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464 matches for "outlook":
Eurozone H1 2019 Outlook
U.K. H1 2019 Outlook
Asia H1 2019 Outlook
Latam H1 2019 Outlook
The coronavirus outbreak and its associated movements in asset prices have radically changed the outlook for CPI inflation, which ultimately the MPC is tasked with targeting.
U.S. H1 2019 Outlook
Pantheon Macroeconomics is pleased to make available to you our Outlooks for the second half of 2017 for the US, Eurozone, UK, Asia, and Latin America. These reports present our key views, giving you a concise summary of our economic and policy expectations. If you are interested in seeing publications which you don't already receive, please request a complimentary trial
Argentina's near-term economic outlook remains murky, as recent data has highlighted, hit by tighter financial conditions.
Pantheon Macroeconomics is pleased to make available to you our Outlooks for the second half of 2017 for the US, Eurozone, UK, Asia, and Latin America. These reports present our key views, giving you a concise summary of our economic and policy expectations. If you are interested in seeing publications which you don't already receive, please request a complimentary trial
Pantheon Macroeconomics is pleased to make available to you our Outlooks for the second half of 2017 for the US, Eurozone, UK, Asia, and Latin America. These reports present our key views, giving you a concise summary of our economic and policy expectations. If you are interested in seeing publications which you don't already receive, please request a complimentary trial
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, discusses the outlook for China's economy as the World Bank cut its forecast for global growth. The World Bank's report included a downward revision for China to 5.9%, which would be the first sub-6% reading since 1990. Beamish speaks on "Bloomberg Surveillance."
China's Recovery Tentatively Pending *Japan is Weaker than it Looks *The Worst is Over in Korea *Expect an RBI U-Turn
Muddling Through, Supported by Super-Easy Monetary Policy
We expect growth in Latin America--except Mexico--to improve in 2017, especially during the second half...
The Eurozone economy will have a bright start to 2017, but we think growth over the year as a whole will slow modestly compared with 2016.....
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.
Investor sentiment data still indicate that EZ PMIs are set for a significant rebound at start of the year.
CPI inflation looks set to remain below the 2% target this year, driven by sterling's recent appreciation and lower energy prices.
In a week of important global events, local factors remained in the spotlight in Brazil, with a more benign data flow and the central bank statement reducing the likelihood of an imminent end to the easing cycle.
Yesterday's industrial production report in Germany was much better than implied by the poor new orders data--see here--released earlier this week.
The adverse consequences of the Brexit vote will become painfully clear in 2017.....
Inflation in Brazil ended 2018 under control, despite slightly overshooting expectations.
The economic and political backdrop to this week's Monetary Policy Committee meeting is significantly more benign than when it last met on September 19.
LatAm Cyclical Recovery is Set to Resume, but Threats Still Remain
Our Brexit base case is that the new Prime Minister will request, and the E.U. will grant, another lengthy extension of the U.K.'s membership in October, thereby perpetuating damaging uncertainty, but avoiding the pain of no-deal.
The March money and credit figures provide more evidence that the economy's weak start to the year won't be just a blip.
The U.S. faces greater uncertainty now than at the start of any previous year in recent memory...
Lower Rates are a Mistake Unless the Trade War Intensifies
Brazil's economic outlook is gradually improving following a challenging Q2, which was hit by political risk, putting business and consumer confidence under pressure.
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.
Yesterday's November EZ construction data offered little respite to the gloomy outlook for the Q4 GDP headline.
Central banks in Chile and Peru kept their reference rates unchanged last week, as expected, as inflation pressures in both countries are starting to ease. But different economic outlooks are emerging. Chile's economy continues to disappoint, while Peru's is picking up. Indeed, Peru is the only country in the region with clear positive momentum.
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."
Leading indicators are giving conflicting signals regarding the outlook for core goods CPI inflation.
The hard data in Germany took a turn for the worse at the start of Q4. The outlook for consumers' spending was dented by the October plunge in retail sales--see here-- and on Friday, the misery spilled over into manufacturing.
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.
A less rapid tightening of monetary policy in the U.K. than in the U.S. should ensure that gilt yields don't move in lockstep with U.S. Treasury yields over the coming years. But the outlook for monetary policy isn't the only influence on gilt yields. We expect low levels of market liquidity in the secondary market, high levels of gilt issuance and overseas concerns about the possibility of the U.K.'s exit from the E.U. to add to the upward pressure on gilt yields.
The outlook for Argentina is improving. We expect economic growth to remain quite strong over the next year, despite a relatively soft start to 2017 and increasing external threats in recent weeks. The INDEC index of economic activity--a monthly proxy for GDP--is volatile, rising 1.9% month-to-month in March after a 2.6% drop in February, but the underlying trend is improving.
Chile's near-term economic outlook is still negative, but clouds have been gradually dispersing since late Q4, due mostly to better news on the global trade front, China's improving economic prospects, and rising copper prices.
The near-term performance for EZ manufacturing will be a tug-of-war between positive technical factors, and a still-poor fundamental outlook.
LatAm's growth outlook is deteriorating, despite decent domestic fundamentals and political transitions toward more market-oriented governments in some of the region's main economies.
Data released this week have confirmed that the Mexican economy is struggling and that the near-term outlook remains extremely challenging.
We have spent the past few weeks shifting our story on the EZ economy from one focused on slowing growth and downside risks to a more balanced outlook. It seems that markets are starting to agree with us.
The outlook for Argentina is gradually improving, after a long and painful recession.
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.
Developments over the last month have heightened our concern about the near-term outlook for households' spending.
Chief U.K. Economist Samuel Tombs comments on U.K. Manufacturing
Detailed German inflation data today likely will confirm that inflation fell to 0.3% year-over-year in December from 0.4% in November, mainly due to falling food inflation. Preliminary data suggest that food inflation declined sharply to 1.4% from 2.3% in November, offsetting slower energy price deflation, due to base effects. Food and energy prices are wild cards in the next three-to-six months, and could weigh on the headline, given the renewed weakness in oil prices, and lower fresh food prices. Core inflation, however, is a lagging indicator, and will continue to increase this year.
he ECB governing council gathered last week under the leadership of Ms. Lagarde for the first time to lay a battle plan for the course ahead.
The PBoC reduced its 14-day reverse repo by 5bp to 2.65% in a routine operation yesterday.
A lot of ink has been spilled over the relative significance of the supply and demand effects of Covid-19, but the short-term story is clear.
The next couple of rounds of business surveys will capture firms' responses to the Phase One trade deal agreed last week, though the news came too late to make much, if any, difference to the December Philly Fed report, which will be released today.
Most of the Andean economies have been hit by the turmoil roiling the global economy in the past few quarters. But modest recovery in commodity prices in Q3, and relatively solid domestic fundamentals helped them to avoid a protracted slowdown in Q2 and most of Q3.
To paraphrase recent correspondence: "How can you possibly believe, given the terrible run of economic data and the turmoil in the markets, that the Fed will raise rates in March/June/at all this year?" Well, to state the obvious, if markets are in anything like their current state at the time of the eight Fed meetings this year, they won't hike. That sort of sustained downward pressure and volatility would itself prevent action at the next couple of meetings, as did the turmoil last summer when the Fed met in September. And if markets were to remain in disarray for an extended period we'd expect significant feedback into the real economy, reducing--perhaps even removing--the need for further tightening.
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.
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.
Colombia's GDP growth was a poor 1.6% year-over- year in Q4, down from 2.3% in Q3, despite the oil recovery and the COP's rebound since mid-year. GDP rose a modest 0.3% quarter-on-quarter, after a 0.8% increase in Q3.
The BoJ held firm, for the most part, during this year's bout of central bank dovishness.
Economic and financial conditions continue to deteriorate sharply in LatAm.
Economic data released in recent weeks underscore that Brazil emerged from recession in Q1, but the recovery is fragile and further rate cuts are badly needed. The political crisis has damaged the reform agenda, and political uncertainty lingers.
Argentina's inflation ended 2019 badly, and it is still too early to bet on a protracted downtrend, even after the renewed economic slowdown.
Local policy drivers have remained in the spotlight in Brazil, against a background of important recent global events.
Prospects for further rate cuts in Brazil, due to the sluggishness of the economic recovery and low inflation, have played against the BRL in recent weeks.
We don't expect any major policy announcements at today's ECB meeting. We think the central bank will keep its main refinancing rate unchanged at 0.0%, and we expect the deposit and marginal lending facility rates to remain at -0.4% and 0.25%, respectively.
Recent economic indicators in Brazil have undershot consensus in recent weeks, but the economy nonetheless continues to recover.
The recent increases in single-family housing construction are consistent with the rise in new home sales, triggered by the substantial fall in mortgage rates over the past year.
The run of weak retail sales figures continued yesterday, with the release of November's official data.
The labour market was pretty robust before the coronavirus crisis.
Brazil's recession is getting uglier. Real GDP in Brazil fell 1.7% quarter-on-quarter in Q3, much worse than expected, though marginally less terrible than the downwardly revised 2.1% contraction in Q2. Year-over-year, the economy plunged by 4.5% in the third quarter, down from -3.0% in Q2, and -2.5% in the first half. The disappointment was widespread in Q3; though rising mining output was a positive, the underlying trend in mining is still falling. The key story here, though, is that the economy has sunk into its worst slump since the Great Depression.
LatAm assets and currencies had a bad November, due to global trade war concerns, the USD rebound and domestic factors.
The Brazilian Central Bank's policy board-- Copom--voted unanimously on Wednesday to cut the Selic rate by 50bp to 6.0%.
Brazil's December industrial production and labour reports, released this week, confirmed that the recovery remained solidly on track at the end of last year.
While were out over the holidays, the single biggest surprise in the data was yet another drop in imports, reported in the advance trade numbers for November.
Banxico cut its policy rate by 25bp to 7.25% yesterday, as was widely expected, following similar moves in August, September and November.
Brazil's central bank kept the Selic policy rate at 6.50% this week, as markets broadly expected.
The number of Covid-19 cases is increasing at a faster rate, though 89% of the new cases reported Saturday were in China, South Korea, Italy and Iran.
Chile's Q3 GDP report, released yesterday, confirmed that the economy gathered speed in the third quarter, but this is now in the rearview mirror.
The BoJ is likely to be thankful next week for a relatively benign environment in which to conduct its monetary policy meeting.
The Brazilian central bank cut its benchmark Selic interest rate by 50bp to 4.50% on Wednesday night.
Today's November retail sales numbers are something of a wild card, given the absence of reliable indicators of the strength of sales over the Thanksgiving weekend, and the difficulty of seasonally adjusting the data for a holiday which falls on a different date this year.
Friday's economic data added to the evidence that the German economy stumbled in July. The seasonally adjusted trade surplus slipped to €19.4B, from a revised €21.4B in June.
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.
In yesterday's report we discussed the recent performance of current inflation and inflation expectations in the biggest economies in LatAm, highlighting that risks are tilted to the upside, given the recent FX sell-off and rising political and external risks.
The ECB and Ms. Lagarde played it safe yesterday.
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.
More evidence indicating that the recovery in global industrial activity is underway and gaining momentum- has poured in. In particular, trade data from China, one of LatAm's biggest trading partners, was stronger than the market expected last month. Both commodity import and export volumes increased sharply in January, and this suggests better economic conditions for China's key trading partners.
Investors concluded too hastily yesterday that November's GDP report boosted the chances that the MPC will cut Bank Rate at its upcoming meeting on January 30.
Last week, while we were taking our spring break at home, markets behaved relatively well in LatAm.
Chile's market volatility and high political risk continue, despite government efforts to ease the crisis.
The NY Fed's announcement yesterday restarts QE. The $60B of bill purchases previously planned for the period from March 13 through April 13 will now consist of $60B purchases "across a range of maturities to roughly match the maturity composition of Treasury securities outstanding".
China's State Administration of Foreign Exchange-- SAFE--yesterday refuted claims, made earlier in the week, that senior government officials had recommended slowing or halting purchases of U.S. Treasuries.
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.
The MPC's pause for breath last week disappointed a majority of investors, who thought that it would at least tweak aspects of the support programmes put in place in March.
The apparent thaw in the U.S.-China trade dispute is great news for LatAm, particularly for the Andean economies, which are highly dependent on commodity prices and the health of the world's two largest economies
It's just not possible to forecast the reaction of businesses and consumers to the coronavirus outbreak.
At least some investors clearly were expecting Fed Chair Powell yesterday to offer a degree of resistance to the idea that a rate cut at the end o f this month is a done deal.
Mexico's latest forward-looking indicators are showing tentative signs of stabilisation in the wake of recent evidence that growth slowed quicker than markets have been expecting.
Recent inflation numbers across the biggest economies in LatAm have surprised to the downside, strengthening the case for further monetary easing.
The U.K. general election is the main event in today's European calendar, but the first official ECB meeting and press conference under the leadership of Ms. Lagarde also deserves attention.
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".
The latest GDP data confirm that the economy ended last year on a very weak note.
Yesterday's minutes of the February 4-to-5 COPOM meeting, at which Brazil's central bank, the BCB, cut the benchmark Selic rate by 25bp to 4.25%, reaffirmed the committee's post-meeting communiqué.
The FOMC did mostly what was expected yesterday, though we were a bit surprised that the single rate hike previously expected for next year has been abandoned.
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.
Manufacturing in the EZ was held above water by Ireland at the end of Q3.
Evidence of accelerating economic activity in Colombia continues to mount, in stark contrast with its regional peers and DM economies.
We're sticking to our call that the Eurozone PMIs have bottomed, though we concede that the picture so far is more one of stabilisation than an outright rebound.
Economic data released yesterday underscored that Brazil emerged from recession in the first quarter, but further rate cuts are needed. Indeed, the monthly economic activity index--the IBC-Br--fell 0.4% monthto- month in March, though this followed a strong 1.4% gain in February.
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 expect the flash reading of Markit's composite PMI, released today, to print at 52.4 in February, below the consensus, 52.8, and January's final reading, 53.3, albeit still in line with last month's flash.
Over the past 30 years China's role in LatAm and the global economy has increased sharply. Its share of world trade has surged, and its exports have gained significant market share in LatAm.
The 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.
The labour market remains healthy enough to persuade the MPC to keep its powder dry over the coming months.
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.
Banxico will meet tomorrow, and we expect Mexican policymakers to cut the main interest rate by 25bp, to 7.25%.
China's activity data yesterday made pretty uncomfortable reading for policymakers.
Latin American markets and policymakers are bracing for another complicated week, after the second, and more aggressive, Fed emergency move over the weekend.
The new Argentinian president, Alberto Fernández, will have to make a quick start on the titanic task of cleaning up the economic and social mess left by his predecessor, Mauricio Macri.
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.
The ECB did its utmost not to say or do anything remotely novel today. The central bank kept its main refinancing and deposit rates unchanged at 0.00% and -0.40%, respectively, and reiterated its plan for QE next year.
Markets' reaction last week to the ECB's October meeting accounts--see here--shows that investors are beginning to take seriously the idea of an inflection point in Eurozone monetary policy.
The hard economic data in Brazil were relatively solid while we were off last week, supporting our view that the economy was experiencing a good spell at the start of the year just before the coronavirus hit.
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.
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.
On a headline level, the ECB conformed to expectations yesterday.
Few Eurozone investors are going blindly to accept the rosy premise of last week's relief rally in equities that both a Brexit and a U.S-China trade deal are now, suddenly, and miraculously, within touching distance. But they're allowed to hope, nonetheless.
We expect September's consumer prices report, released on Wednesday, to show that CPI inflation held steady at 1.7%, below the 1.8% consensus.
Yesterday's second Q3 GDP estimate confirmed that the EZ economy expanded by 0.2% quarter-on- quarter in Q3, the same pace as in Q2, leaving the year-over-year rate unchanged at 1.2%.
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.
Colombia has been one of LatAm's outperformers this year.
Back-to-back elevated weekly jobless claims numbers prove nothing, but they have grabbed our attention.
January's Markit/CIPS manufacturing survey suggests that the outcome of the general election has brought manufacturers some momentary relief.
Brazil's December industrial production and labour reports, released late last week, confirmed that the recovery was struggling at the end of last year.
Japan's services PMI edged down to 52.0 in March, from 52.3 in February, taking the Q1 average to 52.0, minimally up from Q4's 51.9.
The virus outbreak has been relatively limited so far in Argentina, with 820 confirmed cases, but the numbers are rising rapidly.
Yesterday's first estimate of full-year 2017 GDP in Mexico indicates that growth was relatively resilient, despite domestic and external threats and the hit from the natural disasters over the second half of the year.
The key story in Brazil this year remains one of gradual recovery, but downside risks have increased sharply, due mainly to challenging external conditions.
We are revising down our forecasts for quarteron-quarter GDP growth in Q1 and Q2 to 0.3% and 0.2%, respectively, from 0.4% in both quarters previously, to account for the likely impact of the coronavirus outbreak.
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.
The comforting 183K increase in February private payrolls reported by ADP yesterday likely overstates tomorrow's official number.
Yesterday's EZ consumers' spending data were mixed. Retail sales in the euro area fell by 0.3% month-to-month in May, extending the slide from a revised 0.1% dip in April.
The Budget on March 11 will be the first time that the new government's ambition and bluster collide with reality.
We continue to distrust the suggestion from the Markit/CIPS PMIs that the economy is in recession.
China's industrial profits data for August were a mixed bag.
French consumer confidence and consumption have been among the main bright spots in the euro area economy so far this year.
The Brazilian economy managed to avert a technical recession over the first half of the year.
Yesterday's economic reports in the euro area were mixed.
The substantial gap between the key manufacturing surveys for the U.S. and China, relative to their long-term relationship, likely narrowed a bit in December.
The data in LatAm were all over the map while we were out.
The absence of hawkish undertones in the minutes of the MPC's meeting or in the Inflation Report forecasts took markets by surprise yesterday. The dominant view on the Committee remains that the economy will slow over the next couple of years, preventing wage growth from reaching a pace which would put inflation on trac k permanently to exceed the 2% target.
Yesterday's FOMC , announcing a unanimous vote for no change in the funds rate, is almost identical to December's.
The business cycle upturn in the Eurozone likely will remain resilient in the first half of 2017. Friday's money supply data showed that headline M3 growth increased to 5.0% in December, from 4.9% in November.
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.
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.
Markets see a strong possibility, though not a probability, that the BoJ will cut rates on Thursday.
The U.S. coronavirus outbreak is not slowing. The curve is not bending much, if at all. Confirmed cases continue to increase at a steady rate, averaging 23% per day over the past three days.
The massive hit from low oil prices, Covid-19 and President AMLO's willingness to call snap referendums on projects already under construction is putting pressure on Mexico's sovereign credit fundamentals and ratings.
Speculation mounted yesterday that the MPC will follow the U.S. Fed and cut interest rates before its next meeting on March 26.
Brazil heads to the polls on Sunday, followed by an expected run-off on October 28.
The housing market perhaps is where the adverse impact of Brexit uncertainty can be seen most clearly.
Calling the ECB has suddenly become a lot more complicated.
The ink has hardly dried on economists' and the ECB's inflation projections for 2020, but we suspect that some forecasters are already considering ripping up the script.
Colombia was the fastest growing LatAm economy in 2019, due mostly to strong domestic demand, offsetting a sharp fall in key exports.
The $10 increase in the price of Brent crude oil over the last three months to $68 is an unhelpful, but manageable, drag on the U.K. economy's growth prospects this year.
Investors now see a 50/50 chance of the MPC cutting Bank Rate within the next nine months, following the slightly dovish minutes of the MPC's meeting, and its new forecasts.
Manufacturers in Germany endured another miserable quarter in Q3.
Productivity statistics released yesterday continued to paint a bleak picture. Output per worker rose by a mere 0.1% year-over-year in Q3, despite jumping by 0.6% quarter-on-quarter.
January's GDP report, released on Wednesday, was set to be one of the most important data releases of this year, due to its role in providing the first official steer on the economy's post-election performance.
The German manufacturing sector appears to have settled into an equilibrium of sustained misery.
In Mexico, Banxico left its policy rate unchanged at 7.75% last Thursday, as was widely expected.
Markets clearly love the idea that the "Phase One" trade deal with China will be signed soon, at a location apparently still subject to haggling between the parties.
The economic data calendar for next week is so congested that we need to preview early September's GDP report, released on Monday.
We raised our forecast for today's January payroll number after the ADP report, to 200K from 160K.
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.
We think today's February payroll number will be reported at about 140K, undershooting the 175K consensus.
Consumers' spending in the euro area weakened at the end of Q4, but we think households will continue to boost GDP growth in the first quarter. Data on Friday showed that retail sales fell 0.3% month-to-month in December, pushing the year-over-year rate down to 1.1%, from a revised 2.8% in November.
The post-election run of upbeat business surveys was extended yesterday, with the release of the final Markit/CIPS services PMI for January.
Labor demand, as measured by an array of business surveys, clearly slowed from the cycle peak, recorded late last year.
Chile's IMACEC economic activity index rose 3.9% year-over-year in January, up from 2.6% in December, and 2.9% on average in Q4, thanks to strong mining output growth and solid commercial, manufacturing and services activity.
October's Markit/CIPS services survey suggests that the PM's new Brexit deal has had a lukewarm reception from firms.
Nobody knows the damage China's virus- containment efforts will have on GDP, and we probably never will, for sure, given the opacity of the statistics.
The rally in U.K. equities immediately after the general election has done little to reverse the prolonged period of underperformance relative to overseas markets since the E.U. referendum in June 2016.
The PBoC finally moved yesterday, cutting its one-year MLF rate by 5bp to 3.25%, whilst replacing around RMB 400B of maturing loans.
Yesterday's minutes of the October 31 COPOM meeting, at which the Central Bank cut the Selic rate unanimously by 50bp at 5.00%, reaffirmed the committee's post-meeting communiqué, which signalled that rates will be cut by the "same magnitude" in December.
Chile's stronger-than-expected industrial production report for December, and less-ugly-than- feared retail sales numbers, confirmed that the hit from the Q4 social unrest on economic activity is disappearing.
President Trump tweeted yesterday that he wants to re-introduce tariffs on steel and aluminium imports from Brazil and Argentina, after accusing these economies of intentionally devaluing their currencies, hurting the competitiveness of U.S. farmers.
Brazil has made a convincing escape from high inflation in the past few months, laying the groundwork for a gradual economic recovery and faster cuts in interest rates. Mid-March CPI data, released this week, confirmed that inflation pressures eased substantially this month.
Today's ECB meeting will mainly be a victory lap for Mr. Draghi--it is the president's last meeting before Ms. Lagarde takes over--rather than the scene of any major new policy decisions.
Data released in recent days confirm the story of a struggling economy and falling inflation pressures in Mexico, strengthening our forecast of interest rate cuts over the second half of the year.
The apparent softness of business capex is worrying the Fed.
We suspect that under the calm surface of the BoJ, a major decision is being debated.
This week's key data releases in Mexico likely will reaffirm that growth remains below trend, while inflation continues to ease.
Yesterday was a watershed moment for investors.
The gaps in the third quarter GDP data are still quite large, with no numbers yet for September international trade or the public sector, but we're now thinking that growth likely was less than 11⁄2%.
Rising inflation is pressuring some LatAm central banks to take a cautious stance at a time when growth is subpar, particularly in the two biggest economies of the region.
The ECB made no changes to policy yesterday, leaving its key refinancing and deposit rates unchanged, at 0.00% and -0.5%, and confirmed that it will restart QE in November at €20B per month.
The huge drop in the March Markit services PMI, reported yesterday, and the modest dip in the manufacturing index, are the first national business survey data to capture the impact of the Covid-19 outbreak.
Yesterday's March PMIs confirmed that governments' actions to contain the Covid-19 outbreak dealt a hammer blow to the economy at the end of Q1.
The ECB conformed to expectations today, at least on a headline level.
Brazilian inflation is off to a bad start this year, but January's jump is not the start of an uptrend, and we think good news is coming.
We still don't have the complete picture of what happened to EZ consumers' spending in Q1, but the initial details suggest that growth acceleretated slightly at the start of the year.
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.
High interest rates and inflation, coupled with increasing uncertainty, put Mexican consumption under strain last year.
Sterling's renewed depreciation to just €1.10--just below last year's nadir--has fuelled speculation that it could reach parity against the euro within the next year.
If the only manufacturing survey you track is the Philadelphia Fed report, you could be forgiven for thinking that the sector is booming.
The MPC was a little irked by the markets' reaction to its November meeting.
After the strong Philly Fed survey was released last week, we argued that the regional economy likely was outperforming because of its relatively low dependence on exports, making it less vulnerable to the trade war.
Friday's PMIs were supposed to provide the first reliable piece of evidence of the coronavirus on euro area businesses, but they didn't. Instead, they left economists dazed, confused and scrambling for a suitable narrative.
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.
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.
The economic data in Brazil were poor while we were away.
After three days of jaw-dropping actions from President Trump, the position seems to be this: The U.S. will apply 15% tariffs on imported Chinese consumer goods, rather than the previously promised 10%, effective in two stages on September 1 and December 15.
Data released yesterday confirmed that Mexico's economy ended Q4 poorly, confounding the most hawkish Banxico Board members.
The Prime Minister's resignation and the stillborn launch of the Withdrawal Agreement Bill last week has forced us to revise our Brexit base case, from a soft E.U. departure on October 31 to continued paralysis.
The latest profits data out of China were grim, as we had expected.
The latest E.C. survey shows the gap between firms' and households' confidence levels has remained substantial.
Yesterday's IFO data reversed the good vibes sent by last week's upbeat German PMIs.
Housebuilders were one of the biggest winners from the post-election relief rally in U.K. equity prices.
Net foreign trade was a drag on GDP growth in the second quarter, subtracting 0.7 percentage points from the headline number.
Brazil's external accounts were a relatively bright spot again last year.
LatAm financial and FX markets have behaved relatively well in recent sessions, thanks to the array of monetary and fiscal measures taken to counter the severe risk-off environment.
China's manufacturing PMIs put in a better performance in November, with the official gauge ticking up to 50.2 in November, from 49.3 in October, and the Caixin measure little changed, at 51.8, up from 51.7.
The 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.
Leading economic indicators in the Eurozone continue to send contradictory signals. Most of the headline surveys indicate that a further slowdown, and perhaps even recession, are imminent, while the money supply data suggest that GDP growth is about to re-accelerate.
Our ECB-story since Ms. Lagarde took the helm as president has been that the central bank will do as little as possible through 2020, at least in terms of shifting its major policy tools.
Retail sales in Mexico fell in Q4, but we think households' spending will continue to contribute to GDP growth in the first quarter, at the margin.
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.
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.
Mexico's final estimate of third quarter GDP, released yesterday, confirmed that the economy is still struggling in the face of domestic and external headwinds.
This was supposed to be the year that wage growth finally would pick up and signal clearly to the MPC that the economy needs higher interest rates.
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.
Yesterday's State Council meeting significantly expanded support to the economy, through a number of channels.
Friday's PMI data were a mixed bag.
We are happy to report that the laws of gravity have been temporarily suspended in the German survey data.
The coronavirus pandemic looks set to spread rapidly throughout LatAm.
Data from trade body U.K. Finance show that mortgage lending has remained unyielding in the face of heightened economic and political uncertainty.
The recovery in the composite PMI to 52.4 in January, from 49.3 in December, should convince a majority of MPC members to vote on Thursday to maintain Bank Rate at 0.75%.
Economists refer to two different types of forward rate guidance by central banks: Delphic and Odyssean. The former describes a "normal" situation, in which the central bank follows a transparent rate-setting rule allowing markets to forecast what it will do, based on the flow of economic data.
Yesterday's economic headlines in the Eurozone were pleasant reading.
The BoJ yesterday kept the policy balance rate at -0.1%, and the 10-year yield target at "around zero", in line with the consensus.
The early Q4 hard data in Germany recovered a bit of ground yesterday.
We can't quibble with the consensus that GDP likely rose by 0.2% month-to-month in December, reversing only two-thirds of November's drop.
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.
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.
Data released this week in LatAm are the last calm before the coronavirus storm.
China's official PMIs for March surprised well to the upside, cheering markets across Asia.
Yesterday's money supply data in the Eurozone were alarmingly poor.
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
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 pick-up in GDP in July is a re assuring sign that the economy is on course to grow at a solid rate in Q3, thereby substantially weakening the case for the MPC to cut Bank Rate before Britain's Brexit path is known.
We see clear upside risk to the inflation data due before the FOMC announcement, from three main sources.
Fed Chair Yellen today needs to strike a balance between addressing investors' concerns over the state of the stock market and the risks posed by slower growth in Asia, and the tightening domestic labor market.
In this Monitor we'll let the data be, and try to make some sense of the recent market volatility from a Eurozone perspective, with an eye to the implications for the economy and policymakers' actions.
The collapse in oil prices was the immediate trigger for the 7.6% plunge in the S&P 500 yesterday, but the underlying reason is the Covid-19 epidemic.
The market-implied probability that the MPC will cut Bank Rate in the first half of this year leapt to 50% yesterday, from 35%, following Mark Carney's speech.
We'd be surprised to see any serious shift in the tone of Fed Chair Powell's semi-annual Monetary Policy Testimony today compared to the FOMC statement and press conference just three weeks ago.
Inflation pressures are gradually easing in Mexico, opening the door for rate cuts as early as next month. The June CPI report, released yesterday, showed that prices rose 0.1% month-to-month unadjusted in June, in line with market expectations.
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.
Manufacturing is not in recession, yet, despite the reams of gloomy analysis of the sector, including our own.
Mexico's latest industrial production data were worse than we expected. Output rose just 0.1% month-to-month in September, pushing the year- over-year rate down to -1.3%, from a downwardly revised +0.2% in August.
Wednesday's better-than-expected, but still grim, November retail sales report in Brazil does not change the miserable underlying trend. Sales volumes rose 1.5% month-to-month, much better than expected, and the biggest increase in a year. But the year-over-year rate fell to -7.8% from -5.7% in October. The details underscored our view that the month-to-month jump in sales was due mostly to temporary factors.
The FTSE 100 fell further yesterday, briefly to levels not seen since November 2012, but its drop over recent months is not a convincing signal of impending economic disaster. The economic recovery is likely to slow further, but this will reflect the building fiscal squeeze and the sterling-related export hit much more than the wobble in market sentiment.
Markets' judgement that the Monetary Policy Committee--which meets today--will wait until 2017 to raise interest rates overestimates the role that the drop in oil prices and slower GDP growth will play in its decision-making. The inflation risks emanating from the increasingly tight labour market still could motivate a tightening before the summer.
Markets expect RPI inflation--which still is used to calculate index-linked gilt payments, negotiate wage settlements, and revalue excise duties--to rise to only 2.7% a year from now, from 1.6% in June. By contrast, we expect RPI inflation to leap to 3.5%. As we outlined in yesterday's Monitor which previewed today's numbers, CPI inflation likely will shoot up to 3% from 0.5% over the next year.
Politics will be the key factor in LatAm over the coming quarters, as presidential and legislative elections take place throughout the region.
The pronounced weakness of activity surveys conducted since the referendum and the Governor's guidance in June, reinforced by the minutes of July's MPC meeting, indicate that a rate cut on Thursday is virtually guaranteed.
EZ survey data were solid in the fourth quarter, pointing to robust GDP growth, but numbers from the real economy have so far not lived up to the rosy expectations. Data yesterday showed that industrial production fell 0.7% month-to-month in November, pushing the year-over-year rate down to 1.1% from a revised 2.0% in October. Italian data today likely will force marginal revisions to the headline next month, but they are unlikely to change the big picture.
We have given up, more or less, on the idea that housing construction will be a serious driver of economic growth in this cycle. The next cycle should be different, but it was never realistic to expect the sector which brought down the economy to recover fully as soon as the dust settled.
Brazil is back on global investors' radar screens. Financial market metrics capture a relatively robust bullish tone, especially since the presidential election.
May's activity data underline the gradual recovery in Colombia's economic growth, following signs of weakness at the start of the year.
The busy electoral calendar that lies ahead for the region is beginning to come into focus. Colombia kicks off the process, followed by Mexico and Brazil.
Yesterday's first estimate of full-year 2016 GDP in Mexico indicates that growth gathered momentum over the second half of last year. But risks are now tilted to the downside, following the U.S. election. GDP rose 0.6% quarter-on-quarter in Q4, after a 1.0% increase in Q3. Growth was much slower in the firs t half, as shown in our char t below.
Yesterday was a good day for headline EZ economic data. GDP growth accelerated, inflation rose and unemployment fell further. Advance Q4 data showed that real GDP in the Eurozone rose 0.5% quarter-on-quarter in Q4, marginally faster than the upwardly revised 0.4% in Q3. Full-year growth in 2016 slowed slightly to 1.7% from 2.0% in 2015.
Sterling fell to $1.38, from $1.39, in the hour following the EU's publication of a draft Article 50 withdrawal treaty, which set out the practical consequences of the principles the U.K. agreed to in December.
Chile's Q3 GDP report, released yesterday, confirmed that the economy lost momentum in the last quarter.
While we were out, Brazil's economic, fiscal and political position continued to deteriorate further. The recession deepened in the fourth quarter, with Brazil's economic activity index surprising yet again to the downside in October, falling for the eight consecutive month. The index fell 0.6% month-to-month and 6.4% year-over-year, the biggest contraction since the index began in 2004. And the prospects for first quarter consumption and industrial output have deteriorated substantially. Unemployment increased further in November, and inflation continues to rise, with the mid-month CPI--the IPCA-15 index-- increasing 1.2% month-to-month in November, after a 0.9% increase in October.
The pitiful 0.7% expansion of the economy in the fourth quarter is not, in our view, a sign of things to come. It is also not, by any means, a definitive verdict on what happened in the fourth quarter; the data are subject to indefinite revision. As they stand, the numbers are impossible to square with the 2.0% annualized increase in payroll employment over the quarter, so our base case has to be that these data will be revised upwards.
The Central Bank of Argentina surprised markets on Tuesday, raising its main interest rate by 100bp to 28.75% to cap inflation expectations and push core inflation down at a faster pace.
The resilience and adaptability that the Chilean economy has shown over previous cycles has been tested repeatedly over the last year. Uncertainty on the political front, falling metal prices, and growing concerns about growth in China have been the key factors behind expectations of slowing GDP growth.
Jim Bullard, the St. Louis Fed president, said last week that Phillips Curve effects in the U.S. are "weak", and that nominal wage growth is not a good predictor of future inflation.
Industrial production in the Eurozone fell a disappointing 0.1% month-on-month in January, driven by low output in Italy and Germany, as well as a large drop in Finland. But December production was revised up to 0.3% month-to-month, from the initially estimated 0.0%.
GDP data today will probably show that the Eurozone economy accelerated to 0.3% quarter-on-quarter in Q4, up from 0.2% a quarter earlier. Industrial production came in disappointingly at 0.0% month-to-month in December, but this is not enough to change our forecast in the light of solid data on household spending.
One of the main conclusions we drew from last week's ECB meeting was that the QE program is here to stay for a while. If the economy improves, the central bank could reduce the pace of purchases further. But we struggle to come up with a forecast for growth and inflation next year that would allow the ECB to signal that QE is coming to an end.
Mexico's economy is not accelerating, but it is holding up very well in difficult circumstances, with rising domestic political risk and stifling interest rates.
Our default position for core durable goods orders over the next few months is that they will fall, sharply.
October's consumer prices report, released on Wednesday, likely will show that CPI inflation has continued to drift further below the 2% target
Usually, we forecast existing home sales from the pending sales index, which captures sales at the point contracts are signed.
Mexico's financial markets and risk metrics plunged early this week, following the AMLO government's decision to cancel the construction of the new airport in Mexico City, after a public consultation held in the previous four days.
Downside risks to our growth forecast for Brazil and Mexico for this year have diminished this week. In Brazil, concerns over the potential impact of the meat scandal on the economy have diminished. Some key global customers, including Hong Kong, have in recent days eased restrictions on imports from Brazil, and other counties have ended their bans.
We aren't materially changing our U.S. economic forecasts in the wake of the U.K.'s Brexit vote, though we have revised our financial forecasts. The net tightening of financial conditions in the U.S. since the referendum is just not big enough--indeed, it's nothing like big enough--to justify moving our economic forecasts.
Britain still has nothing to show for sterling's depreciation, even though nearly two years have passed since markets started to price-in Brexit risk, driving the currency lower.
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.
Data yesterday showed that consumers in the euro area increased their spending in February, following recent weakness. Retail sales rose 0.7% month-to-month in February, reversing the cumulative 0.4% decline since November. The year-over-year rate was pushed higher to 1.8% from an upwardly revised 1.5% in January.
The MXN came under pressure last week as news broke that Banxico Governor Agustin Carstens plans to resign next year. Mr. Carstens has led the bank since 2010; during his term, Banxico cut interest rates to record low levels and managed to keep inflation under control.
News on Mr. Bolsonaro's economic plans and announcements on key names for his government this week are helping the currency and easing risks perception in Brazil.
Chief U.K. Economist Samuel Tombs on U.K. Manufacturing
The sell-off in equity markets and increases in volatility have put EM assets under pressure. EM equities and bonds, however, have been outperforming their U.S. and global market counterparts.
News last week increased our conviction that the economy will struggle over the coming months, but then will have a spring in its step next year.
The week started well for Brazil's President Bolsonaro.
Gilt yields have tumbled, with the 10-year sliding to just 1.0%, from 1.2% a week ago.
In theory, any hit to sentiment and business investment as the E.U. referendum nears could be offset by a better foreign trade performance, due to the Brexit-related depreciation of sterling. But not every cloud has a silver lining.
French business sentiment cooled marginally at the end of Q3. The headline manufacturing confidence index dipped to 110 in September, from 111 in August, though the overall business sentiment gauge was unchanged at 110.
Korea's preliminary export numbers rebounded quite spectacularly in June, with growth at 24.4% year-on-year, compared with just 3.4% in May. This reading is important as it comes early in the monthly data cycle. Korea's position close to the beginning of the global supply chain, moreover, means its exports often lead shifts in global trade.
Brazil's inflation rate remained well under control over the first half of February.
Mexican retail sales jumped 1.0% month-to-month in October, the biggest gain since February, following a poor performance in Q3.
Chile's Q1 GDP report, released yesterday, confirmed that the economy weakened sharply at the beginning of the year, due mainly to temporary shocks, including adverse weather conditions.
The national accounts for the third quarter, released on Wednesday, are likely to show that households are saving a very small proportion of their incomes. Low unemployment, subdued inflation and the healthier condition of households' balance sheets suggests that very low saving is more sustainable than in the past. Nonetheless, the low rate underlines that household spending can't grow at a faster rate than incomes for a sustained period again.
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.
Recent global developments lead us to intensify our focus on trade in LatAm.
Should you be feeling in the mood to panic over inflation risks--or more positively, benefit from the markets' underpricing of inflation risks--consider the following scenario. First, assume that the uptick in wages reported in October really does mark the start of the long-awaited sustained acceleration promised by a 5% unemployment rate and employers' difficulty in finding people to hire. Second, assume that the rental property market remains extremely tight. Third, assume that the abrupt upturn in medical costs in the October CPI is a harbinger o f things to come. And finally, assume that the Fed hawks are right in their view that the initial increase in interest rates will--to quote the September FOMC minutes--"...spur, rather than restrain economic activity". Under these conditions, what happens to inflation?
If you're looking for points of light in the economy over the next few months, the housing market is a good place to start.
Data released this week in Brazil, coupled with the message from President Bolsonaro at the World Economic Forum, vowing to meet the country's fiscal targets and reduce distortions, support our benign inflation view and monetary policy forecasts for this year.
The PMIs are telling an increasingly upbeat story for the EZ economy in Q4. The composite PMI in the euro area rose to an 11-month high of 54.1 in November, from 53.3 in October. The uptick was driven by strong new business growth across all private sectors, and employment also increased in response to higher work backlogs.
The minutes of Banxico's November 9 policy meeting were released yesterday, in which the Bank left the reference rate unanimously unchanged at 7.0%.
Bond markets in the euro area have been a calm sea recently relative to the turmoil in equities, credit and commodities. Following the initial surge in yields at the end of second quarter, 10-year benchmark rates have meandered in a tight range, recently settling towards the lower end, at 0.5%. Our outlook for the economy and inflation tells us this is to o low, even allowing for the impact of QE.
The sharply increased virus spread outside China has lead to a serious downgrade in the global GDP growth outlook.
We look for yet another unanimous vote by the MPC to keep Bank Rate at 0.75% on Thursday, with no new guidance on the near-term outlook.
The MPC almost certainly will keep interest rates on hold today and likely won't give a strong steer on the outlook for policy in the minutes of its meeting, which are released at mid-day. On the whole, surveys of economic activity have been weak, indicating that GDP growth has slowed sharply in the second quarter.
Yesterday's labour market figures revealed that employment growth has picked up this year, despite the shadow cast over the medium-term economic outlook by Brexit. The 122K, or 0.4%, quarter-on-quarter rise in employment in Q1 was the biggest since Q2 2016.
The outlook for growth in the EZ economy is currently both stable and relatively uncomplicated, at least based on the most widely-watched leading indicators.
On Monday we highlighted the grim state of the Brazilian industrial sector, where output fell by a huge 5.8% year-over-year in November. By contrast, the outlook for Mexico's industrial sector is much brighter.
The medium-term outlook in most LatAm economies is improving, though economic activity is likely to remain anaemic in the near term. The gradual recovery in commodity prices is supporting resource economies, while the post-election surge in global stock prices has boosted confidence. But country-specific domestic considerations are equally relevant; the growth stories differ across the region.
The ECB's communication to markets has been clear this year. In Q1, the central bank changed its stance on the economy towards an emphasis on "downside risks to the outlook".
The fall in CPI inflation to just 1.5% in October-- its lowest rate since November 2016--from 1.7% in September, isn't a game-changer for the monetary policy outlook.
The near-term U.S. inflation outlook is benign, but it is not without risk.
The MPC chose not to rock the boat yesterday, deferring any reappraisal of the economic outlook until its next meeting in early February.
The recent surge in equity prices is not a game- changer for the outlook for households' spending. Like last year, slowing growth in real disposable incomes and house prices will have a far greater impact on spending than rising paper wealth.
Brazil economic and political outlook is still opaque, but grim, after a vast array of negative news. Impeachment of President Rousseff remains a possibility; the process of fiscal consolidation is messy and politically bloody; rumors that Finance Minister Levy might leave his post next year have intensified; and the latest data showed that the recession worsened in Q3. As a consequence, the BRL and interest rates have been under pressure and we see no clear signs that the turmoil will ease soon.
Brazil's recent political and economics news has shifted the near-term outlook from bad to worse. President Rousseff on Friday replaced hawkish Finance Minister Joaquim Levy, appointed just over a year ago, with a close partner, Planning Minister Nelson Barbosa. Mr. Levy resigned after continued conflicts with the government, including frustration by the Congress of his attempts to rein in the fiscal mess. Mr. Barbosa is known to be less market friendly, and will likely defend countercyclical measures, delaying any rapid fiscal consolidation. The appointment will deteriorate investors' confidence even further, placing the markets under enormous strain.
Brazil's domestic economic outlook has not changed much recently.
Whatever today's report tells us about existing home sales in January, the underlying state of housing demand right now is unclear. The sales numbers lag mortgage applications by a few months, as our first chart shows, so they're usually the best place to start if you're pondering the near-term outlook for sales. But the applications data right now are suffering from two separate distortions, one pushing the numbers up and the other pushing them down. Both distortions should fade by the late spring, but in they meantime we'd hesitate to say we have a good idea what's really happening to demand.
The flattening of the curve in recent months has been substantial, but in our view it is telling us little, if anything, about the outlook for growth. More than anything else, investors in longer Treasuries care about inflation, and the likely path of headline inflation clearly has been lowered by the plunge in oil prices.
In the absence of any significant data releases today, we want to take a closer look at the outlook for wage growth, and the implications of an acceleration in hourly earnings for inflation.
Economic growth in Mexico will remain relatively modest over the second half of the year, and the outlook for 2017 remains cloudy, for now. The core fundamentals suggest that growth will increase, but we think that depressed mining output and fiscal tightening might limit the pace of the upturn.
The FOMC's view of the economic outlook and the likely required policy response, set out in yesterday's statement and Chair Yellen's press conference, could not be clearer.
ECB growth bears looking for the Fed to move in order to take the sting out of the euro's recent strength were disappointed last week. The FOMC refrained from a hike, referring to the risk that slowing growth in China and emerging markets could "restrain economic activity" and put "downward pressure on inflation in the near term." In doing so, the Fed had an eye on the same global risks as the ECB, highlighting increased fears of deflation risks in China, despite a rosier domestic outlook.
We struggle to find much wrong with the near-term outlook for Eurozone manufacturing. The headline PMI fell marginally to 59.6 in January, from 60.6 in December, but it continues to signal robust growth at the start of the year.
April's retail sales figures, released today, likely will show only a partial reversal of the sharp 1.3% month-to-month fall in sales volumes in March. This would reinforce the impression that the recovery in consumer spending has been becalmed by slower job growth, the intensification of the fiscal squeeze and heightened uncertainty about the economic and political outlook.
We previewed today's advance EZ Q1 GDP number in our Monitor on April 30--see here--and the data since have not changed our outlook.
Argentina's economic and financial situation has deteriorated significantly in recent weeks and the outlook is becoming increasingly bleak.
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.
While we were on holiday, the data confirmed that inflation in Mexico is rapidly unwinding the increases posted earlier in the year; that the economy was under severe strain in late Q2 and early Q3; and that the near-term outlook has grown increasingly challenging.
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.
Donald Trump's victory casts a shadow of political uncertainty over what had appeared to be a decent outlook for the U.S economy. The U.K.'s trade and financial ties with the U.S., however, are small enough to mean that any downturn on the other side of the Atlantic will have little impact on Britain.
None of today's four monthly economic reports will tell us much new about the outlook, and one of them--ADP employment--will tell us more about the past, but that won't stop markets obsessing over it. We have set out the problems with the ADP number in numerous previous Monitors, but, briefly, the key point is that it is generated from regression models which are heavily influenced by the previous month's official payroll numbers and other lagging data like industrial production, personal incomes, retail and trade sales, and even GDP growth. It is not based solely on the employment data taken from companies which use ADP for payroll processing, and it tends to lag the official numbers.
The outlook for Brazil's industrial economy is better than at any time since before the crisis. But data released this week highlighted that the recovery will be slow and bumpy.
Chile's economic outlook is still clouded, due mostly to the slowdown in China and low copper prices. But the steady, slow increase in the Imacec index, a monthly proxy for GDP, supports our view of a sustained but modest economic recovery this year. The index increased 1.8% year-over-year in November, marginally up from the meagre 1.5% gain in October, but below the 2.2% average seen during Q3 as a whole. November's gain was driven by an increase in services activity, offsetting weakness in mining. Services have been the key engine of growth in the current cycle and likely will remain so in H1.
Mark Carney's assertion that "...some monetary policy easing will likely be required over the summer" is a clear signal that an interest rate cut is in the pipeline. But easing likely will be modest, due to the much higher outlook for inflation following sterling's precipitous decline.
Banxico's Quarterly Inflation Report--QIR--for Q2 2017, published this week, confirmed that the central bank has become more upbeat about the economic recovery and the outlook for inflation. Banxico believes that the balance of risks to inflation and growth are neutral.
Yesterday was a nearly perfect day for investors in the Eurozone. The Q3 GDP data were robust, unemployment fell, and core inflation dipped slightly, vindicating markets' dovish outlook for the ECB.
The substantial, though incomplete, rebound in the September ISM manufacturing survey is consistent with our view that the outlook for the industrial economy right now is better than at any time since before the crash in oil prices
The BCB's Copom kept Brazil's Selic rate at 14.25% this week, as expected. The brief accompanying communiqué was very similar to the January statement, saying that after assessing the outlook for growth and inflation, and "the current balance of risks, considering domestic and, mainly, external uncertainties", the Copom decided to keep the Selic rate at a nine-year high, without bias.
China Downtrend Worse; Outlook Better..Japan's Bouncy Q4 Won't Be Repeated In Q1...Korea's Job Market Pummelled By Minimum Wage Hike
Fed Chair Yellen is a committed believer in the orthodox idea that inflation is largely a cost-push phenomenon, and that the most important cost, by far, is labor. So in order to predict what Dr. Yellen might say about the outlook for Fed policy in her Testimony today--beyond the language of the January FOMC statement--we have to take a view on her assessment of the state of the labor market.
Distinguishing between the structural and cyclical story is crucial to understanding the inflation picture in the Eurozone. Nobel laureate Paul Krugman recently lamented--New York Times, March 1st--that the Eurozone economy appears to be stalling. We doubt the outlook for GDP growth this year is that dire.
In January, average hourly wages grew 0.5% over the prior month, the biggest month-on-month increase since November 2008......Ian Shepherdson at Pantheon Macro said the outlook for wage growth is still strong
Markets were on the right side of the argument with economists about the outlook for monetary policy in 2015, but we doubt history will repeat itself this year. The consensus among economists a year ago was for interest rates to rise to 0.75% from 0.5% by the end of 2015, in contrast to the markets' view that an increase was unlikely.
Pantheon Macroeconomics Founder and Chief Economist Ian Shepherdson discusses his outlook for the economy, equities and European banks. He speaks on "Bloomberg Surveillance."
The continued modest rate of increase in unit labor costs makes it hard to worry much about the near-term outlook for core inflation.
The MPC was relatively bullish on the outlook for households' spending when it signalled its view, in February's Inflation Report, that the case for raising interest rates before the end of this year had strengthened.
The falling unemployment rate and the threat it poses to the inflation outlook mean that the labor market numbers in the NFIB small business survey attract more attention than the other data in the report.
Yesterday's labour market data showed that growth in households' income has slowed significantly in recent months. Firms are both hiring cautiously and restraining wage increases, due to heightened uncertainty about the economic outlook and rising raw material and non-wage labour costs. Consumers' spending, therefore, will support GDP growth to a far smaller extent this year than last.
For more than two years, the BoJ has fretted, in the outlook for economic activity and prices, that "there are items for which prices are not particularly responsive to the output gap."
The collapse in gilt yields last week--including a drop to a record low at the 10-year maturity--appears to be an ominous sign for the economic outlook. For now, though, the yield curve signals a further easing of GDP growth, rather than a spiral into recession. Low liquidity also means modest changes in demand are generating large movements in yields, undermining gilts' usefulness as a leading indicator.
The outlook for private investment in the Eurozone has deteriorated this year, especially in manufacturing.
More depressing economic numbers in LatAm have been released in recent days, and high frequency data continue to show a near-term bleak outlook.
Britain's general election has led to another major step-up in political uncertainty, which conventional wisdom assumes will harm the economy. Perhaps surprisingly, however, the government's enfeebled state brings with it some major positives for the U.K.'s economic outlook.
In yesterday's Monitor, we lamented the lack of growth in the French economy. The outlook is not much brighter in Italy. We think Italian GDP was unchanged quarter-on-quarter in Q4, slightly better than the -0.1% consensus but still very soft.
Uncertainty about the U.S. economic and political outlook, following Donald Trump's presidential win, likely will cast a long shadow over EM in general and LatAm in particular. On the campaign trail, Mr. Trump argued for tearing up NAFTA and building a border wall.
The U.K.'s dependence on large inflows of external finance was laid alarmingly b are last week, when "hard" Brexit talk by politicians caused overseas investors to give sterling assets a wide berth. Investors now are demanding extra compensation for holding U.K. assets, because the medium-term outlook is so uncertain.
Markets rightly interpreted yesterday's above consensus GDP report as having little impact on the outlook for monetary policy.
Gilt yields have collapsed this year, aided by a surge in safe-haven demand, the much lower outlook for overnight interest rates and the resumption of QE. Bond yields also have fallen globally, but the drop in the ten-year gilt yields to a record low of 0.53%, from nearly 2% at the beginning of 2016, has greatly exceeded the declines elsewhere, as our first chart shows.
The outlook for the French economy is changing on a daily basis these days.
Brazil's outlook is still improving at the margin, as positive economic signals mix with relatively encouraging political news.
Yesterday's BoJ statement, outlook and press conference raised our conviction on two key aspects of the policy outlook.
Chile's economic outlook remains challenging. Overall, 2015 will likely mark the second consecutive year of disappointing growth, but it will be better than 2014, a year to forget.
Yesterday's PMI data were an open goal for those with a bearish outlook on the euro area economy.
Chile's economic outlook is still positive, but clouds have been gradually gathering since mid-year, due mostly to the slowdown in China, low copper prices and falling consumer and business confidence.
Recently released data in Mexico are sending weak signals for the business outlook, and the Texcoco airport saga won't help.
Good news keeps on coming from Mexico, and the outlook is still favourable. Overall inflation pressures remain subdued and the domestic economy remains reasonably solid, despite a modest slowdown in recent months. Job creation remains robust, and real wages have been growing at a solid, non-inflationary pace.
Growth momentum in Mexico has improved marginally over the last few months after the soft patch during the first quarter, with business and households gaining confidence in the economic recovery. But the upswing has been rather modest, due to the volatility in global financial markets and the challenging external environment. The outlook for the global economy has deteriorated over recent months due to China's problems, and commodity prices remain under pressure. All these factors are now weighing on investors' confidence and hurting EM across asset classes.
Inflation in Colombia right now is under control but risks are increasing rapidly, and the outlook for next year has deteriorated significantly.
LatAm assets have struggled in recent days as it has become clear that the Fed will hike next week. But we don't expect currencies to collapse, as domestic fundamentals are improving and the broader external outlook is relatively benign.
Peru is now in the grip of a severe political storm that is shaking the country's foundations and darkening the already fragile economic outlook.
We're relatively optimistic--yes, you read that correctly--on the outlook for the U.K. economy in 2019.
The ECB left its key interest rates unchanged yesterday, and maintained the pace of QE at €60B a month, but increased the issue limit to 33% from 25%. The updated staff projections revealed a downward adjustment of the central bank's inflation and growth forecasts across all horizons up to 2017. These forecasts were accompanied by a very dovish introductory statement, noting disappointment with the pace of the cyclical recovery, and emphasizing renewed downside risks to the economy and the inflation outlook.
The relative strength of the investor and consumer confidence reports for March, released this week, signal a better outlook for the Mexican economy.
Brazil's economic and fiscal outlook has worsened in recent months, and economic activity will likely contract even further in the short-term. Some of last week's economic reports, however, were a bit less bad than of late. The latest industrial production data were less bad than expected in August, but the picture is still very grim. Industrial output plunged 1.2% month-to-month, above the consensus, and allowing the annual rate to stabilize at -9% year-over-year.
The MPC's package of stimulus measures, which exceeded markets' expectations, demonstrates that it is currently placing little weight on the inflation outlook. Even so, if inflation matches our expectations and overshoots the 2% target by a bigger margin next year than the MPC currently thinks is acceptable, it will have to consider its zeal for more stimulus.
Mexico's economic outlook has dimmed recently, a point driven home by sentiment data released last week. Still, we think GDP growth will slow only marginally in Q4, to about 11⁄2% year-over-year. Consumers' spending likely will remain strong in the near term, thanks mainly to rising remittances from the U.S., driven by fear of policy changes under the Trump administration.
The Banxico minutes from the June 20 meeting, released last Thursday, offered more detail about the outlook for policy in the near term.
In one line: A soft Q1, and the outlook remain challenging.
In one line: Capex is struggling; the outlook remains challenging.
In one line: The inflation outlook still does not warrant lower interest rates.
In one line: No case for cutting Bank Rate based on the outlook for inflation.
In one line: Soft, but the outlook is for a much worse numbers in Q4 and beyond.
In one line: The MPC has lost its confidence in the outlook, but isn't close to pre-emptive easing.
In one line: A soft Q1, and the outlook remain challenging.
In one line: Disappointing, and the outlook remains challenging due to high external risks.
The FOMC minutes showed both sides of the hike debate are digging in their heels. As the doves are a majority--rates haven't been hiked--the tone of the minutes is, well, a bit do vish. But don't let that detract from the key point that, "Most participants continued to anticipate that, based on their assessment of current economic conditions and their outlook for economic activity, the labor market, and inflation, the conditions for policy firming had been met or would likely be met by the end of the year." Confidence in this view has diminished among "some" participants, however, worried about the impact of the strong dollar, falling stock prices and weaker growth in China on U.S. net exports and inflation.
Chile's inflation outlook remains benign, allowing policymakers to cut interest rates if the economic recovery falters.
In one line: Not terrible, but outlook for Q2 as a whole is grim.
In one line: Soft, and the outlook for Q2 isn't great.
In one line: Disappointing, and the outlook remains challenging due to high external risks.
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.
Recent market turmoil and concerns on the outlook for global growth have re-awakened talk of stimulus. For the BoJ, this inevitably raises the question of what could possibly be done, given that policy already appears to be on the excessively loose side of loose.
The bond market has become extremely pessimistic about the long-term economic outlook following Britain's vote to leave the EU. Forward rates imply that the gilt markets' expectation for official interest rates in 20 years' time has shifted down to just 2%, from 3% at the start of 2016.
Mexico's economic picture remains positive, although the outlook for 2019 is growing cloudy as the economy likely will lose momentum if AMLO's populist approach continues next year.
The uncertainty over the new U.S. administration's economic policies new is clouding the outlook for the Eurozone economy. The combination of loose fiscal policy and tight monetary policy in the U.S. should be positive for the euro area economy, in theory. It points to accelerating U.S. growth--at least in the near term--wider interest rate differentials and a stronger dollar. In a " traditional" global macroeconomic model, this policy mix would lead to a wider U.S. trade deficit, boosting Eurozone exports.
The strengthening EZ economy increasingly looks like the tide that lifts all boats. The Greek economy is still a laggard, but recent news hints at a brightening outlook. Last week, S&P affirmed the country's debt rating, but revised the outlook to "positive" from "stable."
Economic sentiment in the Eurozone's largest economy stayed solid at the start of the fourth quarter, despite subdued manufacturing and poor investor sentiment. The headline IFO business climate index fell slightly to 108.2 in October from 108.5 in September, due to a fall in the current assessment index. The expectations index rose, though, to 103.8 from 103.5 last month pointing to a resilient outlook for businesses and solid GDP growth in coming quarters.
We think today's consumer sentiment survey in France will show that the headline index was unchanged at 94 in May. The survey's forward looking components have weakened modestly in recent months, due to declines in households' outlook for their financial situation and standard of living in the coming 12 months.
The core economic narrative in U.S. markets right now seems to run something like this: The pace of growth slowed in Q1, depressing the rate of payroll growth in the spring. As a result, the headline plunge in the unemployment rate is unlikely to persist and, even if it does, the wage pressures aren't a threat to the inflation outlook.
The Eurozone PMIs stumbled at the end of Q2. The composite index slipped to a five-month low of 55.7 in June, from 56.8 in May, constrained by a fall in the services index. This offset a marginal rise in the manufacturing index to a new cyclical high. The dip in the headline does not alter the survey's upbeat short- term outlook for the economy.
The FOMC minutes confirmed that most FOMC members were not swayed by the weak-looking first quarter GDP numbers or the soft March core CPI. Both are considered likely to prove "transitory", and the underlying economic outlook is little changed from March.
Fed Chair Yellen speaks at Jackson Hole today, at 10:00 Eastern. Her topic is billed as "financial stability", but that does not necessarily preclude remarks on the outlook for the economy and policy.
The BoK kept rates unchanged at 1.50% yesterday. We thought a hike was open to consideration, as the authorities had professed to be on a mission to reduce dependency on exports and household debt. But we remain more bearish than the BoK on the outlook for the rest of the year.
LatAm currencies and stock markets have suffered badly in recent weeks, but Monday turned into a massacre with the MSCI stock index for the region falling close to 4%. Markets rebounded marginally yesterday, but remain substantially lower than their April-May peaks. Each economy has its own story, so the market hit has been uneven, but all have been battered as China's stock market has crashed. The downward spiral in commodity prices--oil hit almost a seven-year low on Monday--is making the economic and financial outlook even worse for LatAm.
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 further decline in mortgage approvals in August shows that housing market activity remains very subdued. The recent fall in mortgage rates likely will prop up demand soon, but the poor outlook for households' real incomes suggests that both activity and prices will revive only modestly over the next year.
We think that the higher inflation outlook means that the MPC will dash hopes of unconventional stimulus on August 4 and instead will opt only to cut Bank Rate to 0.25%, from 0.50% currently. The minutes of July's MPC meeting show, however, that the MPC is mulling all the options. As a result, it is worth reviewing how a QE programme might be designed and what impact it might have on bond yields.
Industrial companies in the Eurozone are still struggling with low growth, but the outlook is stabilising following the near-recession late last year. The Eurozone manufacturing PMI was unchanged at 51.0 in February, trivially lower than the initial estimate of 51.1.
Don't write off the outlook for the construction sector purely on the basis of June's grim Markit/CIPS survey.
Today's ECB meeting will be accompanied by an update of the staff projections, where the inflation outlook will be in the spotlight. The June forecasts predicted an average inflation rate of 0.3% year-over-year this year, currently requiring a rather steep increase in inflation towards 1.1% at the end of the year. We think this is achievable, but we doubt the ECB is willing to be as bold, and it is reasonable to assume this year's forecast will be revised down a notch.
In contrast to surveys of manufacturing activity and sentiment, the Conference Board's measure of consumer confidence rose sharply in August, hitting an 11-month high. People were more upbeat about both the current state of the economy and the outlook, with the improving job market key to their optimism. The proportion of respondent believing that jobs are "plentiful" rose to 26%, the highest level in nine years.
The key message of the minutes of the Copom meeting, released yesterday, is that policymakers remain worried about the inflation outlook and, in particular, about uncertainties surrounding fiscal tightening. But the Committee reinforced the signal that the Selic rate is likely to remain at the current level, 14.25%, for a "sufficiently prolonged period". The economy is in a severe recession and the rebalancing process has been longer and more painful than the Central Bank anticipated.
Brazil's economic recovery faltered in the first quarter and the near-term outlook remains challenging.
Brazil's Q4 industrial production report, released Wednesday, confirmed that the recovery remained sluggish at the end of last year. December's print alone was relatively strong, though, and the cyclical correction in inventories--on the back of improving demand--lower interest rates, and the better external outlook, all suggest that the industrial economy will do much better this year.
Colombia's sluggish growth and near-term economic outlook resembles that of most other LatAm economies. Domestic demand is weak, credit conditions are tight, and confidence is depressed. The medium term outlook, however, is perking up, slowly.
The FOMC flagged recent market developments as a source of risk to the U.S. economy yesterday, unsurprisingly, but didn't go overboard: "The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook."
The outlook for French consumers' spending improved this month, at the margin. The headline consumer sentiment index was unchanged at 98 in November, but most forward-looking indicators rose. Consumers' spending in was flat in Q2 and Q3, following a 1.1% jump in the first quarter.
The ECB will receive most of the credit for the recent gain in stock markets, but the main leading indicator for the stock market, excess liquidity, was already turning up late last year. With the MSCI EU ex-UK up 21%, in euro terms, since October, a lot is already priced in, but in the medium term the outlook is upbeat, and we look for further gains this year.
Money supply dynamics in the Eurozone continue to signal a solid outlook for the economy. Headline M3 growth eased marginally to 4.9% year-over-year in January, from 5.0% in December; the dip was due to slowing narrow money growth, falling to 8.4% from 8.8% the month before. The details of the M1 data, however, showed that the headline chiefly was hit by slowing growth in deposits by insurance and pension funds.
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.
Short of saying "We're going to hike rates in two weeks' time", Dr. Yellen's view of the immediate economic and policy outlook, set out in her speech yesterday, could hardly have been clearer. Yes, she threw in the usual caveats: "...we take account of both the upside and downside risks around our projections when judging the appropriate stance of monetary policy", and saying the FOMC will have to evaluate the data due ahead of this month's meeting, but her underlying message was straightforward.
Claus Vistesen, Pantheon Macroeconomics chief euro zone economist, discusses the outlook for the euro-zone economy in 2018 with Bloomberg's Scarlet Fu and Joe Weisenthal on "What'd You Miss?"
Ian Shepherdson, founder at Pantheon Economics, discusses rising U.S. inflation expectations and his outlook for the Federal Reserve in response to President-Elect Donald Trump's economic plan. He speaks on "Bloomberg Surveillance."
Ian Shepherdson, Pantheon Macroeconomics founder and chief economist, discusses the outlook for the global economy with Bloomberg's Julie Hyman, Joe Weisenthal and Scarlet Fu on "What'd You Miss?"
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the outlook for U.S. inflation and labor market with Bloomberg's Joe Weisenthal and Julia Chatterley on "What'd You Miss?"
Ian Shepherdson, Pantheon Macroeconomics chief economist, discusses his outlook on the U.S. economy and the long-lasting bull market.
Ian Shepherdson provides his outlook on the economy and interest rates.
The Chancellor is likely to announce plans for additional public sector asset sales in today's Autumn Statement, to help arrest the unanticipated rise in the debt-to-GDP ratio this year. But privatisations rarely improve the underlying health of the public finances, partly because assets seldom are sold for their full value. And the Chancellor is running out of viable assets to privatise; the low-hanging, juiciest fruits have already been plucked.
Chief U.S. Economist Ian Shepherdson on the U.S. Housing Sector
Chief Eurozone Economist Claus Vistesen on sentix in December
Chief Eurozone Economist Claus Vistesen discussing Germany's economy
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