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435 matches for "ppi":
The Caixin manufacturing headline was unremarkable, but the input price index signals that PPI inflation is set to rise again in May, to 4.0%-plus, from 3.4% in April.
Japan's PPI inflation edged up further in November to 3.5%, from October's 3.4%. Energy was the main driver, with petroleum and coal contributing 0.8 percentage points to the year-over-year rate, up from a 0.7pp contribution in October.
PPI inflation has finally started to soften, after having increased steadily from 2.0% in April, and holding steady at 3.0% in Q3.
Japanese PPI inflation continues to be driven mainly by imported metals and energy price inflation. Metals, energy, power and water utilities, and related items, account for nearly 30% of the PPI.
The surge in gasoline prices triggered by refinery outages after Hurricane Harvey came much too late to push up the August PPI, but gas prices had risen before the storm so the headline PPI will be stronger than the core.
Today's producer price report for March likely will show a further increase in core goods inflation, which already has risen to 2.0% in February, from 0.2% in the same month last year. The acceleration in the U.S. PPI follows the even more dramatic surge in China's PPI for manufactured goods, which jumped to 6.6% year-over-year in February, from minus 4.9% a year ago. China's PPI is much more sensitive to commodity prices than the U.S. series, so there's very little chance that core U.S. PPI goods inflation will rise to anything like this rate.
Chinese PPI inflation surprised analysts with a sharp rebound to 6.3% in August, from 5.5% in July, above the consensus, 5.7%.
The overshoot in the November core PPI does not change the key story, which is that PPI inflation, headline and core, is set to fall sharply through the first half of next year, at least.
China is facing a nasty mix of spiking CPI inflation and ongoing PPI deflation.
China's PPI inflation has been trending down since early 2017.
Our forecast for a 0.3% increase in the September core PPI, slightly above the underlying trend, is even more tentative than usual.
Japanese headline PPI inflation will edge higher in coming months as last year's rise in oil prices feeds through. But inflation in manufacturing goods, excluding processing, is microscopic and should soon roll over as pipeline pressures wane.
Japan's PPI data yesterday confirmed that October was a turning point for prices--due to the consumption tax hike--despite the surprising stability of CPI inflation in Tokyo for the same month.
German producer price inflation rebounded last month. The headline PPI index rose 2.6% year-over-year in August, up from a 2.3% increase in July, driven almost exclusively by a jump in energy inflation.
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.
June's headline CPI, due this morning, will be boosted by the rebound in gasoline prices, but market focus will be on the core, in the wake of the startling, broad-based jump in the core PPI, reported Wednesday. Core PPI consumer goods prices jumped by 0.7% in June, with big incr eases in the pharmaceuticals, trucks and cigarette components, among others. The year-over-year rate of increase rose to 3.0%, up from 2.1% at the turn of the year and the biggest gain since August 2012. Then, the trend was downwards.
PPI inflation in Korea slowed sharply in October, to a five-month low of 2.2%, from 2.7% in September.
German producer price inflation fell last month, following uninterrupted gains since the beginning of this year. Headline PPI inflation fell to 2.8% year-over- year in May, from 3.4% in April, constrained by lower energy inflation, which slipped to 3.0%, from 4.6% in April. Meanwhile, non-energy inflation declined marginally to 2.7%, from 2.8%.
The back-to-back 0.3% increases in the core PPI in June and July represent the biggest two-month gain since mid-2013, so we now have to be on the alert for the August report, which will be released September 11, a week before the FOMC meeting. A third straight outsized gain--the trend before June's jump was only about 0.05% per month, and the year-over-year rate is still only 0.6%--would suggest something real is stirring in the numbers, rather than just noise.
China's capex growth faces renewed challenges this year, as PPI inflation slows.
Japan's PPI inflation was unchanged, at 3.0%, in August.
Let's be clear: The July retail sales numbers do not mean the consumer is rolling over, and the PPI numbers do not mean that disinflation pressure is intensifying. We argued in the Monitor last Friday, ahead of the sales data, that the 4.2% surge in second quarter consumption--likely to be revised up slightly--could not last, and the relative sluggishness of the July core retail sales numbers is part of the necessary correction. Headline sales were depressed by falling gasoline prices, which subtracted 0.2%.
Households' disposable incomes have been supported over the last eight years by a steady stream of compensation payments for Payment Protection Insurance--PPI--policies that were missold in the 1990s and 2000s.
Having panicked at the January hourly earnings numbers, markets now seem to have decided that higher inflation might not be such a bad thing after all, and stocks rallied after both Wednesday's core CPI overshoot and yesterday's repeat performance in the PPI.
Core PPI inflation has risen steadily this year, with month-to-month increases of 0.3% or more in five of the past six months.
The PBoC will find itself between a rock and a hard place in the coming months, as CPI inflation creeps further up towards its 3% target but PPI deflation deepens.
If you gave us $100, we'd put $90 on inflation, headline and core, being higher a year from now than it is today. Our view, however, is not universally shared, and some commentators continue to argue that the U.S. faces deflation risks. Exhibit one for this view is our first chart, which shows a high correlation between the PPI for finished goods prices and the CPI inflation rate, ex-shelter.
China's PPI inflation rose again in June, to 4.7%, from 4.1% in May.
Japanese PPI inflation rose sharply to 2.6% in July from 2.2% in June, well above the consensus for a modest rise.
The first of this week's two July inflation reports, the PPI, will be released today. With energy prices dipping slightly between the June and July survey dates, the headline should undercut the 0.2% increase we expect for the core by a tenth or so.
Yesterday's EZ producer price data showed that deflationary pressures in the manufacturing sector are fading. The headline PPI index fell 0.2% month- to-month in August, pushing the year-over-year up to -2.1%, from a revised -2.6% July.
The return of Chinese PPI inflation in 2016 helped to stabilise equities after the boom-bust of the previous year.
Core PPI inflation has risen relentlessly, though not rapidly, over the past two-and-a-half years.
If the CPI measure of core consumer goods inflation were currently tracking the same measure in the PPI in the usual way, core CPI inflation would now be at 2.3%, rather than the 1.7% reported in November.
PPI inflation in Asia looks set to go from bad to worse, following June's poor numbers, which showed that the weakness in commodity prices is feeding through quicker than expected.
China's PPI deflation deepened in August, with prices dropping 0.8% year-over-year, after a 0.3% decline in July.
Today brings the April PPI data, which likely will show core inflation creeping higher, with upward pressure in both good and services. The upside risk in the goods component is clear enough, as our first chart shows.
Chinese PPI inflation dropped again in March to 3.1%, from February's 3.7%. Commodities were the driver, but base effects should mean the headline rate won't fall further in coming months; it is more likely to rise in Q2.
The re-emergence of Chinese PPI inflation in 2016 was instrumental in stabilising equities after the 2015 bubble burst.
The economic slowdown in China is old news for Eurozone investors.
Brazil's industrial sector was off to a soft-looking start in Q1, but the fall in January output was chiefly payback for an especially strong end to 2017.
Core producer price inflation is falling, and it probably has not yet hit bottom.
China's official PMIs were little changed in August, with the manufacturing gauge up trivially to 51.3, from 51.2 in July and the non-manufacturing gauge up to 54.2, from 54.0.
Chinese monetary conditions have tightened sharply in the past year. Conditions have stabilised in recent months but Fed policy normalisation implies the increase in the money stock should slow again in 2018.
The clear threat to demand posed by the coronavirus and China's efforts at containment have sent a shock wave through commodities markets.
The year-long surge in CPI inflation in China will soon end.
The sudden downshift in core inflation at the consumer level since March, clearly visible in the CPI and the PCE, and shown in our first chart, has been accompanied by a steady increase in core producer price inflation.
Japan's producer price inflation levelled off in June and, for now, both commodity prices and currency moves in the first half imply that inflation should fall in the second half.
China's official manufacturing PMI was little changed in January, ticking up to 49.5, from 49.4 in December, with the output and new orders sub-indices largely stable.
Data on Friday showed that German producer price inflation is now in free-fall.
Higher gasoline prices will lift today's headline October CPI, which should rise by 0.3%. Unfavorable rounding could easily push it to 0.4%, though, and year-over-year headline inflation should rise to 1.6% or 1.7%, from 1.5% in September and just 0.2% a year ago.
China's firms aren't passing on tax hikes after all. China takes full advantage of previous oil price declines. Japan's core machine orders better than expected, but that won't help Q2. Japan is heading for a spell of sustained PPI deflation in H2. Better May jobs report will help to keep any BoK rate cuts at bay.
CPI inflation in China punches through the 3% target. PPI deflation in China should soon bottom out. Japan's rugby boost small in the face of pre-tax front loading. September machinery orders data seriously undermines Japan's "resilient capex" story.
Japan's tertiary index shows Q2 services strength was merely an April leap. Japan's PPI is slated for more deflation.
Japan's PPI inflation probably just peaked
PPI deflation should soon trough. Chinese food inflation takes off. Japan's tertiary index points to strong Q3 GDP growth.
Evidence continues to build that Korea's August unemployment plunge was a fluke. October sales tax hike in Japan opens the door for a quicker exit from PPI deflation.
Big gains in the size of the labour force continue to flatter Korea's unemployment rate. Japan's exit from PPI deflation will be followed by only modest inflation.
Japan's machinery orders are set to stay weak. Japan's PPI deflation likely just troughed.
Data while we were away have intensified fears that the global, and by extension EZ, economy is slipping into recession.
Eurozone manufacturing selling prices remain under pressure from deflationary headwinds. The PPI index, ex-construction, in the euro area fell 4.2% year-over-year in March, matching February's drop. Weakness in oil prices continues to drive the headline.
CPI inflation in China is nearing a peak, with pork prices starting to stabilise. November's data confirm that PPI deflation in China has bottomed out. Japan's M2 growth looks exposed to a downward revision. Japan's machine tool orders refuse to turn.
PPI inflation reflect pre-virus state of play. China's CPI inflation spikes due to holiday effects. Japan's current account to be damaged by virus
Expect Chinese PPI deflation in the second half. China's CPI inflation faces non-core cross currents; services inflation still slowing. Unemployment in Korea held steady in June; the BoK will be chuffed about improving job growth. PPI deflation in Japan will persist until the end of the year.
Japan's machinery orders boosted by one-off transportation spike. Japanese PPI ticks higher on commodities. China's new home price rises should remain on the tepid side for now .
PPI inflation in Japan likely has peaked... expect steeper drops in coming months. China's property recovery is spreading to more cities.
Not giving up on China's stimulus yet. China's PPI inflation will head higher this month. China's CPI inflation will peak soon.
China's PPI turning the corner. China's CPI inflation should peak this month ber's punchy trade data.
Yesterday's price data for China showed continued declines in both CPI and PPI inflation.
Chinese PPI inflation fell to 4.9% in December, from 5.8% in November. The decline was expected, but underneath the slowdown in commodity price inflation, the rate of increase of manufacturing goods prices is slowing sharply too.
Chinese PPI inflation was unchanged at 5.5% in July; it had been expected to rise modestly. Officially, inflation peaked at 7.8% in February, but we think this peak was artificially high, thanks to seasonal effects. The slowing in PPI inflation since the peak appears to suggest that monthly price gains have slowed sharply. We find little evidence to support this.
China's November money and credit data were a little less grim, with only M2 growth slipping, due to unfavourable base effects.
Japan's Q2 GDP growth was not all it's cracked up to be. M2 growth in Japan inched up in July, but trends at the margin have rolled over. China's July inflation uptick shows that the swine flu outbreak is nowhere near under control. China officially enters PPI deflation... but it shouldn't last beyond Q3.
Japan's PMI report bodes well for Q3, but points to headwinds thereafter. PPI deflation in Korea is unlikely to get worse than the August drop.
China's LPR drop tells us moral suasion is in full swing. PPI inflation in Korea has peaked, for now.
Japan's CPI inflation has troughed; Japan's budget forecasts for next year are on the rosy side; China's LPR stability reflects precarious banking sector; Korea should make a complete exit from PPI deflation this month
The BoJ keeps it promises vague. Japan's April is turning out quite nicely. PPI inflation in Korea slipped in May, and is heading for deflation in Q3.
The BoJ's growth upgrade for fiscal 2020 is on the ambitious side, to say the least. Lunar New Year noise hit Korea's 20-day export print for January. Korea completes its exit from a brief and shallow spell of PPI deflation.
The renewed trade war is unfortunate timing, as Korea exports are stabilising at the margins. Revised index shows that Korean PPI inflation hasn't been missing this year.
Overall, the Chinese October data paint a picture of continued weakness in trade, with PPI inflation still high but the rate of increase finally slowing.
Korean exports show no signs of additional pain from Japan's trade salvo. PPI deflation takes hold in Korea.
The Eurozone's current account surplus remained close to record highs at the end of Q1, despite dipping slightly to €34.1B in March, from a revised €37.8B in February. A further increase in the services surplus was the key story.
Korean real GDP growth rebounded to 1.4% quarter-on-quarter in Q3, from 0.6% in Q2. The main driver was exports, with government consumption also popping, and private consumption was a little faster than we were expecting.
In the excitement over the FOMC meeting--all things are relative--we ran out of space to cover some of this week's other data, notably the PPI, industrial production and housing starts. They are worth a recap, given that only the Michigan sentiment report will be released today.
Friday's economic data suggest that the downtrend in German PPI inflation is reversing.
Margins for German manufacturing firms remained depressed at the start of the second quarter. The headline PPI rose 0.1% month-to-month in April, pushing the year-over-year rate down marginally to -3.1% from a revised -3.0% in March. Falling energy prices are the key driver of the overall decline in the PPI.
Japanese data continue to come in strongly for the second quarter. The manufacturing PMI points to continued sturdy growth, despite the headline index dipping to 52.0 in June from 53.1 in May. The average for Q2 overall was 52.6, almost unchanged from Q1's 52.8, signalling that manufacturing output growth has maintained its recent rate of growth.
Japan's PPI inflation likely has peaked, with commodities still in the driving seat. Manufactured goods price inflation will soon start to slow, following the downshift in China's numbers.
Chinese PPI inflation continued to rise sharply in September, jumping to 6.9% from 6.3% in August. Our initial reaction to the data was that this was an overshoot after inflation was understated in Q2, thanks to seasonal effects.
Are there any signs of a Chinese recovery yet? Freya Beamish discusses
Chief U.K. Economist Samuel Tombs on U.K. employment
Chief U.K. Economist Samuel Tombs on the latest PMI data
Chief Eurozone Economist Claus Vistesen discussing Germany's economy
Japanese trade remained in the doldrums in October, keeping policymakers on their toes as they repeat the refrain of "resilient" domestic demand.
For countries with developed non-banking funding channels, narrow money isn't necessarily a good predictor of GDP growth.
Yesterday's partial trade data for Korea showed that the downturn in exports softened to -13.3% year-over-year in August from -13.8% in July, based on the 20-day gauge.
We would be very surprised if the Fed were to raise rates today. The Yellen Fed is not in the business of shocking markets, and with the fed funds future putting the odds of a hike at just 22%, action today would assuredly come as a shock, with adverse consequences for all dollar assets.
The Eurozone's external surplus recovered a bit of ground mid-way through the third quarter.
On the official gauge, China's real GDP growth fell minimally to 6.8% year-on-year in Q3, from 6.9% in Q2. Growth edged down to 1.7% quarter-on-quarter from an upwardly revised 1.8% in Q2.
China's property market is slowly finding its feet, following a marked and consistent moderation in monthly price gains from mid-2018 to early this year.
The average FICO credit score for successful mortgage applicants has risen in each of the past four months.
After three straight lower-than-expected jobless claims numbers, we have to consider, at least, the idea that maybe the trend is falling again. This would be a remarkable development, given that claims already are at their lowest level ever, when adjusted for population growth, and at their lowest absolute level since the early 1970s.
Friday's detailed euro area CPI report for December confirmed that inflation pushed higher at the end of last year. Headline inflation increased to 1.3% year-over- year, from 1.0% in November, lifted primarily by higher energy inflation, rising by 3.4pp, to +0.2%. Inflation in food, alcohol and tobacco also rose, albeit marginally, to 2.1%, from 2.0% in November.
Friday's CPI data for April provided the final piece of evidence for the significant Easter distortions in this year's data.
CPI inflation in India jumped to 4.6% in October, from 4.0% in September, marking a 16-month high and blasting through the RBI's target.
Data released on Friday confirmed that Colombian activity remained strong in Q4.
Once again, Chinese January data released so far suggest that the Phase One trade deal was the dominant factor dictating activity for the first two- thirds of the month, with the virus becoming a real consideration only in the last third.
Leading indicators are giving conflicting signals regarding the outlook for core goods CPI inflation.
On the face of it, BoJ policy seems to be to change none of the settings and let things unfold, hoping that the trade war doesn't escalate, that China's recovery gets underway soon, and that semiconductor sales pick up in the second half.
The BoJ kept its main policy settings unchanged yesterday, in another 7-to-2 split.
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 can't yet know how bad the spread of the coronavirus from the Chinese city of Wuhan will be.
Yesterday's data were mixed, though disappointment over the weakening in the Richmond Fed survey should be tempered by a quick look at the history, shown in our first chart.
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.
Today's advance inventory and international trade data for December could change our Q4 GDP forecast significantly.
S&P downgraded Chinese government debt last week to A+ from AA- yesterday, following a Moody's downgrade last May.
Japan's September PMI report showed some slippage, but overall, it suggests that GDP growth in Q3 was a little stronger than the 0.3% quarter- on-quarter rate in Q2.
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.
Japan's CPI inflation was stable at 0.2% in October, despite the sales tax hike, thanks to a combination of offsetting measures from the government and a deepening of energy deflation.
The prospect of fiscal stimulus in the euro area-- ostensibly to "help" the ECB reach its inflation target-- remains a hot topic for investors and economists.
The Eurozone's current account surplus extended its decline in May, falling to a nine-month low of €22.4B, from €29.6B in April.
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.
Yesterday's sole economic report in the Eurozone showed that German producer price inflation edged lower at the end of 2018.
Investor sentiment data still indicate that EZ PMIs are set for a significant rebound at start of the year.
Wednesday's State Council meeting implies that the authorities are starting to take more serious coordinated fiscal measures to counter the virus threat to the labour market and to banks.
On a trade-weighted basis, sterling has dropped by only 1.5% since the start of the month, but it is easy to envisage circumstances in which it would fall significantly further.
The slowdown in the EZ economy is well publicised.
Barring a meteor strike, the ECB will leave its main refinancing and deposit rates unchanged today, at 0.00% and -0.5% respectively.
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.
Germans head to the polls on Sunday to elect representatives for the national parliament. The media has tried to keep investors on alert for a surprise, but polls indicate clearly that Angela Merkel will continue as Chancellor.
This is the final U.S. Economic Monitor of 2017, a year which has seen the economy strengthen, the labor market tighten substantially, and the Fed raise rates three times, with zero deleterious effect on growth.
The PBoC announced on Saturday that it will publish a new Loan Prime Rate, from today, following a State Council announcement last Friday.
Chinese official headline data paint a picture of a strengthening economy in Q2. Our analysis shows a sharply contrasting picture. China's nominal GDP, real GDP and deflators are often internally inconsistent.
We expect May's consumer prices report, released on Wednesday, to show that CPI inflation fell to 2.0% in May, from 2.1% in April.
Inflation pressures in the Eurozone have been building in recent months, but we think the headline is close to a peak for the year.
A slew of Asian price numbers are due this Friday, and they will all likely show that price gains softened further in January.
Take China's data dump last Friday with a pinch of salt, as Chinese New Year--CNY-- effects look to have distorted January's money and price data.
Today brings a raft of January data on both economic activity and prices, but we expect the headline numbers in each report to be distorted by the impact of severe weather or the plunge in oil prices.
New home price growth in China has held up longer than we expected.
In the wake of last week's strong core retail sales numbers for November, the Atlanta Fed's GDPNow model for fourth quarter GDP growth shot up to 3.0% from 2.4%.
We've continuously warned that Japan's national accounts weren't sitting easily with the underlying signals from survey data, and monetary conditions, through last year.
It's easy to read the January minutes as the dovish counterpart to a clear hawkish shift in the meeting. The statement, remember, upgraded the growth view to "solid" from "moderate"; it reiterated that the downward inflation shock from energy prices will be "transitory" and it said that the the pace of job growth is now "strong", having previously been "solid".
India's industrial production data last week are the last set of key economic indicators for the fourth quarter, before next week's Q4 GDP report.
China's investment slowdown went from worrying to frightening in October. Last week's fixed asset investment ex-rural numbers showed that year- to-date spending grew by 5.2% year-over-year in October, marking a further slowdown from 5.4% in the year to September.
Yesterday's final CPI report in the Eurozone confirmed that headline inflation was unchanged at 1.5% in September.
Money and credit data released last weekend suggest that China's demand for credit remains insatiable.
Rapidly increasing food inflation is creating all sorts of dilemmas for policymakers in Asia's giants.
The half-way point of the quarter is not, alas, the half-way point of the data flow for the quarter.
Yesterday's final CPI report confirmed that inflation in the EZ fell marginally in August, by 0.1 percentage points to 2.0%.
Yesterday's final CPI report confirmed that inflation in the euro area increased slightly last month. The headline rate rose to 1.5%, from 1.4% in October, lifted by a 1.7 percentage point increase in energy inflation to 4.9%.
The PBoC reduced its 14-day reverse repo by 5bp to 2.65% in a routine operation yesterday.
CPI inflation held steady at 1.5% in November, marking the fourth consecutive below-target print, though it was a tenth above both the MPC's forecast and the consensus.
The BoJ is likely to stay on hold this week for all its main policy settings.
Inflation data are known to defy economists' forecasts, but it should in principle b e straightforward to predict the cyclical path of EZ core inflation. It is the longest lagging indicator in the economy, and leading indicators currently signal that core inflation pressures are rising.
To avoid rocking the 2020 boat, the Phase One trade deal needed to be sufficiently vague, so that neither side, and particularly Mr. Trump, would have much cause to kick up a fuss around missed targets.
Mexico's central bank likely will pause its monetary tightening on Thursday, keeping the main rate at 6.5%. A hike this week would follow five consecutive increases, totalling 350bp since December 2015, when policymakers were first overwhelmed by the MXN's sell-off.
Inflation in the Eurozone eased at the start of Q3.
We anticipated that the G20 meeting at Osaka over last weekend would be a potentially important mark of thawing relations between China and the U.S., with the hotly awaited meeting between Messrs. Xi and Trump.
Data on air quality in China provide some useful insights into the economic disruptions--or lack thereof--caused by the outbreak of the coronavirus from Wuhan and the government's aggressive containment measures.
CPI inflation held steady at -0.1% in October, matching its lowest rate since March 1960. We had expected the rate to tick down to -0.2%, but the rebound in clothing inflation in October, following a period of discounting in September, was larger than we had anticipated. Looking ahead, we can be fairly confident that CPI inflation will pic k up sharply over the coming months.
On the face of it, recent retail spending surveys have been puzzlingly weak in light of the pick-up in employment growth, still-robust real wage gains and renewed momentum in the housing market. We think those surveys are a genuine signal that retail sales growth is slowing, and expect today's official figures to surprise to the downside. But retail sales account for just one-third of household spending, and, in contrast to the early stages of the economic recovery, consumers now are prioritising spending on services rather than goods.
The BoJ held firm, for the most part, during this year's bout of central bank dovishness.
Under normal circumstances, the 0.23% increase in the core CPI, reported earlier this month, would be enough to ensure a 0.2% print in today's core PCE deflator.
The FOMC statement did enough to keep alive the idea that rates could rise in March, but the ball is now mostly in Congress' court. If a clear plan for substantial fiscal easing has emerged by the time of the meeting on March 15, policymakers can incorporate its potential impact on growth, unemployment and inflation into their forecasts, then a rate hike will be much more likely.
The bulk of China's PMIs were published over the weekend and yesterday, leaving only the Caixin services PMI on Wednesday.
As warned--see our Monitor April 7--economic data in the Eurozone disappointed while we were away. Industrial production, ex-construction, in the euro area slipped 0.3% month-to-month in February, and the January month-to-month gain was revised down by 0.6 percentage point to +0.3%.
China's real GDP growth was unchanged at 6.4% year-over-year in Q1, above the consensus for a slowdown to 6.3%.
In yesterday's Monitor, we suggested that China's monetary policy stance is now easing.
In the wake of the September retail sales report, we can be pretty sure that real consumers' spending rose at a 2¾% annualized rate in the third quarter, slowing from the unsustainable 4.3% jump. That would mean consumption contributed 1.9 percentage points to headline GDP growth.
Chinese prices largely moved in line with our expectations in September, according to yesterday's data.
The People's Bank of China cut its seven-day reverse-repo rate yesterday, to 2.50% from 2.55%.
The Monetary Policy Board of the Bank of Korea voted yesterday to lower its policy base rate to 1.25%, from 1.50%.
The case for the MPC to hold back from implementing more stimulus was bolstered by September's consumer prices figures.
We highlighted in previous reports that the Chinese authorities appear to be making a serious pivot from GDPism--the rigid targeting of real GDP growth-- toward environmentalism, with pollution targets now taking centre stage.
Friday's advance Q4 growth numbers in the EZ were a bit of a dumpster fire.
Yesterday's final manufacturing PMIs for October were grim, but they told investors nothing they don't already know.
The Mexican inflation rate soared at the start of 2017, but this is yesterday's story; the headline will stabilize soon and will decline slowly towards the year-end. May data yesterday showed that inflation rose to 6.2%, from 5.8% in April. Prices fell 0.1% month-to-month unadjusted in May, driven mainly by lower non-core prices, which dropped by 1.3%, as a result of lower seasonal electricity tariffs.
If you were looking just at investor sentiment in the Eurozone, you would conclude that the economy is in recession.
Currency markets often make a mockery of consensus forecasts, and this year has been no exception. Monetary policy divergence between the U.S. and the Eurozone has widened this year; the spread between the Fed funds rate and the ECB's refi rate rose to a 10-year high after the Fed's last hike.
China's PMIs point to softening activity in Q3. The Caixin services PMI fell to 52.8 in July, from 53.9 in June.
Yesterday's final PMI data in the Eurozone were better than we expected.
China's National People's Congress yesterday laid out its main goals for this year, on the first day of its annual meeting.
Fed Chair Yellen's speech Friday was remarkably blunt: "Indeed, at our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate."
Late last year, China said it would scrap residency restrictions for cities with populations less than three million, while the rules for those of three-to-five million will be relaxed.
The Caixin services PMI jumped sharply to 53.9 in December from 51.9 in November. All the PMIs picked up significantly, but we find this hard to believe and suspect seasonality is to blame, though the adjustment is tricky.
The opening gambits in the post-Brexit trade negotiations were played earlier this week, in speeches from U.K. Prime Minister Boris Johnson and EU chief negotiator, Michel Barnier.
Fed Chair Powell did not specify how many bills the Fed will buy in order boost bank reserves sufficiently to remove the strain in funding markets, but we'd expect to see something of the order of $500B.
Inventories subtracted 1.3 percentage points from headline GDP growth in the second quarter and were by far the biggest constraint on the economy. This was the fifth straight drag from inventories, but it was more than twice the average hit over the previous year.
Japan's tertiary index remains below trend despite looming tax hike
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 downturn in global trade looks set to turn a corner, at least judging by the outlook for Korean exports, which are a key bellwether.
Convention dictates that we lead with yesterday's Fed meeting, but it's hard to argue that it really deserves top billing.
Inflation pressures in the Eurozone edged higher last month, reversing weakness at the start of the year.
This Monitor provides a summary of the main points of interest over the two weeks we were out. The Chinese Caixin manufacturing PMI, published last Friday, confounded expectations for a modest fall, rising to 51.6 in August from 51.1 in July.
The main story to emerge from China's Economic Work Report is the extent of tax cuts, which on our calculations will leave a large funding hole.
Friday's CPI data in the euro area confirmed our expectation that inflation jumped last month.
Our chief economist, Ian Shepherdson, set out our initial thoughts on the rising tensions between U.S. and Iran here.
The RMB has been on a tear, as expectations for a "Phase One" trade deal have firmed.
Our hope for a year-end jump in German factory orders was laughably optimistic.
Yesterday's economic reports in the Eurozone were solid across the board.
Yesterday's economic reports in the Eurozone were mostly positive.
The trade war with the U.S. has taken its toll on the RMB.
India's PMIs for October were grim, indicating minimal carry-over of energy from the third quarter rebound.
The economic data calendar for next week is so congested that we need to preview early September's GDP report, released on Monday.
The EZ retail sector slowed at the start of Q3, though only slightly.
The services sector in China is notoriously difficult to track, with the major aggregate statistics published only on a quarterly or even annual basis.
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.
China's official manufacturing PMI slipped in June, but the overall picture for Q2 is sound despite the uncertainty posed by rising trade tensions with the U.S.
Judging by interactions with readers in the past few weeks, fiscal policy is one of the most important topics for EZ investors as we move into the final stretch of the year.
In Friday's Monitor we analysed the draft Japanese budget, as reported by Bloomberg. We suggested that the GDP bang-for-government-expenditure- buck is likely to be less than that implied by the authorities' forecasts.
Demand in German manufacturing slid at the start of Q3.
The headline Chinese trade numbers are beginning to come into line with the story we have been telling about the more recent trends.
We've written in previous Monitors about the stabilisation of China's debt ratio. In this Monitor we look at whether this stabilisation is cyclical or a sign that China really has managed to change the structure of its economy to be less reliant on debt.
China's activity data outperformed expectations in November.
Last week's final barrage of data showed that EZ headline inflation rose slightly last month, by 0.1 percentage points to 1.5%, driven mainly by increases in the unprocessed food energy components.
The latest profits data out of China were grim, as we had expected.
Chinese industrial profits growth officially edged down to 25.1% year-over-year in October, from 27.7% in September. This is still very rapid but we think the official data are overstating the true rate of growth.
China's abysmal industrial profits data for October underscore why the chances of less- timid monetary easing are rising rapidly.
China's industrial profits tanked in January/ February, falling 14.0% year-to-date year-over-year, after a 1.9% drop year-over-year in December.
We expect to learn today that the economy barely grew at all in the fourth quarter. At least, that's what we think the first estimate of growth, due today, will show. This number will then be revised twice over the next couple of months, then again when revisions for the past three years are released in July. Thereafter, the numbers are subject to further annual revisions indefinitely.
Japan's CPI inflation jumped to 1.0% in December from 0.6% in November, driven by food prices.
With almost two thirds of the nominal data for the third quarter now available, we can make a stab at the contribution of inventories to real GDP growth.
Industrial profits in China dropped 3.7% year-over- year in April, after surging 13.9% in March, according to the officially reported data.
Our base-case forecast for the May core PCE deflator, due today, is a 0.17% increase, lifting the year-over-year rate by a tenth to 1.9%.
Industrial profits growth is closely watched by the Chinese authorities, even more so now that deleveraging is a prime policy aim.
Chinese industrial profits growth rose to 16.7% year-on-year in May, from 14.0% in April. But this headline is highly misleading. Profits growth data are about as cyclical as they come so taking one point in the year and looking back 12 months is very arbitrary. Moreover, the data are very volatile over short periods.
Japanese services price inflation edged down in May as the twin upside drivers of commodity price inflation and yen weakness began to lose steam. We expect wage costs to begin edging up in the second half but this will provide only a partial counterbalance.
China's annual "two sessions" conference is due to start on Sunday, with the economic targets for this year set to be made official over the course of the meetings.
Hong Kong delivered a resounding landslide victory to pro-Democracy parties in district council elections over the weekend.
Japan's retail sales data--due out on Thursday-- have been badly affected by the October tax hike.
We expect today's first estimate of third quarter GDP growth to show that the economy expanded at a 2.4% annualized rate over the summer.
Korean real GDP growth slumped in Q2 to 0.6% quarter-on-quarter, from 1.1% in Q1, as both the main drivers--construction and exports--ran out of steam simultaneously. Construction investment grew by 1.0%, sharply slower than the 6.8% in Q1 and contributing just 0.2% to GDP growth in Q2, a turnaround from the 1.1 percentage point contribution in the first quarter.
As the situation with the coronavirus develops, and we gain more information on the authorities' response, it's becoming clear that the damage to Q1 GDP is going to be nasty.
China's finance minister Liu Kun provided his report on China's current fiscal situation to the legislature last Friday.
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.
Manufacturers in Germany endured another miserable quarter in Q3.
Our Chief Eurozone Economist, Claus Vistesen, is covering the Italian situation in detail in his daily Monitor but it's worth summarizing the key points for U.S. investors here.
China's industrial profits data for August were a mixed bag.
Chinese headline industrial profits data show that growth slowed to just 4.1% year-over-year in September, from 9.2% in August.
The biggest surprise in the revisions to first quarter GDP growth, released yesterday, was in the core PCE deflator.
In yesterday's Monitor we set out how government will have to prepare for an increase in debt issuance both to bring debts on-balance sheet and also to issue new debt as government is obliged to run deficits while the corporate sector deleverages.
The Caixin manufacturing PMI was steady in May, at 50.2, in contrast to the official gauge published on Friday, which dropped to 49.5, from April's 50.2.
Consumption remains an important source of economic growth in LatAm.
The near-term performance for EZ manufacturing will be a tug-of-war between positive technical factors, and a still-poor fundamental outlook.
Tokyo inflation surprised us on Friday, rising to 0.9% in July, from 0.6% in June.
China's PMIs show no sign of a recovery yet, but the authorities are sticking to the playbook; they've done the bulk of the stimulus and are waiting for the effects to kick in, but are recognising that they need to make some adjustments.
Yesterday's sole economic report in the Eurozone confirmed that the economy slowed further at the end of 2018.
China's Caixin manufacturing PMI doused hopes of turning over a January new leaf; it dropped to 49.7 in November, from 50.2 in December.
The Manufacturing Upswing Continues; no Sign of Weakening
German retail sales always have to be taken with a pinch of salt, given their monthly volatility and often substantial revisions, but the preliminary Q2 data don't look pretty.
The sharp fall in China's manufacturing PMI in May makes clear that its recovery is nowhere near secured.
Producer price inflation in the euro area almost surely peaked over the summer.
The Asian PMIs point to a strengthening manufacturing sector in September but external demand is the driver.
Survey data point to a very strong headline, 0.6%-to-0.7% quarter-on-quarter, in today's Q1 advance Eurozone GDP report. But the hard data have been less ebullient than the surveys. A GDP regression using retail sales, industrial production and construction points to a more modest 0.4% increase, implying a slowdown from the upwardly-revised 0.5% gain in Q4.
All eyes will be on the core PCE deflator data today, in the wake of the upside surprise in the January core CPI, reported last week. The numbers do not move perfectly together each month, but a 0.2% increase in the core deflator is a solid bet, with an outside chance of an outsized 0.3% jump.
The near-term U.S. inflation outlook is benign, but it is not without risk.
In March, CPI rents--the weighted average of primary and owners' equivalents rents--rose by 0.35% month- to-month.
Predictably, last weekend's G7 meeting in Canada ended in acrimony between the U.S. and its key trading partners.
Consumers' spending in the second quarter is still set to be less than great, thanks in part to unfavorable base effects from the first quarter, but a respectable showing of about 2¾% now seems likely. The core May retail sales numbers were a bit stronger than we expected, with gains in most sectors, and the upward revisions to April and March were substantial.
The April CPI report today will be watched even more closely than usual, after the surprise 0.12% month-to-month fall in the March core index. The biggest single driver of the dip was a record 7.0% plunge in cellphone service plan prices, reflecting Verizon's decision to offer an unlimited data option.
Last week, the Chinese authorities were out in force, talking up the economy and markets, and bearing measures to support private firms.
We have downgraded our 2019 and 2020 China GDP forecasts on previous occasions because monetary conditions have been surprisingly unresponsive to lower short-term rates.
China's Q2 official GDP growth, to be released on Monday, likely slowed to 6.2% year-over-year, from 6.4% in Q1.
Monthly core CPI prints of 0.3% are unusual; June's was the first since January 2018, so it requires investigation.
Take at look at the chart below, which shows core retail sales on a month-to-month and year-over-year basis. What's most striking about the chart is not the latest data, showing robust 0.8% gains in core sales--we exclude autos, gasoline and food--in both October and November, but the solidity of the trend since the winter.
China concludes its annual Central Economic Work Conference today, where the economic targets and the agenda for next year are set.
In previous Monitors--see here--we've suggested that, thanks to the coronavirus, China simply will lose some of the spending that would have gone on during the holiday this year.
The downside surprise in the November core CPI, which rose by 0.1%, a tenth less than expected, was due entirely to an unexpected 1.3% drop in apparel prices. This alone subtracted 0.05% from the core, but we think the chance of a reversal in December is quite high.
The U.S. Commerce Department on Tuesday released a list of Chinese imports, with an annual value of $200B, on which it is threatening to impose a 10% tariff, after a two-month consultation period.
It's pretty easy to dismiss back-to-back 0.3% increases in the core CPI, especially when they follow a run of much smaller gains.
The upward trend in CPI inflation likely reasserted itself in August, following a hiatus in the last two months due to the decline in oil prices.
December's retail sales numbers are the most important of the year for retailers, but they don't necessarily tell us anything about the future prospects for consumers' spending or the broad economy. The December 2016 numbers, however, might be different, because they capture consumers' behavior in the first full month after the election.
China's GDP report for the fourth quarter, due on Friday, is likely to show that economic growth has stabilised, on the surface.
Chair Yellen broke no new ground in her Testimony yesterday, repeating her long-standing view that the tightening labor market requires the Fed to continue normalizing policy at a gradual pace.
Official, real GDP growth was low in Q1, at 1.4% quarter-on-quarter, down from 1.6% in Q4.
We held our breath this month.
We previewed the FOMC meeting in detail in the Monitor on Monday--see here--but, to reiterate, we expect rates to rise by 25bp but that the Fed will not add a fourth dot to the projections for this year.
December's consumer prices report looks set to show that CPI inflation was stable at 1.5%--in line with the consensus--though the risks are skewed to the downside.
Japan's money and credit data have shown signs of life in recent months, but that's all set to change quickly, due to the disruptions caused by the outbreak of the coronavirus.
The headline March retail sales numbers probably will look horrible, thanks to the unexpected drop in auto sales reported by the manufacturers earlier this month. Their unit sales data don't always move exactly in line with the dollar value numbers in the retail sales report, as our first chart shows, but it's hard to imagine anything other than a clear decline today.
The key piece of evidence supporting our view that housing market activity has peaked for this cycle is the softening trend--until recently--in applications for new mortgages to finance house purchase.
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.
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.
We've been consistent in saying that Japanese capex would roll over this year, after strength in the first three quarters was seen by the authorities and many commentators as a sign of resilience.
China's official real GDP growth is absurdly stable, but the risks in Q3 are tilted to the downside.
CPI inflation in China surged to a five-month high of 2.3% in March, from 1.5% in February.
China's CPI inflation rose to 2.1% in July, from 1.9% in June.
Official Chinese real GDP growth likely slipped to 6.3% year-over-year in Q1, the lowest on record, from 6.4% in Q4, which matched the trough in the Great Financial Crisis.
Japan's GDP growth was revised up, to 0.4% quarter-on-quarter in Q3, from 0.1% in the preliminary reading.
China's January trade data were scheduled for release on Friday, but instead, the customs authority delayed the publication, saying it would publish the numbers with the February data
The headline April CPI, due today, will be boosted slightly by rising gasoline prices.
For some time now we have argued that collapse in capital spending in the oil sector was the source of most of the softening of activity in the manufacturing and wholesaling sectors last year.
It's probably too soon to expect to see a meaningful reaction in the NFIB small business survey to the drop in stock prices, but it likely is coming, and a hit in today's March report can't be ruled out entirely.
Yesterday's Chinese PMI numbers disappointed forecasts across the board, failing to meet widespread expectations for either stability or a continued, albeit marginal, improvement in April.
China's official manufacturing PMI, published on Monday, implies the industrial complex has maintained momentum going into Q3. The official manufacturing PMI moderated slightly to 51.4 in July from 51.7 in June. The July reading was unchanged from the average in Q2 and only modestly down from the 51.6 in Q1.
Trade talks between the U.S. and China officially resumed this week, with the first face-to-face meeting of the main negotiators taking place yesterday in Shanghai.
Headline inflation in the Eurozone eased at the start of the year, but leading indicators suggest that the dip will be short-lived.
Chinese data still are in the midst of Lunar New Year-related noise, so take February's PMIs with a pinch of salt, even though they ostensibly are adjusted for seasonal effects.
China's official manufacturing PMI implies a modest gain in momentum in Q2, at 51.4, compared with 51.0 on average in Q1.
On the face of it, our forecast of higher core inflation by the end of this year is seriously challenged by the recent data.
Inflation in Mexico fell significantly in September. Data yesterday showed that the CPI rose just 0.3% month-to-month, pushing the year-over-year rate down to 6.4% from 6.7% in August, its highest level in 16 years.
China's October foreign trade headlines beat expectations, but the year-over-year numbers remain grim, with imports falling 6.4%, only a modest improvement from the 8.5% tumble in September.
The Easter effect depressed services inflation more than markets expected in April, but the main downside surprise was the tepid rebound in non-energy goods inflation.
Business investment in Japan took a nasty hit in the third quarter.
The August NFIB survey of activity and sentiment at small businesses was soft, but it could have been worse.
The sluggishness of consumers' spending and business investment in the first quarter means that hopes of a headline GDP print close to 2% rely in part on the noisier components of the economy, namely, inventories and foreign trade.
People don't like to see the value of their portfolios decline, and it is just a matter of time before the benchmark measures of consumer sentiment drop in response to the 7% fall in the S&P since mid-August. Sometimes, movements in stock prices don't affect the sentiment numbers immediately, especially if the market moves gradually. But the drop in the market in August was rapid and dramatic, and gripped the national media.
We already know that the key labor market numbers in today's May NFIB survey are strong.
The next few months, perhaps the whole of the first quarter, are likely to see a clear split in the U.S. economic data, with numbers from the consumer side of the economy looking much better than the industrial numbers.
Mexican economic growth was subdued during the first half of the year, and we expect it to remain weak over the coming months. The economy has been held back largely by external headwinds, especially low oil prices and disruptions to activity in the US, its main trading partner.
Our hopes of a hefty rebound in payrolls in October, following the hurricane-hit September number, have been dashed by the imminent landfall of Hurricane Michael in Florida panhandle.
Today's March CPI ought to provide further support for the idea that the trend rate of increase in the core index is running at about 0.2% per month, an annualized rate, if sustained, of about 2.5%.
Our base case forecast for today's July core CPI is that the remarkable and unexpected run of weak numbers, shown in our first chart, is set to come to an end, with a reversion to the prior 0.2% trend.
Retail sales ex-autos have undershot consensus forecasts in eight of the 11 reports released so far this year, prompting interest rate doves to argue that consumers have not spent their windfall from falling gas prices. But this ignores the impact of falling prices--for gasoline, electronics, furniture, and clothing--on the sales numbers, which are presented in nominal terms.
Today's February CPI report is very unlikely to repeat January's surprise, when the core index was reported up 0.3%, a tenth more than expected.
It's unrealistic to have a repeat of the second quarter's 4.2% leap in consumers' spending as your base case for the third quarter. It's not impossible, though, given the potential for the saving rate to continue to decline, and the apparently favorable base effect from the second quarter.
The Chinese activity data published yesterday were a mixed bag, with headline retail sales and production weakening, while FAI growth was stable. We compile our own indices for all three, to crosscheck the official versions.
China's main activity data for October disappointed across the board, strengthening our conviction that the PBoC probably isn't quite done with easing this year.
A modest dip in gasoline prices will hold down the October CPI, due today, but investors' attention will be on the core, after five undershoots to consensus in the past six months.
China's September imports missed expectations, but commentators and markets tend to focus on the year-over-year numbers.
Today's huge wall of data will add significantly to our understanding of third quarter economic growth, with new information on consumers' spending, industrial activity, inflation and business sentiment. In light of the unexpected drop in the ISM surveys in August, we are very keen to see the Empire State and Philly Fed surveys for September.
A 45bp rise in long-term interest rates--the increase between mid-August and last week's peak--ought to depress stock prices, other things equal.
Don't worry about the weakness of the recent retail sales numbers. The three straight 0.1% month-to- month declines tell us nothing about the underlying state of the consumer.
China's industrial production grew at an annualised 7.2% rate by volume in Q1, according to our estimates, up from an average 5.9% rate in the six quar ters through mid-2016.
China's December foreign trade numbers were unpleasant, with both exports and imports falling year-over-year, after rising, albeit slowly in November.
We want to be very clear about the terrible-looking December retail sales numbers: The core numbers were much less bad than the headline, and there is no reason to think the dip in the core is anything other than noise.
In our Monitor of January 10, we argued that the market turmoil in Q4 was largely driven by the U.S.- China trade war, and that a resolution--which we expect by the spring, at the latest--would trigger a substantial easing of financial conditions.
Treasury Secretary Mnuchin's five-line letter to House Speaker Pelosi on last Friday--copied to other Congressional leaders--which said that "there is a scenario in which we run out of cash in early September, before Congress reconvenes", introduces a new element of uncertainty to the debt ceiling story.
Whichever way you choose to slice the numbers, retail sales growth has slowed this year. Ex-gasoline, ex-autos, core, whatever, sales growth in year-over-year terms is notably weaker now than at the end of last year. It is equally, true, however, that after-tax incomes have risen at a robust pace--up 3.8% in the year to May, exactly the same pace as in the year to May 2014--so consumers in aggregate have plenty of cash to spend. So, what's holding people back at the mall? Why aren't they spending more?
The holiday effects are at it again. C hina's trade balance dropped to a deficit of $5.0B in March, from a surplus of $33.5B in February, confounding expectations for a surplus of $27.5B.
ate last week, China and the U.S. reached an agreement, averting the planned U.S. tariff hikes on Chinese consumer goods that were slated to be imposed on December 15.
Chinese April retail sales growth slowed sharply in value terms, to 9.4% year-over-year, from 10.1% in March.
It might seem odd to describe a meeting at which the Fed raised rates for only the third time since 2006 as a holding operation, but that just about sums up yesterday's actions. The 25bp rate hike was fully anticipated; the forecasts for growth, inflation and interest rates were barely changed from December; and the Fed still expects a total of three hikes this year.
Falling demand for utility energy, thanks to yet another very warm month, relative to normal, will depress the headline industrial production number for October, due today. We look for a 21⁄2% drop in utility energy production, enough to subtract a quarter point from total industrial output.
China's official real GDP growth likely slowed to 6.0% year-over-year in Q3, from 6.2% in Q2.
Data over the weekend revealed a further slowdown in China's CPI inflation, to 1.5% in February, from 1.7% in January.
Yesterday's final inflation data in France for September were misleadingly soft.
Fed Chair Yellen said nothing very new in the core of her Monetary Policy Testimony yesterday, repeating her view that rates likely will have to rise this year but policy will remain accommodative, and that the labor market is less tight than the headline unemployment rate suggests. The upturn in wage growth remains "tentative", in her view, making the next two payroll reports before the September FOMC meeting key to whether the Fed moves then.
We expect June's consumer prices report, due on Wednesday, to show that CPI inflation fell to 1.9%, from 2.0% in May.
January's retail sales figures look set to show that growth in consumers' spending remains stuck in low gear.
In yesterday's Monitor, we argued that if the upside risk in an array of core CPI components crystallised in January, the month-to-month gain would print at 0.3%, for the first time since August. That's exactly what happened, though we couldn't justify it as our base forecast. A combination of rebounding airline fares, apparel prices, new vehicle prices, and education costs conspired to generate a 0.31% gain, lifting the year-over-year rate back to the 2.3% cycle high, first reached in February last year.
The BoJ is likely to be thankful next week for a relatively benign environment in which to conduct its monetary policy meeting.
The Chinese authorities have been out in force in the last few days, aiming to reassure markets and the populace that they are ready and able to support the economy, after abysmal trade data on Monday.
The 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.
China's trade surplus jumped to a six-month high of $46.8B in December, from $37.6B in November, on the back of a strong increase in exports.
February's COPOM meeting minutes again signalled that Brazil's central bank will stick with its cautious approach to monetary policy.
Industrial production in India turned around sharply in November, rising by 1.8% year-over-year, following October's 4.0% plunge and beating the consensus forecast for a trivial 0.3% uptick.
Japan's GDP likely dropped by a huge 0.9% quarter-on-quarter in Q4, after the 0.5% increase in Q3, with risks skewed firmly to the downside.
China's headline trade numbers appear to paint a picture of an economy in rude health but scratch the surface and the story is quite different. The trade surplus rose to$42.8B in June from $40.8B in May, hitting consensus.
The details of the substantial pay raises being offered to some 18K JP Morgan employees over the next three years are much less important than the signal sent by the company's response to the tightening labor market. In an economy with 144M people on payrolls, hefty raises for JP Morgan employees won't move the needle in the hourly earnings data.
Last week's evidence of still-strong wage growth in the EZ at the start of the year almost surely has gone unnoticed as markets focus on the prospect of rate cuts, not to mention more QE, by the ECB.
The Fed was more hawkish than we expected yesterday.
The Fed surprised no-one by raising rates 25bp yesterday and leaving in place the median forecast for three hikes next year and two next year.
The robust July retail sales numbers, coupled with the substantial upward revisions to prior data, should finally put to bed the idea that consumers have chosen spontaneously to raise their saving rate, accelerating the pace of deleveraging seven years after the financial crash. People just don't behave like that unless interest rates are soaring and the economy is rolling over, and that's not happening.
Now that the run of unfavorable base effects in the core CPI--triggered by five straight soft numbers last year--is over, we're expecting little change in the year- over-year rate through the remainder of this year.
PM Abe last week asked the cabinet to put together a package of measures in a 15-month budget aimed at bolstering GDP growth through productivity enhancement, in addition to the shorter-term goal of disaster recovery.
The run of soft-looking headline retail sales numbers in recent months--the initial estimates for February, January and December were -0.6%, -0.8% and -0.9% respectively--will end today; the March number will look solid.
Since January 2015, Core CPI inflation has risen to 2.3% from 1.6%, propelled by a combination of accelerating rents, a substantial rebound in the rate of increase of healthcare costs, and a modest-- though unexpected--upturn in core goods prices. It's always risky, though, simply to extrapolate recent trends and assume you now have a clear guide to the future.
German inflation data are more noise than signal at the moment.
Small businesses remain extremely positive about the economy, but some of the post-election gloss appears to be wearing off. To be clear, the headline composite index of small business sentiment and activity in February, due this morning, will be much higher than immediately before the election, but a modest correction seems likely after January's 12- year high.
China's monetary conditions remain tight, pointing to a substantial downtrend in GDP growth this year and next.
Investors anticipate a shift up in the MPC's hawkish rhetoric today. After August's consumer price figures showed CPI inflation rising to 2.9%--0.2 percentage points above the Committee's forecast--the market implied probabilities of a rate hike by the November and February meetings jumped to 35% and 60%, respectively, from 20% and 40%.
The RMB has risen strongly in recent months, initially with the euro and the yen, but China's currency rose on a trade-weighted basis in August.
Nobody has a monopoly on "the truth".
Japanese real Q2 GDP growth surprised analysts, increasing sharply to a quarterly annualised rate of 4.0%, up from 1.0% in Q1 and much higher than the consensus, 2.5%. But its no coincidence that the jump in Japanese growth follows strong growth in China in Q1.
The January core CPI numbers are consistent with our view that the U.S. faces bigger upside inflation risks than markets and the Fed believe.
This could have been a momentous week, but now it very likely will be just another week with another Fed meeting where rates are left on hold. Our call has very little to do with the underlying state of the economy, which we think can cope with higher rates, and needs them, given the tightness of the labor market. Instead, the story is all about the perceptions--misplaced, in our view--of both the Fed and the markets.
Retail sales have lost steam over the past couple of months, even if you look through the headline gyrations triggered by swings in auto sales and gasoline prices.
It's hard to know what to make of the October CPI data, which recorded hefty increases in healthcare costs and used car prices but a huge drop in hotel room rates, and big decline in apparel prices, and inexplicable weakness in rents.
The minutes of the September 19/20 FOMC meeting record that "...it was noted that the National Federation of Independent Business reported that greater optimism among small businesses had contributed to a sharp increase in the proportion of small firms planning increases in their capital expenditures."
Friday's data added further colour to the September CPI data for the Eurozone.
After last week's relatively light flow of data, today brings a wave of information on both the pace of economic growth and inflation. The markets' attention likely will fall first on the September retail sales numbers, which will be subject to at least three separate forces. First, the jump in auto sales reported by the manufacturers a couple of weeks ago ought to keep the headline sales numbers above water.
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.
A PBoC rate cut is looking increasingly likely. Policy is already on the loosest setting possible without cutting rates, but the Bank has little to show for its marginal approach to easing, with M1 growth still languishing.
Chief U.S. Economist Ian Shepherdson with the latest on the trade war
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%.
Many observers hoped that the silver lining of a slowdown in house price growth this year would be that more first-time buyers could step onto the first rung of the housing ladder. Instead, purchasing a first home has become even harder for FTBs with modest deposits.
One of the more disheartening aspects of the Q2 national accounts, released last week, was the downward revision to business investment. Quarteron-quarter growth was revised to -0.7%, from +0.5% previously.
Korea's economic data for June largely were poor, and are likely to make more BoK board members anxious ,ahead of their meeting on July 18.
Markets have given the BoJ a break this month, with the 10-year JGB yield rising back into the implied band around the 0% target, and the yen snapping its appreciation streak.
China's residential property market surprised again in August, with prices popping by 1.5% month- on-month, faster than the 1.2% rise in July, and the biggest increase since the 2016 boomlet.
At the October FOMC meeting, policymakers softened their view on the threat posed by the summer's market turmoil and the slowdown in China, dropping September's stark warning that "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." Instead, the October statement merely said that the committee is "monitoring global economic and financial developments."
On the face of it, the December core retail sales numbers were something of a damp squib. The headline numbers were lifted by an incentive-driven jump in auto sales and the rise in gas prices, but our measure of core sales--stripping out autos, gas and food--was dead flat. One soft month doesn't prove anything, and core sales rose at a 3.9% annualized rate in the fourth quarter as a whole.
December's retail sales figures, released today, likely will show that the surge in spending in November was driven merely by people undertaking Christmas shopping earlier than in past years, due to Black Friday.
At the October FOMC meeting, policymakers softened their view on the threat posed by the summer's market turmoil and the slowdown in China, dropping September's stark warning that "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." Instead, the October statement merely said that the committee is "monitoring global economic and financial developments."
April's consensus-beating retail sales figures fostered an impression that the recovery in consumer spending is in fine fettle, even though the rest of the economy is suffering from Brexit blues. Retailers have stimulated demand, however, by slashing prices at an unsustainable rate. With import prices and labour costs now rising, retailers are set to increase prices, sapping the momentum in sales volumes.
Japan's trade balance deteriorated sharply in May, flipping to a ¥967B deficit from the modest ¥57B surplus in April.
Brazil's retail sales plunged in August, falling 0.9% month-to-month--the seventh consecutive contraction -- and with a net revision of -0.6%. The broad retail index, which includes vehicles and construction materials, dropped 2.0% month-to-month, the biggest fall this year, due mainly to a 5.2% collapse in auto sales, reversing July's unexpected increase. In annual terms, headline sales fell by an eye-popping 6.9% in August, after the downwardly-revised 3.9% drop in July. In short, the sales data show that consumers are suffering. They will struggle for some time yet.
In the wake of last week's rate increase, the fed funds future puts the chance of another rise in September at just 16%. After hikes in December, March and June, we think the Fed is trying to tell us something about their intention to keep going; this is not 2015 or 2016, when the Fed happily accepted any excuse not to do what it had said it would do.
The combination of astounding fourth quarter payroll numbers and weak GDP growth has prompted a good deal of bemused head-scratching among investors and the commentariat. The contrast is startling, with Q4 private payrolls averaging 276K, a 2.4% annualized rate of increase, while the initial estimate for growth seems likely close to 1%. Even on a year-over-year basis, stepping back from the quarterly noise, Q4 growth is likely to be only 2% or so.
When the Fed raised rates in December, it subverted one of its own long-standing conventions by hiking with the ISM manufacturing index below 50. The December survey, released just 15 days before the meeting, showed the headline index slipping to 48.6, the third straight sub-50 reading. It has since been revised down to 48.0, the lowest reading since June 2009.
On Tuesday, Brazil's Special Committee presented its recommendation for a constitutional amendment capping spending. Currently it is being voted in the Lower House Committee.
The first major data release of 2016 showed manufacturing activity slipping a bit further at the end of last year, but we doubt the underlying trend in the ISM manufacturing index will decline much more. Anything can happen in any given month, especially in data where the seasonal adjustments are so wayward, but the key new orders and production indexes both rose in January; almost all the decline in the headline index was due to a drop in the lagging employment index.
U.S. inflation gauges are sliding toward negative territory for the first time in more than five years. But the oil-fueled tumble in prices is far from the kind of growth-sapping episodes of deflation that tend to worry economists
Our view that households will continue to spend more in the first half of this year, preventing the economy from slipping into a capex-led recession, was not seriously challenged yesterday by the BRC's Retail Sales Monitor.
Friday was a busy day in the Eurozone. The final and detailed GDP report confirmed that growth in the euro area slowed to 0.2% quarter-on-quarter in Q3, from 0.4% in Q2, with the year-over-year rate slipping by 0.6 percentage points to 1.6%, just 0.1pp below the first estimate.
The recent jobless claims numbers have been spectacularly good, with the absolute level dropping unexpectedly in the past two weeks to a 43-year low. The four-week moving average has dropped by a hefty 14K since late August.
Friday's inflation report for Brazil confirmed that inflation is rapidly falling towards the BCB's target range, helping to make the case for stepping up the pace of monetary easing to 50bp at the Copom's January meeting.
The undershoot in the April core CPI wasn't a huge surprise to us; the downside risk we set out in yesterday's Monitor duly materialized, with used car prices dropping by a hefty 1.6% month-to-month, subtracting 0.05% from the core index.
Economic data in the euro area are still slipping and sliding.
France just about avoided slipping into deflation in December, with the CPI rising 0.1% year-over-year, down from 0.3% in November. The 4.4% drop in the energy component should have pushed inflation below zero, but a seasonal increase in tourism services was enough to offset the drag from oil prices.
The FOMC did the minimum expected of it yesterday, raising rates by 25bp--with a 20bp increase in IOER--and dropping one of its dots for 2019.
Just as we turned more positive on the labor market, following three straight months of payroll gains outstripping the message from an array of surveys, the Labor Department's JOLTS report shows that the number of job openings plunged in November.
The latest drop in crude oil prices me ans that sub-zero headline CPI inflation in the spring is now more likely than not. We expect a lurch down from November's 1.3% to 0.7% in December, then 0.3% in January. The rate will remain close to that level for the next few months before hitting zero in May and slipping into negative territory--just--in June and July.
Argentina's overdue policy tightening, aimed at dealing with the country's severe inflation and fiscal problems, is underway. Printing of ARS at the central bank, the BCRA, to finance the budget, deficit has slowed and will be curbed further. Welfare spending, which accounts for nearly half of government spending, has been put on the chopping block.
The BoJ kept policy unchanged last week, but made a significant change to its communication, dropping its previous explicit statement on the timing for hitting the inflation target.
One bad month proves nothing, but our first chart shows that October's auto sales numbers were awful, dropping unexpectedly to a six-month low.
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.
In one line: No overall PPI threat, but airline fares jump will lift the core PCE deflator.
In one line: Underlying PPI trends aren't as weak as Nov headlines; claims hit holdiay seasonal noise.
In one line: Snapping back after political-related weakness in Q4.
Over the weekend, the PBoC cut the RRR for the vast majority of banks. FX reserves data released shortly after suggested that the Bank already is propping up the currency.
After a week--yes, a whole week!--with no significant new developments in the trade war with China--it's worth stepping back and asking a couple of fundamental questions, which might give us some clues as to what will happen over the months ahead.
Brazil's industrial sector continues to suffer, despite September's report surprising marginally on the upside. Output contracted 1.3% month-to-month in September, after a 0.9% fall in August, pushing the year over-year rate down to -10.9% down from -8.8% in August. This is the biggest drop since April 2009. Output has fallen an eye-popping -7.4% year-to-date, and in the third quarter alone activity contracted by 3.2% quarter-on-quarter, in line with our vie w for a 1.2% contraction in real GDP for the third quarter.
Last week, the Atlanta Fed updated its median hourly earnings series with new October data, showing wage growth accelerating to an eight-year high of 3.9%. That's a full percentage point higher than the increase in this measure of wages in the year to October 2015, and it follows a spring and summer during which wage growth appeared to be topping-out at just under 3½%.
Japan's all-industry activity index fell 0.5% month-on- month in September after a 0.2% rise in August. Construction activity continued to plummet, with the subindex dropping 2.3%, after a 2.2% fall in August.
Gilts continued to rally last week, with 10-year yields dropping to their lowest since October 2016, and the gap between two-year and 10-year yields narrowing to the smallest margin since September 2008.
The commentariat was very excited Friday by the inversion of the curve, with three-year yields dipping to 2.24% while three-month bills yield 2.45%.
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.
Mexican inflation fell sharply in the first two weeks of January, dipping by 0.2% from two weeks earlier, thanks to lower energy prices and a reduction in long-distance phone tariffs. Telecom reform explains about 15bp of the headline reduction.
Rumours of Greece stepping back from the brink and accepting its creditors' demands, have taunted markets this week. But the response from the EU, so far, is that talks will not resume before this weekend's referendum. Our base case is a "yes" to the question of whether Greece should accept the proposal from the EU and IMF.
The Redbook chainstore sales survey today is likely to give the superficial impression that the peak holiday shopping season got off to a robust start last week.
Mexico's economy hit a sticky patch in the first quarter, with confidence slipping, employment growth slowing and the downward trend in unemployment stalling. Indeed, the headline unemployment rate rose to 4.5% in May from 4.3% in April. The seasonally adjusted rate, though, was little changed at 4.4%, with a stable participation rate.
After a busy week of data, and a holiday weekend ahead, it's worth stepping back a bit and evaluating the arguments over the timing of the next Fed hike. The first question, though, is whether the data will support action, on the Fed's own terms. The April FOMC minutes said: "Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June".
Chief U.K. Economist Samuel Tombs on the U.K. CBI Industrial Trends Survey
Chief Eurozone Economist Claus Vistesen discussing the German Zew in April
Chief U.S. Economist Ian Shepherdson discussing U.S. Durable Goods Orders
Miguel Chanco helps to produce Pantheon's Asia service, having covered several parts of the region for nearly ten years. He was most recently the Lead Analyst for ASEAN at the Economist Intelligence Unit. Prior to that role, Miguel focused on India and frontier markets in South Asia for Capital Economics and BMI Research, Fitch Group.
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