflation rate ended 2018 in line with market expectations, strengthening the case for interest rates to remain on hold in the near term.
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.
On the face of it, the slowdown in bank loan growth to commercial and industrial companies over the past two years looks alarming. In the year to November, the stock of loans outstanding rose by 8.0%, the smallest gain since January 2014. A further decline in the year-over-year rate, taking it below the rate of growth of nominal GDP--we expect 4.7% in the first quarter--for the first time in six years, is now a fair bet. The three- and six-month annualized growth rates of C&I lending in November were just 6.2% and 4.7% respectively, and still falling.
Political risks in Brazil recently have simmered alongside the modest cyclical recovery, but they are now increasing. President Michel Temer's future remains hard to predict as circumstances change by the day.
China's PPI inflation rose again in June, to 4.7%, from 4.1% in May.
Inflation is under control in most LatAm economies, and we expect headline rates to remain close to current levels in the very near term.
At least some investors clearly were expecting Fed Chair Powell yesterday to offer a degree of resistance to the idea that a rate cut at the end o f this month is a done deal.
Recent economic indicators in Mexico have been relatively positive.
The rundown of the Fed's balance sheet has proceeded in line with the plans laid out b ack in June 2017.
German exports flatlined for most of 2018, driving the trade surplus down by 7.3% amid still-solid growth in imports.
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.
China's trade surplus appears modestly to be rebuilding, edging up to $34.0B in November, on our adjustment, from $33.3B in October. The recent trough was $24.B, in March.
The MPC was a little irked by the markets' reaction to its November meeting.
German net exports were treading water at the start of the fourth quarter. The seasonally adjusted trade surplus slipped to €17.4B in October, from a revised €17.7B in September, constrained by a 1.3% month-to-month rise in imports, which offset a 0.7% increase in exports.
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.
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.
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.
The clear threat to demand posed by the coronavirus and China's efforts at containment have sent a shock wave through commodities markets.
The Fed will raise rates by 25 basis points on Wednesday, but as usual after a widely-anticipated policy decision, most of our attention will be focused on what policymakers say about their actions, and how their views on the economy have changed.
China's trade surplus bounced back strongly in May, rising to $40.1B on our adjustment, from $35.7B previously.
The Easter effect depressed services inflation more than markets expected in April, but the main downside surprise was the tepid rebound in non-energy goods inflation.
The re-emergence of Chinese PPI inflation in 2016 was instrumental in stabilising equities after the 2015 bubble burst.
Today brings the April PPI data, which likely will show core inflation creeping higher, with upward pressure in both good and services. The upside risk in the goods component is clear enough, as our first chart shows.
The MPC emphasised yesterday that its faith that interest rates need to rise further has not been shaken by recent downside data surprises.
This week's data confirmed Mexico's strong economic performance over the first few months of this year.
China's October foreign trade headlines beat expectations, but the year-over-year numbers remain grim, with imports falling 6.4%, only a modest improvement from the 8.5% tumble in September.
Mexico is the only major LatAm economy not struggling with inflation. The headline April CPI fell 0.3% month-to-month, with the year-over-year rate unchanged at 3.1%, in the middle o f Banxico's 2-to-4% target. Inflationary pressures have been broadly absent since the beginning of the year, with the annual core CPI rate slowing to 2.3% in April from 2.5% in March.
Economic conditions in Brazil are deteriorating rapidly.
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.
Inflation appears no longer to be an issue for Mexican policymakers. The annual headline rate slowed to 3.0% year-over-year in February from 3.1% in January, in the middle of the central bank's target range, for the first time since May 2006.
The People's Bank of China likely will be more than content with the latest money and credit data, to the point where it probably won't see the need to cut interest rates further anytime soon.
We already know that the key labor market numbers in today's May NFIB survey are strong.
The border security agreement between the U.S. and Mexico has strengthened hopes that the Sino- U.S. trade war will end soon.
We can be reasonably sure that the headline May retail sales number will look quite strong, thanks to the surge in auto sales reported by the manufacturers last week. Sales of cars and light trucks soared past industry analysts' expectations to a nine-year high, rising 7.5% from their April level.
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.
We expect the Budget today to underwhelm investors who are eager to see a quick and powerful government response to the coronavirus outbreak.
It's just not possible to forecast the reaction of businesses and consumers to the coronavirus outbreak.
This has been a very complicated week for LatAm policymakers, who are particularly uneasy about the performance of the FX market.
On December 17, voters will go to the polls for the second time in less than a month to choose Chile's next president.
First things first: Payroll growth likely will be sustained at or close to November's pace.
The stakes are raised ahead of today's ECB meeting after the central bank's pledge in January to "review and reassess" its policy stance. Since then, survey data have weakened, inflation has fallen and volatility in financial markets has increased. The ECB likely will act accordingly and deliver a boost to monetary stimulus today.
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.
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.
April's Retail Sales Monitor from the British Chambers of Commerce, released yesterday, provided a powerful signal that households' spending rebounded in April, following a terrible Q1.
Market participants and analysts have gradually softened their cautious stance towards Mexico, as concerns about the new U.S. administration's trade and immigration policies have eased, and risks of a credit rating downgrade have lessened.
On the face of it, our forecast of higher core inflation by the end of this year is seriously challenged by the recent data.
China's money and credit numbers for April were a mixed bag. M2 growth merely inched down, to 8.5% year-over-year, from 8.6% in March, keeping its gradual uptrend intact.
The CBO reckons that the April budget surplus jumped to about $179B, some $72B more than in the same month last year. This looks great, but alas all the apparent improvement reflects calendar distortions on the spending side of the accounts.
China's trade balance flipped to an unadjusted deficit of $7.1B in the first two months of the year, from a $47.2B surplus in December.
Germany's external balance was virtually stable at the beginning of the second quarter. The seasonally adjusted trade surplus rose marginally to €23.9B in April from a revised €23.7B in March, mainly due to weakness in imports. Demand for goods abroad fell 0.2% month-to-month, which pushed up the surplus despite amid unchanged exports. Imports fell 1.5% year-over-year in April, up slightly from a 2.5% decline in March.
Brazil's central bank has ignored, so far, the severe economic downturn and has continued its aggressive monetary tightening in order to regain credibility and curb stubbornly high inflation. In contrast, Mexico's central bank is in an enviable position, with inflation below target and under control. Its monetary policy is mainly dependent on the Fed's rate normalization.
We'd be surprised to see any serious shift in the tone of Fed Chair Powell's semi-annual Monetary Policy Testimony today compared to the FOMC statement and press conference just three weeks ago.
It has been mostly doom and gloom for euro area investors in equities and credit this year.
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.
LatAm's growth outlook is deteriorating, despite decent domestic fundamentals and political transitions toward more market-oriented governments in some of the region's main economies.
The May NFIB survey and the April JOLTS report, both released yesterday, paint a coherent, if not yet definitive, picture of labor market developments which should alarm the Fed. The data suggest that the true labor supply, in the eyes of potential employers, is much smaller than implied by the BLS's measures of broad unemployment.
We would be surprised, but not astonished, if the Fed were to announce a shift to explicit yield curve control at today's meeting.
This week's data have offered further clear hard evidence of the Covid-19 shock to the Mexican economy, supporting our base case of further interest rate cuts in the coming monetary policy meetings.
The Central Bank of Argentina surprised markets on Tuesday, raising its main interest rate by 100bp to 28.75% to cap inflation expectations and push core inflation down at a faster pace.
After three straight 0.3% increases in the core CPI, we are in agreement with the consensus view that September's report, due today, will revert to the 0.2% trend.
Our base case forecast for today's July core CPI is that the remarkable and unexpected run of weak numbers, shown in our first chart, is set to come to an end, with a reversion to the prior 0.2% trend.
Inflation pressures in Brazil are now well- contained, with the headline rate falling to a decade low in July. We think inflation is now close to bottoming out, but the current benign rate strengthens our base case forecast for a 100bp rate cut at the next policy meeting, in September.
Today's March CPI ought to provide further support for the idea that the trend rate of increase in the core index is running at about 0.2% per month, an annualized rate, if sustained, of about 2.5%.
The rebound in GDP growth in the second quarter seems not to have been enough to prevent year-over-year productivity growth slowing to about zero. The consensus forecast for the first estimate of Q2 productivity growth, due today, is a 1.6% annualized increase, pushing the year-over-year rate down to 0.3% from 0.6% in the first quarter, but we think this is too optimistic.
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.
China's November money and credit data were a little less grim, with only M2 growth slipping, due to unfavourable base effects.
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%.
We see clear upside risk to the inflation data due before the FOMC announcement, from three main sources.
Data released yesterday reinforced our forecast of a further rate cut in Brazil next month.
Investors have been caught out by the speed of the recent rise in RPI inflation and have revised up their expectations. Even so, inflation swaps imply that markets expect RPI inflation to be 3.6% in one year's time, not much above the latest print, 3.2% in February. We still think RPI inflation will exceed markets' expectations.
Yesterday's CPI report in Mexico confirmed that headline inflation edged higher, to 5.0% in September from 4.9% in August, as the mid-month inflation index suggested.
Inflation in Mexico fell significantly in September. Data yesterday showed that the CPI rose just 0.3% month-to-month, pushing the year-over-year rate down to 6.4% from 6.7% in August, its highest level in 16 years.
We wrote last month about how the Caixin services PMI appeared to be missing the deterioration in several key services subsectors.
Data released in recent days have supported our base case for further interest rate cuts in Mexico over the coming meetings.
Data yesterday suggest that EZ investor sentiment is on track for a modest recovery in Q3.
A reader sent us last week a series of five simple feedback loops, all of which ended with the Fed remaining "cautious". For example, in a scenario in which the dollar strengthens--perhaps because of stronger U.S. economic data--markets see an increased risk of a Chinese devaluation, which then pummels EM assets, making the Fed nervous about global growth risks to the domestic economy.
Japan's labour cash earnings rose by 1.5% year-over- year in July, a strong result in the Japanese context, if it hadn't been preceded by the 3.6% leap in June.
The Mexican economy's brightest spot continues to be private consumption.
President Trump blinked again yesterday, delaying tariffs on some $150B-worth of Chinese consumer goods until December 15.
Outside the battered energy sector, the most consistently disconcerting economic numbers last year, in the eyes of the markets, were the monthly retail sales data. Non-auto sales undershot consensus forecasts in nine of the 12 months in 2015, with a median shortfall of 0.3%.
Japan's July adjusted trade surplus rebounded to ¥337.4B from ¥87.3B in June, far above consensus. On our seasonal adjustment, the rebound is slightly smaller but only because we saw less of a drop in June.
Yesterday's final EZ CPI data for March confirmed the message from the advance report that inflation pressures eased last month.
We can't afford the luxury of believing China's year-over-year growth rates. Real GDP growth was 6.8% year-over-year in Q1, matching the rate in Q4 and Q3, and hitting consensus.
Consumer confidence surveys have risen since the elections to levels consistent with very rapid growth in real spending.
Banxico will meet tomorrow, and we expect Mexican policymakers to cut the main interest rate by 25bp, to 7.25%.
The incidence of the phrase "since the early nineties" has increased sharply in our Japan reports this year.
The BoJ is likely to stay on hold this week for all its main policy settings.
The labour market remains healthy enough to persuade the MPC to keep its powder dry over the coming months.
Growth in Eurozone car sales slowed slightly at the end of the first quarter. New car registrations in the euro area rose 5.8% year-over-year in March, down from a 14.4% increase in February. But the 12-month average level of new registrations jumped to new cyclical highs of 440,000 and 252,000 in the core and periphery respectively.
We expect the Fed not to raise rates today. In the eyes of the waverers who will need to change their minds in order to trigger action, the latest data-- especially wages--do not make a compelling case for immediate action, and the obvious fragility of markets strengthens the case for doing nothing today. This is a Fed which in recent years has greatly preferred to err on the side of caution. With no immediate inflation threat, the waverers and the doves will take the view that the cost of delaying the first move until October or December is small. As far as we can tell, they are the majority on the committee.
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 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.
Colombian activity data released this week were relatively strong, but mostly driven by the primary sectors; consumption remains sluggish compared to previous standards.
The Monetary Policy Board of the Bank of Korea voted yesterday to lower its policy base rate to 1.25%, from 1.50%.
The GM strike will make itself felt in the September industrial production data, due today.
Growth in new EZ car sales remained brisk last month, growth slowed in Q3. New registrations rose 9.4% year-over-year in September, marginally lower than the 9.6% increase in August. Growth in France fell most, sliding to 2.5% from 6.7% in August, but sales in Germany picked up to 9.4%, from 8.3%.
The Eurozone's trade surplus rebounded slightly over the summer, rising to €16.6B in August from €12.6B in July, helped mainly by a 2.0% month-to- month jump in exports.
Yesterday's sole economic report showed that the Eurozone's external surplus recovered ground over the summer, but we don't think the rebound will last long.
The euro area's external surplus dipped at the start of Q4.
Our forecast that CPI inflation will return to the 2% target by the end of 2018 sets us apart from the MPC and consensus, which expect a more modest decline, to 2.4%.
Chinese official headline data paint a picture of a strengthening economy in Q2. Our analysis shows a sharply contrasting picture. China's nominal GDP, real GDP and deflators are often internally inconsistent.
Data over the past week give a near-complete picture of how India's economy fared in the fourth quarter.
Data released yesterday confirmed that economic activity is improving in Brazil.
The headline rate of CPI inflation held steady at the 2% target in June, in line with the consensus and the MPC's Inflation Report forecast.
Polls suggest that Ivan Duque has comfortably beat Gustavo Petro to become Colombia's president.
The chainstore sales numbers have been hard to read over the past year.
Markets currently see a 50/50 chance that the MPC will raise Bank Rate in August and will be looking for a strong signal on Thursday that the next meeting is "in play".
Friday's data in the Eurozone confirmed that inflation rose sharply last month. Headline inflation increased to 1.9%, from 1.2% in April, and core inflation also rose, by 0.4 percentage points to 1.1%.
Yesterday's November EZ construction data offered little respite to the gloomy outlook for the Q4 GDP headline.
The Eurozone inflation data have been relatively calm in the past six months. The headline rate has been stable at about 1.5%, and the core rate has fluctuated closely around 1%.
Inflation pressures in the Eurozone edged lower last month.
CPI inflation has undershot the consensus forecast six times this year, but surprised to the upside only twice.
AMLO unveiled on Saturday Mexico's budget plan for 2019, calling for a moderate increase in spending, focused mainly on social programs, without raising taxes or the country's debt.
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.
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.
RPI inflation picked up to a six-year high of 4.1% in December, from 3.9% in November, even though CPI inflation fell to 3.0%, from 3.1%.
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.
We've continuously warned that Japan's national accounts weren't sitting easily with the underlying signals from survey data, and monetary conditions, through last year.
Yesterday's CPI report in the Eurozone confirmed that inflation pressures remain subdued, even as GDP growth is accelerating.
The upturn in core CPI inflation this year has passed by almost unnoticed in the markets and media. In the year to September, the core CPI rose 1.9%, up from a low of 1.6% in January. But that's still a very low rate, and with core PCE inflation unchanged at only 1.3% over the same period, it's easy to see why investors have remained relaxed. In our view, though, things are about to change, because a combination of very adverse base effects and gradually increasing momentum in the monthly numbers, is set to lift both core inflation measures substantially over the next few months.
Data on air quality in China provide some useful insights into the economic disruptions--or lack thereof--caused by the outbreak of the coronavirus from Wuhan and the government's aggressive containment measures.
When the MPC last met, on November 2, it attempted to persuade markets that Bank Rate would need to rise three times over the next three years to keep inflation close to the 2% target.
On the face of it, recent retail spending surveys have been puzzlingly weak in light of the pick-up in employment growth, still-robust real wage gains and renewed momentum in the housing market. We think those surveys are a genuine signal that retail sales growth is slowing, and expect today's official figures to surprise to the downside. But retail sales account for just one-third of household spending, and, in contrast to the early stages of the economic recovery, consumers now are prioritising spending on services rather than goods.
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.
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.
Today's official retail sales figures look set to show that consumers tightened their purse strings at the start of this year, following last year's spending spree. We think that retail sales volumes rose by just 1.0% month-to-month in January; that would be a poor result after December's 1.9% plunge. Surveys of retailers have been weak across the board. The reported sales balance of the CBI's Distributive Trade Survey collapsed to -8 in January, from +35 in December. The balance is notoriously volatile, but the 43-point drop is the largest since the survey began in 1983.
On the face of it, December's flash Markit/CIPS PMIs warrant the MPC cutting Bank Rate at its meeting on Thursday.
China's activity data outperformed expectations in November.
China's property market looks to be turning the corner, going by the stronger-than-expected March report.
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%.
China's March money and credit data, published last Friday, showed that conditions continue to tighten, posing a threat to GDP growth this year.
China and the U.S. are officially to restart trade talks, according to China's Ministry of Commerce, after previous negotiations stalled in June.
Your correspondent is headed to the beach for the next couple of weeks, with publication resuming on Tuesday, September 4.
Incoming activity data from Colombia over the past quarter have been surprisingly strong, despite many domestic and external threats.
The November industrial production numbers will be dominated by the rebound in auto production following the end of the GM strike.
The most important number released yesterday was hidden well behind the headline inflation, production and housing construction data. We have been waiting to see how quickly the upturn in the number of rigs in operation would translate into rising oil and gas well-drilling, and now we know: In July, well-drilling jumped by 4.7%
The trend in manufacturing output probably is about flat, with no real prospect of any serious improvement in the near term.
To avoid rocking the 2020 boat, the Phase One trade deal needed to be sufficiently vague, so that neither side, and particularly Mr. Trump, would have much cause to kick up a fuss around missed targets.
Latin American markets and policymakers are bracing for another complicated week, after the second, and more aggressive, Fed emergency move over the weekend.
Here's something we didn't expect to write: The control measure of retail sales in May was slightly higher than in February.
Yesterday's labour cost data in the EZ are misleading. Eurostat's headline index jumped by 3.4% year-over-year in Q1, accelerating from a revised 2.3% increase in Q4,
Mexico's central bank likely will pause its monetary tightening on Thursday, keeping the main rate at 6.5%. A hike this week would follow five consecutive increases, totalling 350bp since December 2015, when policymakers were first overwhelmed by the MXN's sell-off.
The final and detailed April CPI data confirmed that inflation pressures in the Eurozone eased last month. Headline inflation slipped to 1.2%, from 1.3% in March.
The year-over-year rate of core CPI inflation rose steadily from a low of 1.6% in January 2015 to 2.3% in February this year. At that point, the three-month annualized rate had reached a startling 3.0%. You could be forgiven, therefore, for thinking that the dip in core inflation back to 2.2% in March was an inevitable correction after a period of unsustainably rapid gains, and that the underlying trend in core inflation isn't really heading towards 3%.
Market-implied expectations of negative rates through 2021, and bund yields plunging below -0.1%, are an accident waiting to happen, but the main story is clear as rain.
The Japanese GDP report yesterday contained substantial revisions to Q4. We had expected the Q1 contraction, but the revisions recast the health of the recovery, making the domestic demand performance look much less impressive recently, with the economy struggling since the burst of growth in the first half last year.
Incoming data continue to highlight the severe hit from the pandemic on the real economies of the region, but some surveys and leading indicators are already pointing to a gradual upturn from June onwards.
The presidential election in Argentina is only four months away and the race is heating up.
China's GDP data--to be published on Monday-- are likely to report that growth slowed to 1.4% quarter-on-quarter in Q4, from 1.6% in Q3. A 1.4% increase would match the series low of Q1 2016.
We are still waiting for the promised rebound in EZ car sales.
The fall in CPI inflation to 3.0% in December, from 3.1% in November, likely marks the first step in its journey back to the 2% target.
After four straight sub-consensus core CPI readings, we think the odds now favor reversion to the prior trend, 0.2%, over the next few months.
Chinese real GDP growth reportedly edged down to 6.7% year-over-year in Q2, from 6.8% in Q1.
The MPC will have to issue fresh, dovish guidance in order to satisfy markets on Thursday, which now think the Committee is more likely to cut than raise Bank Rate within the next six months.
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.
Labour costs are rising so quickly that the MPC cannot justify an "insurance" cut in Bank Rate to counteract the impending damage from Brexit uncertainty in the run-up to the October deadline.
Colombia has been one of LatAm's outperformers this year.
As we go to press, Mr. Draghi is set to give the opening remarks for the 2019 ECB central banking forum in Sintra, and later today, at 09:00 CET, the president delivers his introductory speech.
The RICS Residential Market Survey caught our eye last week for reporting that new sale instructions to estate agents rose in May for the first month since February 2016.
Housing rents account for some 41% of the core CPI and 18% of the core PCE, making them hugely important determinants of the core inflation rate.
On the face of it, trade negotiations have deteriorated in the last week.
In light of Mr. Draghi's Sintra speech, we take this opportunity to give an update on the BoJ's stance, ahead of the meeting on Thursday.
The Fed will leave rates unchanged today.
Argentina's Recovery Continues, but the Rebound is Facing Setbacks
A lot of ink has been spilled over the relative significance of the supply and demand effects of Covid-19, but the short-term story is clear.
The first real glimpse of India's economic performance early this quarter is grim, adding weight to our below-consensus GDP forecast.
Markets are reacting to Colombia's disappointing activity figures, released Friday, by pulling forward expectations for the country's first rate cut to December. The data certainly looked weak--especially upon close examination--and we expect growth to slow further. But we think that inflation is still too high to expect rate cuts this year.
The spike in the May core CPI, and its likely echo in the core PCE, won't stop the Fed easing at the end of this month.
NAFTA-related news has been mixed over the last few weeks.
Investors in the euro area demand to know whether their equities can climb--in local currency terms-- even as the euro appreciates.
RPI inflation has declined in importance as a measure of U.K. inflation and was stripped of its status as a National Statistic in 2013. Yet it is still used to negotiate most wage settlements, calculate interest payments on index-linked gilts, and revalue excise duties. We have set out our above-consensus view on CPI inflation several times, including in yesterday's Monitor. But the potential for the gap between RPI and CPI inflation to widen over the coming years also threatens the markets' view that the former will remain subdued indefinitely.
China is a collection of hugely disparate provinces and cities. Managing all these cities with one interest rate is always difficult but in this cycle it is proving to be nearly impossible.
The fall in CPI inflation to 2.6% in June, from 2.9% in May, greatly undershot expectations for an unchanged rate and it has made a vote by the MPC to keep interest rates at 0.25% in August a near certainty.
The Spanish economy remains the star performer among the majors in the Eurozone.
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.
German inflation data are more noise than signal at the moment.
Friday's data confirmed that inflation in the Eurozone slipped to a 14-month low of 1.1%, from 1.3% in January, 0.1 percentage points below the first estimate.
Chile's Q4 GDP report, released yesterday, confirmed that the economy accelerated at the end of last year, supported by rising capex and solid consumption.
The bulk of China's PMIs were published over the weekend and yesterday, leaving only the Caixin services PMI on Wednesday.
President Trump wrote to Congress on Monday, saying that the U.S. finally has reached a trade deal with Japan, about a month after he and Prime Minister Abe announced an agreement in principle, on the sidelines of the G7 Summit in France.
Yesterday's detailed CPI data for August confirmed that inflation in the Eurozone stayed subdued over the summer.
Inflation in the Eurozone stumbled at the end of Q3.
The Caixin manufacturing PMI rebounded to 51.1 in July from 50.4 in June, soundly beating the consensus for no change. The PMIs are seasonally adjusted but the data are much less volatile on our adjustment model. On our adjustment, the headline has averaged 50.9 so far this year, modestly higher than in the second half of last year.
Industrial sector activity in the euro area was broadly stable at the beginning of the third quarter, despite the headline dip in the July manufacturing PMI. The Eurozone index fell to 52.0 in July, from 52.8 in June, but if it holds at this level it will be unchanged in Q3 compared with the second quarter.
The past two days have seen a slew of data that should keep the hawks in the Bank of Korea at bay during the Board's meeting at the end of this month.
The FOMC did nothing yesterday and said nothing significantly different from its June statement, as was universally expected.
The decline in CPI inflation to 1.7% in August, from 2.1% in July, has not materially boosted the chances of the MPC cutting interest rates within the next six months.
The Monetary Policy Board of the Bank of Korea yesterday left its benchmark base rate unchanged, at 1.50%.
Yesterday's sole economic report showed that the EZ trade surplus rebounded slightly at the start of the year, rising to €17.0B in January, from a revised €16.0B in February, lifted by a 0.8% increase in exports, which offset a 0.3% rise in imports.
We doubt that this week will see the MPC joining the list of other major central banks that have abandoned plans to raise interest rates this year.
Japan's adjusted trade balance flipped back to a modest surplus of ¥116B in February, after seven straight months of deficit.
Retail sales volumes jumped by 2.3% month-to-month in April, exceeding the 1.0% consensus and even our 2.0% forecast. It would be a big mistake to conclude, however, that households' spending will propel the economy forward this year like it did between 2013 and 2016.
The Chilean economy was emerging in early Q1 from the self-inflicted shock from the social unrest in October, but the upturn was interrupted in early- March by the restrictive measures introduced to contain Covid-19.
We don't use the index of leading economic indicators as a forecasting tool. If it leads the pace of growth at all, it's not by much, and in recent years it has proved deeply unreliable.
Chile's Q3 GDP report, released yesterday, confirmed that the economy gathered speed in the third quarter, but this is now in the rearview mirror.
April's retail sales figures, released today, likely will show only a partial reversal of the sharp 1.3% month-to-month fall in sales volumes in March. This would reinforce the impression that the recovery in consumer spending has been becalmed by slower job growth, the intensification of the fiscal squeeze and heightened uncertainty about the economic and political outlook.
Mexico's central bank, Banxico, capitulated in the face of the rapidly depreciating MXN and unexpectedly increased interest rates by 50bp to 3.75% on Wednesday, following an unscheduled meeting the day before. The decision was a unanimous, brave step, showing that policymakers are extremely worried about the FX sell-off, despite growth still running below potential.
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.
he ECB governing council gathered last week under the leadership of Ms. Lagarde for the first time to lay a battle plan for the course ahead.
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.
China's investment slowdown went from worrying to frightening in October. Last week's fixed asset investment ex-rural numbers showed that year- to-date spending grew by 5.2% year-over-year in October, marking a further slowdown from 5.4% in the year to September.
Colombia's worrying inflation picture suggests the Central Bank will likely hike rates at least once more before the end of the year, attempting to anchor expectations. The October 30th BanRep minutes, in which the board surprised the market by hiking the main rate by 50bp to 5.25%--consensus was a 25bp increase--made it clear that the decision was based on fear of increased inflation risks, coupled with an improving domestic demand picture. The 50bp hike was not agreed unanimously, with dissenters arguing that the bank should adopt a more gradual approach due the high degree of uncertainty over the global economy. In addition, those favoring a 25bp hike argued that it would be better to move at a predictable pace to avoid possible market turmoil.
Argentinians are heading to the polls on Sunday October 27 and will likely turn their backs on the current president, Mauricio Macri.
PM Johnson has conceded considerable ground over the terms of Brexit for Northern Ireland in order to get a deal over the line in time for MPs to vote on it on Saturday, before the Benn Act requires him to seek an extension.
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.
Eurozone inflation pressures remained subdued in April. Today's final data likely will show that inflation fell to -0.2% year-over-year in April, from 0.0% in March. The main story in this report will be the reversal in services inflation from the March surge, which was due to the early Easter.
Brazil's monetary authority adopted a neutral tone and kept its main rate on hold at 6.5% at its monetary policy meeting on Wednesday, surprising investors.
Japan's trade deficit has bottomed out. The unadjusted shortfall narrowed to -¥833B in May,
Yesterday's final CPI data for May confirmed that the EZ economy is within touching distance of headline deflation.
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.
China's data on Monday were beyond dire, leading to a dramatic downward revision of our already grim Q1 GDP forecasts for the country.
The global coronavirus pandemic is hitting the LatAm economy at a particularly vulnerable time, following last year's stuttering economic recovery, temporary shocks in key economies and the effect of the global trade war.
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.
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%.
In the excitement over the FOMC meeting--all things are relative--we ran out of space to cover some of this week's other data, notably the PPI, industrial production and housing starts. They are worth a recap, given that only the Michigan sentiment report will be released today.
Venezuela's fundamentals continue to deteriorate, economic chaos is increasing and the social/political situation remains fragile.
Money and credit data released last weekend suggest that China's demand for credit remains insatiable.
The consensus for retail sales volumes to rise by a mere 0.3% month-to-month in November, after falling by 0.4% in September and 0.5% in Oc tober, looks too downbeat.
Yesterday's final CPI report confirmed that inflation in the euro area increased slightly last month. The headline rate rose to 1.5%, from 1.4% in October, lifted by a 1.7 percentage point increase in energy inflation to 4.9%.
Sebastián Piñera returns to the Presidential Palacio de la Moneda, succeeding Michelle Bachelet as president of Chile, as in 2010.
Yesterday's IFO data in Germany heaped more misery on the Eurozone economy.
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 headline employment numbers masked an otherwise sub-par December labour market report.
Yesterday's German ZEW investor sentiment survey provided the first clear evidence of the coronavirus in the EZ survey data.
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 PBoC reduced its 14-day reverse repo by 5bp to 2.65% in a routine operation yesterday.
CPI inflation held steady at 1.5% in November, marking the fourth consecutive below-target print, though it was a tenth above both the MPC's forecast and the consensus.
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.
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.
You'd be hard-pressed to read the minutes of the September FOMC meeting and draw a conclusion other than that most policymakers are very comfortable with their forecasts of one more rate hike this year, and three next year.
Yesterday's final CPI report confirmed that inflation in the EZ fell marginally in August, by 0.1 percentage points to 2.0%.
Colombia's economy remained resilient in July, thanks to strong domestic demand and relatively good external conditions for the country's top exports.
The Eurozone economy all but stalled at the start of Q4.
While we were away, EM growth prospects and risk appetite deteriorated significantly, due mainly to rising geopolitical risks, weaker economic prospects for DM, and, in particular, the most recent chapter of the global trade war.
It is a truth universally acknowledged that the RPI is a terrible measure of inflation. The ONS describes it as "very poor" and discourages its use.
LatAm currencies fell sharply in Q1 but the hit hasn't yet pushed inflation higher.
Inflation pressures in the Eurozone have been building in recent months, but we think the headline is close to a peak for the year.
Japan's PPI inflation was unchanged, at 3.0%, in August.
Manufacturing in the Eurozone had a slow start to the third quarter. Industrial production rose only 0.1% month-to-month in July, though the year-over-year rate was pushed up to 3.2% from a revised 2.8% in June.
Today's figures likely will bring the first real signs that the Brexit vote has had an adverse impact on the labour market. The employment balances of the key private-sector surveys weakened sharply in July, and recovered only partially in August. In addition, the three-month average level of job vacancies fell by 7K between April and July.
We don't often write about the performance of individual companies, but we have to make an exception for Boeing, because it is big enough to matter at a macro level. Last year, civilian aircraft orders--dominated by Boeing--totalled $102B, equivalent to 0.6% of GDP.
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.
The minutes of yesterday's MPC meeting indicate that it is not going to be panicked into cutting interest rates in the run-up to the E.U. referendum in June. The Committee voted unanimously again to keep Bank Rate at 0.5%, and dovish comments were conspicuously absent.
China's unadjusted March trade balance rebounded to a surplus of $20B, from a combined deficit of -$7B in the first two months of the year.
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.
Wednesday's Mexican industrial production report was upbeat for manufacturing, but it revealed that the oil and public construction sectors remain under severe strain.
Sterling leapt to $1.27, from $1.22 last week, amid some positive signals from all sides engaged in Brexit talks.
The minutes of the September 19/20 FOMC meeting record that "...it was noted that the National Federation of Independent Business reported that greater optimism among small businesses had contributed to a sharp increase in the proportion of small firms planning increases in their capital expenditures."
Manufacturing in the EZ was held above water by Ireland at the end of Q3.
The fall in CPI inflation to just 1.5% in October-- its lowest rate since November 2016--from 1.7% in September, isn't a game-changer for the monetary policy outlook.
The near-term U.S. inflation outlook is benign, but it is not without risk.
Volatility and risk will remain high in L atAm for the foreseeable future. President-elect Donald Trump's uncertain foreign policies could have a considerable impact on LatAm economies in the months and years ahead.
Hard data for Brazil and Mexico, released last week, support the case for further interest rate cuts.
Today's CPI report from India should raise the pressure on the RBI to abandon its aggressive easing, which has resulted in 135 basis points worth of rate cuts since February.
Friday's data added further colour to the September CPI data for the Eurozone.
Nobody has a monopoly on "the truth".
The unexpected rise in CPI inflation to 2.1% in July--well above the Bank of England's 1.8% forecast and the 1.9% consensus--from 2.0% in June undermines the case for expecting the MPC to cut Bank Rate, in the event that a no-deal Brexit is avoided.
China's import growth in dollar terms slowed sharply to 4.5% year-over-year in December from 17.7% in November, significantly below the consensus forecast.
We want to be very clear about the terrible-looking December retail sales numbers: The core numbers were much less bad than the headline, and there is no reason to think the dip in the core is anything other than noise.
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.
China's December foreign trade numbers were unpleasant, with both exports and imports falling year-over-year, after rising, albeit slowly in November.
Data released yesterday showed that gross fixed investment in Mexico started Q4 on a decent note, increasing on the back of healthy purchases of imported machinery and equipment and construction spending.
German inflation eased in May, but the underlying upward pressure on the core is increasing. Yesterday's data showed that inflation fell to 1.5% year-over-year in May, from 2.0% in April, as the boost from the late Easter reversed. Inflation in leisure and entertainment services was driven down to +0.8%, from +3.3% in April, as a result of sharply lower inflation in package holidays and airfares.
Whichever way you choose to slice the numbers, retail sales growth has slowed this year. Ex-gasoline, ex-autos, core, whatever, sales growth in year-over-year terms is notably weaker now than at the end of last year. It is equally, true, however, that after-tax incomes have risen at a robust pace--up 3.8% in the year to May, exactly the same pace as in the year to May 2014--so consumers in aggregate have plenty of cash to spend. So, what's holding people back at the mall? Why aren't they spending more?
In our Monitor of January 10, we argued that the market turmoil in Q4 was largely driven by the U.S.- China trade war, and that a resolution--which we expect by the spring, at the latest--would trigger a substantial easing of financial conditions.
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.
Inflation in the Andean economies ended 2019 well within central banks' objectives, despite many domestic and external challenges.
The ONS published provisional new weights for the main components of the CPI on Tuesday. The changes boost our forecast for the average rate of CPI inflation this year by a trivial 0.03 percentage points.
LatAm economies are being battered by high inflation triggered by currency sell-offs and El Niño supply shocks, so rates have had to rise despite the challenging global environment. Peru's central bank, the BCRP, was forced to increase interest rates by 25bp to 4.25% last Thursday, the fourth hike in six months, as inflation is far above the central bank's 1-to-3% target range.
The MPC chose not to rock the boat yesterday, deferring any reappraisal of the economic outlook until its next meeting in early February.
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.
Yesterday's second estimate of Q4 Eurozone GDP confirmed the upbeat story from the advance report, despite the dip in headline growth.
China's trade surplus jumped to a six-month high of $46.8B in December, from $37.6B in November, on the back of a strong increase in exports.
We can't remember the last time a single economic report was as surprising as the December retail sales numbers, released yesterday.
The EZ Q4 GDP data narrowly avoided a downward revision in yesterday's second estimate.
So, what should we make of the fourth straight disappointment in the retail sales numbers? First, we should note that all is probably not how it seems. The 0.2% upward revision to March sales was exactly equal to the difference between the consensus forecast and the initial estimate, neatly illustrating the danger of over-interpreting the first estimates of the data.
Markets are caught in a trade loop.
The 0.242% increase in the January core CPI left the year-over-year rate at 2.3% for the third straight month.
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.
Japan's GDP likely dropped by a huge 0.9% quarter-on-quarter in Q4, after the 0.5% increase in Q3, with risks skewed firmly to the downside.
All eyes in the Eurozone will be on the second estimate of Q4 GDP today, and the report likely will confirm that growth accelerated in Q4. We think real GDP rose 0.5% quarter-on-quarter, up from a 0.3% increase in Q3, in line with the first estimate. If this forecast is correct, the year-over-year rate will be unchanged at 1.8%. Risks to the headline, however, are tilted to the downside.
Legislative and presidential elections in Colombia will be held on March 11 and May 27, respectively, with a run-off presidential election on June 17 if no candidate secures more than half the votes.
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.
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.
CPI inflation held steady at 3.0% in January, above the consensus by one tenth and thus pushing up the market-implied probability of a May rate hike to 65%, from 62% earlier this week.
We've already raised a red flag for today's second Q4 GDP estimate in the Eurozone, but for good measure, we repeat the argument here.
It was no surprise that Banxico cut its policy rate by 25bp to 7.00% yesterday, following similar moves in August, September, November and December.
July's fifth straight undershoot to consensus in the core CPI was very different the previous four. Only one component--lodging away from home--prevented the first 0.2% month-to-month print since February.
Japanese domestic demand probably strengthened in Q2, with both private consumption and fixed investment accelerating. Trade and inventories are the key swing components for GDP growth.
Economic data are telling a story of a strengthening recovery, but downbeat investor sentiment points to a more difficult environment. The headline ZEW expectations index fell to a ten-month low of 12.1 in September, from 25.0 in August. This takes sentiment back to levels not seen before QE was announced, highlighting the increasing worry that deflation risks and low growth in China will derail the recovery. We don't agree, but we can't be sure the ECB thinks the same, and risks of additional stimulus this year have increased.
Car registrations, French inflation, advance PMIs and a central bank meeting make up today's substantial menu for investors in the euro area.
The Fed surprised no-one by raising rates 25bp yesterday and leaving in place the median forecast for three hikes next year and two next year.
After the drama of the last few days, Brexit developments now are set to proceed at a slower pace.
We argued earlier this week that the data on the consumer economy are likely to be rather stronger than the industrial numbers.
Data released earlier this week show that Japan's current account surplus continued its downtrend in October, falling to ¥1,404B, on our seasonal adjustment, from ¥1,494B in September.
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.
Inflation in Brazil Ended 2019 Above the BCB's Target; 2020 will be Fine
Small businesses remain extremely positive about the economy, but some of the post-election gloss appears to be wearing off. To be clear, the headline composite index of small business sentiment and activity in February, due this morning, will be much higher than immediately before the election, but a modest correction seems likely after January's 12- year high.
The benchmark MSCI EU ex-UK equity index was down a startling 17% year-over-year at the end of February. A disappointing policy package from the ECB in December initially put Eurozone equities on the back foot, and the awful start to the year for global risk assets has since piled on the misery.
April's impressive-looking retail sales numbers--the headline jumped 1.3%, with non-auto sales up 0.8%--were boosted by two entirely separate factors, one of which will play no p art in May and one which will offer very modest support. The key lift in April came from the very early Easter, which confounded the seasonal adjustments, as it usually does.
The Chancellor kept his word and made only trivial policy changes in the Spring Statement, but he hinted at higher spending plans in the Autumn Budget.
A significant minority of investors were betting on a repeat of January's outsized 0.349% increase in the core, judging from the immediate market reaction to the release of the February CPI report.
Yesterday, China finally retaliated against Mr. Trump's Friday tariff hikes, promising to increase tariffs on around $60B-worth of U.S. goods.
To answer the question: Yes, growth could hit 5% in the second quarter.
Data released last week in Brazil reinforced our view of a modest, final, interest rate cut this week, despite the recent strength of the USD and volatility in global markets.
In a busy week in Brazil, ongoing signals of feeble economic activity have strengthened our forecast for GDP growth of just 1.0% this year, below the 1.3% consensus forecast.
Chinese M2 growth was stable at 8.3% year- over-year in May, despite favorable base effects.
The partial government shutdown is now the longest on record, with little chance of a near-term resolution.
Japan's unadjusted current account surplus fell sharply in November, to ¥757B, from ¥1,310B in October.
Inflation in Brazil ended 2018 under control, despite slightly overshooting expectations.
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.
China's headline trade numbers appear to paint a picture of an economy in rude health but scratch the surface and the story is quite different. The trade surplus rose to$42.8B in June from $40.8B in May, hitting consensus.
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 Fed will hike by 25 basis points today, but what really matters is what they say about the future, both in the language of the statement and in the dotplot for this year and next.
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.
China's industrial production grew at an annualised 7.2% rate by volume in Q1, according to our estimates, up from an average 5.9% rate in the six quar ters through mid-2016.
The European Court of Justice, ECJ, will not likely pour fuel on the slumbering fire later today by ruling that OMT is in violation of EU law.
It's hard for a central bank presiding over an ageing economy to achieve a core inflation target of close to 2%. In yesterday's Monitor, we showed that German core inflation has averaged a modest 1.3% in this business cycle, despite solid GDP growth. The picture isn't much better for the ECB if we look at France.
Sterling received a shot in the arm yesterday following the release of the minutes of the MPC's meeting, which revealed that three members voted to raise interest rates to 0.50%, from 0.25% currently. Markets and economists--including ourselves--had expected another 7-1 split, but Ian McCafferty and Michael Saunders switched sides and joined Kristin Forbes in seeking higher rates.
Today's brings the June retail sales and industrial production reports, after which we'll update our second quarter GDP forecast.
The two marquee economic reports today, covering May retail sales and industrial production, will capture the initial rebound after the economy hit bottom sometime in mid-April.
The MPC almost certainly will keep interest rates on hold today and likely won't give a strong steer on the outlook for policy in the minutes of its meeting, which are released at mid-day. On the whole, surveys of economic activity have been weak, indicating that GDP growth has slowed sharply in the second quarter.
Today's MPC meeting and minutes are the first opportunity for Committee members to speak out in over a month, now that election "purdah" rules have lifted.
In order to support current market pricing, the MPC will have to be more specific about the timing of the next rate hike in the minutes of next Thursday's meeting.
Colombia's economy defied rising political uncertainty at the start of the year. Retail sales growth jumped to plus 6.2% year-over-year in January, up from -3.8% in December and -1.8% in Q4.
The ramifications of continued disappointing Asian growth, particularly in China, and its impact on global manufacturing, are especially hard-felt in LatAm.
The most important retail sales report of the year, for December, won't be published today, unless some overnight miracle means that the government has re-opened.
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.
Central banks in Chile, Peru, and Mexico hogged the market spotlight last week. Chile left its main interest rate at 3.0% on Thursday, for the fourth consecutive meeting.
Yesterday's euro area PMI data continue to tell a story of a firm business cycle upturn. The composite PMI was unchanged at 53.9 in December; an increase in the manufacturing index offset a decline in the services PMI.
Ahead of the release of the retail sales report for December 2018, markets expected to see unchanged non-auto sales.
Inflation pressure remained relatively high in Argentina last year, due mostly to the legacy of the Kirchner era. But we think inflation will ease this year, given the lagged effects of the recession and the fiscal consolidation.
Inflation pressures in France eased across the board at the end of last year.
The euro area's external surplus remained resilient toward the end of 2017, in the face of a stronger currency. The seasonally adjusted trade surplus rose to €22.5B in November, from €19.0B in October, lifted primarily by a jump in German exports.
The 20bp increase in 10-year yields over the past month doesn't live up to the hype; bondmageddon it was not.
Official industrial production growth in China plunged to 5.4% year-over-year in April, from 8.5% in March.
The second round of EZ GDP data on Friday confirmed the resilience of cyclical upturn. Real GDP in the euro area rose 0.5% quarter-on-quarter in Q1, up from 0.3% in Q4, and the fastest pace since the first quarter of last year. But the headline was slightly lower than the initial estimate, 0.6%, and consistent with our forecast before Friday's data.
The Brexit-related slump in corporate confidence finally has taken its toll on hiring.
Tariffs are a tax on imported goods, and higher taxes depress growth, other things equal.
Yesterday's final inflation data in France for September were misleadingly soft.
The Chinese trade surplus was reasonably stable on our seasonal adjustment in September, falling to $27.5B from $29.7B in August.
China's official real GDP growth is absurdly stable, but the risks in Q3 are tilted to the downside.
Data released last week in Argentina reaffirm that President Macri remains in a challenging position ahead of the October 27 presidential election.
Consensus expectations for August's labour market data, released today, look well grounded.
Economic activity in Mexico during the past few months has been improving gradually, as external and domestic threats appear to have diminished.
Evidence of accelerating economic activity in Colombia continues to mount, in stark contrast with its regional peers and DM economies.
China's official real GDP growth likely slowed to 6.0% year-over-year in Q3, from 6.2% in Q2.
The average month-to-month increase in the core CPI in the past three months is a solid 0.20, much firmer than the 0.05% average over the previous five months, stretching back to the first of the run of downside surprises, in March.
The MPC predicted in last week's Inflation Report that CPI inflation eased to 0.3% in April, thereby fully reversing its increase in March to 0.5%. We think, however, the Committee is underestimating the strength of inflation pressures across the economy.
Back in September, after the Fed decided to hold fire in the wake of market turmoil, we expected rates to rise in December and again in March. We forecast 10-year yields would rise to 2.75% by the end of March. in the event, the Fed hiked only once, and 10-year yields ended the first quarter at just 1.77%. So, what went wrong with our forecasts?
We are sticking to our view that the Eurozone's trade surplus will fall in the next six months, despite yesterday's upbeat report. The seasonally adjusted trade surplus leapt to a record high of €25.0B in September from revised €21.0B in August, lifted by an increase in exports and a decline in imports.
Banxico hiked its policy rate by 25bp to a cyclical-high of 8.0% yesterday, in line with market expectations.
Yesterday's GDP reports confirmed that growth was stable at 0.3% quarter-on-quarter in the Eurozone, leaving the year-over-year rate unchanged at 1.5%. Rebounding growth outside Germany, which has been a main driver of EZ GDP growth in this cycle, was the key story.
The headline retail sales numbers for October looked good, but the details were less comforting.
A casual glance at our first chart, which shows the headline and core inflation rates, might lead you to think that our fears for next year are overdone. Core inflation rose rapidly from a low of 1.6% in January 2015 to 2.3% in February this year, but since then it has bounced around a range from 2.1% to 2.3%.
January's retail sales figures look set to show that growth in consumers' spending remains stuck in low gear.
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.
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.
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.
Yesterday's second Q3 GDP estimate confirmed that the EZ economy expanded by 0.2% quarter-on- quarter in Q3, the same pace as in Q2, leaving the year-over-year rate unchanged at 1.2%.
CPI inflation held steady at 3.0% in October, undershooting our forecast and the consensus by 0.1 percentage point and the MPC's forecast by 0.2pp.
Politics remain centre-stage in Brazil, despite positive news on the economic front. President Michel Temer's government continues to advance pension reform, despite the tight calendar and concerns about his political capital. But volatility is on the rise.
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.
Yesterday's data provided further evidence of the EZ economy's response to the Covid-19 shock, though we recommend that investors take the numbers with a pinch of salt. In Germany, the final CPI report for April showed that headline inflation slipped to 0.9% year-over-year, from 1.4% in March, trivially above the first estimate, 0.8%.
Mexican policymakers stuck to the script yesterday and voted unanimously to cut the main rate by 50bp to 5.50%, its lowest level in more than three years.
The Prime Minister is threatening to bring back her Brexit deal to the Commons for a third time before March 20, in a final bid to win over the rebels within the Tory party who want a harder Brexit.
The trend in retail sales no longer looks quite so flat, following yesterday's May report. The level of sales volumes in April was revised up by 0.3%.
On a headline level, the ECB conformed to expectations yesterday.
Manufacturing is not in recession, yet, despite the reams of gloomy analysis of the sector, including our own.
Inflation data in Germany remain up in the air following recent revisions and restatements of the underlying indices.
LatAm assets did well in Q1, on the back of upbeat investor risk sentiment, low volatility in developed markets and a relatively benign USD.
The story of U.S. retail sales since last summer is mostly a story about the impact of the hurricanes, Harvey in particular.
The failure of the core CPI to mean-revert in April, after the unexpected March drop, does not mean that the Fed can relax.
Consumption accounts for almost 70% of GDP, and retail sales account for about 45% of consumption.
The Chinese activity data published yesterday were a mixed bag, with headline retail sales and production weakening, while FAI growth was stable. We compile our own indices for all three, to crosscheck the official versions.
The account of BanRep's July meeting revealed a significant tug-of-war between the doves and hawks. The majority argued strongly that Colombia's central bank should hike the main interest rate again, by 25bp. Others judged that the benefits of further tightening did not outweigh the costs.
CPI inflation is on track to fall back to 2.0% in the winter and below the MPC's target thereafter, despite rising to 2.5% in July, from 2.4% in June.
Colombian activity data released this week were weak, but mostly better than we expected. Real GDP rose 0.7% quarter- on-quarter in Q2, in contrast to the 0.3% fall in Q1, when the economy was hit by the lagged effect of last year's monetary tightening and the one-off VAT increase.
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.
ate last week, China and the U.S. reached an agreement, averting the planned U.S. tariff hikes on Chinese consumer goods that were slated to be imposed on December 15.
The new Argentinian president, Alberto Fernández, will have to make a quick start on the titanic task of cleaning up the economic and social mess left by his predecessor, Mauricio Macri.
The "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.
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.
Friday's economic data confirmed that inflation in Germany rebounded last month, and leading indicators suggest that it is headed higher in coming months.
Markets expect RPI inflation--which still is used to calculate index-linked gilt payments, negotiate wage settlements, and revalue excise duties--to rise to only 2.7% a year from now, from 1.6% in June. By contrast, we expect RPI inflation to leap to 3.5%. As we outlined in yesterday's Monitor which previewed today's numbers, CPI inflation likely will shoot up to 3% from 0.5% over the next year.
Brexit talks will dominate the headlines this week, with the focal point set to be a meeting of the European Council on Wednesday, where E.U. leaders might give the green light for an extraordinary summit next month to formalise the Withdrawal Agreement.
China's September imports missed expectations, but commentators and markets tend to focus on the year-over-year numbers.
We are not concerned by the slowdown in retail sales over the past few months.
The industrial production trajectory in Mexico looked strong going into Q3, but Friday's report for August threatens to change that picture.
Data released yesterday from Brazil support our view that the economic recovery continues, but progress has been slow.
Today's retail sales figures for August likely will rebut the widespread view that spendthrift consumers will prevent a sharp economic slowdown. We look for a 1% month-to-month decline in retail sales volumes in August, well below the -0.4% consensus forecast.
Momentum in new EZ car sales improved slightly in the middle of Q3. New registrations in the euro area rose 6.8% year-over-year in August, accelerating marginally from a 5.3% increase in July.
A sizeable drop in China's year-over-year GDP in Q1 is now the consensus view, after 6.0% growth in Q4.
In recent years we have argued consistently that investors and the commentariat overstate the importance of the dollar as a driver of U.S. inflation. Only about 15% of the core CPI is meaningfully affected by shifts in the value of the dollar, because the index is dominated by domestic non-tradable services.
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%.
We are pushing back our forecast for the next rise in Bank Rate to May 2020, from the tail-end of this year.
Claims abound that sterling's sharp depreciation since the start of the year--to its lowest level against the dollar since May 2010--partly reflects the growing risk that the U.K. will vote to leave the European Union in the forthcoming referendum. We see little evidence to support this assertion. Sterling's decline to date can be explained by the weakness of the economic data, meaning that scope remains for Brexit fears to push the currency even lower this year.
2015 is set to be another grim year for Venezuela, and we have no hope things will improve further down the road, barring huge changes in policy.
Due to a technical quirk, Eurostat was not able to publish seasonally adjusted January trade numbers yesterday, so the report is of limited use. The unadjusted trade surplus in the Eurozone plunged to €7.9B in January, from €24.3B in December, driven in part by a collapse in Italy's surplus.
The Chancellor announced to great fanfare last July that a new National Living Wage-- NLW--would be introduced in April 2016 at 7.5% above the existing legal minimum for most workers. Companies can and will take a variety of actions to mitigate the impact on their costs.
Demand for new mortgages to finance house purchase has rebounded somewhat in recent weeks, following an alarming dip in the wak e of October's stock market correction. At the low, in the third week in October, the MBA's index of applications volume was at its lowest since mid-February, when the reported numbers are substantially depressed by a long-standing seasonal adjustment problem.
Today's Q4 GDP report in the Eurozone likely will show that growth slowed again at the end of last year. We think GDP growth dipped to 0.2% quarter-on-quarter in Q4, down from 0.3% in Q3, and risks to our forecast are firmly tilted to the downside. The initial release does not contain details, but we think a slowdown in consumers' spending and a drag from net exports were the main drivers of the softening.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the dollar's impact on inflation and markets "overdoing" inflation and recession fears. He speaks on "Bloomberg Surveillance."
After 29 straight weekly declines, the number of oil rigs in operation in the U.S. rose to 640 in the week ended July 2, from 628 the previous week, according to oil services firm Baker Hughes, Inc. If today's report for the week ended July 9 shows the rig count steady or up again, it will b e much easier to argue that the plunge in activity since the peak--1,601 rigs, in mid-September--is now over.
In one line: Core inflation was stable--maybe nudging up a bit--before the virus. Expect it to slow over the next few months.
Ian Shepherdson, Pantheon Macroeconomics, and Erik Knutzen, Neuberger Berman, provide insight to the markets ahead of the FOMC meeting.
Oil and gas extraction, and the drilling of wells to facilitate extraction, accounts for only 2.0% of GDP, but it punches far above its weight when it comes to capital spending.
The case for the MPC to hold back from raising interest rates in May remains strong, despite the improvement in the Markit/CIPS services survey in February.
The release of the NFIB survey at 6.00AM eastern time this morning--really, they need a new PR advisor--doubtless will bring a flurry of headlines about rising wage pressures, with the expected compensation index rising by a startling three points to a new post-crash high. But this is not news, nor is the high, stable level of hiring intentions; these key labor market numbers were released last week in the NFIB Jobs Report, which appears the day before the official employment report. The data are simply extracted from the main NFIB survey.
October's Markit/CIPS manufacturing survey indicates that producers are not shying away from passing on to their customers the higher costs stemming from sterling's depreciation.
Chile's economy is showing the first reliable signs of improvement, at last. December retail sales rose 1.9% year-over-year, up from 0.4% in November, indicating that household expenditure is starting to revive, in line with a pick-up in consumer confidence and the improving labor market.
In the absence of new economic data today, we want to take the opportunity to expand on the key themes in our latest Chartbook, which was distributed Friday.
We previewed today's advance EZ Q1 GDP number in our Monitor on April 30--see here--and the data since have not changed our outlook.
In our Monitor May 15 we described the initial government program in Italy, drafted by the leadership of the Five-Star Movement and the League parties, as a "macroeconomic fairytale."
Inflation in the Eurozone jumped in December, and will surge further in Q1 as base effects from last year's crash in oil prices push energy inflation higher. Higher inflation in the U.S. and surging Chinese factory gate prices indicate that this isn't just a Eurozone story.
If the Fed really believed its own rhetoric--"Inflation is expected... to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further"--it would have raised rates yesterday, given the very long lags between policy action and the response from the real economy.
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.
EZ investors are still trying to come to grips with last week's terrifying price action, culminating in the 12.5% crash in equities on Thursday
The 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.
With Russia and some other emerging economies now in full panic mode, the financial market story is sharply divided between two narratives. Either the plunge in global energy prices acts as positive catalyst by boosting real incomes and allowing most central banks to run easier monetary policy or it is a sign that risk assets are about to hit a deflationary wall.
Outside the U.S., global oil production is dominated by national oil companies, which are effectively arms of their states. State actors respond differently to private oil producers when prices fall, especially in states where oil revenues are the key element of government cashflow.
The Andean economies were in the middle of a perfect storm in the first half of the year, suffering slow recoveries, accelerating inflation and plunging commodity prices and currencies. Under these circumstances it was no surprise that Chile and Peru last week left their main interest rates on hold, close to their lowest levels in four years. The pressure coming from their plummeting currencies, however, means their next moves likely will be rate hikes, but not this year.
Equity prices for U.K. retailers have performed woefully since the E.U. referendum. The FTSE All-Share Index for general retailers has underperformed the overall All-Share Index by nearly 30% since the Brexit vote.
Brazil's government announced on Monday spending cuts and new tax increases, aiming to generate a 0.7% of GDP primary surplus, and so restore market confidence and avoid further credit rating downgrades. The plan is to reduce expenditure by BRL26B next year--or 0.4% of GDP--mainly through freezing public sector salaries and slashing social projects. These measures, especially the latter, will likely meet strong resistance in Congress. The salary freeze has more of a chance of passing, but reducing or closing some Ministries is a cost-cutting exercise with an extremely high political price.
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.
January's CPI inflation of 1.8%, up from 1.6% in December, was one-tenth lower than anticipated by the consensus, the Bank of England and ourselves. The undershoot, however, was entirely due to a pull-back in clothing inflation which is unlikely to be sustained. Price pressures across the rest of the economy have continued to intensify, suggesting that CPI inflation still is on course greatly to exceed the 2% target later this year.
Yesterday's final CPI report in Germany confirmed the initial estimate that inflation was unchanged at 0.4% year-over-year in August. Deflation in energy prices eased further, but the headline was pegged back by a small fall in the core rate to 1.2% year-over- year, from 1.3% in July.
Markets' judgement that the Monetary Policy Committee--which meets today--will wait until 2017 to raise interest rates overestimates the role that the drop in oil prices and slower GDP growth will play in its decision-making. The inflation risks emanating from the increasingly tight labour market still could motivate a tightening before the summer.
We often hear that the large gap between the slowing rising path for interest rates anticipated by the MPC and the flat profile expected by markets is justified because markets have to price-in all of the downside risks to the economic outlook posed by Brexit.
May's consumer price figures, released today, will provide the first clean inflation read for three months, following the distortions created by this year's late Easter. Consensus forecasts and the MPC have underestimated CPI inflation regularly since the middle of last year, when the impact of sterling's depreciation began to push into the data.
Investors anticipate a shift up in the MPC's hawkish rhetoric today. After August's consumer price figures showed CPI inflation rising to 2.9%--0.2 percentage points above the Committee's forecast--the market implied probabilities of a rate hike by the November and February meetings jumped to 35% and 60%, respectively, from 20% and 40%.
On the face of it, the December core retail sales numbers were something of a damp squib. The headline numbers were lifted by an incentive-driven jump in auto sales and the rise in gas prices, but our measure of core sales--stripping out autos, gas and food--was dead flat. One soft month doesn't prove anything, and core sales rose at a 3.9% annualized rate in the fourth quarter as a whole.
March's consumer prices figures, released on Wednesday, are even more important than usual, as they are the last to be published before the MPC's next meeting on May 10.
Today's wave of data will be mixed, but most of the headlines are likely to be on the soft side, so the reports are very unlikely to trigger a wave of last minute defections to the hawkish side of the FOMC. As always, though, the headlines don't necessarily capture the underlying story, and that's certainly been the case with the retail sales data this year. Plunging prices for gas and imported goods, especially audio-video items, have driven down the rate of growth of nominal retail sales, but real sales have performed much better.
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.
France just about avoided slipping into deflation in December, with the CPI rising 0.1% year-over-year, down from 0.3% in November. The 4.4% drop in the energy component should have pushed inflation below zero, but a seasonal increase in tourism services was enough to offset the drag from oil prices.
LatAm markets reacted relatively well to the Fed's rate hike on Wednesday, which was largely priced-in. The markets' cool-headed reaction bodes well for Latam central banks. But it doesn't mean that the region is risk-free, especially as Mr. Trump's inauguration day draws near.
The Brazilian presidential election has remained in the spotlight in recent days and is the main driver of asset price volatility.
Inflation pressures are slowly, but surely, rising in the Eurozone. Advance data indicate that inflation in Germany rose to 0.7% year-over-year in May, up from 0.5% in April. Reduced drag from the non-core components is the main driver, with energy prices rebounding, and food prices now rising steadily at 1.4% year-over-year.
The Eurozone limped out of headline deflation in October, with inflation rising to 0.0% from -0.1% in September, helped by higher core and food inflation. Energy prices fell 8.7% year-over-year, up trivially after a 8.9% drop in September, but base effects will push up the year-over-rate significantly in coming months. Core inflation edged higher to 1.0% from 0.9% in September, due to 0.1 percentage point increases in both non-energy goods and services inflation.
A powerful cocktail of cheap money, labour and commodities, allowed to infuse by a hiatus in the government's austerity programme, has reinvigorated the U.K. economy over the last three years. But these supports are now weakening while new headwinds are emerging. The U.K. economy is heading for a pronounced slowdown, one that is under-appreciated by most forecasters and under-priced by markets.
CPI inflation has been extremely stable this year, only breaking away from 0.3% in March due to the shift in the timing of Easter. June, however, should mark the beginning of a sustained upward trend in inflation, fuelled by rising prices for imports, raw materials and labour. Indeed, we think CPI inflation is on course to hit 3% in 2017, ensuring that the MPC provides additional stimulus only cautiously.
Detailed German inflation data today likely will confirm that inflation fell to 0.3% year-over-year in December from 0.4% in November, mainly due to falling food inflation. Preliminary data suggest that food inflation declined sharply to 1.4% from 2.3% in November, offsetting slower energy price deflation, due to base effects. Food and energy prices are wild cards in the next three-to-six months, and could weigh on the headline, given the renewed weakness in oil prices, and lower fresh food prices. Core inflation, however, is a lagging indicator, and will continue to increase this year.
As we're writing, the price of U.S. crude oil is only about 50 cents per barrel lower than on Thursday, when markets began to anticipate an OPEC deal to cut production over the weekend. The failure of the Doha talks generated an initial sharp drop in oil prices, but the damage now is very limited, as our first chart shows.
Final inflation data yesterday confirmed Eurozone inflation pressures are still low. Inflation rose to 0.2% year-over-year in December from 0.1% in November, lifted by easing deflation in energy prices. Base effects likely will lift energy price inflation in January and February, but the year-over-year rate will dip in Q2, if the oil price remains depressed. Food inflation fell in December due to a decline in unprocessed food prices, and we see further downside in Q1. Core inflation was unchanged, with the key surprise that services inflation fell to 1.1% from 1.2% in November. We think this dip will be temporary, however, and our first chart shows that risks to services inflation are tilted to the upside.
Investors will have to keep their wits about them following the close of polls at 22:00 BST on Thursday. Sterling and other asset prices will move sharply when the likely result of the U.K.'s E.U. referendum is discernible, but exactly when that point will come during the night is uncertain.
We have argued for some time that the plunge in gasoline prices will constrain core inflation over the course of this year, by reducing production and distribution costs for a broad array of goods.
The Chilean economy improved in the first quarter, growing 2.0% year-over-year, up from 1.3% in the fourth quarter. Net trade led the improvement, with exports rising 2.1% quarter-on-quarter, thanks to the modest rise in metal prices and an increase in exports of services, especially tourism.
Final inflation in the Eurozone was confirmed at 0.0% year-over-year in April, up slightly from -0.1% in March. The recovery since the trough in January has been driven mostly by a reduced drag from lower energy prices, a trend which should continue in the second quarter.
It's easy to read the January minutes as the dovish counterpart to a clear hawkish shift in the meeting. The statement, remember, upgraded the growth view to "solid" from "moderate"; it reiterated that the downward inflation shock from energy prices will be "transitory" and it said that the the pace of job growth is now "strong", having previously been "solid".
It would be a serious mistake to conclude from July's retail sales figures that consumers' spending will be immune to the fallout of the Brexit vote. Households have yet to endure the hiring freeze and pay squeeze indicated by surveys of employers, or the price surge signalled by sterling's sharp depreciation. The real test for consumers' spending lies ahead.
Final October inflation data surprised to the upside yesterday, consistent with our view that inflation will rise faster than the market and ECB expect in coming months. Inflation rose to 0.1% year-over-year in from -0.1% in September, lifted mainly by higher food inflation due to surging prices for fruits and vegetables. This won't last, but base effects will push the year-over-year rate in energy prices sharply higher into the first quarter, and core inflation is climbing too. Core inflation rose to 1.1% in October from 0.9% in September, higher than the consensus forecast, 1.0%.
Many analysts argue that the MPC inevitably will raise interest rates at its May 10 meeting because markets have fully priced-in a 25bp uplift.
Final inflation for February in the Eurozone likely will be confirmed today at -0.3% year-over-year, up from -0.6% in January. This bounce was mainly driven by a reduced drag from falling oil and food prices, but it is too early to call a trough in headline inflation.
Core CPI inflation is heading for 2½% by the end of this year, and perhaps sooner. The trend in the monthly numbers is now a solid 0.2%, and that's before the weaker dollar arrests the decline in goods prices. Goods account for only a quarter of the core CPI, and right now they are the only part of the index under downward pressure. If--when--that changes, core inflation could rise quite rapidly.
June's headline CPI, due this morning, will be boosted by the rebound in gasoline prices, but market focus will be on the core, in the wake of the startling, broad-based jump in the core PPI, reported Wednesday. Core PPI consumer goods prices jumped by 0.7% in June, with big incr eases in the pharmaceuticals, trucks and cigarette components, among others. The year-over-year rate of increase rose to 3.0%, up from 2.1% at the turn of the year and the biggest gain since August 2012. Then, the trend was downwards.
Chinese prices largely moved in line with our expectations in September, according to yesterday's data.
We have argued consistently since oil prices first began to fall that U.S. consumers would spend most of their windfall, so real spending would accelerate even as nominal retail sales growth was dragged down by the drop in the price of gas and other imported goods. At the same time, we argued that capital spending in the oil business would collapse, and that exports would struggle in the face of the stronger dollar.
The Colombian economy has been able to grow this year despite the plunge in oil prices since the middle of 2014. Gains in consumers' spending and investment have offset part of the hit from falling exports. But private spending growth, nonetheless, slowed considerably during the first few months of the year, as shown in our char t below, in part due to rising prices for imported goods after the depreciation of the COP, as well as broad-based concerns over the state of the economy.
Core CPI inflation was little changed last year, after rising in 2015. The year-over-year rate stood at 2.1% in November, unchanged from December 2015. We look for a trivial nudge up to 2.2% in today's December report, but our first chart makes it clear that the trend no longer is clearly rising. The key reason that progress has been slower than we expected is that the rate of increase of prices for core non-rent services has slowed since the middle of last year, as our second chart shows.
Investors have endured a severe test of their resolve in the last few months. Global equity markets have sunk more than 10%, eclipsing the previous low in September, and credit spreads have widened. The bears have predictably pounced and, as if the torrid price action hasn't been enough, media headlines have been littered with advice to "sell everything" and warnings of a 75% fall in U.S. and global equities. When "price is news" we recognise that views from well-meaning economists--often using lagging and revised economic data to describe the world--are of little value.
Today brings a raft of January data on both economic activity and prices, but we expect the headline numbers in each report to be distorted by the impact of severe weather or the plunge in oil prices.
Colombia is one of the fastest growing economies in LatAm but over the last few quarters the country has been adjusting to the collapse in oil prices, the depreciating currency and rising inflation. But the slowdown, especially on the domestic side of the economy, has been less dramatic than expected, so far. Our main scenario is that the adjustment process to challenging external conditions will continue over the coming quarters.
Brazil's benchmark inflation index, the IPCA, rose 0.7% month-to-month in May, above market expectations. The stickiness of some components explains the surprise upshift; food prices in particular rose by 1.4% in May, after a 1% increase in April. Housing also rose at a faster rate than we had expected, due mainly to a 2.8% jump in the electricity component, the largest single contributor to May's headline increase.
Samuel Tombs on U.K. Halifax House Price data
Eurozone inflation eased slightly to 0.2% year-over- year in June, down from 0.3% in May, according to the advance data but we continue to think that the trend has turned up. A 5.1% fall in energy prices, accelerating from a 4.8% in May, was partly to blame for the fall in June. But the key driver was the sharp drop in services inflation to 1.0% from 1.3% in May, likely due to volatility in package holiday prices.
We have lost count of the number of times the drop in the ISM manufacturing survey, in the wake of the plunge in oil prices, was a harbinger o f recession across the whole economy. It wasn't, because the havoc wreaked in the industrial economy by the collapse in capital spending in the oil sector was contained.
Advance data indicate German inflation rose to 0.4% year-over-year in November, up from 0.3% in October, lifted by higher food and energy price inflation. The upward trend in food prices won't last, but base effects in energy prices will persist, boosting headline inflation significantly in coming months. The details show that services inflation was stable at 1.2% last month, despite state data indicating a fall in volatile leisure and entertainment inflation, while net rent inflation was also stable, at 1.1%.
Economic growth in Colombia and--especially-- Chile, braked in the fourth quarter and at the start of this year as the strong USD drove up imported good prices and tepid global demand weighed on exports. Colombia's January exports plunged 36.6% year-over-year, even worse than the 35% average drop in Q4.
Economic survey data have been upbeat recently, but key Eurozone data releases yesterday suggest the ECB will be under pressure to increase monetary policy stimulus further this month. The advance inflation estimate showed that the euro area slipped back into deflation in September, as inflation fell to -0.1% year-over- year, from +0.1% in August. The fall was mainly due to a 8.9% collapse in energy prices, though, and we are very confident the relapse is temporary.
The pressures on U.S. manufacturers are changing. For most of this year to date, the problem has been the collapse in capital s