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Analysis of the economy's potential to recover later this year from extreme weakness in Q2 has focussed largely on the extent to which virus-related restrictions will be lifted.
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.
Is Japan's pending 15-month anything to write home about?
German retail and consumer sentiment data for March have been mixed this week, but broadly support our call that growth in consumption should pick up soon.
Speculation that the MPC will abandon its aversion to negative rates has increased, following recent comments by Committee members.
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.
Low-income households will feel the full force of the Covid-19 downturn and will have to slash their expenditure aggressively.
The Covid-19 scare can be split into two stages, the initial outbreak in China, concentrated in Wuhan, and the now-worrying signs that clusters are forming in other parts of the world, primarily in South Korea, the Middle East and Italy.
Yesterday's sole economic report in the EZ showed that consumer sentiment in Germany improved mid-way through the fourth quarter.
The fall in the cost of new secured credit has played a key role in reinvigorating the economy over the last couple of years. Mortgage interest payments were 3.7% lower in Q3 than in the same quarter a year previously, even though the stock of secured debt was 2% larger. As a result, the percentage of household disposable incomes taken up by mortgage interest payments fell to 4.8% in the third quarter of 2015--the lowest proportion since records began in 1987--from 5.2% a year before.
The main way monetary easing can support an economy swiftly during a recession, when few people want to take on new debt, is to boost households' cashflow by reducing interest payments.
The 2008-to-09 recession was a mild experience for most households which remained employed and benefited from a huge decline in mortgage rates.
Investors active in the government bond market will be awaiting today, at 07:30 BST, the publication by the Debt Management Office of its updated Financing Remit for the upcoming three months. The new Remit will show that gilt sales, net of redemptions, will be lower in Q3 than in Q2.
Survey data in Germany showed few signs of picking up from their depressed level at the start of Q4.
Business surveys coming out of the Eurozone have been remarkably strong recently. The composite PMI for the Eurozone jumped to 56.7 in March--its highest level since April 2011--from 56.1 in February. Germany's IFO business climate index leaped to a 67-month high in March.
Data and events have gone against the idea of further BoK policy normalisation since the November hike.
The November IFO report suggests that the headline indices are on track for a tepid recovery in Q4 as a whole, but the central message is still one of downside risks to growth
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.
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 second estimate of Q3 GDP confirmed that the U.K. economy has underperformed this year.
In November, existing home sales substantially overshot the pace implied by the pending home sales index.
The Eurozone's total external surplus hit the skids at the start of the year. Yesterday's report showed that the seasonally adjusted current account surplus plunged to a two-year low of €24.1B in January, from a revised €30.8B in December.
We look for a 12.5% month-to-month jump in the official measure of retail sales in June, released on Friday. This easily would top the consensus, 8.3%, for a second consecutive month.
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.
The IFO continues to tell a story of a German economy on the ropes.
Looking beyond the potential hit from the lockdown in North Rhine-Westphalia, German consumer sentiment is improving steadily.
Last week's second estimate of GDP reaffirmed that quarter-on-quarter growth declined to 0.1% in Q1--the lowest rate since Q4 2012--from 0.4% in Q4.
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.
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.
Some normality has returned in India, more than three weeks from the end of the nationwide lockdown and the start of "Unlock 1.0" on June 1.
The second estimate of Q1 GDP made for grim reading. Quarter-on-quarter GDP growth was revised down to 0.2%--the joint-slowest rate since Q4 2012--from the preliminary estimate of 0.3%.
Sunday's referendum on independence in Catalonia is a wild-card. The central government has taken drastic steps to ensure that a vote doesn't happen.
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.
Yesterday's detailed Q3 growth data in the Eurozone offered no surprises in terms of the headline.
The surge in the broad money supply in March, as the U.K.'s lockdown began, suggests that businesses are in relatively good shape to survive a multi-month period of greatly depressed demand.
Wednesday's Brazilian industrial production data were worse than we expected but the details were less alarming than the headline. Output slipped 1.8% month-to-month in March, the biggest fall since August 2015, setting a low starting point for Q2.
The Brazilian Central Bank's policy board-- COPOM--met expectations on Wednesday, voting unanimously to cut the Selic rate by 25bp to 2.00%.
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.
National accounts data released last week rewrote the recent history of households' saving.
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.
China's current account dropped sharply in Q1, to a deficit of $28.2B, from a surplus of $62.3B in Q4.
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.
India's PMIs for October were grim, indicating minimal carry-over of energy from the third quarter rebound.
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.
Covid-19 has taken a large and immediate toll on house prices, but bigger damage likely lies ahead.
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.
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%.
Last week's national accounts confirmed that the economy lost momentum abruptly in Q1, with net trade and investment failing to offset weaker growth in households' spending.
The picture of the economy's recent performance will be redrawn today, when the national accounts are published.
German 10-year yields have been trading according to a simple rule of thumb since 2017, namely, anything around 0.6% has been a buy, and 0.2%, or below, has been a sell.
Fiscal policy is in limbo until a new leader of the Conservative party has been elected on September 9. Shortly after, however, a new Budget--or a Budget disguised as an Autumn Statement--will be held.
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.
British firms have adopted a cautious mindset since the Brexit vote and are saving a huge share of their earnings, even though high profit margins make a strong case for investing more. Firms likely will run down their cash stockpiles when they become more confident about the medium-term economic outlook, potentially boosting GDP growth powerfully.
The economy would have ground to a halt last year had households not reduced their saving rate sharply.
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.
The PBoC cut its seven-day reverse repo rate to 2.20%, from 2.40%, while making a token injection; the Bank only moves these rates when it injects funds.
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.
Yesterday's EZ money supply data confirmed that liquidity conditions in the private sector improved in Q3, despite the dip in the headline.
The slowdown in the EZ economy is well publicised.
The French manufacturing data delivered another upside surprise last week, following the solid numbers in Germany; see here. French industrial production rose slightly in November, by 0.3% month-to-month, extending the gains from an upwardly-revised 0.5% rise in October.
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 fact that Italy's economy is in poor shape will not surprise anyone following the euro area, but the advance Q4 GDP headline was astonishingly poor all the same.
The Brazilian central bank cut its benchmark Selic interest rate by 50bp to 4.50% on Wednesday night.
We struggle to see how the pro-separatist movement in Catalonia can move forward from here.
The political situation in Spain remains an odd example of how complete gridlock can be a source of relative stability.
It was no surprise that Banxico cut its policy rate by 25bp to 7.00% yesterday, following similar moves in August, September, November and December.
The 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 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%.
Hard data for Brazil and Mexico, released last week, support the case for further interest rate cuts.
A huge wave of data will break over markets this week, along with the FOMC meeting, new dot plots and Chair Yellen's press conference. But today is calm, with no significant data releases and no Fed speeches; policymakers are in purdah ahead of the meeting.
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.
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.
Friday's economic data in the euro area provided the first piece of evidence of the slump in Q2 GDP, but added to the picture of a relatively resilient German economy.
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.
It's probably safe to assume that Q1's 0.5% quarter-on-quarter increase in GDP will be as good as it gets this year.
The collapse in business activity and consumer confidence since the referendum has sealed the deal on policy easing from the MPC on Thursday. The Committee has cut Bank Rate by 50 basis points when the composite PMI has been near July's level in the past, as our first chart shows.
China's FX reserves were relatively stable in March, with the minimal increase driven by currency valuation effects.
The early Q4 hard data in Germany recovered a bit of ground yesterday.
The MPC's pause for breath last week disappointed a majority of investors, who thought that it would at least tweak aspects of the support programmes put in place in March.
Many investors probably will be scratching their heads in the wake of next week's labour market report, which will reveal the Covid-19 hit to employment and wages in April, as well as showing how much further the claimant count soared in May.
Yesterday's third and detailed EZ GDP data confirmed the economy hit the wall in Q1.
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.
We agree with the majority of economists that the MPC will announce on Thursday another £100B of asset purchases, primarily of gilts, once it has completed the £200B of purchases it authorised on March 19.
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.
Borrowing by local authorities from the Public Works Loan Board, used to finance capital projects-- and arguably dubious commercial property acquisitions--has surged this year.
October's retail sales figures, published last Thursday, extended the month-long run of near consistent downside data surprises.
German 10-year government bond yields jumped at the end of 2016, but have since been locked in a tight range around 0.4%, despite a steady inflow of strong economic data.
Today's advance EZ PMIs will be watched more closely than usual.
The national accounts, released on Friday, likely will restate that quarter-on-quarter GDP growth picked up to 0.4% in Q3, from 0.3% in Q2.
The Eurozone's external surplus recovered a bit of ground mid-way through the third quarter.
The national accounts for the third quarter, released on Wednesday, are likely to show that households are saving a very small proportion of their incomes. Low unemployment, subdued inflation and the healthier condition of households' balance sheets suggests that very low saving is more sustainable than in the past. Nonetheless, the low rate underlines that household spending can't grow at a faster rate than incomes for a sustained period again.
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.
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.
Last week's enormous €1.3T take-up in the ECB's first post-virus TLTRO auction was hardly a blip for financial markets, consistent with the reactions to previous auctions.
Yesterday's February PMI data sent a clear message to markets.
Yesterday's headline economic data in the euro area were solid across the board, though the details were mixed.
Global current account imbalances are back on the agenda. In the U.S., economic policies threaten to blow out the twin deficit, while external surpluses in the euro area and Asia are rising.
Within the space of two months, investors have gone from wondering whether the slowdown in manufacturing would spill-over into the rest of the EZ economy, to the realisation that the crunch in services is now driving the overall story on the economy.
President Xi Jinping started China's Party Congress yesterday with a speech setting out the priorities for the next five years.
Argentina's inflation ended 2019 badly, and it is still too early to bet on a protracted downtrend, even after the renewed economic slowdown.
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.
Data on EZ consumption were soft while we were enjoying our Christmas break. The advance EC consumer confidence index slipped to a three-year low of -8.1 in December, from -7.2 in November, breaking its recent tight range.
Growth in EZ car sales slowed further at the beginning of Q4. New registrations in the euro area fell 1.2% year-over-year in October, down from a 7.2% increase in September.
Last week's national accounts were a setback for the hawks on the MPC seeking to raise interest rates at the next meeting, on November 2.
August's money and credit figures show that households' incomes remain under pressure, indicating that the recent pick-up in growth in consumers' spending likely won't last.
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.
The economy's fragility was underlined by the Q3 national accounts, released just before the Christmas break.
The business cycle in the Eurozone tends to follow a fairly simply script, at least in broad terms.
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.
Some of the rise in the saving rate in recent months is real, but part of the increase likely reflects seasonal adjustment problems. The saving rate has risen between the fourth and first quarters in eight of the past 10 years, as our first chart shows.
The Chancellor has prepared the public and the markets for a ratcheting-up of the already severe austerity plans in the Budget on Wednesday. George Osborne warned on Sunday that he would announce "...additional savings, equivalent to 50p in every £100 the government spends by the end of the decade", raising an extra £4B a year.
Chancellor George Osborne has invested considerable personal capital in attaining a budget surplus by the end of this parliament, and he has passed a 'law' to ensure he and his successors achieve this goal. But the current fiscal plans, which will be reviewed in the Budget on March 16, make a series of optimistic assumptions on future tax revenues and spending savings.
External demand for the Eurozone's largest economy is going from strength to strength. Seasonally adjusted German exports rose 3.4% month-to-month in December, equivalent to a solid 7.5% increase year-over-year.The revised indices show that the annualised surplus rose to an all-time high of €218B, or 7% of GDP, last year, indicating that the level of external savings remains a solid support for the economy.
China's total debt stock is high for a country at its stage of development, relative to GDP, but it is sustainable for country with excess savings. China was never going to be a typical EM, where external debtors can trigger a crisis by demanding payment.
In one line: Accumulated savings will be hoarded for now, not spent.
As of last month, Chinese officials were touting RMB 1.6T in savings for companies as a result of a slew of measures announced in response to the Covid crisis.
Chief U.S. Economist Ian Shepherdson on Corporate Tax Cuts
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