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In one line: Soft, but still consistent with solid growth in consumption.
In one line: The downtrend resumes, but take the headline with a pinch of salt.
In one line: Lukewarm ... but still consistent with decent growth in spending.
All the evidence indicates that growth in Eurozone consumers' spending is slowing. We think data today will show that the advance GfK consumer sentiment index in Germany was unchanged at 9.5 in April, but the headline index does not correlate well with spending. The "business expectations" index is better, and while it likely will increase slightly, our first chart shows that it continues to signal a slowdown in consumers' spending growth.
The squeeze on real wages has just ended and GfK's consumer confidence index hit a 11-month high in March.
Markets cheered soaring business surveys in the Eurozone earlier this week, and recent consumer sentiment data also have been cause for celebration. The advance GfK consumer confidence index in Germany rose to a record high of 10.4 in June, from 10.2 in May.
Consumer sentiment data yesterday from the major economies were mixed, signalling that support to Eurozone GDP growth from surging German household consumption is waning. The key "business outlook" index--which correlates best with spending--plunged to a 30-month low in October, while the advance GfK sentiment index dipped to 9.4 in November from 9.6 in October. We see little signs in retail sales data of slowing momentum, and also think consumers' spending rebounded in Q3. But our first chart shows that the fall in the GfK index implies clear downside risks in coming quarters.
Survey data in the Eurozone were mixed yesterday. In Germany, the advance GfK consumer sentiment index slipped to 10.0 in October, from 10.2 in September, marginally below consensus forecasts. The details, reported for September, also were soft.
As we go to press, it appears that politicians in Italy have agreed on a 2019 budget deficit of 2.4% of GDP.
This is the final report before your scribe disappears into the Scottish Highlands for a few weeks, and we are leaving you with a Eurozone economy in fine form. The calendar will be relatively light in our absence and will tell us what we already know; namely that the euro area economy maintained its strong momentum in Q2.
Yesterday's money supply data in the Eurozone were solid across the board.
Wage growth will be crucial in determining how quickly the MPC raises interest rates this year. So far, it hasn't recovered meaningfully.
May's E.C. Economic Sentiment survey was a blow to hopes that the six-month stay of execution on Brexit would facilitate a recovery in confidence.
Judging by the survey data, German business sentiment remained depressed at the start of the year.
Headline money supply growth in the Eurozone accelerated further at the start of Q2.
Surveys released yesterday failed to support the MPC's view that the economy has bounced back in Q2.
Households' saving decisions will play a key role in determining whether the economy slips into recession over the next year. Indeed, all of the last three recessions coincided with sharp rises in the household saving rate, as our first chart shows. Will households save more in response to greater economic uncertainty?
German retail and consumer sentiment data for March have been mixed this week, but broadly support our call that growth in consumption should pick up soon.
Money supply data continue to support the continuation of cyclical recovery in the Eurozone. M3 growth accelerated to 4.0% year-over-year in February from a revised 3.7% in January. Revisions, however, mean that momentum in the beginning of the year was not as solid as we thought.
Data from trade body U.K. Finance show that mortgage lending has remained unyielding in the face of heightened economic and political uncertainty.
Yesterday's consumer sentiment data provided further evidence of a strengthening French economy, amid signs of cracks in the otherwise solid German economy.
Headline money supply growth in the Eurozone has averaged 5% year-over-year since the beginning of 2015; yesterday's October data did not change that story.
Developments over the last month have heightened our concern about the near-term outlook for households' spending.
Yesterday's ECB meeting painted a picture of a central bank in wait-and-see mode. The main refinancing and deposit rates were kept at 0.00% and -0.4% respectively, and the marginal lending facility rate also was unchanged at 0.25%.
Yesterday's consumer confidence report in Germany was soft, in contrast to surging business sentiment data earlier in the week.
Reports yesterday indicated that a deal has finally been struck between the European Commission and the Italian government to start dealing with bad loans in the banking system. The initial details suggest the government will be allowed to guarantee senior tranches on non-performing loans, supposedly making them easier to sell to private investors. In order to avoid burdening government finances as part of the sales--not allowed under the new banking union rules--the idea is to price the guarantees based on the credit risk of similar loans.
The Conservatives' opinion poll rating has fallen dramatically over the last 10 days or so, pushing sterling down and forcing investors to confront the possibility that Theresa May might not increase her majority much from the current paltry 17 MPs.
On the face of it, markets' newfound view that the MPC's next move is more likely to be a rate cut than a hike was supported by May's Markit/CIPS PMIs.
The slump in the Markit/CIPS services PMI in November to its lowest level since July 2016 provides the clearest indication yet that uncertainty about Brexit has driven the economy virtually to a stand-still.
Friday's economic data in Germany suggest that households had a slow start to the year.
It would be a mistake to conclude from July's car registrations data that the market finally has turned a corner.
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.
Industrial production data in Germany continued to defy the signal of doom and gloom from leading indicators.
Yesterday's economic reports showed that the German economy firmed at the end of Q1, but this doesn't change the story for a poor quarter overall.
The 10.3% year-over-year decline in private new car registrations in April likely is not a sign that the trend in either vehic le sales or consumers' overall spending is taking a turn f or the worse.
The Conservatives are rallying in the opinion polls, as their uncompromising line on leaving the E.U. by October 31, come what may, resonates with Brexit party supporters.
A general election this year now looks inevitable, after the defection of Phillip Lee MP from the Tories to the Lib Dems, and the PM's threat to seek an election if MPs take control of the Order Paper on Tuesday evening.
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.
While we were enjoying a rare sunny bank holiday in the U.K., data showed that Eurozone money supply growth slowed at the start of Q3. Broad money growth--M3--fell to a 10-month low of 4.5% year-over- year in July, from 5.0% in August.
Last week's May CPI data in the major EZ economies all but confirmed the story for this week's advance estimate for the euro area as a whole.
The preliminary estimate of GDP showed that the economy finished 2016 on a strong note. Output increased by 0.6% quarter-on-quarter, the same rate as in the previous two quarters. The year-over-year growth rate of GDP in 2016 as a whole--2.0%--was low by pre-crisis standards, but it likely puts the U.K. at the top of the G7 growth leaderboard. We cannot tell how well the economy would have performed had the U.K. not voted to leave the EU in June, but clearly the threat of Brexit has not loomed large over the economy.
Further political wrangling yesterday distracted from data showing that the risk of no -deal Brexit is placing increasing strain on the economy.
The 15% fall in the FTSE 100 since its May 2018 peak undoubtedly is an unwelcome development for the economy, but past experience suggests we shouldn't rush to revise down our forecasts for GDP growth.
The further depreciation of sterling yesterday, to its lowest level against the dollar and euro since March 2017 and September 2017, respectively, signified deepening pessimism among investors about the chances of a no-deal Brexit.
Yesterday's data dump in the EZ delivered something investors haven't seen for a while, namely, positive surprises.
Friday's euro area inflation reported capped a difficult week for EZ bondholders, although most of the damage was done beforehand by the advance German data.
It's always dangerous when risk assets rally strongly into an ECB meeting, but we doubt that investors have much to fear from today's session in Frankfurt. We think the central bank will leave its main refinancing and deposit rates at 0.00% and -0.4% respectively.
The MPC will have to issue fresh, dovish guidance in order to satisfy markets on Thursday, which now think the Committee is more likely to cut than raise Bank Rate within the next six months.
German inflation eased in May, but the underlying upward pressure on the core is increasing. Yesterday's data showed that inflation fell to 1.5% year-over-year in May, from 2.0% in April, as the boost from the late Easter reversed. Inflation in leisure and entertainment services was driven down to +0.8%, from +3.3% in April, as a result of sharply lower inflation in package holidays and airfares.
The worst phase of the squeeze on real wages is nearly over; CPI inflation looks set to peak at slightly above 3% in October, before falling back steadily to about 2% by the end of 2018.
ebruary's labour market data failed to make a resounding case for the MPC to raise interest rates in May, prompting markets to reduce the probability attached to a hike next month to 85%, from nearly 90% before the data were released.
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.
Sterling took another pounding last week. Resignations from the Cabinet, protests by the DUP, and the public submission of letters by 21 MPs calling for a confidence vote in Mrs. May's leadership, imply that parliament won't ratify the current versions of the Withdrawal Agreement and the Political Declaration on the future relationship with the E.U. next month.
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.
The consensus for retail sales volumes to rise by a mere 0.3% month-to-month in November, after falling by 0.4% in September and 0.5% in Oc tober, looks too downbeat.
Mark Carney emphasised in his Mansion House speech last month that he wants wage growth to "begin to firm" from recent "anaemic" rates before voting to raise interest rates.
April's Retail Sales Monitor from the British Chambers of Commerce, released yesterday, provided a powerful signal that households' spending rebounded in April, following a terrible Q1.
Economy-wide confidence deteriorated in November, highlighting that Britain continues to struggle to shake off its malaise.
We're inclined to place little weight on July's E.C. Economic Sentiment Survey, which showed that consumers' confidence has picked up to its highest level since October 2016; see our first chart.
Friday's economic data added to the evidence of a Q1 rebound in EZ consumption growth.
It's tempting to conclude from the recent decline in consumers' confidence that growth in real spending will continue to weaken over the coming quarters, from the already modest 1.8% year-over-year rate in Q3.
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.
Surveys released over the last week have suggested that the housing market might be past the worst.
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.
Sterling has appreciated sharply over the last two weeks and yesterday briefly touched its highest level against the euro since May 2017.
The economy's fragility was underlined by the Q3 national accounts, released just before the Christmas break.
The headline in yesterday's detailed Q1 German GDP data was old news, confirming that growth in the euro area's largest economy slowed at the start of the year.
The second estimate of GDP left the estimate of quarter-on-quarter growth unrevised at 0.3%, a trivial improvement on Q1's 0.2% gain.
We still think it is a question of when--not if-- MPs will be successful in taking a no -deal Brexit off the table.
As expected, the ECB made no changes to its policy stance today. The refi and deposit rates were left at 0.00% and -0.4%, respectively, and the pace of purchases under QE was maintained at €30B per month.
The IFO survey released yesterday provides further evidence that the cyclical recovery in Germany's economy continued in the current quarter. The headline business climate index rose to 107.9 in March from 106.8 in February, lifted by increases in both the current assessments and expectations index.
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.
Economic data in the Eurozone are sending an increasingly upbeat message on the economy. Yesterday saw a barrage of numbers, but the most startling of them was the continued acceleration in the money supply.
Yesterday's IFO offered a rare upside surprise in the German survey data.
The 1.4% month-to-month rise in retail sales volumes in February is not a game-changer for the economy's growth prospects in Q1. The increase reversed just under half of the 2.9% decline between October and January. The 1.5% fall in retail sales in the three months to February, compared to the previous three months, is the worst result in seven years.
Robust demand in the ECB's final TLTRO auction was the main story in EZ financial markets yesterday. Euro area banks--474 in total-- took up €233.5B in the March TLTRO, well above the consensus forecast €110B. To us, this strong demand is a sign that EZ banks are taking advantage of the TLTROs' incredibly generous conditions.
Sterling jumped last week to its highest level against the dollar since last October in response to news that a general election will be held on June 8. Markets are betting that the Conservative Government will sharply increase its majority, enabling Theresa May to ignore Eurosceptic backbenchers when she strikes a deal with the EU.
Elections will be held on Thursday in two constituencies vacated recently by Labour MPs. Betting markets are pricing-in a 70% chance that the Conservatives will win the by-election in Copeland--even though they trailed Labour there by eight points in the general election in 2015--mainly because around 60% of Copeland's electorate voted to leave the EU last year.
The 1.2% month-to-month fall in retail sales volumes in March undoubtedly was due mostly to the bad weather.
While financial markets remain obsessed with the Brexit saga, January's labour market data provided more evidence yesterday that the economy is coping well with the heightened uncertainty.
Signs of a slowdown in the labour market data are conspicuously absent.
The Eurozone's external surplus is on track for a record-breaking year in 2016. Data yesterday showed that the current account surplus rose to €28.4B in October, from €27.7B in September. The trade surplus in goods fell, but this drag was offset by a higher services and income surplus, and a lower current transfers deficit.
The MPC's unanimous decision to keep Bank Rate at 0.75% and the minutes of its meeting left little impression on markets, which still see a higher chance of the MPC cutting Bank Rate within the next 12 months than raising it.
Household spending has been the sole source of growth in the economy so far this year, amid worsening investment and net trade. Today's official retail sales figures, however, look set to show that consumers suffered the Brexit blues in June.
Data today will likely show that consumer sentiment in the Eurozone remains firm. In Germany, we expect a slight dip in the advance headline GFK confidence index to 9.8 in June, from an all-time high of 10.1 in May.
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