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803 matches for " tax":
Both the Prime Minister and Chancellor last week threatened to cut business taxes aggressively to persuade multinationals to remain in Britain in the event of hard Brexit. But these threats lack credibility, given the likely lingering weakness of the public finances by the time of the U.K.'s departure from the EU and the scale of demographic pressures set to weigh on public spending over the next decade.
India's Finance Minister Nirmala Sitharaman finally brought out the big guns on September 20, announcing significant cuts to corporate tax rates.
It's not our job to pontificate on the merits, or otherwise, of the tax cut bill from a political perspective.
The delay in the processing of personal income tax refunds this year appears not to have had any adverse impact on retail sales, so far. Indeed, the Redbook chainstore sales survey suggests that sales have accelerated over the past few weeks.
The passage of the House tax cut bill does not guarantee that the Senate will follow suit with its own bill, still less that both chambers will then be able to agree on a single bill which can then b e signed into law. As
The tax plan released by the administration yesterday was so thoroughly leaked that it contained no real surprises. The border adjustment tax is dead -- not that we thought it would have passed the Senate in any event -- and the centerpiece is a proposed cut in the corporate income tax rate to 15% from 35%.
The Prime Minister's refusal last week to reaffirm her party's 2015 election pledge not to raise income tax, National Insurance or VAT has fuelled speculation that taxes will rise if the Conservatives are re-elected on June 8. Admittedly, Mrs. May asserted that her party "believes in lower taxes", and the tax pledge s till might appear in the Conservatives' manifesto, which won't be published for a few weeks.
The Chancellor claims he can eliminate public borrowing without raising taxes. But the latest borrowing overshoot and the continual optimistic bias of the OBR's forecasts cast doubt on whether his approach will be sufficient to meet his self-imposed surplus target.
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.
Japan's industrial production data for May carried more evidence that the economy is getting a lift--at least temporarily--from the front-loading of activity ahead of the scheduled sales tax increase in October.
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.
As far as we can tell, most forecasters expect the impact of fiscal stimulus this year to be gradual, with perhaps most of the boost to growth coming next year. At this point, with no concrete proposals either from the new administration or Congress, anything can happen, and we can't rule out the idea of a slow roll-out of tax cuts and spending increases.
Japan's retail sales data--due out on Thursday-- have been badly affected by the October tax hike.
We've seen some alarming estimates of the potential impact on inflation of the House Republicans' plans for corporate tax reform, with some forecasts suggesting the CPI would be pushed up as much as 5%. We think the impact will be much smaller, more like 1-to-11⁄2% at most, and it could be much less, depending on what happens to the dollar. But the timing would be terrible, given the Fed's fears over the inflation risk posed by the tightness of the labor market.
The first estimate of retail sales growth in August was weaker than implied by the Redbook chainstore sales survey, but our first chart shows that the difference between the numbers was well within the usual margin of error.
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.
The White House Budget for fiscal 2018, released last week, has no chance of becoming law in anything like its current form, so we don't propose to spend much time dissecting it. But we do need to set out our view on what might actually happen to fiscal policy over the next few months, because it potentially could make a material difference to the pace, and ultimate extent, of Fed tightening.
The Chinese authorities have been out in force in the last few days, aiming to reassure markets and the populace that they are ready and able to support the economy, after abysmal trade data on Monday.
The headline retail sales numbers for October looked good, but the details were less comforting.
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 failure of House Republicans to support Speaker Ryan's healthcare bill has laid bare the splits within the Republican party. The fissures weren't hard to see even before last week's debacle but the equity market has appeared determined since November to believe that all the earnings-friendly elements of Mr. Trump's and Mr. Ryan's agendas would be implemented with the minimum of fuss.
Japan's May retail sales rebound was underwhelming at a mere 0.3% month-on-month, after a 0.1% fall in April.
Retail sales values in Japan plunged by 14.4% month-on-month in October, reversing September's 7.2% spike twice over.
Japan returned the ruling LDP coalition to power in an upper house election over the weekend.
The release yesterday of the weekly Redbook chainstore sales report for the week ended Saturday August 4 means that we now have a complete picture of July sales.
We are sticking to our call for a weak first half in Japan, despite likely upgrades to Q1 GDP on Monday.
China's government overshot its deficit target last year, and probably will overshoot it by at least as much this year
It seems pretty clear from press reports that the White House budget, which reportedly will be released March 14, will propose substantial increases in defense spending, deep cuts to discretionary non- defense spending, and no substantive changes to entitlement programs. None of this will come as a surprise.
April's public finances indicate that the economy has remained weak in Q2, casting doubt on the suggestion from recent business surveys that the slowdown in Q1 was just a blip.
CPI inflation picked up to 0.5% in September, from 0.2% in August, when the Eat Out to Help Out Scheme was running.
Progress in reducing the budget deficit has ground to a virtual halt, despite the ongoing fiscal consolidation. Public sector net borrowing excluding public sector banks--PSNB ex.--was £10.6B in September, exceeding the £9.3B borrowed in the same month last year.
March's public sector borrowing figures brought more signs that the economy has lost considerable momentum this year. Borrowing, on the PSNB excluding public sector banks measure, came in at £5.1B in March, up slightly from £4.3B in March 2016.
The last few years have thrown up surprise after surprise for establishment parties. Mr. Abe's Liberal Democrat Party is about as establishment as they come.
In yesterday's Monitor, we outlined how the government's plans to allow more migrants to register in cities could help counterbalance the effects of aging and put a floor under medium-term property prices.
On the face of it, Japanese GDP came thumping home in Q1, rising 0.5% quarter-on-quarter, after the 0.4% increase in Q4.
Japan's GDP growth was revised up, to 0.4% quarter-on-quarter in Q3, from 0.1% in the preliminary reading.
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.
Evidence of slowing economic activity in Colombia continues to mount. Retail sales fell 2.0% year- over-rate in April, down from a revised plus 3.0% in March; and the underlying trend is falling. This year's consumption tax increase, low confidence, tight credit conditions, and rising unemployment continue to put private consumption under pressure.
China's new Loan Prime Rate amounts to a rate cut, but supply-side banking strains limit its efficacy. Chinese slowdown and pre-tax front-loading keeps Japan's trade balance in deficit.
Evidence continues to build that Korea's August unemployment plunge was a fluke. October sales tax hike in Japan opens the door for a quicker exit from PPI deflation.
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.
CPI inflation in China punches through the 3% target. PPI deflation in China should soon bottom out. Japan's rugby boost small in the face of pre-tax front loading. September machinery orders data seriously undermines Japan's "resilient capex" story.
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.
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.
The Japanese government's plan to smooth out the consumption cliff-edge generated by October's sales tax hike is either going too well, or consumers now are facing fundamental headwinds.
Minimal front-loading ahead of Japan's October tax hike so far.
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.
Over the past couple of weeks, the number of applications for new mortgages to finance house purchase have reached their highest level since late 2010, when activity was boosted by the impending expiration of a time-limited tax credit for homebuyers.
January's public finance data, released today, take on particular importance because they are the last to be published before the Chancellor delivers his first Budget on March 8. The public finances nearly always swing into surplus in January, primarily because the deadline for individuals to submit self-assessment--SA--tax returns for the previous fiscal year is at the end of the month. Firms also pay their third of four payments of corporation tax for their profits in the current fiscal year.
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.
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.
Tax front-loading in full swing
Tariffs are a tax on imported goods, and higher taxes depress growth, other things equal.
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.
Friday's sole economic report provided further clarity on the impact on Germany's inflation data from the Value-Added-Tax cut in July.
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 underlying U.S. consumer story, hidden behind a good deal of recent noise, is that the rate of growth of spending is reverting to the trend in place before last year's tax cuts temporarily boosted people's cashflow.
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.
The Chancellor's decision immediately to spend all the proceeds from the OBR's upgrade to its projections for tax receipts appears to leave his plans exposed to future adverse revisions to the economic outlook.
The Chancellor used the Autumn Statement to shift the composition of the fiscal consolidation slightly away from spending cuts and towards tax hikes. But in overall macroeconomic terms, he changed little. The fiscal stance is still set to be extremely tight in 2016 and 2017, ensuring that the economic recovery will lose more momentum.
The new fiscal year began on April 6, marking the post-election intensification of the fiscal squeeze for many households. The Office for Budget Responsibility estimates net tax and benefit changes will subtract 1.2 percentage points from year-over-year growth in households' disposable incomes in 2016.
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.
Speculation has mounted in the press that the Chancellor will raise the threshold for Stamp Duty Land Tax temporarily to £500K, from £125K, in today's Summer Statement.
The main story to emerge from China's Economic Work Report is the extent of tax cuts, which on our calculations will leave a large funding hole.
We have consistently flagged the likelihood that Japan's government would boost spending after the consumption tax hike was implemented.
Chief U.S. Economist Ian Shepherdson speaking about Donald Trump's plans for sweeping tax cuts
Japan's retail sales spiked 7.1% in September, after the 4.6% jump in August, suggesting that efforts to smooth out spending around the October tax hike have fallen short.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, examines the French government's move to suspend a planned fuel-tax hike that sparked three weeks of protests.
What do the protests mean for Chile's economy?
Chief U.K. Economist Samuel Tombs on U.K. Public Finances
Chief U.S. Economist Ian Shepherdson on the Fed's growth forecast
Chief U.K. Economist Samuel Tombs on UK Government Borrowing
Chief U.K. Economist Samuel Tombs on U.K. Inflation
Chief U.S. Economist Ian Shepherdson on Corporate Tax Cuts
China's annual "two sessions" conference is due to start on Sunday, with the economic targets for this year set to be made official over the course of the meetings.
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.
U.S. President Trump on Wednesday signed an executive order aimed at delivering on his campaign pledge to build a wall on the U.S.-Mexico border. The executive order also includes measures to boost border patrol forces and increase the number of immigration enforcement officers. As previous U.S. presidents have discovered, however, signing an executive order is one thing and fulfilling it is something else. President Obama, for instance, signed an executive order to close the Guantanamo detention facility on his second day in office.
Data released on Friday in Brazil and recent political events helped to open the door further to a final rate cut in August. The IPCA-15--which previews the full CPI-- rose 0.3% month-to-month in July, well below market expectations, 0.5%.
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.
The Covid-19 scare can be split into two stages, the initial outbreak in China, concentrated in Wuhan, and the now-worrying signs that clusters are forming in other parts of the world, primarily in South Korea, the Middle East and Italy.
The stagnation in business investment since 2016 has been key to the slowdown in the overall economy since the E.U. referendum.
Yesterday's State Council meeting significantly expanded support to the economy, through a number of channels.
The closer we look at the startling surge in imports in the fourth quarter, the more convinced we become that it was due in large part to a burst of inventory replacement following the late summer hurricanes.
June's surge in retail sales is not a sign that households' total spending is zipping back to pre- downturn levels.
Yesterday's consumer sentiment data provided further evidence of a strengthening French economy, amid signs of cracks in the otherwise solid German economy.
Speculation that the MPC will abandon its aversion to negative rates has increased, following recent comments by Committee members.
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.
Today is a busy day in the Eurozone economic calendar, but we suspect that markets mainly will focus on the details of Italy's 2019 budget.
China's finance minister Liu Kun provided his report on China's current fiscal situation to the legislature last Friday.
Japan's all-industry activity index dropped by 3.8% month-on-month in March, worse than the 0.7% slip in February.
Guo Shuqing, head of the newly formed China Banking and Insurance Regulatory Commission, has been named as Party Secretary for the PBoC.
In this Monitor, befitting these uncertain times, we set out the decision tree facing Chinese policymakers.
Yesterday's raft of data had no net impact on our forecast for second quarter GDP growth, which we still think will be about 21⁄4%.
Whichever way you choose to slice the numbers, consumers' spending is growing much more slowly than is implied by an array of confidence surveys.
Yesterday's barrage of French business sentiment data was mixed.
Markets will be hyper-sensitive to U.K. data releases following the MPC's warning that it is on the verge of raising interest rates.
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.
The German statistical office will supply a confidential estimate to Eurostat for this week's advance euro area Q2 GDP data. Our analysis suggests this number will be grim, and weigh on the aggregate EZ estimate. Our GDP model, which includes data for retail sales, industrial production and net exports, forecasts that real GDP in Germany contracted 0.1% quarter-on-quarter in the second quarter, after a 0.7% jump in Q1.
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.
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.
A trade deal with China is in sight. President Trump tweeted Sunday that the planned increase in tariffs on $200B of Chinese imports to 25% from 10%, due March 1, has been deferred--no date was specified-- in light of the "substantial progress" in the talks.
The spread of the Covid-19 virus remains the key issue for markets, which were deeply unhappy yesterday at reports of new cases in Austria, Spain and Switzerland, all of which appear to be connected to the cluster in northern Italy.
The latest public finance figures make it virtually inevitable that the Chancellor will scrap the existing fiscal rules when he delivers his first Budget.
We doubt that the new Job Support Scheme, announced by the Chancellor yesterday, will hold back the tide of redundancies over the coming months.
We're expecting to learn today that the economy expanded at a 2.6% annualized rate in the first quarter, rather better than we expected at the turn of the year--our initial assumption was 1-to-2%--and above the consensus, 2.3%.
Inflation pressures in Brazil are well under control, with the August mid-month reading falling more than expected, allowing the BCB to cut interest rates in the near term if needed.
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.
We've suspected that China's GDP targeting system was on its last legs for some time now.
Outright CPI deflation likely already has taken hold in Japan. Friday's data showed inflation falling to zero percent in September, from 0.2% in the previous month.
We have tweaked our third quarter GDP forecast in the wake of the September advance international trade and inventory data; we now expect today's first estimate to show that the economy expanded at a 4.0% annualized rate.
Economic news in the Eurozone, and virtually everywhere else, has been mostly downbeat in the past few months, but French consumers are doing great.
After the disruption in repo markets last week, theories are flying as to what's going on.
The OBR's new forecasts for public borrowing likely understate the scale of the necessary future fiscal consolidation.
The recovery in private consumption in Japan is showing clear signs of stalling.
A decade of public deficit reduction was fully reversed in April, as the coronavirus tore through the economy.
Hong Kong delivered a resounding landslide victory to pro-Democracy parties in district council elections over the weekend.
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.
Headline M3 money supply growth in the Eurozone was steady as a rock at around 5% year-over-year between 2014 and the end of 2017.
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.
The definition of "yesbutism": Noun, meaning the practice of dismissing or seeking to diminish the importance of data on the grounds that the next iteration will tell the opposite story.
The BoJ until last week had been in wait-and-see mode over China's slowdown, but they finally folded with Thursday's decision.
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.
It seems reasonable to think that manufacturing should be doing better in the U.S. than other major economies.
Concern over individual freedoms was the spark for Hong Kong's recent demonstrations and troubles, and protesters' demands continue to be political in nature.
Net foreign trade was a drag on GDP growth in the second quarter, subtracting 0.7 percentage points from the headline number.
The 2008-to-09 recession was a mild experience for most households which remained employed and benefited from a huge decline in mortgage rates.
China's Q2 real GDP growth officially slowed to 6.2% year-over-year, from 6.4% in Q1, which already matched the trough in the financial crisis.
The advance international trade data for December were due for publication today, but the report probably won't appear.
The extent of shut downs within China is now reaching extreme levels, going far beyond services and threatening demand for commodities, as well as posing a severe risk to the nascent upturn in the tech cycle.
Recent estimates of public borrowing have undershot the OBR's expectations, superficially suggesting the Chancellor has greater-than- expected capacity to borrow even more in the winter, if Covid-19 wreaks havoc.
First, apologies for a much more dense report than usual; there's a lot of ground to cover here. The most likely outcome of the November 3 election right now is a Democrat sweep.
Today brings a ton of data, as well as an appearance by Fed Chair Powell at the Economic Club of New York, in which we assume he will address the current state of the economy and the Fed's approach to policy.
We have been asked how we can justify raising our growth forecasts but at the same time arguing that the housing market is set to weaken quite dramatically, thanks to the clear downshift in mortgage applications in recent months. Applications peaked back in June, so this is not just a story about the post-election rise in mortgage rates.
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.
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.
French consumers remained in great spirits midway through the fourth quarter. The headline INSEE consumer confidence index jumped to a 28-month high in November, from 104 in October, extending its v-shaped recovery from last year's plunge on the back of the yellow vest protests.
China's abysmal industrial profits data for October underscore why the chances of less- timid monetary easing are rising rapidly.
Korea is officially out of recession, with GDP rising by 1.9% quarter-on-quarter in Q3, following the 3.2% plunge in Q2.
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.
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.
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.
Our base case forecast has core PCE inflation at 1.9% from November 2018 through July this year.
House Democrats and Senate Republicans are so far apart on both the structure and the size of the next Coronavirus relief package that it's hard to see a bill passing Congress in less than a couple weeks or so, and it could easily take longer.
Data released yesterday in Mexico highlighted the volatility in international trade resulting from the pandemic.
The downturn in Japan's all-industry activity index slowed in May to -3.5% month-on-month, from April's significantly revised 7.6% plunge.
The decline in headline durable goods orders in May, reported yesterday, doesn't matter.
The end of the government shutdown--for three weeks, at least-- means that the data backlog will start to clear this week.
At first glance, the U.K. consumer price data show a perplexing absence of domestically generated inflation.
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.
We expect to learn today that the economy expanded at a 2.1% annualized rate in the fourth quarter, slowing from 3.4% in the third.
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.
Markets often greet the monthly international trade numbers with a shrug.
Wage growth will be crucial in determining how quickly the MPC raises interest rates this year. So far, it hasn't recovered meaningfully.
Industrial profits in China dropped 3.7% year-over- year in April, after surging 13.9% in March, according to the officially reported data.
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.
Tokyo CPI inflation edged down to 0.4% in May, from 0.5% in April.
Korea's business survey index rose for a second straight month in March, to 75 from 73 in February, on our adjustment.
Headline money supply growth in the Eurozone accelerated further at the start of Q2.
While businesses--and farmers--fret over the damage already wrought by the trade war with China and the further pain to come, consumers are remarkably happy.
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.
Bond yields in the Eurozone took another leg lower yesterday.
Fourth quarter GDP growth is likely to be revised down today.
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.
Silly season in Japanese inflation is pretty much over.
October's surprise jump in public borrowing is not a material setback for the Chancellor, who will stick to his new Budget plans for modest fiscal stimulus next year.
In recent public appearances, the Chancellor has made a concerted effort to downplay expectations of fiscal loosening in Wednesday's Autumn statement. On Sunday, he labelled the deficit "eye-wateringly" large and he warned that he was "highly constrained".
The slowdown in the EZ economy is well publicised.
The Chancellor probably can't believe his luck. Public borrowing has continued to fall this year at a much faster rate than anticipated by the OBR, despite the sluggish economy.
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.
Yesterday's barrage of survey data in France suggests that business sentiment in the industrial sector remained soft mid-way through Q4, but the numbers are more uncertain than usual this month.
Unlike other central banks, the MPC has stuck to its message that "an ongoing tightening of monetary policy over the forecast period" likely will be required to keep inflation close to the 2% target, provided a no-deal Brexit is avoided.
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.
Back-to-back elevated weekly jobless claims numbers prove nothing, but they have grabbed our attention.
The public finances are in better shape than October's figures suggest in isolation. Public sector net borrowing excluding public sector banks--PSNB ex.--leapt to £11.2B, from £8.9B a year earlier.
Public borrowing continues to falling at a very slow pace, despite the major fiscal consolidation implemented this year. Public sector net borrowing excluding public sector banks--PSNB ex.--was £10.5B in August, only 8.1% less than the £11.5B borrowed a year ago.
Japan's flash PMI numbers for August were a mixed bag.
The public finances continue to heal rapidly, suggesting that the Chancellor should have scope to soften his fiscal plans substantially in the Autumn Budget.
Back on May 14, we argued--see here--that the stars were aligned to generate very strong second quarter GDP growth, perhaps even reaching 5%.
As we reach our deadline--4pm eastern time--media reports indicate that a debt ceiling agreement is close.
Japan's flash Jibun Bank PMIs for July showed continued improvement, but only just.
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.
The Conference Board's index of leading economic indicators appears to signal that the U.S. economy is plunging headlong into recession.
Yesterday's public finance figures showed that the public sector, excluding public sector banks, ran a surplus of £0.2B in July, a modest improvement on borrowing of £0.4B a year ago.
The White House budget proposals, which Roll Call says will be released in limited form on March 14, will include forecasts of sustained real GDP growth in a 3-to-3.5% range, according to an array of recent press reports.
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.
Existing home sales peaked last February, and the news since then has been almost unremittingly gloomy.
China's growth can be decomposed into the structural story and the mini-cycle, which is policy- driven.
Consumption and investment spending by state and local government accounts for just over 10% of the U.S. economy, making it more important than exports or consumers' spending on durable goods, and roughly equal to all business investment in equipment and intellectual property.
The latest public finance figures continue to imply that the Chancellor will be able to change course later this year in the Autumn Budget so that fiscal policy doesn't drag on GDP growth next year.
Economic growth in France has been the key downside surprise in the Eurozone this year.
Brazil's economic performance has improved marginally in recent months, with inflation falling and economic activity and sentiment data stabilizing, or even increasing modestly. The latest regional economic activity report, for instance, showed that although overall output declined again on a sequential basis in March-to-May, three of the five regions expanded.
It would be easy to characterize the Fed as quite split at the July meeting.
The stakes in the Brexit saga have been raised significantly over the summer.
A spell of outright CPI deflation in Japan is just around the corner. Headline inflation slipped to 0.2% in August, from 0.3% in the previous month, as the drag from the discounts backed by the government's "Go To Travel" subsidies more than outweighed the upward pressure from non-core goods.
The New York Fed tweeted yesterday that "Housing market fundamentals appear strong.
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.
The Chancellor can go on his Christmas vacation content that the public finances have weathered the economy's slowdown relatively well this year.
We expect the official estimate of quarter-on-quarter GDP growth in Q4 to be revised up to 0.7% today, from last month's preliminary estimate of 0.6%. The consensus forecast is for no revision, so the data likely will boost interest rate expectations and sterling, if we're right.
On the face of it, the latest public finance data suggest that the economy has lost momentum.
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.
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.
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.
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.
The intensity of the pressure on households' finances was highlighted last week by December's retail sales report, which showed that volumes fell by 1.5% month-to-month, the most since June 2016.
After a disappointing run of monthly data, the huge surplus on the main "PSNB ex ." measure of borrowing in January must have been greeted with relief at the Treasury.
The BoJ kept its main policy settings unchanged yesterday, in another 7-to-2 split.
The weather-driven surge in December housing starts, reported last week, is unlikely to be replicated in today's existing home sales numbers for the same month.
Recent data in Colombia have confirmed that virus containment measures caused much bigger declines in activity in early Q2 than initially expected.
Chancellor Sunak looks set to announce more fiscal stimulus next month to reinforce the economic recovery, despite recent record levels of public borrowing.
The U.S. household sector carries substantial gross debts, even after the sustained deleveraging since the crash of 2008. The gross debt-to-income ratio stood at 105.3% in the second quarter of this year, down from the 135% peak in late 2007 but still well above the 88% average recorded in the 1990s, which was not a decade of restraint on the part of consumers.
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.
Today brings new housing market data, in the form of the weekly applications numbers from the MBA. The weekly data are seasonally adjusted but are still very volatile, especially in the spring.
Public borrowing has continued to fall more rapidly than anticipated in the latest official plans.
Yesterday's second estimate of Q3 GDP confirmed that the U.K. economy has underperformed this year.
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."
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.
The apparent softness of business capex is worrying the Fed.
Japan's national CPI inflation has peaked, falling to 0.7% in May from 0.9% in April.
The run of better-than-expected public borrowing figures ended abruptly with the publication of March data yesterday.
Japan's advance PMI numbers for August suggest that the economy dodged most of the bullets fired by the second wave of Covid-19.
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.
Investors think it more likely that the MPC will cut Bank Rate in the first half of next year, following Friday's release of the flash Markit/CIPS PMIs for November.
The impending appointment of ex-Fed Chair Yellen as Treasury Secretary is to be welcomed--a safer pair of hands is hard to imagine--but it does not change our view that the next Covid relief bill will be modest if Republicans still control the Senate after the January 5 runoffs in Georgia. As Treasury Secretary, Dr. Yellen will have a powerful bully pulpit, alongside Fed Chair Powell to make the case for more fiscal action.
The Chancellor hinted in the Autumn Statement that the fiscal consolidation might not be as severe as it appears on paper because he has built in some "fiscal headroom". By that, Mr. Hammond means that he could borrow more and still adhere to his new, self-imposed rules.
April's public finances show that borrowing still is falling more slowly than the Chancellor had envisaged. This casts further doubt over whether he will be able to keep his pledge to run a budget surplus before the end of this parliament in 2020.
New home sales surprised to the upside in May, rising 6.7% to 689K, a six-month high.
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.
December's public finance figures suggest that borrowing is on track to come in a bit below the forecasts set out in the Autumn Statement in November. But we caution against expecting the Chancellor to unveil a material reduction in the scale of the fiscal consolidation set to hit the economy in his Budget on 8th March.
The PBoC and Ministry of Finance have been locked in a relatively public debate recently over which body should shoulder the burden of stimulating the economy as growth slows and trade tensions take their toll.
Our base case remains that the slowdown in quarter-on-quarter GDP growth to about zero in Q2 is just a blip, and that the economy will regain momentum in Q3 and sustain it well into 2020.
Eurozone consumer confidence remained at its low for the year at the start of Q3.
The emergence last month of a new E.U. Withdrawal Agreement that has a strong chance of being ratified by MPs appears to have given a small boost to business confidence.
The prospect of fiscal stimulus in the euro area-- ostensibly to "help" the ECB reach its inflation target-- remains a hot topic for investors and economists.
As we write, the Commons appears to be on the verge of voting for the Withdrawal Agreement Bill--WAB--at its second reading but then voting against the government's "Programme Motion", which sets out a very tight timetable for its passage through parliament, in a bid to meet the October 31 deadline and to minimise parliamentary scrutiny.
The 17-point leap in the Richmond Fed index for October, reported yesterday, was startlingly large.
The run of lower-than-expected, though still high, public borrowing continued in October, with "PSNB ex." coming in at £22.3B, well below the £28.7B anticipated by the OBR in August.
Japanese policymakers will have been scouring yesterday's data for signs that the trade situation is improving.
New home sales are much more susceptible to weather effects -- in both directions -- than existing home sales. We have lifted our forecast for today's February numbers above the 575K pace implied by the mortgage applications data in recognition of the likely boost from the much warmer-than-usual temperatures.
The Monetary Policy Committee chose to keep its options open in the minutes of this week's meeting, rather than signal as clearly as it did last year that interest rates will rise very soon.
The recent deceleration in households' real spending means that either business investment or net exports will have to pickup if the economy is to avoid a severe slowdown this year.
When we're thinking about the prospects for the holiday shopping season, we usually focus on two questions.
The Chancellor's alterations to the Job Support Scheme--JSS--yesterday were substantial enough to reduce meaningfully the scale of job losses ahead.
We can't yet know how bad the spread of the coronavirus from the Chinese city of Wuhan will be.
The public finances are in better health than appeared to be the case a few months ago.
The main measure of public borrowing--PSNB excluding public sector banks--came in at £2.6B in December, well below the £5.1B in December 2016 and lower than in any other December since 2000.
On the face of it, the trend in public borrowing deteriorated sharply late last year. In the three months to December, borrowing on the main "PSNB ex ." measure, which excludes banks owned by the public sector, was a trivial £0.3B, or 1.6%, lower than in the same months of 2017.
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.
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.
On the face of it, the surge in retail sales volumes in September suggests that the U.K. consumer is in fine fettle and can prevent the economic recovery from losing momentum as exporters struggle and government spending retrenches. But the underlying picture is less encouraging and consumers won't be able to sustain the recent robust growth in real spending when inflation revives next year.
At the halfway mark of the fiscal year, public borrowing has been significantly lower than the OBR forecast in the March Budget.
The PBoC left its interest rate corridor, including the Medium-term Lending Facility rate, unchanged last Friday, but published the reformed Loan Prime Rate modestly lower, at 4.20% in September, down from 4.25% in August.
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.
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.
Inflation in Colombia right now is under control but risks are increasing rapidly, and the outlook for next year has deteriorated significantly.
We read the same polls, newspapers, and political websites as everyone else, and we're not claiming any special insight into the outcome of the midterm elections today.
Labor demand appears to have remained strong through August, so we expect to see a robust ADP report today.
Ms Keiko Fujimori, the candidate of Peru's conservative Fuerza Popular party, seems on course to win the first round of the presidential election this Sunday, April 10. According to the latest Ipsos poll, the daughter of former President Alberto Fujimori continues to lead the race, with the support or about 34% of voters.
Recently released data for Q3 in Brazil have surprised to the upside, but the outlook is darkening for late Q4 and early next year.
Judging by interactions with readers in the past few weeks, fiscal policy is one of the most important topics for EZ investors as we move into the final stretch of the year.
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.
China's National People's Congress yesterday laid out its main goals for this year, on the first day of its annual meeting.
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 PBoC finally moved yesterday, cutting its one-year MLF rate by 5bp to 3.25%, whilst replacing around RMB 400B of maturing loans.
Always expect the unexpected in a bonus month for Japanese wages.
Demand in German manufacturing rebounded powerfully at the end of the second quarter, accelerating from an initially modest rebound when lockdowns were lifted.
As we go to press, equities in the Eurozone are having a bad day following the collapse in U.S. and Asian equities earlier.
Following the publication of Korea's preliminary Q4 GDP report last month--see here--we said the consensus-beating print would be susceptible to downgrades, unless the economy had a miraculous end to 2018
Inflation in the Eurozone fell significantly last month, and probably will ease further in Q1.
Predicting which way markets would move in response to potential general election outcomes has been relatively straightforward in the past. But the usual rules of thumb will not apply when the election results filter through after polling stations close on Thursday evening.
The 5% year-over-year increase in private new car registrations in January ended a nine-month period of falling sales. January's increase, however, is unlikely to be a bellwether for car sales over the whole year, or for the strength of consumer spending more generally.
German manufacturing is in good shape, but probably is not as strong as implied by yesterday's surge in new orders. Factory orders jumped 5.2% month-to-month in December, rebounding strongly after a downwardly revised 3.6% fall in November. December's jump was the biggest monthly increase in two years, but it was flattered by a leap in bulk investment goods orders, mainly in the domestic market and other EZ economies.
...The 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.
We're sticking to our 220K forecast for today's official payroll number, despite the slightly smaller-than- expected 179K increase in the ADP measure of private employment.
We raised our forecast for today's January payroll number after the ADP report, to 200K from 160K.
Chancellor Sunak faces a tough first gig on Wednesday, when he delivers the long-awaited Budget.
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.
Japan's monetary base growth slowed to just 4.6% year-over-year in February, from 4.7% in January, well below the 17% rate needed to keep the base expanding at a pace consistent with the BoJ's JGB quantity target.
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.
Activity surveys picked up across the board in April, offering hope that the slowdown in GDP growth--to just 0.3% quarter-on-quarter in Q1-- will be just a blip. The headline indicators of surveys from the CBI, European Commission, Lloyds Bank and Markit all improved in April and all exceeded their 2004-to-2016 averages.
China is facing a nasty mix of spiking CPI inflation and ongoing PPI deflation.
Speculation mounted yesterday that the MPC will follow the U.S. Fed and cut interest rates before its next meeting on March 26.
The Fed's unscheduled 50bp cut on Tuesday opens up some space for Asian central banks to follow suit.
We don't believe that payrolls rose only 138K in May. History strongly suggests that when the May payroll survey is conducted relatively early in the month, payroll growth falls short of the prior trend.
Data released last week confirmed the strength of the economic recovery in Chile, and we expect further good news in the next three-to-six months.
Fed Chair Powell yesterday said about as little as he could without appearing to ignore the turmoil in markets since the President announced his intention to apply tariffs to imports from Mexico: "We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective."
The release of pent-up consumer demand in Japan has been rocky, following the end of the nationwide state of emergency in May. Retail sales values rose by 4.6% month-on-month in August, albeit following a 3.4% correction in the previous month.
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.
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.
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.
Governor Bailey signalled a potential shift in the Bank of England's approach to withdrawing monetary stimulus--whenever the time comes--last month in an article for Bloomberg Opinion.
The pushback from within the President's own party against the proposed tariffs on Mexican imports has been strong; perhaps strong enough either to prevent the tariffs via Congressional action, or by persuading Mr. Trump that the idea is a losing proposition.
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.
Productivity likely rose by 1.7% last year, the best performance since 2010.
We've always said that China's first weapon, should the trade war escalate, is to do nothing and allow the RMB to depreciate.
October payrolls were stronger than we expected, rising 128K, despite a 46K hit from the GM strike.
Yesterday's detailed Q3 growth data in the Eurozone offered no surprises in terms of the headline.
At first glance, car sales appear to be staging a strong recovery, mirroring the better news on high street spending in Q2.
If the Chancellor is true to his word, Wednesday's Budget will be a pedestrian affair with few major policy changes designed to prevent the economy from slowing this year. In an article in The Sunday Times, Philip Hammond asserted that "we cannot take our foot off the pedal" in the mission to eliminate the budget deficit by the end of the next parliament.
The release of October's GDP report on Tuesday likely will be overshadowed by campaigning ahead of Thursday's general election.
The budget sequestration process, which cut discretionary government spending by a total of $114B in fiscal 2013 and fiscal 2014, was one of the dumbest things Congress has done in recent years.
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.
Andean inflation remains under control, due to subpar growth, modest pressures on prices for nontradeables, and broadly stable currencies.
In Friday's Monitor we analysed the draft Japanese budget, as reported by Bloomberg. We suggested that the GDP bang-for-government-expenditure- buck is likely to be less than that implied by the authorities' forecasts.
The recovery in small business sentiment since the fourth quarter rollover has been extremely modest, so far.
We are not political analysts or psephologists, but we note that each of the nine separate election forecasting models tracked by the New York Times suggests that Hillary Clinton will be president, with odds ranging from 67% to greater than 99%.
Inflation pressures are easing rapidly in Colombia, according to October's CPI report, released on Saturday. Inflation fell to 6.5% year-over-year in October, down from 7.3% in September; the consensus expectation was 6.7%.
The 62K jump in jobless claims for the week ended September 2 is a hint of what's to come. Claims usually don't surge until the second week after major hurricanes, because people have better things to do in the immediate aftermath, so we are braced for a further big increase next week.
The Chancellor's Summer Statement contained a targeted package of measures aiming to sustain employment and support the ailing hospitality sector. In total, these measures could inject up to £30B into the economy, depending on take-up by households and firms.
A third wave of Covid-19 outbreaks is now underway. The first, in China, is now under control, and the rate of increase of cases in South Korea has dropped sharply. The other second wave countries, Italy and Iran, are still struggling.
Friday's German new orders data were sizzling. Factory orders jumped 3.6% month-to-month in August, pushing the year-over-year rate up to a nine-month high of 7.8%, from an upwardly-revised 5.4% in July.
The PBoC cut the Reserve Requirement Ratio late on Friday--as signalled at last Wednesday's State Council meeting--by 0.5 percentage points, to be implemented from September 16.
The escalation of the second wave of Covid-19 in Japan in July did little to stop the recovery in labour cash earnings growth.
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.
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.
Inflation data for Brazil released on Friday surprised to the upside once again, driven by the effect of the reopening of the economy and food-related pressures as external demand increases.
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 Chancellor lived up to his reputation for fiscal conservatism yesterday and is pressing ahead with a tough fiscal tightening. He hopes that this will create scope to loosen policy if the economy struggles after the U.K. leaves the EU in 2019, but we remain concerned his "fiscal headroom" will be much smaller than he currently anticipates.
If the Redbook chain store sales survey moved consistently in line with the official core retail sales numbers, it would attract a good deal more attention in the markets. We appreciate that brick-and-mortar retailers are losing market share to online sellers, but the rate at which sales are moving to the web is quite steady and easy to accommodate when comparing the Redbook with the official data.
The RMB has been on a tear, as expectations for a "Phase One" trade deal have firmed.
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.
Speculation that another general election is imminent is rarely out of the news. At present, betting markets see about a 35% chance of another election in 2019, broadly the same chance as one in 2022, when it is currently scheduled to be held.
Make no mistake, business investment has been depressed by Brexit uncertainty over the last year.
The two big surprises in the September employment report--the drop in the unemployment rate and the flat hourly earnings number--were inconsequential, when set against the sharp and clear slowdown in payroll growth, which has further to run.
Data released yesterday confirmed that investment in Mexico has been on the mend since June, but activity still remains depressed.
The flow of data pointing to strength in the labor market has continued this week, on the heels of last week's report of a 250K jump in October payrolls.
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.
We are surprised by the EU's reaction to Mr. Trump's announcement that the U.S. will impose tariffs on steel and aluminium.
The Chancellor will struggle to make his Spring Statement heard on March 13 over the noise of next week's key Brexit votes in parliament, likely spanning from March 12 to 14.
India's PMIs for October were grim, indicating minimal carry-over of energy from the third quarter rebound.
Data on Friday showed that manufacturing in Germany improved further at the start of Q3. Factory orders increased by 2.8% month-to-month in July, lifting the year-over-year rate to -7.3% from a revised -10.6% in June.
Car manufacturers have been at the sharp end o f the slowdown in consumers' spending this year. In response, several brands have launched generous scrappage schemes, giving buyers a big discount when they trade in their old vehicle.
Markets have been positively surprised by Brazil's rapid disinflation, the efforts at fiscal reform, and the prospect of growth in the economy this year. The Ibovespa index is now above its pre-crisis high and the real has approached the key level of three per USD in recent months. But the latest GDP report, released yesterday, showed that the economy struggled in Q4. Real GDP fell 0.9% quarter-on-quarter, worse than the revised 0.7% drop in Q3.
China's FX reserves fell to $3,134B in February, from $3,161B in January, after a year of gains.
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.
A steep drop in prices for financial services in January was a key factor behind the sharp slowdown in the rate of increase of the core PCE deflator in the first quarter, relative to the core CPI.
Yesterday's Nikkei services PMI report completed Japan's set of surveys for the fourth quarter of 2018.
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.
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.
Colombia was the fastest growing LatAm economy in 2019, due mostly to strong domestic demand, offsetting a sharp fall in key exports.
Japan's services sector PMI last week was disappointing.
We expect to see a 160K increase in June payrolls today, though uncertainty over the extent of the rebound after June's modest 75K increase means that all payroll forecasts should be viewed with even more skepticism than usual.
Mr Abe's Liberal Democratic Party took a drubbing at the polls in Tokyo's Assembly election over the weekend. The consequences for fiscal spending probably are minimal but the vote strengthens the case for increased emphasis on the structural reform "arrow" and less focus on monetary policy.
Yesterday's FOMC , announcing a unanimous vote for no change in the funds rate, is almost identical to December's.
Mexico's trade balance shrank slightly last year, to USD13B, from USD14.6B in 2015. An improvement in the non-energy deficit was the main driver, while the energy gap worsened.
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%.
June's money and credit data show that firms have accumulated a large cash pile since the start of the Covid-19 outbreak, despite sales falling through the floor.
Yesterday's economic reports in the euro area were mixed.
Japan is one of the countries most exposed to economic damage from the coronavirus.
Modern Money Theory has come up at two consecutive BoJ press conferences.
Britain now looks set to flirt with deflation in the summer.
Japan's Q1 is coming more sharply into focus.
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.
May's money and credit data show that Covid-19 has not pushed many businesses immediately over the edge.
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.
The trade war with China is not big enough or bad enough alone to push the U.S. economy into recession.
Reporting on the German labour market has been like watching paint dry in this expansion, but yesterday's data were a stark exception to this rule.
Markets see a strong possibility, though not a probability, that the BoJ will cut rates on Thursday.
The news in Brazil on inflation and politics has been relatively positive in recent weeks, allowing policymakers to keep cutting interest rates to boost the stuttering recovery.
China's official manufacturing PMI for May, out tomorrow, will give the first indication of the coming hit from the resumption of its tariff war with the U.S.
The risk of a snap general election has jumped following Theresa May's resignation and the widespread opposition within the Conservative party to the compromises she proposed last week, which might have paved the way to a soft Brexit.
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.
Industrial profits in China collapsed by 38.3% year- over-year in the first two months of 2020, making December's 6.3% fall look like a minor blip.
The Argentinian economic recovery continues, from very depressed levels, and the rebound is confronting many setbacks.
The Fed likely will do nothing today, both in terms of interest rates and substantive changes to the statement. We'd be very surprised to hear anything new on the Fed's plans for its balance sheet.
The CPIH--the controversial, modified version of the existing CPI that includes a measure of owner occupied housing, or OOH, costs--will become the headline measure of consumer price inflation when February's data are published on March 21.
Friday's consumer sentiment data in the two main Eurozone economies were mixed.
The picture of the economy's recent performance will be redrawn today, when the national accounts are published.
Market-based measures of uncertainty and volatility remain elevated, but if we look beyond the headlines, two overall assumptions still inform forecasters' analysis of the economy and Covid-19.
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.
Later today, the Chancellor likely will take the first step towards abandoning plans for further fiscal tightening. In
September likely was as good as it will get for Chinese factories this year.
Our analysis of the Q3 activity and GDP data in yesterday's Monitor strongly suggests that China's authorities will soon ready further stimulus.
We aren't convinced by the idea that consumers' confidence will be depressed as a direct result of the rollover in most of the regular surveys of business sentiment and activity.
Monetary policy usually is the first line of defence whenever a recession hits.
The national accounts for the fourth quarter showed that the economy relied on households slashing their saving rate to a record low in order to spend more. Now, growth in consumer spending will have to fall back in line with real incomes, which will increasingly be impaired by rising inflation.
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.
Gilts continued to rally last week, with 10-year yields dropping to their lowest since October 2016, and the gap between two-year and 10-year yields narrowing to the smallest margin since September 2008.
April's money and credit figures show that relatively few firms suffered from a lack of liquidity at the beginning of the Covid-19 crisis.
French finance minister Bruno Le Maire had bad news for his compatriots yesterday.
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 end of Korea's first Covid-19 wave, coupled with the government's economic support measures, has been a boon for the retail industry.
Japan's Q2 Tankan survey wasn't all bad news, but the positives won't last long. The large manufacturers index dropped to 7 in Q2, after the decline to 12 in Q1.
The official PMIs suggest that the January survey data have escaped the worst of the hit from the virus.
CPI inflation looks set to remain below the 2% target this year, driven by sterling's recent appreciation and lower energy prices.
The Manufacturing Upswing Continues; no Sign of Weakening
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 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.
The shift in France's public finances to lean against the economic damage from the virus has been significant.
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.
China's current account surplus was revised down last week to $46.2B in Q2, from $57.0B in the preliminary data, marking a dip from $49.0B in Q1.
Recent hard data have confirmed the severe shock from Corona to the Chilean economy in Q2.
The unexpectedly robust 128K increase in October payrolls--about 175K when the GM strikers are added back in--and the 98K aggregate upward revision to August and September change our picture of the labor market in the late summer and early fall.
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.
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.
Markets were left somewhat disappointed yesterday by the G7 statement that central banks and finance ministers stand ready "to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks."
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.
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.
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 opening gambits in the post-Brexit trade negotiations were played earlier this week, in speeches from U.K. Prime Minister Boris Johnson and EU chief negotiator, Michel Barnier.
Colombia's BanRep stuck to the script on Thursday by leaving the policy rate on hold at 4.25%.
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.
The Caixin services PMI ticked down to 53.6 in January, from 53.9 in December.
The Budget on March 11 will be the first time that the new government's ambition and bluster collide with reality.
We've previously highlighted the pro-cyclical elements of the BoJ's framework, but it's worth repeating, when an economic shock comes along.
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.
Last week's strong ISM manufacturing survey for November likely will be followed by robust data for the non-manufacturing sector today, but the headline index, like its industrial counterpart, likely will dip a bit.
The violent protests in France claimed their first victims over the weekend, providing sombre evidence of the severity of the situation for the government.
At the start of the year, #euroboom was the moniker used in financial media to describe the EZ economy.
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 Bank of Korea's two main monthly economic surveys were very perky in January.
The Prime Minister achieved a rare victory yesterday, when the Commons passed the government-backed Brady amendment.
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.
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.
Data yesterday showed that German inflation roared higher at the start of the year, but the devil is in the detail.
Korea's main activity data for August showed that the economy clearly wobbled in the wake of the country's second wave of Covid-19, and the social distancing measures imposed in response to it.
French consumer confidence and consumption have been among the main bright spots in the euro area economy so far this year.
The Bank of Japan yesterday left its -0.10% policy balance rate and ten-year yield target of "around zero" unchanged, as widely expected.
This Budget will be remembered as the moment when the Government finally threw in the towel on plans to run sustainable public finances.
Yesterday's BoJ statement, outlook and press conference raised our conviction on two key aspects of the policy outlook.
The release of pent-up Japanese consumer demand in June was emphatic, with retail sales values jumping by 13.1% month-on-month.
Today's October ADP measure of private payrolls likely will overshoot Friday's official number.
Implied volatility on the euro is now so low that we're compelled to write about it, mainly because we think the macroeconomic data are hinting where the euro goes next.
The fundamentals underpinning our forecast of solid first half growth in consumers' spending remain robust.
The economic calendar in Mexico was relatively quiet over Christmas, and broadly conformed to our expectations of resilient economic activity in Q4.
The biggest surprise in the revisions to first quarter GDP growth, released yesterday, was in the core PCE deflator.
In the wake of April's 0.2% increase in real consumers' spending, and the upward revisions to the first quarter numbers, we now think that second quarter spending is on course to rise at an annualized rate of about 3.5%.
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.
As we showed in yesterday's Monitor--see here--EZ governments and the ECB have thrown caution to the wind in their efforts to limit the pain from the Covid-19 crisis.
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 stock market loved Fed Chair Powell's remarks on the economy yesterday, specifically, his comment that rates are now "just below" neutral.
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.
The Johns Hopkins database shows a mixed coronavirus picture in the Andes, with the trend in new cases still rising in Argentina and Colombia, but relatively flat for about the past two weeks in Peru.
The wave of May data due for release today likely will go some way to countering the market narrative of a seriously slowing economy, a story which gained further momentum last week after the release of the May employment report.
The National People's Congress yesterday announced a sweeping restructuring of Party/State architecture.
As expected, the Chancellor kept his powder dry in the Spring Statement, preferring instead to wait for the Budget in the autumn to deploy the funds technically available to him to support the economy.
The year-over-year collapse of industrial production in India eased substantially in May, to -35%, from -58% in April, close to our -32% forecast.
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.
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.
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.
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.
Yesterday's data provided further evidence of the damage wrought on the EZ at the end of Q1.
Manufacturing in the EZ was held above water by Ireland at the end of Q3.
Sterling leapt to $1.27, from $1.22 last week, amid some positive signals from all sides engaged in Brexit talks.
In a world where the ECB is inclined to ease first and ask questions later, yesterday's detailed German inflation data gave further indication that more stimulus is on the way.
Economic news last week in Mexico was net positive, as industrial production rose by a solid 6.9% month-to-month, following a 17.9% rebound in June, but the bigger picture is less encouraging.
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.
It's hard to know what to make of the October CPI data, which recorded hefty increases in healthcare costs and used car prices but a huge drop in hotel room rates, and big decline in apparel prices, and inexplicable weakness in rents.
Friday's 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.
Markets are beginning to grasp that President-elect Trump's economic plans, if implemented in full--or anything like it--will constitute substantial inflationary shock to the U.S.
Turkey has all the problems you don't want to see in an emerging market when the U.S. is raising interest rates.
China's M2 growth surprised on the upside in July, rising to 8.5% year-over-year, from 8.0% in June.
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.
Manufacturing in the Eurozone rebounded midway through the second quarter.
When Park Geun-hye came to power in Korea 2013, it was to cheers of "economic democratisation". At the time, I wrote a report with a list of reforms that would be needed for Korea to "economically democratise".
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.
China's GDP report for the fourth quarter, due on Friday, is likely to show that economic growth has stabilised, on the surface.
On the face of it, the upturn in initial jobless claims since late September appears to signal a softening in the economy.
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.
Our argument that rates could rise as soon as March has always been contingent on two factors, namely, robust labor market data and a degree of clarity on the extent of fiscal easing likely to emerge from Congress. On the first of these issues, the latest evidence is mixed.
Under normal circumstances, we can predict movements in the headline NFIB index from shifts in the key labor market components, which are released a day ahead of the official employment report, and, hence, about 10 days before the full NFIB survey appears.
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.
The manufacturing sector likely was the primary driver of Q3 GDP growth in the Eurozone. Data yesterday showed that industrial production rose 1.4% month-to-month in August, pushing the year-over-year rate up to 3.8%, from a revised 3.6% in July.
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.
Japan's Q2 GDP was driven by the twin pillars of private consumption and capex.
Core machine orders in Japan surprised to the upside in August, when the country's second wave of Covid-19 peaked.
Today's second Q3 GDP estimate in the Eurozone has been rendered even more meaningless after this week's news that an effective vaccine could now be a reality as early as the beginning of 2021,
LatAm governments and policymakers are bracing for a more dramatic and longer virus-led downturn than initially expected.
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.
Japan's GDP report for the third quarter, due on Monday, is likely to show that the economy rebounded by 5.2% quarter-on-quarter, following the 7.9% collapse in Q2.
No matter how you choose to slice-and-dice the recent retail sales numbers, the core data for the past couple of months have been disappointing. Our favorite measure--total sales less autos, gasoline, food and building materials--rose by just 0.1% month-to- month in May but then reversed this minimal gain in June.
Yesterday's second EZ Q2 GDP report was slightly more upbeat than the advance estimate.
The surge in July core retail sales was flattered by the impact of the Amazon Prime Event, which helped drive a 2.8% leap in sales at nonstore retailers.
"Is EZ fiscal stimulus on the way?" is a question that we receive a lot these days.
Yesterday's wave of data suggested that a good part of the strength in final demand in the second quarter was sustained into the first month of this quarter, and perhaps the second too.
Italy's political leadership faces its first biggest test in autumn, when it has to deliver its first budget.
August's consumer prices report, due on Wednesday, is harder to forecast than usual, given high uncertainty regarding the impact of the cut in VAT for the hospitality sector, as well as the consequences of the ONS' decision to resume collecting data from physical stores.
Japan's prime minister in-all-but-name, Yoshihide Suga, will be inheriting an economy struggling to maintain any momentum from the release of pent-up demand.
The New York Times called the China trade agreement reached Friday "half a deal", but that's absurdly generous.
The industrial production trajectory in Mexico looked strong going into Q3, but Friday's report for August threatens to change that picture.
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.
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 sole economic report showed that wage growth in France remained robust mid-way through the year. The non-seasonally adjusted private wage index, ex-agriculture and public sector workers, published by the Labour Ministry, rose by 0.3% quarter-on-quarter in Q3.
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 can see no hard evidence, yet, that the expanding trade war with China and other U.S. trading partners is hitting business investment.
Today's brings the June retail sales and industrial production reports, after which we'll update our second quarter GDP forecast.
Inflation pressures in France eased across the board at the end of last year.
The IBC-Br index, a monthly proxy for Brazil's GDP--rose 0.5% month-to-month in November, pushing the year-over-year rate down to 2.8%, from an upwardly-revised 3.1% in October.
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.
The BoJ is likely to be thankful next week for a relatively benign environment in which to conduct its monetary policy meeting.
Judging by the solid advance data in the major economies, yesterday's EZ industrial production report should have hit desks with a bang, but it was a whimper in the end.
China's September imports missed expectations, but commentators and markets tend to focus on the year-over-year numbers.
China's main activity data for October disappointed across the board, strengthening our conviction that the PBoC probably isn't quite done with easing this year.
China's trade surplus 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.
Eurozone investors should by now be accustomed to direct intervention in private financial markets by policymakers.
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.
We can't remember the last time a single economic report was as surprising as the December retail sales numbers, released yesterday.
Japan's 0.3% quarter-on quarter increase in Q4 GDP was disappointing, on the face of it, after a downwardly-revised 0.7% fall in Q3.
The first wave of domestic third quarter data crashes ashore this morning.
The stand-out development in yesterday's labour market report was the drop in the he adline, three-month average, unemployment rate to just 4.0% in June--its lowest rate since February 1975--from 4.2% in May.
Fed Chair Yellen delivered no great surprises in her semi-annual Monetary Policy Testimony, though she certainly was clear on her attitude to the balance sheet. The Fed does not want to "...use the balance sheet as an active tool of monetary policy."
In our Monitor of January 10, we argued that the market turmoil in Q4 was largely driven by the U.S.- China trade war, and that a resolution--which we expect by the spring, at the latest--would trigger a substantial easing of financial conditions.
Treasury Secretary Mnuchin's five-line letter to House Speaker Pelosi on last Friday--copied to other Congressional leaders--which said that "there is a scenario in which we run out of cash in early September, before Congress reconvenes", introduces a new element of uncertainty to the debt ceiling story.
Manufacturing is not in recession, yet, despite the reams of gloomy analysis of the sector, including our own.
Italy is edging closer to a coalition government with the Five-Star Movement, the Northern League, and Forza Italia at the helm.
It has become pretty clear over the past couple of weeks that Hillary Clinton will be the next president, so it's now worth thinking about how fiscal policy will evolve over the next couple of years.
The Fed will hike by 25 basis points today, citing the tightening labor market as the key reason to press ahead with the process of policy normalization. We think the case for adding an extra dot to the plot for both this year and next is powerful.
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.
Yesterday's EZ manufacturing data were slightly underwhelming, at least compared to expectations.
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.
Private consumption remains resilient in Brazil and recent data suggest that growth will continue over the coming months.
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.
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.
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.
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.
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.
Note: This updates our initial post-election thoughts, adding more detail to the fiscal policy discussion. Apologies for the density of the text, but there's a lot to say. Our core conclusions have not changed since the election result emerged. The biggest single economic policy change, by far, will be on the fiscal front.
Our base case remains a 10bp cut in the deposit rate, to -0.5%, in September.
We think Japanese monetary policy easing essentially is tapped out, both theoretically and by political constraints.
Our forecast of a solid 190K increase in headline December payrolls ignores our composite employment indicator, which usually leads by about three months and points to a print of just 50K or so.
The latest batch of FOMC speakers yesterday, together with the December minutes--participants said "the committee could afford to be patient about further policy firming"--offered nothing to challenge the idea, now firmly embedded in markets, that the next rate hike will come no sooner than June, if it comes at all.
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.
We remain confident in the success of legislation designed to compel the PM to request a further extension of the U.K.'s E.U. membership on October 19, in the overwhelmingly likely scenario that an exit deal is not agreed at next week's E.U. Council meeting.
The economy's recovery from the 2008/09 recession has been weaker than after the previous two downturns partly because households have not depleted housing equity to fund consumption.
First things first: Payroll growth likely will be sustained at or close to November's pace.
The clear threat to demand posed by the coronavirus and China's efforts at containment have sent a shock wave through commodities markets.
At first glance, the continued weakness of domestically-generated inflation, despite punchy increases in labour costs, is puzzling.
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%.
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.
Normal service appears to have resumed in August, with payrolls rising by 201K, very close to the 196K average over the previous year.
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.
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
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.
The Brazilian Central Bank's policy board-- COPOM--voted unanimously on Wednesday to cut the Selic rate by 50bp to 5.00%, as expected.
The BoJ yesterday kept the policy balance rate at -0.1%, and the 10-year yield target at "around zero", in line with the consensus.
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.
A quick rebound in growth, after the slowdown to a reported 2.6% in the fourth quarter, is unlikely.
China's economy looks to have shrugged off the supposed "second wave" of Covid-19, sparked by a cluster in Beijing's largest wholesale market for fruit and veg, looking at June's PMIs.
Japan's main activity data for April were massively disappointing, presaging the sharper GDP contraction we expect in Q2, compared with Q1.
At next Wednesday's Budget, the Chancellor will have the rare pleasure of announcing lower-than- anticipated near-term borrowing forecasts. But hopes that he will prevent the fiscal tightening from intensifying when the new financial year begins in April look set to be dashed, just as they were at the Autumn Statement in November.
The BoJ kept monetary policy unchanged yesterday, as expected, with the signal coming through loud and clear: Japan's central bank will continue its aggressive easing policy until the inflation cows come home...
The MPC's new inflation forecasts usually take centre stage on "Super Thursday" and provide a numerical indication of how close the Committee is to raising interest rates again.
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.
The softening in payroll growth in November appears mostly to be a story about short-term noise, rather than a sign that tariffs are hurting or that the broader economy is slowing.
China's January trade data were scheduled for release on Friday, but instead, the customs authority delayed the publication, saying it would publish the numbers with the February data
The Conservatives successfully have defended their average poll lead over Labour of 10 percentage points over the last week.
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.
The BoJ kept policy unchanged, as expected, at its meeting yesterday.
Yesterday's inflation data in France and Italy were just about as soft as we had expected, but not for the reasons we were looking for.
Bond investors in Italy voted with their feet on Friday with news that the government has agreed a 2019 budget deficit of 2.4%.
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.
The Fed paved the way with a 50bp emergency rate cut on March 3, with more to come.
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.
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.
Positive news from Pfizer on the efficacy of its candidate vaccine has brought the post-Covid world into closer focus.
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.
Core machine orders in Japan collapsed in April, as expected, falling by 12.0% month-on-month, worse than the minor 0.4% slip in March.
The 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.
We're very interested in the detail of today's January NFIB survey; the headline index, not so much.
Central bankers globally are full of market- appeasing but conditional statements.
Oil prices remain sticky, poised to hover close to a four-year high for the rest of the year.
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.
Next week is so crammed full of data releases that we need to preview November's consumer price data early, in the eye of the storm of the general election.
We've been consistent in saying that Japanese capex would roll over this year, after strength in the first three quarters was seen by the authorities and many commentators as a sign of resilience.
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.
GDP growth in Japan surprised to the upside in the second quarter, although the preliminary headline arguably flattered the economy's actual performance.
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.
Households have been a rock of stability over the last two years, increasing their real spending at a steady rate of 1.8% year-over-year, while the rest of the economy collectively has ground to a halt.
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.
Political uncertainty is never far away in the Eurozone, though the most recent outbreak could easily swing in favour of markets.
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.
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.
This has been a very complicated week for LatAm policymakers, who are particularly uneasy about the performance of the FX market.
It's still unclear how exactly Covid-19 will impact the euro area as a whole, but little doubt now remains that Italy's economy is in for a rough ride.
China's trade surplus bounced back strongly in May, rising to $40.1B on our adjustment, from $35.7B previously.
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%.
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.
Yesterday's price data for China showed continued declines in both CPI and PPI inflation.
France is solidifying its position as one of the Eurozone's best-performing economies.
We expect the Budget today to underwhelm investors who are eager to see a quick and powerful government response to the coronavirus outbreak.
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.
Today's general election looks set to be a closer race than opinion polls suggested two weeks ago.
China concludes its annual Central Economic Work Conference today, where the economic targets and the agenda for next year are set.
The outlook for the French economy is changing on a daily basis these days.
Q2's GDP figures create a terrible first impression, but a closer look suggests that the risk of a recession remains very low.
The month-to-month core CPI numbers in March were consistent, in aggregate, with the underlying trend.
The large unexpected surge in oil and gas output this year has boosted the overall economic recovery significantly. But this looks like the last hurrah for a sector of the U.K. economy in terminal decline.
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.
Friday's weekly report on the assets and liabilities of U.S. commercial banks will complete the picture or March and, hence, the first quarter. It won't be pretty. With most of the March data already released, a month-to-month decline in lending to commercial and industrial companies of about 0.7% is a done deal. That would be the biggest drop since May 2010, and it would complete a 1% annualized fall for the first quarter, the worst performance since Q3 2010. The year-over-year rate of growth slowed to just 5.0% in Q1, from 8.0% in the fourth quarter and 10.3% in the first quarter of last year.
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
Our current base-case forecast for the second quarter is a 30% annualized drop in GDP, based on our assessment of the hit to discretionary spending by both businesses and consumers.
Halfway through the third quarter, we have no objection to the idea that GDP growth likely will exceed 2% for the third straight quarter.
The jump in CPI inflation to 1.0% in July, from 0.6% in June, caught all analysts by surprise.
While we were away, EM growth prospects and risk appetite deteriorated, due mainly to rising geopolitical risks and Turkey's currency crisis.
Banxico cut its policy rate by 25bp to 7.25% yesterday, as was widely expected, following similar moves in August, September and November.
The recent sell-off in Treasuries has not yet reached significant proportions.
Japan's Tankan survey continues to paint a picture of a contracting economy.
Korea's trade data have been extremely volatile over the past two months, thanks to distortions caused by last year's odd holiday calendar.
It might seem odd to describe a meeting at which the Fed raised rates for only the third time since 2006 as a holding operation, but that just about sums up yesterday's actions. The 25bp rate hike was fully anticipated; the forecasts for growth, inflation and interest rates were barely changed from December; and the Fed still expects a total of three hikes this year.
The Fed won't raise rates today, or substantively change the wording of the post-meeting statement. In September, the FOMC said that "The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives."
The BoJ held firm, for the most part, during this year's bout of central bank dovishness.
The two key planks of the argument that a substantial easing of fiscal policy won't be inflationary are that labor participation will be dragged higher, limiting the decline in the unemployment rate, while productivity growth will rebound, so unit labor costs will remain under control.
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.
Officially, China's real GDP growth was unchanged at 6.0% year-over-year in Q4; low by Chinese standards, but not overly worrying. Full-year growth was 6.1% within the 6.0-to-6.1% target down from 6.7% last year, also in keeping with the authorities' long-term poverty reduction goals.
In about 100 days, the LatAm economy and financial markets will face a defining moment in the face of uncertainty, namely, the outcome of the U.S. presidential election.
China's current account surplus grew further in the final quarter of 2018, more than doubling to $54.6B, from $23.3B in Q3.
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.
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.
The PBoC late on Wednesday announced measures to provide medium-term funding for smaller businesses.
Production in the EZ construction sector slumped at the end of Q4. Data yesterday showed that output slid by 3.1% month-to-month in December, comfortably reversing the 0.7% increase in November.
GDP growth currently is subdued by historical standards, but at least it is not debt-fuelled.
This week has seen a huge wave of data releases for both January and February, but the calendar today is empty save for the final Michigan consumer sentiment numbers; the preliminary index rose to a very strong 99.9 from 95.7, and we expect no significant change in the final reading.
Italian bond yields have remained elevated this week, following the release of the government's detailed draft budget for 2019.
The Fed headlines yesterday carried no real surprises; rates were cut by 25bp, with a promise to take further action if "appropriate to sustain the expansion".
Bond yields in Italy remain elevated, but volatility has declined recently; two-year yields have halved to 0.7% and 10-year yields have dipped below 3%.
We expect September's consumer prices report, released on Wednesday, to show that CPI inflation rose to 0.6%, from 0.2% in August, in line with the consensus but above the 0.3% rate forecast by the MPC in August's Monetary Policy Report.
The pick-up in CPI inflation to 0.7% in October, from 0.5% in September, does not mark the start of a sustained uptrend.
China's National People's Congress this year was the most significant in years and followed 12 months of lightning-speed change in the country.
Japan's economy contracted by 0.9% quarter-on- quarter in Q1, following a downwardly-revised 1.9% plunge in the previous quarter.
The People's Bank of China cut its seven-day reverse-repo rate yesterday, to 2.50% from 2.55%.
Recent data have added to the evidence that the Colombian economy stumbled in July. Retail sales plunged 3.3% year-over-year, from an already poor and downwardly revised 0.9% decline in June. The underlying trend is negative, following two consecutive declines, and July's data were the weakest since September 2009.
On the face of it, British manufacturers are weathering the global slowdown well. The Markit/CIPS PMI jumped to 55.1 in March, from 52.1 in February, and now comfortably exceeds those for the Eurozone, U.S. and Japan.
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.
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.
The odds of a hike this month have increased in recent days, though the chance probably is not as high as the 82% implied by the fed funds future. The arguments against a March hike are that GDP growth seems likely to be very sluggish in Q1, following a sub-2% Q4, and that a hike this month would be seen as a political act.
Japan's Tankan survey for Q2 was unsurprisingly grim, given the devastation caused by the near- global lockdown in the first half of the quarter, and the nationwide state of emergency that enveloped April and May.
Markets now think the Fed is done.
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.
Japan's jobless rate was unchanged, at 2.4% in October, as the market took a breather after September's job losses.
China's official manufacturing PMI was unchanged at 50.2 in December, marking a weak end to the year. But it could have been worse; we had been worried that the return to above-50 territory in November had been boosted by temporary factors. December's print allays some of those fears.
Yesterday's economic data added further evidence that GDP growth in the EZ will slow in Q2.
The tone of Fed Chair Powell's opening comments at the press conference yesterday was much more dovish than the statement, which did little more than most analysts expected.
By any yardstick, progress in reducing public sector borrowing so far this fiscal year has been poor. While the borrowing trend should improve in the final four months of this year--including December's figures, published Friday--the Chancellor has only a slim chance of meeting the forecasts set out in the Autumn Statement.
Japan's trade balance remained in the red in June, though the deficit narrowed sharply, to -¥269B from -¥838B in May.
The U.K.'s property obsession has been immune to Covid-19, so far.
As we write, markets see a 70% chance that the MPC will cut Bank Rate on January 30.
Politics are once again encroaching on the economic story in the Eurozone. At the ECB, this week has so far been a tumultuous one.
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.
Fed Chair Yellen said something which sounded odd, at first, in her Q&A at the Senate Banking Committee last Tuesday. It is "not clear" she argued, that the rate of growth of wages has a "direct impact on inflation".
December's labour market report, released today, won't be a game-changer for the near-term outlook for interest rates; January data will be released before the MPC meets in March, and February data will be available at its key meeting in May.
We've had pushback from readers over our take on the likelihood of a trade deal with China in the near future.
The federal debt ceiling was re-imposed last week, with no fanfare, and no reaction in the markets. All eyes were focussed instead on the Fed's rate hike and Chair Yellen's press conference.
If the only manufacturing survey you track is the Philadelphia Fed report, you could be forgiven for thinking that the sector is booming.
Borrowing by local authorities from the Public Works Loan Board, used to finance capital projects-- and arguably dubious commercial property acquisitions--has surged this year.
The French economy has suffered from weakness in manufacturing this year, alongside the other major EZ economies.
Japanese trade remained in the doldrums in October, keeping policymakers on their toes as they repeat the refrain of "resilient" domestic demand.
CPI inflation took a big step in April towards the near-zero rate we anticipate by the summer.
Premier Li Keqiang rounded out the National People's Congress with his press conference yesterday.
February's consumer price figures give the MPC reason to doubt the case for raising interest rates again as soon as May.
We have been asked recently why we rarely talk about the signal from the U.S. money supply numbers, in contrast to the emphasis we give to real M1 growth in our forecasts for economic growth in both the Eurozone and China.
Today's advance EZ PMIs will be watched more closely than usual.
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.
Construction in the EZ stumbled at the start of the year.
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.
We expect the Fed today to shift its dotplot to forecast one rate hike this year, down from two in December and three in September.
We would be astonished if the FOMC meeting starting today does not end with a 25bp rate hike.
Japan's trade balance deteriorated sharply in May, flipping to a ¥967B deficit from the modest ¥57B surplus in April.
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.
The MPC has wasted no time in seeking to counter this week's undesirable pick-up in gilt yields, which reflects investors dumping assets for cash.
Hard data released in Argentina over the last month showed that the economy was struggling in early Q1, even before the Covid-19 hit.
Yesterday's headline economic data in the euro area were solid across the board, though the details were mixed.
After a 15 year hiatus, Argentina returned to the global credit markets yesterday with the sale of a USD16.5B sovereign bonds, the largest ever dollar offering by a developing country. Argentina boosted the size of its offering to USD16.5B from USD15B after attracting orders worth USD70B. The country sold four tranches: 10-year debt at 7.5%, three- and five year yielding 6.25% and 6.875%, respectively, and 30-year paper at 8.0%.
We're expecting to learn today that existing home sales rose quite sharply in July, perhaps reaching the highest level since early 2018.
The details of next year's Japanese budget are not yet official and the Chinese budget remains unknown. But the main figures of the Japanese budget are available, while China's Economic Work Conference, which concluded yesterday, has set out the colour of the paint for the budget, if not the actual brush strokes.
Yesterday's economic reports provided further evidence on the state of the world before Covid-19.
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.
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.
Peru has been one of the most badly-hit LatAm countries, with Covid crushing economic activity.
The BoJ kept all policy measures unchanged at its meeting yesterday.
Chancellor Sunak announced further emergency support measures for the economy on Tuesday and pledged to do more soon.
Last month was sobering month for equity investors in the Eurozone, and indeed in the global economy as a whole.
The Chancellor chose in his Budget to increase the total size of the forthcoming fiscal consolidation, to ensure that the Office for Budget Responsibility continues to forecast that a budget surplus will be obtained in 2019/20.
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.
Japan's economic data have been very volatile in the last 18 months.
Evidence in support of our view that the U.S. industrial slowdown is ending continues to mount, though nothing is yet definitive and the re-escalation of the trade war is a threat of uncertain magnitude to the incipient upturn.
At first glance, the latest labour market data appear to be contradictory.
When economic historians look back at the bizarre trade war of 2018-to-19, we think they will see Tuesday June 4 as the turning point, after which the threats of fire and brimstone were taken much less seriously, and markets began to ponder life after tariffs.
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.
We have revised up our second quarter consumption forecast to a startling 4.0% in the wake of yesterday's strong June retail sales numbers, which were accompanied by upward revisions to prior data.
China's activity data for May were a mixed bag, but they broadly paint a consistent picture of a slowdown in economic growth from the first quarter.
The 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.
The Monetary Policy Board of the Bank of Korea voted yesterday to lower its policy base rate to 1.25%, from 1.50%.
Consumer confidence surveys have risen since the elections to levels consistent with very rapid growth in real spending.
The BoJ is likely to stay on hold this week for all its main policy settings.
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%.
Economic data in Brazil over the second quarter were relatively positive, and June reports released in recent weeks, coupled with leading indicators for July, are encouraging.
China's real GDP growth was unchanged at 6.4% year-over-year in Q1, above the consensus for a slowdown to 6.3%.
The median of FOMC members' estimates of longer run nominal r-star--the rate which would maintain full employment and 2% inflation--nudged up by a tenth in September to 3.0%, implying real r-star of 1%.
CPI inflation fell to 0.2% in August, from 1.0% in July, but exceeded our forecast and the consensus, both zero.
Mortgage applications appear to have recovered from their reported February drop, which was due mostly to a very long-standing seasonal adjustment problem
At the end of last year, U.S. homebuilders were more optimistic than at any time in the previous 18 years, according to the monthly NAHB survey.
A strong finish to the fourth quarter spared the EZ auto sector the embarrassment of posting an outright fall in domestic sales through 2019 as a whole.
China's official real GDP growth likely slowed to 6.0% year-over-year in Q3, from 6.2% in Q2.
The softness of the headline September retail sales numbers hid a decent 0.5% increase in the "control" measure, which is the best guide to consumers' spending on non-durable goods.
The sovereign debt crisis in the euro area was a macroeconomic horror story
Japanese GDP growth in the third quarter corrected the imbalances of the second. Domestic demand took a breather after unsustainable growth in Q2, while net exports rebounded.
We are not worried about the reported drop in April manufacturing output, which probably will reverse in May.
Mr. Macron will be in Berlin today with the message that France wants a strong Eurozone and a tight relationship with Germany. Friendly overtures between Paris and Berlin are good news for investors; they reduce political uncertainty while increasing the chance that the economic recovery will continue. But it is too early to get excited about closer fiscal coordination, let alone a common EZ fiscal policy and bond issuance.
Official industrial production growth in China plunged to 5.4% year-over-year in April, from 8.5% in March.
Yesterday's data in the EZ provided a little more evidence on what happened in Q1.
Japan's tertiary index edged up 0.1% month-on-month in July, after the 0.1% decrease in June.
The latest official data continue to understate the collapse in labour demand since Covid-19.
Friday' second Q4 GDP estimate revealed that the EZ economy barely grew at the end of 2019. The report confirmed that GDP rose by 0.1% quarter-on-quarter in Q4, slowing from a 0.3% rise in Q3, but the headline only narrowly avoided downward revision to zero, at just 0.058%
The ECB's negative interest rate policy--NIRP--has come under the spotlight following the violent selloff in Eurozone bank equities. Mr. Draghi reassured markets and the EU parliament earlier this week that new regulation, stronger capital buffers, and common recognition of non-performing loans have made Eurozone banks stronger.
The Fed will leave rates unchanged today.
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.
China's activity data outperformed expectations in November.
Market-based sentiment indicators in the Eurozone are becoming increasingly detached from the reality of the threat of resurgent Covid-19 and the danger this poses to the strength of the economic recovery.
The Mexican peso and the Mexican stock market were hit this week after a poll showed that the Republican presidential candidate, Mr. Donald Trump, is leading in Ohio, a bellwether state in US presidential elections. After the poll's release, the MXN, which has been trading at about 18.9 to the USD, shot up to around 19.2.
Incoming activity data from Colombia over the past quarter have been surprisingly strong, despite many domestic and external threats.
In the wake of last week's strong core retail sales numbers for November, the Atlanta Fed's GDPNow model for fourth quarter GDP growth shot up to 3.0% from 2.4%.
The rate of growth of real personal incomes is under sustained downward pressure, slowing to 2.1% year-over-year in December from 3.4% in the year to December 2015. In January, we think real income growth will dip below 2%, thanks to the spike in the headline CPI, reported Wednesday. Our first chart shows that the 0.6% increase in the index likely will translate into a 0.5% jump in the PCE deflator, generating the first month-to-month decline in real incomes since January last year.
Yesterday's detailed EZ inflation data for August kick ed-off a period in which the numbers will be scrutinised more closely than usual.
For the record, we think the Fed should raise rates in December, given the long lags in monetary policy and the clear strength in the economy, especially the labor market, evident in the pre-hurricane data.
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.
The PBoC reduced its 14-day reverse repo by 5bp to 2.65% in a routine operation yesterday.
Markets have given the BoJ a break this month, with the 10-year JGB yield rising back into the implied band around the 0% target, and the yen snapping its appreciation streak.
China's monetary and credit data--released yesterday, two days behind schedule--suggest that monetary conditions are loosening at the margin, while credit conditions have remained stable, but easier than in the first half.
Argentinians are heading to the polls on Sunday October 27 and will likely turn their backs on the current president, Mauricio Macri.
Rapidly increasing food inflation is creating all sorts of dilemmas for policymakers in Asia's giants.
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.
In the short-term, all the housing data are volatile. But you can be sure that if the recent pace of new home sales is sustained, housing construction will rise.
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.
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.
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.
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.
June's retail sales figures provided a timely reminder that consumers aren't being haunted by the warnings of the damage that a no -deal Brexit would entail.
A slew of Asian price numbers are due this Friday, and they will all likely show that price gains softened further in January.
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.
Yesterday's German ZEW investor sentiment survey provided the first clear evidence of the coronavirus in the EZ survey data.
Slower growth in households' spending was the main reason why the economy lost momentum last year.
At the October FOMC meeting, policymakers softened their view on the threat posed by the summer's market turmoil and the slowdown in China, dropping September's stark warning that "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." Instead, the October statement merely said that the committee is "monitoring global economic and financial developments."
The Eurozone economy all but stalled at the start of Q4.
The consensus forecast for retail sales in December has been consistently too upbeat in recent years and we think most analysts are too sanguine yet again.
Data over the past week give a near-complete picture of how India's economy fared in the fourth quarter.
The chainstore sales numbers have been hard to read over the past year.
The establishment of the Fed's commercial paper funding facility, announced yesterday, replicates the first wave of asset purchases undertaken after the crash of 2008.
We became more confident last week in our call that GDP growth will hold up better than widely feared in the first half of 2019, following signs that consumers have maintained their happy-go-lucky mentality, despite the ongoing political crisis.
Colombia's December activity reports confirmed that quite strong retail sales last year were less accompanied by local production, which became only a minor driver of the economic recovery, as shown in our first chart.
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.
China's investment slowdown went from worrying to frightening in October. Last week's fixed asset investment ex-rural numbers showed that year- to-date spending grew by 5.2% year-over-year in October, marking a further slowdown from 5.4% in the year to September.
The stubbornly slow rate of decline of public borrowing casts doubt on whether the Chancellor will run a budget surplus before the end of this parliament, as his fiscal rule stipulates. But downward revisions to debt interest forecasts by the Office for Budget Responsibility are likely to absolve him again from intensifying the impending fiscal squeeze in the Budget on March 16.
China's data on Monday were beyond dire, leading to a dramatic downward revision of our already grim Q1 GDP forecasts for the country.
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.
Media reports allege that the Chancellor's Budget pared back the fiscal squeeze planned for the next couple of years. The Director of the Office for Budget Responsibility, Robert Chote, even compared the Chancellor to Saint Augustine, who supposedly said "make me pure, but not yet."
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%.
Wage growth in the euro area slowed slightly last year, consistent with the rapid deceleration in economic growth since the end of 2017, though it remained robust overall.
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 labour market was pretty robust before the coronavirus crisis.
The turmoil in Washington has begun to hit markets. We don't know how this will end, but we do know that it isn't going away quickly.
Japan's inflation target came under heavy fire yesterday, as Finance Minister Taro Aso suggested that "things will go wrong if you focus too much on 2%."
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.
Fiscal stimulus, partly financed by a border adjustment tax, and Fed rate hikes, were supposed to be a powerful cocktail driving a stronger dollar in 2017. But so far only the Fed has delivered--we expect another rate hike next month--while Mr. Trump has disappointed in the White House.
The defeat in the House of Lords of the Government's plans to cut spending on tax credits by £4.4B next year is not a barrier to their implementation. But it has prompted speculation that the Chancellor will reduce the size of the fiscal consolidation planned for next year. The plans may be tweaked in the Autumn Statement on 25 November, but we think the economy will still endure a major fiscal tightening next year.
Recent consumer confidence numbers have been strong enough that we don't need to see any further increase. The expectations components of both the Michigan and Conference Board surveys are consistent with real spending growth of 21⁄2-to- 3%, which is about the best we can expect when real income growth, after tax, is trending at about 21⁄2%.
Slowing FAI growth underscores the urgency for more PBoC easing October was painful and the slowdown in Chinese IP growth is far from over and no, households in China won't come to the economy's rescue. Japan sneaks in a tax hike; GDP data unfazed. Japan's tertiary index jars with the GDP data.
Companies' profit margins have fared relatively well during this recovery, and on many measures, they are back to pre-crisis levels. But looking ahead, corporate profitability is set to be squeezed as labour takes a larger share of national income and the Government gets to grips with the budget deficit by increasing corporate taxation.
Japan's machine tool orders remain nasty. Japan's M2 growth shows first signs of looming tax hike.
Japan's tertiary index remains below trend despite looming tax hike
China still is on track for mild CPI deflation by Q4, PPI deflation in China has bottomed out , Core machine orders in Japan tank in the wake of the state of emergency, Adverse base effects from last year's tax hike will delay Japan's exit from PPI deflation, Surprise spike in Korea's unemployment rate makes sense given the plunge in jobs created
Another deadline has come and gone in the negotiations between Greece and its creditors. This week's meeting between EU finance ministers revealed that the creditors have not seen enough commitments unlock the €7B Greece needs to repay in July. Mr. Tsipras has agreed to energy sector privatizations, and to increase the threshold for income tax exemption.
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.
The draft Eurogroup document circulated Sunday evening indicates that European leaders seemingly are willing to offer Greece a new bailout. But it is conditional on passing required legislation reforming pensions and taxes on Wednesday. A "time-out" from the Eurozone, was discussed as a bizarre alternative, but this would be the equivalent of Grexit and default.
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.
Judgement pending on Chinese industrial production. Chinese retail sales buoyed by inflation. Chinese FAI growth stable through Q4; local government spending better managed this year. China's housing market still not reached a bottom. Japan's tertiary index plunge is more tax hike than typhoon. Japan's PMIs underline damage from tax hike.
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?
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.
Fed Chair Yellen's Testimony yesterday pretended the election hadn't happened, and ignored the incoming administration's plans for a huge fiscal stimulus. She did address the issue under questioning, though, pointing out that fiscal stimulus could have inflationary consequences and that the Fed will have to factor-in to its decisions whatever Congress decides to do to taxes and spending.
Donald Trump's inauguration on Friday might mark the beginning of a new era for both the U.S. and the global economy. For commodity-producing Latam countries, such as Chile, Peru and Colombia, attention will shift to Trump's proposed tax reforms, pro-business agenda and planning infrastructure spending. Mexico, on the other hand, will be grappling with Mr. Trump's trade and immigration policies.
Are there any signs that the U.S. tax cuts and/or regulatory relaxation are stimulating increased non-residential fixed investment?
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.
In one line: Still no sign of a slowdown in tax receipt data.
Japan's wage growth is not strong enough to support households through the tax hike
Steady Q4 GDP growth in China masks respectable q/q rebound. Signs of recovery in China's industrial complex, but for how long? China's households continue to struggle. China's FAI growth shows rebuilding confidence around the Phase One deal. Japan's November tertiary index suggests October plunge was more tax than typhoon. January sees the first of many BoK "holds" this year.
China's PMIs are not yet fully picking up the coronavirus; China's non-manufacturing PMI lifted by local government spending; not yet hit by the virus; Japan's job postings still suggest the unemployment rate is unsustainably low; Japan's national inflation has less far to fall than Tokyo's; The coronavirus will delay the return of Japanese retail sales to pre-tax hike levels; Investment goods drive Japan's IP rebound in December; no real support now for consumer goods production; December probably is as good as it will get for Korean industrial production, for now
Japan GDP now shows more of the tax distortions. Japan's current account surplus is likely to see another downshift. Chinese imports boosted soybeans and circuits. China's FX reserves slide in November, as Phase One talks enter crunch time.
In one line: Too soon to take fright from the slowdown in tax receipts.
Growth Has Peaked as the Tax Cut Boost Fades...But the Labor Market is Keeping the Fed on Track
In one line: The rebound from the tax hit continues, fitfully.
In one line: Looser fiscal targets will have to be adopted in response to methodological changes and sluggish growth in tax revenues.
BoJ snubs the doves. Japan's unemployment rate downtick was minimal. The weak external backdrop dominates Japan's pre-tax front-loading industrial activity.
Japan's December wage data suggest household in no mood to weather tax hike
Further weakness to come for Japan's manufacturing PMI. First services hit from the coronavirus is damning. Japan's all-industry activity index suggests the 2019 tax hike was as bad as 2014. A drop in food inflation was enough to offset lagged oil pressures in Japan's January CPI. Ignore the headline; the coronavirus is now hurting Korean exports.
Non-core items outweigh government measures in Japan's October CPI. Ignore the minor rebound in Japan's manufacturing PMI; the trend remains very weak. The post-tax drop and rebound in Japan's services PMI isn't as sharp, but Q4 looks vulnerable to a painful GDP hit.
Japan's trade balance continues to struggle with oil gains and post-tax hike recovery. Activity index shows downside risks to Q4 GDP.
Japan's Q1 GDP number leaves sales tax delay on the table
Japanese labour data show early signs of virus hit. Japan's industrial production in a slow recovery... pre-virus. Japan's retail sales still trying to make up lost ground after the tax hike. Tokyo prices already showing signs of virus hit? Korean industrial production wobbles before virus hit.
Larger-than-expected collapse in Japanese retail sales highlight inefficacy of tax-smoothing efforts
Japan's stable unemployment rate belies underlying weakness. Tokyo energy inflation turns the corner. Sales tax preparations breathe life into Japanese production in May... if only temporarily. Korea's IP plunge in May shows why Japan can't rest on its laurels.
More evidence of the damage from the tax hike.
Would CPI Inflation be above the 2% target, if the government had not cut VAT?
Samuel Tombs, Chief U.K. Economist at Pantheon Macroeconomics crunches the figures from the manifestos and tracks sterling against the latest opinion polls.
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