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589 matches for "sentiment":
Yesterday's ZEW investor sentiment in Germany shows showed no signs that uncertainty over the U.K. referendum is taking its toll on EZ investors. The expectations index surged to 19.2 in June, from 6.4 in May, the biggest month-to-month jump since January last year, when investors were eagerly expecting the ECB's QE announcement.
In one line: Sentiment still very elevated; inflation expectations dip.
Whatever happened to consumers' sentiment in March, the level of University of Michigan's index will be very high, relative to its long-term average.
We're reasonably happy with the idea that business sentiment is stabilizing, albeit at a low level, but that does not mean that all the downside risk to economic growth is over.
The INSEE business sentiment data in France continue to tell a story of a robust economy.
Yesterday's consumer sentiment data in the two major euro area economies were mixed, but they still support our view that a rebound in EZ consumption growth is underway.
In one line: Hold the press; we have an increase in the EC sentiment index.
In one line: Downbeat consumer sentiment casts doubt over the Tories' majority hopes.
In one line: Marginally better in manufacturing; upturn in consumer sentiment halted, for now.
The recent spate of manufacturing business survey indices from Korea show that sentiment is deteriorating in the wake of its trade spat with Japan and the re-intensification of U.S.-China tensions.
Yesterday's consumer sentiment data provided further evidence of a strengthening French economy, amid signs of cracks in the otherwise solid German economy.
Data yesterday suggest that EZ investor sentiment is on track for a modest recovery in Q3.
Sentiment has been improving gradually in Mexico in recent weeks, reversing some of the severe deterioration immediately after the U.S. presidential election. Year-to-date, the MXN has risen 10.3% against the USD and the stock market is up by almost 8%. We think that less protectionist U.S. trade policy rhetoric than expected immediately after the election explains the turnaround.
Consumer sentiment in Mexico continues to improve, consistent with tailwinds from the relatively strong labour market and the president's rising approval ratings.
The recovery in small business sentiment since the fourth quarter rollover has been extremely modest, so far.
Recently released data in Mexico are sending weak signals for the business outlook, and the Texcoco airport saga won't help.
In one line: Soft, but not a major shift in the key story.
In one line: Slightly confusing manufacturing data; but overall picture is robust.
No change; overall robust.
In one line: The bottom in German inflation is in, at least in the near term.
The outlook for private investment in the Eurozone has deteriorated this year, especially in manufacturing.
The "Phase One" China trade deal announced late last week is a step in the right direction, but a small one. With no official text available as we reach our deadline, we're relying on media reporting, but the outline of the agreement is clear.
In one line: Like watching paint dry.
It has been mostly doom and gloom for euro area investors in equities and credit this year.
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.
Yesterday's barrage of French business surveys contains hundreds of indicators, but its central story is comfortably simple.
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.
Friday's July PMI reports presented investors with a rather confusing story. The composite PMI in the Eurozone fell trivially to 52.9 in July, from 53.1 in June, despite rising PMIs in Germany and France. The final data on 3 August will give the full story, but Markit noted that private sector growth outside the core slowed to its weakest pace since December 2014.
Mexico's latest hard data suggest things might not be as bad as we feared. Retail sales and manufacturing output were relatively strong at the end of last year, the Q4 preliminary GDP report was mostly upbeat, and the labor market was firing on all cylinders.
In one line: Only a modest Q3 rebound for consumption in France?
In one line: The consumer is just fine; recent softness in spending is temporary.
In one line: Consumers are mostly still quite happy, but no sustained improvement is likely.
In one line: Trade wars have consequences.
In one line: Business and consumer confidence is diverging.
In one line: Still a big gap between business and consumer confidence.
In one line: Holding up, but for how much longer?
In one line: Confidence high and stable; inflation expectations steady.
In one line: Lifted by the stock market.
In one line: Indicative of confidence recovering, if the Withdrawal Agreement is passed quickly.
In one line: Consistent with negligible GDP growth in Q4.
In one line: The trend is softening; blame the trade war.
In one line: Consumers are defiantly optimistic, despite the Brexit saga.
In one line: Much better than the PMIs.
In one line: Decent headline, even better details.
In one line: The downtrend resumes, but take the headline with a pinch of salt.
In one line: Positive, but the trend is still down.
In one line: Disappointing given last month's rebound.
In one line: Decent, but more upside is needed in Q1 to tell a positive story overall.
In one line: Soft, but still consistent with solid growth in consumption.
In one line: Encouraging, but the details were mixed.
In one line: Relief; but manufacturing is not out of the woods yet.
In one line: Not bad at all.
In one line: The French consumer looks o.k.; in Germany, surveys now point to slower growth.
In one line: Lukewarm ... but still consistent with decent growth in spending.
In one line: Another soft headline at the start of Q4.
In one line: Surprisingly strong, but too soon to cheer.
While we were out, most of the core domestic economic data were quite strong, with the exception of the soft July home sales numbers and the Michigan consumer sentiment survey.
The widespread view, which we share, that GDP will rebound in Q2 following the disruption caused by bad weather in Q1, was supported yesterday by the E.C.'s Economic Sentiment survey.
If you were looking just at investor sentiment in the Eurozone, you would conclude that the economy is in recession.
EM risk sentiment remains grim as the Trump administration dispenses protectionist trade measures. LatAm's biggest economies, Brazil and Mexico, have been hit the hardest, with their currencies falling 3.3% and 2.2% respectively in the last week, the most in the EM world.
Today's data likely will show that EZ households' sentiment remained close to a record high at the start of the year.
Leading indicators for consumers' spending in France are sending conflicting signals. Survey data suggest that households are in a spendthrift mood. Data yesterday showed that the headline consumer sentiment index was unchanged in March at 100, the cycle high.
Survey data in the Eurozone were mixed yesterday. In Germany, the advance GfK consumer sentiment index slipped to 10.0 in October, from 10.2 in September, marginally below consensus forecasts. The details, reported for September, also were soft.
Household sentiment in France continues to improve, consistent with tailwinds from low energy prices and accommodative monetary policy. INSEE's measure of consumer confidence rose to 94 in April, up from 93 in March, the highest since November 2010.
Our hopes that tax cuts and lower energy inflation would lift French household consumption in Q4 were badly dented by yesterday's consumer sentiment report.
May's E.C. Economic Sentiment survey was a blow to hopes that the six-month stay of execution on Brexit would facilitate a recovery in confidence.
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.
Friday's consumer sentiment data in the two main Eurozone economies were mixed.
Yesterday's national surveys in the EZ confirmed the downbeat message from the PMIs and consumer sentiment data earlier this week.
Japan's labour market remains tight but will face persistent slackening from here. Caixin manufacturing on a tear. In the end, CPI deflation in Korea lasted just one month. October probably was the y/y trough in Korea's export slump. Business sentiment in Korea is recovering... albeit only slowly.
LatAm assets did well in Q1, on the back of upbeat investor risk sentiment, low volatility in developed markets and a relatively benign USD.
Today brings yet another broad array of data, with new information on housing construction, industrial production, consumer sentiment, and job openings.
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.
History is repeating itself in France. When the Republican Nicolas Sarkozy defeated the Socialist candidate Ségolène Royal in April 2007, consumer sentiment briefly soared to a six-year high, before plunging to an all-time low a year later.
We're inclined to place little weight on July's E.C. Economic Sentiment Survey, which showed that consumers' confidence has picked up to its highest level since October 2016; see our first chart.
This week has seen a huge wave of data releases for both January and February, but the calendar today is empty save for the final Michigan consumer sentiment numbers; the preliminary index rose to a very strong 99.9 from 95.7, and we expect no significant change in the final reading.
Today's data dump will deliver the advance PMIs and the French INSEE business sentiment indices for February, all of which will be examined closely for signs of stabilisation in the wake of recent evidence that EZ growth is slowing quicker than markets and the ECB have been expecting.
Yesterday's barrage of French business sentiment data suggest that confidence in the industrial sector was a little stronger than expected in Q2.
Yesterday's barrage of survey data in France suggests that business sentiment in the industrial sector remained soft mid-way through Q4, but the numbers are more uncertain than usual this month.
Consumer sentiment in the euro area has slipped this year, though the headline indices remain robust overall.
Swoons in EZ investor sentiment are not always reliable leading indicators for the economic surveys, but it is fair to say that risks for today's advance PMIs are tilted to the downside, following the dreadful Sentix and ZEW headlines earlier this month.
Investor sentiment in the Eurozone showed further signs of recovery yesterday. The ZEW expectations index rose strongly to 48.4 in January from 34.9 in December, and the leap since the trough in October ranks among the strongest rebounds ever recorded in the index.
Judging by the survey data, German business sentiment remained depressed at the start of the year.
Today brings only the preliminary Michigan consumer sentiment data for January so we want to take some time to look at how recent changes to Medicare Part B premiums, which cover doctors' fees, are likely to affect inflation over the next few months.
Yesterday's barrage of survey data in France, tentatively suggest that business sentiment is stabilising following a string of declines since the start of the year.
Yesterday's advance consumer sentiment index in the Eurozone confirmed the upside risks for consumers' spending in Q4. The headline index rose to a 17- year high of +0.1 in November, from -1.0 in October.
German retail and consumer sentiment data for March have been mixed this week, but broadly support our call that growth in consumption should pick up soon.
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.
Yesterday's barrage of French business sentiment data was mixed.
The INSEE's manufacturing sentiment data in France are slightly confusing at the moment.
The April IFO business sentiment survey increased the degree of uncertainty over the German economy, following stabilisation in the PMIs earlier this week.
Markets cheered soaring business surveys in the Eurozone earlier this week, and recent consumer sentiment data also have been cause for celebration. The advance GfK consumer confidence index in Germany rose to a record high of 10.4 in June, from 10.2 in May.
Hard economic data for the first quarter will appear over the next few weeks, but the EC sentiment survey later today gives a useful overview of how the euro area economy started the year.
Yesterday's sole economic report in the EZ showed that consumer sentiment in Germany improved mid-way through the fourth quarter.
A downbeat French INSEE consumer sentiment report yesterday continued the run of poor survey data this week. The headline index fell to 95 in February from 97 in January, indicating downside risk f or Q1 consumers' spending. But we remain optimistic that private consumption will rebound solidly, following a 0.4% quarter-on-quarter fall in Q4.
Yesterday's consumer confidence report in Germany was soft, in contrast to surging business sentiment data earlier in the week.
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.
Economic data are telling a story of a strengthening recovery, but downbeat investor sentiment points to a more difficult environment. The headline ZEW expectations index fell to a ten-month low of 12.1 in September, from 25.0 in August. This takes sentiment back to levels not seen before QE was announced, highlighting the increasing worry that deflation risks and low growth in China will derail the recovery. We don't agree, but we can't be sure the ECB thinks the same, and risks of additional stimulus this year have increased.
Advance April consumer survey data will likely confirm that households remain the standout driver of the cyclical recovery in the euro area. We think the headline EC consumer sentiment index rose to -1.0 in April from -3.7 in March.
Advance Eurozone consumer sentiment fell disappointingly to -7.1 in July, from -5.6 in June, but it is consistent with a solid trend in retail sales growth. Household consumption in the zone has surged in the last four quarters, and a modest loss of momentum in Q3 and Q4 is a reasonable bet. But we see little risk of a sharp slowdown in the shor t run, and the trend in spending growth should stabilize at an annualised 1.5% this year.
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.
Chief U.S. Economist Ian Shepherdson on U.S. Consumer Sentiment
We're looking forward to today's April NFIB survey of activity and sentiment in the small business sector with some trepidation.
Nowhere is the gap between sentiment and activity wider than in the NFIB survey of small businesses. The economic expectations component leaped by an astonishing 57 points between October and December, but the capex intentions index rose by only two points over the same period, and it has since slipped back. In February, the capex intentions index stood at 26, compared to an average of 27.3 in the three months to October.
The two main national surveys--IFO and INSEE-- both beat consensus forecasts yesterday, supporting our story of that economic sentiment is holding up relatively well in the face increasing investor anxiety. In Germany, the main IFO business climate index rose marginally to 108.5 from a revised 108.4 in August, boosted by an increase in the expectations index to a six-month high of 103.3, up from 102.0 in August. The IFO expectations index points to real GDP growth rising 0.5%-to-0.6% quarter-on-quarter in Q3.
French consumer sentiment dipped slightly in June, but we see no major hit from ongoing labour market disputes. The headline index slipped to 97 in June, from 98 in May; this is a decent reading given the fourpoint jump last month. The headline was constrained by a big fall in consumers' "major purchasing intentions," but this partly was mean-reversion following a surge last month.
Chief U.S. Economist Ian Shepherdson on NAHB
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%.
Monetary dynamics in the Eurozone were virtually unchanged last month. M3 growth rose trivially to 5.0% year-over-year in March from a revised 4.9% in February. It was lifted by stronger growth in medium-term deposits and issuance of short-term debt.
This weekend's first round of the French presidential election is too close to call. Our first chart indicates that a runoff between Marine Le Pen and Emmanuel Macron remains the best bet. But the statistical uncertainty inherent in the predictions, and the proximity of the two remaining candidates--the centre-right Mr. Fillon and far-left Mr. Melenchon-- mean that this is now effectively a four-horse race.
We were happy to see upside surprises from both sides of the domestic economy yesterday, but we doubt that the August readings from both the Conference Board's consumer confidence survey and the Richmond Fed business survey can hold.
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.
Friday's detailed GDP data in Germany confirm that the euro area's largest economy performed strongly in the second quarter.
Today is a busy day in the Eurozone economic calendar, but we suspect that markets mainly will focus on the details of Italy's 2019 budget.
The Mexican economy shrank by 0.2% quarter- on-quarter in Q2, according to the final GDP report, a tenth worse than the preliminary reading.
Whichever way you choose to slice the numbers, consumers' spending is growing much more slowly than is implied by an array of confidence surveys.
It's always dangerous when risk assets rally strongly into an ECB meeting, but we doubt that investors have much to fear from today's session in Frankfurt. We think the central bank will leave its main refinancing and deposit rates at 0.00% and -0.4% respectively.
This week's Mexican retail sales report for February offered more support to our view that domestic conditions improved at the end of Q1.
Yesterday's IFO survey in Germany sent a marginally more downbeat message than the strong PMIs last week. The IFO business climate index fell to 115.2 in September, from 115.9 in August, its second straight monthly dip.
Economic news in the Eurozone, and virtually everywhere else, has been mostly downbeat in the past few months, but French consumers are doing great.
The Conservatives have continued to gain ground over the last week, with support averaging 43% across the 13 opinion polls conducted last week, up from 41% in the previous week.
The ECB kept its cool yesterday, at the headline level, amid crashing stock markets, volatile BTPs and souring economic data.
Economic data in the Eurozone are sending an increasingly upbeat message on the economy. Yesterday saw a barrage of numbers, but the most startling of them was the continued acceleration in the money supply.
Eurozone investors continue to look to the ECB as the main reason to justify a constructive stance on the equity market. Last week, the central bank all but promised additional easing in March, but the soothing words by Mr. Draghi have, so far, given only a limited lift to equities. Easy monetary policy has partly been offset by external risks, in the form of fears over slow growth in China, and the risk of low oil prices sparking a wave of corporate defaults. But uncertainty over earnings is another story we frequently hear from disappointed equity investors. We continue to think that QE and ZIRP offer powerful support for equity valuations in the Eurozone, but weak earnings are a key missing link in the story.
Yesterday's headline economic data in the euro area were solid across the board, though the details were mixed.
Political uncertainty is starting to dampen housing market activity again.
We still don't have the complete picture of what happened to the EZ construction sector in Q2, but we have enough evidence to suggest that it rolled over.
Friday's advance Eurozone PMI reports capped a fine quarter for the survey. The composite PMI jumped to a 80-month high of 56.7 in March, from 56.1 in February, rising to a cyclical high over Q1 as a whole.
The flat trend in core capital goods orders continued through May, according to yesterday's durable goods orders report. We are not surprised.
Money supply data are sending an increasingly contrarian, and bullish, signal for the euro area economy.
We have no choice but to revise down our forecast for GDP growth in Q2, now that the threat of a no-deal Brexit likely will hang over the economy beyond March, probably for three more months.
Yesterday's money supply data in the Eurozone were solid across the board.
Last week's QE announcement has made Eurozone inflation prints less important for investors, but the market will still be watching for signs of a turning point in benchmark bond yields. The data are unlikely to challenge bond holders in the short run, however, as the Eurozone probably slipped deeper into deflation in January.
German data yesterday indicate that inflation pressures have, so far, been resilient in the face of the recent collapse in oil prices. Inflation rose to 0.5% year-over-year in January from 0.3% in December, partly due to base effects pushing up the year-over-year rate in energy prices, but core inflation rose too. The detailed state data indicate that almost all key components of the core index contributed positively, lead by leisure and recreation and healthcare.
The EZ economic survey data for April were disappointing in our absence.
As we go to press, it appears that politicians in Italy have agreed on a 2019 budget deficit of 2.4% of GDP.
MPs will be asked today to approve the PM's motion, proposed in accordance with the Fixed-term Parliaments Act--FTPA--to hold a general election on December 12.
The persistence of no-deal Brexit risk has taken a toll on confidence across the economy over the last month.
Money supply dynamics in the Eurozone were broadly stable last month. M3 rose 5.0% year-over-year in May, accelerating slightly from a 4.9% increase in April, in line with the trend since the middle of 2015.
Data yesterday revealed that headline inflation in Germany was unchanged in March at 1.5%, thanks mainly to higher energy inflation, which offset a dip in food inflation.
Monetary policy usually is the first line of defence whenever a recession hits.
The economic data in the Eurozone were mixed while we were away.
Our analysis of the Q3 activity and GDP data in yesterday's Monitor strongly suggests that China's authorities will soon ready further stimulus.
Yesterday's EZ money supply data confirmed that liquidity conditions in the private sector improved in Q3, despite the dip in the headline.
Data released this week have confirmed that the Mexican economy is struggling and that the near-term outlook remains extremely challenging.
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.
Survey data in Germany showed few signs of picking up from their depressed level at the start of Q4.
China's official real GDP growth slowed to 6.0% year-over-year in Q3, from 6.2% in Q2 and 6.4% in Q1. Consecutive 0.2 percentage points declines are significant in China.
Last week the Chinese authorities issued a series of new measures to help with bank recapitalisation, and, we think, to supplement interbank liquidity.
Money supply growth in the Eurozone rebounded slightly last month, reversing some of the weakness at the start of the year.
Reports yesterday indicated that a deal has finally been struck between the European Commission and the Italian government to start dealing with bad loans in the banking system. The initial details suggest the government will be allowed to guarantee senior tranches on non-performing loans, supposedly making them easier to sell to private investors. In order to avoid burdening government finances as part of the sales--not allowed under the new banking union rules--the idea is to price the guarantees based on the credit risk of similar loans.
Mexico's central bank, Banxico, will hold its first monetary policy meeting of this year tomorrow. It will break with tradition, holding the meeting on Thursday at 1:00 p.m, local time, instead of the previous 9:00 a.m slot.
Yesterday's January EZ money supply data offered support for investors betting on a further dovish shift by the ECB at next month's meeting.
Yesterday's report on October private spending in Mexico was downbeat, suggesting that consumption started the fourth quarter on a weak footing.
The latest E.C. survey shows the gap between firms' and households' confidence levels has remained substantial.
Wage growth will be crucial in determining how quickly the MPC raises interest rates this year. So far, it hasn't recovered meaningfully.
French consumers remained in great spirits midway through the fourth quarter. The headline INSEE consumer confidence index jumped to a 28-month high in November, from 104 in October, extending its v-shaped recovery from last year's plunge on the back of the yellow vest protests.
Media reports suggest that the underlying trends in retailing--rising online sales, declining store sales and mall visits--continued unabated over the Thanksgiving weekend.
The deadline for registering to vote in the general election passed on Tuesday, with a record 660K people registering on the final day.
The trade war with China is a macroeconomic event, whose implications for economic growth and inflation can be estimated and measured using straightforward standard macroeconomic tools and data.
Bond yields in the Eurozone took another leg lower yesterday.
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.
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.
Major central banks in Asia, particularly those operating in export-oriented economies, have recently been pinning their future policy moves on the prospects of a specific industry, namely semiconductors.
Yesterday's data in the Eurozone did little to calm investors' nerves amid rising political uncertainty in Italy and tremors in emerging markets.
Borrowing by local authorities from the Public Works Loan Board, used to finance capital projects-- and arguably dubious commercial property acquisitions--has surged this year.
Robust demand in the ECB's final TLTRO auction was the main story in EZ financial markets yesterday. Euro area banks--474 in total-- took up €233.5B in the March TLTRO, well above the consensus forecast €110B. To us, this strong demand is a sign that EZ banks are taking advantage of the TLTROs' incredibly generous conditions.
The apparent softness of business capex is worrying the Fed.
GDP data for Q2 are due July 26; we expect the report to show a marginal dip in growth, to a seasonally adjusted 0.8% quarter-on-quarter, from 1.0% in Q1.
Data released yesterday in Brazil helped to lay the ground for interest rate cuts over the coming months.
Most LatAm currencies have been under pressure recently, with the Brazilian real and the Chilean peso breaking all-time lows versus the USD in recent weeks.
Yesterday's barrage of survey data were a mixed bag. The composite EZ PMI edged higher in May to 51.6, from 51.5 in April, but the details were less upbeat, and also slightly confusing.
Eurozone consumers' spending jumped in Q2, but we are pretty certain that a slowdown in retail sales constrained growth in Q3.
PMI data yesterday provided some relief to anxious investors, despite a modest drop in the headline. The composite PMI in the Eurozone fell to 53.9 in September from 54.3 in August, driven by slight falls in both manufacturing and services. Assuming no major changes to the advance September reading--usually a fair bet--the PMI rose marginally in Q3, pointing to a continuation of the cyclical recovery.
Core durable goods orders have not weakened as much as implied by the ISM manufacturing survey, as our first chart shows, but it is risky to assume this situation persists.
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.
Mexico's retail sector is finally improving, following a grim second half last year.
Yesterday's detailed GDP report in Germany showed net exports propelled GDP growth to a cyclical high last quarter.
Eurozone consumer confidence remained at its low for the year at the start of Q3.
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.
The performance of Italy's economy in the first half of 2017 proves that the strengthening euro area recovery is a tide lifting all the r egion's boats.
The June batch of the French statistical office's business surveys continues to signal a firming cyclical recovery. The aggregate business index rose to cyclical high of 106 in June from a revised 105 in May, continuing an uptrend that began in the middle of 2016.
The slowdown in the EZ economy is well publicised.
The government now has a 50:50 chance of getting the Withdrawal Agreement Bill--WAB--through parliament in the coming weeks, despite Letwin's successful amendment and the extension request.
The economic data in Brazil were poor while we were away.
Japan's headline CPI inflation is set to edge down in coming months, thanks to non-core prices.
Yesterday's barrage of economic data in the Eurozone added to the evidence that economic momentum is slowing.
In recent client meetings the first and last topic of conversation has been the market implications of the possible departure of President Trump from office.
The 17-point leap in the Richmond Fed index for October, reported yesterday, was startlingly large.
Yesterday's PMI data in the Eurozone economy were a mixed bag.
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 external surplus recovered a bit of ground mid-way through the third quarter.
Today's EZ calendar is a busy one.
In Brazil, last week's formal payroll employment report for March was decent, with employment increasing by 56K, well above the consensus expectation for a 48K gain.
If you wanted to be charitable, you could argue that the downturn in the rate of growth of core durable goods orders in recent months has not been as bad as implied by the ISM manufacturing survey.
The trend of consensus-beating EZ economic data was brought to a halt yesterday. The IFO business climate index in Germany slipped to a five-month low of 109.8 in January, from 111.0 in December, mainly due to a fall in the expectations index. But we are not alarmed. The dip in the headline comes after a run of strong data, and the IFO remains consistent with GDP growth of about 1.6% year-over-year.
As expected, the ECB made no changes to its policy stance today. The refi and deposit rates were left at 0.00% and -0.4%, respectively, and the pace of purchases under QE was maintained at €30B per month.
Today's preliminary estimate of Q4 GDP likely will show that the Brexit vote has not caused the economy to slow yet. But growth at the end of last year appears to have relied excessively on household spending, which has been increasingly financed by debt. GDP growth likely will slow decisively in Q1 as the squeeze on households' real incomes intensifies.
Yesterday's money supply data gave some respite after last month's disappointing slowdown. Broad money growth--M3--rose to 5.0% year-over-year, from 4.7% in December, but the details were less encouraging. The rebound was solely due slower declines in medium-term deposits, short-term debt issuance, and repurchase agreements.
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.
Yesterday's IFO survey in Germany was a nasty downside surprise for markets. The business climate index slipped to 106.2 in August, from 108.3 in July, well below the consensus forecast for a modest rise. In addition, the expectations index slid ominously to 100.1, from a revised 102.1 in July.
The year so far in EZ equities has been just as odd as in the global market as a whole.
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.
Yesterday's IFO offered a rare upside surprise in the German survey data.
When Fed Chair Powell said last week that the "surprise" weakness in the official retail sales numbers is "inconsistent with a significant amount of other data", we're guessing that he had in mind a couple of reports which will be updated today.
The verdict from the German business surveys is in; economic growth probably slowed further in Q2.
Fed Chair Yellen made it clear in last week's press conference that she is not convinced the increase in core inflation will persist: "I want to warn that there may be some transitory factors that are influencing [the rise in core inflation]... I see some of that is having to do with unusually high inflation readings in categories that tend to be quite volatile without very much significance for inflation over time.
Yesterday's national business surveys provided an optimistic counterbalance to the underwhelming PMIs on Monday, although they all suggest that the euro area economy is in good form.
Yesterday's February PMI data sent a clear message to markets.
French manufacturing confidence soared at the start of Q2. The headline INSEE index jumped to a six-year high of 108 in April, from an upwardly revised 105 in March. The headline was flattered by a big increase in the "past activity" index, but the survey's leading indicators also improved.French manufacturing confidence soared at the start of Q2. The headline INSEE index jumped to a six-year high of 108 in April, from an upwardly revised 105 in March. The headline was flattered by a big increase in the "past activity" index, but the survey's leading indicators also improved.
Argentina's economy continues to recover steadily.
Investors think it more likely that the MPC will cut Bank Rate in the first half of next year, following Friday's release of the flash Markit/CIPS PMIs for November.
The PMIs in the Eurozone are still warning that the economy is in much worse shape than implied by remarkably stable GDP growth so far this year.
Data released yesterday in Mexico strengthened the case for interest rate cuts this year.
Broadly speaking, yesterday's headline EZ survey data recounted the same story they've told all year; namely that manufacturing is suffering amid resilience in services.
If the only manufacturing survey you track is the Philadelphia Fed report, you could be forgiven for thinking that the sector is booming.
Last week's data added yet more weight to our view that manufacturing is in deep trouble, and that the bottom has not yet been reached.
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 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%.
Yesterday's business confidence data in the EZ core were mixed.
Fed Chair Yellen set out a robust and detailed defense of the orthodox approach to monetary policy in her speech in Amherst, MA, yesterday afternoon. Her core argument could have come straight from the textbook: As the labor market tightens, cost pressures will build. Monetary policy operates with a "substantial" lag, so waiting too long is dangerous; the "...prudent strategy is to begin tightening in a timely fashion and at a gradual pace".
Back-to-back elevated weekly jobless claims numbers prove nothing, but they have grabbed our attention.
The political momentum in the run-up to the election now lies with Labour.
Yesterday's advance PMI reports in the euro area signal that economic momentum slowed slightly at the start of Q4.
The November IFO report suggests that the headline indices are on track for a tepid recovery in Q4 as a whole, but the central message is still one of downside risks to growth
Further political wrangling yesterday distracted from data showing that the risk of no -deal Brexit is placing increasing strain on the economy.
The Conservatives are rallying in the opinion polls, as their uncompromising line on leaving the E.U. by October 31, come what may, resonates with Brexit party supporters.
We were worried about downside risk to yesterday's ADP employment measure, but the 67K increase in November private payrolls was at the very bottom of our expected range.
Evidence that the U.K. economy has slowed significantly this year is starting to come in thick and fast. Following the Markit/CIPS manufacturing PMI on Monday --which signalled that growth in production declined in March to its lowest rate since July--the construction PMI dropped to 52.2 in March, from 52.5 in February.
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.
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 unexpectedly robust 128K increase in October payrolls--about 175K when the GM strikers are added back in--and the 98K aggregate upward revision to August and September change our picture of the labor market in the late summer and early fall.
The economic recovery disappointed in Chile during most of the first half of the year, despite relatively healthy fundamentals, including low interest rates, low inflation and stable financial metrics.
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.
Economic conditions are deteriorating rapidly in Chile, despite the relatively decent Imacec reading for Q3.
Support in opinion polls for both the Conservatives and Labour has been increasing steadily.
Activity surveys picked up across the board in April, offering hope that the slowdown in GDP growth--to just 0.3% quarter-on-quarter in Q1-- will be just a blip. The headline indicators of surveys from the CBI, European Commission, Lloyds Bank and Markit all improved in April and all exceeded their 2004-to-2016 averages.
Friday's economic data in Germany suggest that households had a slow start to the year.
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."
This week's March economic activity reports in Chile have been relatively strong, with the industrial sector expanding briskly and retail sales solid.
The verdict is in.
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.
While we were out, the economic news in LatAm was mostly positive. The main upside surprise came from Mexico, with the IGAE activity index--a monthly proxy for GDP--rising 2.9% year-over-year in August, up from 1.2% in July, and an average of 2.4% in Q2. A modest rebound was anticipated, but the headline was much better than we and the markets expected.
Today's October ADP measure of private payrolls likely will overshoot Friday's official number.
Many investors probably glossed over yesterday's barrage of data in the Eurozone, for fear of being caught out by another swoon in Italian bond yields. Don't worry, we are here to help.
Yesterday's barrage of economic data in the Eurozone offered a good snapshot of the grand narrative.
The ADP employment report was on the money in October at the headline level--it undershot the official private payroll number by a trivial 6K--but the BLS's measure was hit by the absence of 46K striking GM workers from the data.
Implied volatility on the euro is now so low that we're compelled to write about it, mainly because we think the macroeconomic data are hinting where the euro goes next.
The contrast between November's very modest 67K ADP private payroll number and the surprising 254K official reading was startling, even when the 46K boost to the latter from returning GM strikers is stripped out.
January's money supply figures continued the nerve-jangling flow of data on the economy's momentum.
Data yesterday showed that Momentum in the EZ retail sector stumbled through middle of Q2.
Sterling strengthened last week to its highest tradeweighted level since mid-May, amid hopes that the U.K. government will concede more ground to ensure that the European Council deems, at its December 14 meeting, that "sufficient progress" has been made in Brexit talks for trade discussions to begin
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.
We expect to see a 180K increase in November payrolls
The simultaneous decline in both ISM indexes was a key factor driving markets to anticipate last week's Fed easing.
Hopes that GDP growth will strengthen following the general election, which has eliminated near- term threats of a no-deal Brexit and a business- hostile Labour government, were bolstered yesterday by the release of December's Markit/ CIPS services survey.
Yesterday's economic reports in the Eurozone were solid across the board.
As things stand, we see little reason to revise down our forecasts for the U.K. economy in response to the tailspin in equity markets
As we go to press, equities in the Eurozone are having a bad day following the collapse in U.S. and Asian equities earlier.
EZ consumers' spending slowed at the start of Q3. Retail sales slipped 0.3% month-to-month in July, pushing the year-over-year rate down to 2.6% from an upwardly revised 3.3% in June.
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.
At first glance, car sales appear to be staging a strong recovery, mirroring the better news on high street spending in Q2.
Last week's heavy snowfall, which blighted the entire country, will depress GDP growth in Q1, making it harder for the MPC to read the economy.
The Brazilian Senate concluded last week the first vote- of-two- on the pension reform.
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.
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.
India's PMIs for October were grim, indicating minimal carry-over of energy from the third quarter rebound.
Yesterday's economic reports in the Eurozone were mostly positive.
Productivity growth reached the dizzy heights of 1.8% year-over-year in the second quarter, following a couple of hefty quarter-on-quarter increases, averaging 2.9%.
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.
November's Markit/CIPS surveys for the manufacturing, construction and services sectors suggest that GDP growth is on track to strengthen a touch in Q4.
The Mexican economy maintained its relatively strong momentum in Q2. The first estimate of Q2 GDP, released last week, confirmed that growth was resilient during the first half of this year, despite the confidence hit caused by domestic and external headwinds.
October payrolls were stronger than we expected, rising 128K, despite a 46K hit from the GM strike.
Recession fears were fanned yesterday by the renewed deterioration of the Markit/CIPS services survey.
Yesterday's final manufacturing PMIs for October were grim, but they told investors nothing they don't already know.
Yesterday's economic reports in the Eurozone will rekindle the debate on hard versus soft data. The final composite PMI rose to 56.7 in September, from 55.7 in August, in line with the first estimate.
Brazilian data strengthened early in Q4, supporting the case for the COPOM to slow the pace of rate cuts. We expect the SELIC policy rate to be lowered by 50bp today, to 7.0%.
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.
On the face of it, markets' newfound view that the MPC's next move is more likely to be a rate cut than a hike was supported by May's Markit/CIPS PMIs.
October's Markit/CIPS services survey suggests that the PM's new Brexit deal has had a lukewarm reception from firms.
Yesterday's industrial production report in Brazil was sizzling. Headline output jumped 0.8% month- to-month in April--well above the 0.4% consensus-- pushing the year-over-year rate up to 8.9%, a five- year high.
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.
Friday's early EZ CPI data for December were red hot. Headline HICP inflation in Germany jumped to 1.5%, from 1.3% in November, while the headline rate in France increased by 0.4pp, to 1.6%.
The recent narrowing of the Conservatives' opinion poll lead suggests that investors, particularly in the gilt market, now must consider other parties' fiscal proposals.
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.
Yesterday's data in the French economy provided the final confirmation that growth remained sluggish in Q2, and showed that households had a slow start to the third quarter.
Money supply data in the euro point to a cyclical peak in GDP growth this year. Headline M3 growth fell to 4.8% year-over-year in July, from 5.0% in June, chiefly due to a slowdown in narrow money. M1 growth declined to 8.4%, from 8.7%, as a result of weaker momentum in overnight deposits and currency in circulation.
Recently data from Argentina continue to signal a firming cyclical recovery. According to INDEC's EMAE economic activity index, a monthly proxy for GDP, the economy grew 4.0% year-over-year in June, up from an already-solid 3.4% in May.
News that the U.K.'s departure from the E.U. has been delayed by six months, unless MPs ratify the existing deal sooner, appears to have done little to revive confidence among businesses.
Last week's preliminary estimate of Q1 GDP has extinguished any lingering chance that the MPC might raise interest rates at its next meeting on May 10.
Yesterday's economic numbers in the Eurozone were mixed, but we are inclined to see them through rose-tinted glasses.
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.
Today's barrage of data kicks off a couple of busy days in the Eurozone economic calendar.
Yesterday's advance inflation data in Germany fell short of forecasts--ours and the consensus--for a further increase. Inflation was unchanged at 0.8% year-over-year in November, but we think this pause will be temporary.
Markets see a strong possibility, though not a probability, that the BoJ will cut rates on Thursday.
Japanese labour cash earnings data threw analysts another curveball in July, falling 0.3% year-over-year. At the same time, June earnings are now said to have risen by 0.4%, compared with a fall of 0.4% in the initial print.
Bullish money supply data last week added to the evidence that the Eurozone's business cycle is strengthening. Broad money growth--M3--rose to 5.3% year-over-year in October from 4.9% in September. Most of the increase came from a surge in short-term debt issuance, rising 8.4% year-over-year, following an inexplicable 1.4% fall in September.
Japan's domestic demand has underperformed in the last three quarters, while exports were strong last year but weakened--due to temporary factors--in Q1.
Yesterday's final EZ manufacturing PMIs for August provided little in the way of relief for the beleaguered industrial sector.
The fall in the Markit/CIPS manufacturing PMI to 47.4 in August--its lowest level since July 2012--from 48.0 in July suggests that pre-Brexit stockpiling isn't countering the hit to demand from Brexit uncertainty and the global industrial slowdown.
The data in LatAm were all over the map while we were out.
Data released in recent weeks have confirmed that the Andean economies retained a degree of momentum in Q4, with inflation well under con trol.
Korean trade ended the year strongly, salvaging what was shaping up as a dull fourth quarter for the economy.
Both the E.U. and the U.K. government have been keen to emphasise, since the Withdrawal Agreement was provisionally signed off, that March 29 is a hard deadline for Brexit.
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.
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.
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.
Yesterday's sole economic report in the Eurozone confirmed that the economy slowed further at the end of 2018.
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.
Brazil's industrial sector continued to support the economy in Q3. The underlying tr end in output is rising and leading indicators point to further growth in the near term.
Last week's May CPI data in the major EZ economies all but confirmed the story for this week's advance estimate for the euro area as a whole.
Don't write off the outlook for the construction sector purely on the basis of June's grim Markit/CIPS survey.
Friday's euro area inflation reported capped a difficult week for EZ bondholders, although most of the damage was done beforehand by the advance German data.
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.
French consumer confidence and consumption have been among the main bright spots in the euro area economy so far this year.
Headline inflation in Brazil remained low in October, and even breached the lower bound of the BCB's target range.
Manufacturers in Germany endured another miserable quarter in Q3.
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.
National accounts data released last week rewrote the recent history of households' saving.
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.
Friday's industrial production report in Germany capped a miserable week for economic data in the Eurozone's largest economy.
Data released last week confirmed that Mexico's economy stumbled in the first half of the year, hurt by a temporary shocks in both the industrial and services sectors, and heightened political uncertainty, due to policy mistakes at the outset of AMLO's presidency.
The German economy's engine room continues to stutter.
The further depreciation of sterling yesterday, to its lowest level against the dollar and euro since March 2017 and September 2017, respectively, signified deepening pessimism among investors about the chances of a no-deal Brexit.
Yesterday's advance data from Germany and Spain suggest that today's Eurozone inflation report will undershoot the consensus. In Germany, headline inflation slipped to 1.6% in March from 2.2% in February, and in Spain the headline rate plunged to 2.3% from 3.0%.
Friday's final EZ inflation report of 2017 sent a dovish signal to bond markets.
Advance inflation data from Germany and Spain yesterday indicate that the Eurozone slipped back into deflation in September. German inflation fell to 0.0% in September from 0.2% in August, and deflation intensified in Spain as inflation fell to -0.9% from -0.4% last month. This likely pushed the advance Eurozone estimate--released today--below zero. We think inflation fell to -0.1% in September, down from +0.1% in August. The fall will be due mainly to falling energy prices, and we continue to think that the underlying trend in inflation is stabilising, or even turning up.
Business investment held up surprisingly well last year.
Construction in the EZ stumbled at the start 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.
In one line: A solid start to Q2 for French consumers.
Yesterday's industrial production data in Germany were better than we feared. Output slipped 0.3% month-to-month in August, depressing the year- over-rate to -0.4% from 1.6% in July, a minor fall given evidence of a big hit from weakness in the auto sector ahead of the EU emissions tests.
The run of soft core CPI numbers is over. The average 0.18% increase over the past two months probably is a good indication of the underlying trend -- the prints would have been close to this pace in both months had it not been for wild swings in the lodging component -- and the other one-time oddities of recent months' have faded.
Inflation pressures remain under control in most LatAm economies, allowing central banks to keep interest rates on hold, despite the challenging external environment.
The headlines from Catalonia are as confusing as ever, but we are sticking to our view--see here--that regional elections are the only reasonable outcome of the chaos.
Convention dictates that we lead with yesterday's Fed meeting, but it's hard to argue that it really deserves top billing.
The 7.8% month-on-month plunge in Japan's core machine orders in May re-emphasises the underlying weakness that we have been worrying about, after the 5.2% jump in April.
The German manufacturing sector appears to have settled into an equilibrium of sustained misery.
A core element of our relatively upbeat macro view before the implementation of fiscal stimulus under the new administration is that the ending of the drag from falling capex in the oil sector will have quite wide, positive implications for growth. The recovery in direct oil sector spending is clear enough; it will just track the rising rig count, as usual.
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.
The reported drop in mortgage applications over the holidays is now reversing, not that it ever mattered.
The upturn in German manufacturing orders waned slightly towards the end of 2017; factory orders fell 0.4% month-to-month in November.
Yesterday's final manufacturing PMIs confirmed that the headline index in the euro area rebounded further last month.
This week brings the third anniversary of the first rate hike in this cycle, on December 16, 2015.
The reported rebound in January retail sales was welcome, but the overshoot to consensus was matched, more or less, by the unexpected downward revisions to the December numbers.
Predictably, last weekend's G7 meeting in Canada ended in acrimony between the U.S. and its key trading partners.
We're very interested in the detail of today's January NFIB survey; the headline index, not so much.
Yesterday's industrial production numbers in Germany were similar to Friday's confusing new orders data.
If the Phase One trade deal with China is completed, and is accompanied by a significant tariff roll-back, we'll revise up our growth forecasts, but we'll probably lower our near-term inflation forecasts, assuming that the tariff reductions are focused on consumer goods.
The ECB and Ms. Lagarde played it safe yesterday.
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.
The Mexican economy gathered strength in Q3, due mainly to the strength of the services sector, and the rebound in manufacturing, following a long period of sluggishness, helped by the solid U.S. economy and improving domestic confidence.
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.
Chinese CPI inflation trends point to diminishing wage growth, as the services sector begins to struggle with the influx of labour displaced by the industrial productivity drive.
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.
Yesterday's industrial production report in Mexico added weight to the idea that the sector improved marginally in the first quarter, despite many external threats. Industrial output rose 0.1% month-to-month in February, following a similar gain in January. The calendar-adjusted year-over-year rate rose to -0.1%, after a modest 0.3% contraction in January.
EZ investors remain depressed. The headline Sentix confidence index fell to 12.0 in September, from 14.7 in August, and the expectations gauge slid by three points to -8.8.
The escalation in the U.S.-Chinese trade wars has understandably pushed EZ economic data firmly into the background while we have been resting on the beach.
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.
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.
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.
China concludes its annual Central Economic Work Conference today, where the economic targets and the agenda for next year are set.
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.
Consumers' spending in Brazil weakened at the end of Q4, but we think households will support GDP growth in the first quarter.
Our base case is that the core CPI rose 0.2% in December, but the net risk probably is to the upside. We see scope for significant increases in sectors as diverse as used autos, apparel, healthcare, and rent, but nothing is guaranteed.
January's consumer price report, released today, likely will show that CPI inflation jumped to 1.9%--its highest rate since June 2014--from 1.6% in December. Inflation will continue to take big upward steps over the coming months, as retailers pass on to consumers large increase in import prices and energy companies increase tariffs.
Car registrations, French inflation, advance PMIs and a central bank meeting make up today's substantial menu for investors in the euro area.
The wave of May data due for release today likely will go some way to countering the market narrative of a seriously slowing economy, a story which gained further momentum last week after the release of the May employment report.
The consumer in Brazil was off to a strong start to the first quarter, and we expect household spending will continue to boost GDP growth in the near term.
Markets are caught in a trade loop.
Chile and Peru faced similar growth trends in 2018, namely, a solid first half, followed by a poor second half, particularly Q3.
A significant minority of investors were betting on a repeat of January's outsized 0.349% increase in the core, judging from the immediate market reaction to the release of the February CPI report.
Three separate stories will come together to generate today's September core CPI number. First, we wonder if the hurricanes will lift the core CPI.
The political situation in Spain remains an odd example of how complete gridlock can be a source of relative stability.
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.
Here's the bottom line: U.S. businesses appear to have over-reacted to the impact of the trade war in their responses to most surveys, pointing to a serious downturn in economic growth which has not materialized.
The odds favor--just--an end to the three-month streak of solid 0.2% increases in the core CPI with the release of today's January report.
May's consumer price figures, released today, will provide the first clean inflation read for three months, following the distortions created by this year's late Easter. Consensus forecasts and the MPC have underestimated CPI inflation regularly since the middle of last year, when the impact of sterling's depreciation began to push into the data.
Under normal circumstances, we can predict movements in the headline NFIB index from shifts in the key labor market components, which are released a day ahead of the official employment report, and, hence, about 10 days before the full NFIB survey appears.
Chile's market volatility and high political risk continue, despite government efforts to ease the crisis.
External and domestic shocks in Mexico over the last two years, including the "gasolinazo", NAFTA renegotiation and the presidential election, have put the country's financial metrics under severe stress and pushed inflation to cyclical highs.
If you had only the NFIB survey of small businesses as your guide to the state of the business sector, you'd be blissfully unaware that the economic commentariat right now is obsessed with the potential hit from the trade tariffs, actual and threatened.
Yesterday's economic reports in the Eurozone were ugly.
Brazil's economic activity data have disappointed in recent months, firming expectations that the Q1 GDP report will show another relatively meagre expansion.
Yesterday's aggregate economic data for the euro area showed that inflation rose slightly in August. The headline rate rose to a four-month high of 1.5% in August from 1.3% in July. The rate was lifted mainly by energy inflation, rising to 4.6% from 2.2% in July, but we think the rebound will be short-lived.
This week's manufacturing, construction and services PMIs for October will demonstrate how well the economy is coping with the prospect of higher interest rates.
Japan's GDP growth was revised up, to 0.4% quarter-on-quarter in Q3, from 0.1% in the preliminary reading.
The early Q4 hard data in Germany recovered a bit of ground yesterday.
Survey data have been signalling a resilient Brazilian economy in the last few months, despite the broader challenges facing LatAm and the global economy in 2019.
We have questioned the reliability of the recent consumer confidence numbers, and are very skeptical of their signal that spending is set to accelerate rapidly, but we see no real sign yet of any significant reversal of the post-election spike.
External demand for the Eurozone's largest economy is going from strength to strength. Seasonally adjusted German exports rose 3.4% month-to-month in December, equivalent to a solid 7.5% increase year-over-year.The revised indices show that the annualised surplus rose to an all-time high of €218B, or 7% of GDP, last year, indicating that the level of external savings remains a solid support for the economy.
The more headline hard data we see in the Eurozone, the more we are getting the impression that 2019 is the year of stabilisation, rather than a precursor to recession.
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.
Experimental figures, released earlier this week, suggest that wages have increased at a faster rate than indicated by the average weekly earnings--AWE--data.
Economy-wide confidence deteriorated in November, highlighting that Britain continues to struggle to shake off its malaise.
This is the final report before your Eurozone correspondent dials down for the summer, and heads for the beach. Advance Q2 GDP data next week is the key release while we are away, with the latest Bloomberg consensus--published July 20th--looking for a 0.4% increase quarter-on-quarter. Everything we look at suggests the consensus is right on this one, with risks tilted to the upside due to strong net exports in Germany.
It's tempting to conclude from the recent decline in consumers' confidence that growth in real spending will continue to weaken over the coming quarters, from the already modest 1.8% year-over-year rate in Q3.
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.
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.
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.
Yesterday's industrial production report in Germany was much better than implied by the poor new orders data--see here--released earlier this week.
Yesterday's economic data added further evidence that GDP growth in the EZ will slow in Q2.
We already know that the key labor market numbers in today's May NFIB survey are strong.
The Fed will raise rates by 25 basis points on Wednesday, but as usual after a widely-anticipated policy decision, most of our attention will be focused on what policymakers say about their actions, and how their views on the economy have changed.
French manufacturing came roaring back at the end of Q1. Industrial production jumped 2.0% month-to- month in March, driving the year-over-year rate higher to +2.0%, from a revised -0.7% in February.
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.
The undershoot in the September core CPI does not change our view that the trend in core inflation is rising, and is likely to surprise substantially to the upside over the next six-to-12 months.
Friday's data force us to walk back our recession call for Germany. The seasonally adjusted trade surplus rose in September, to €19.2B from €18.7B in August, lifted by a 1.5% month-to-month jump in exports, and the previous months' numbers were revised up significantly.
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
Yesterday's manufacturing data in France were in stark contrast to last week's upbeat German numbers.
Momentum in French manufacturing eased slightly in November, but the setback was modest. Industrial production dipped 0.5% month-to-month, only partially reversing the revised 1.7% jump in October.
EZ equity futures predictably fell out of bed as the news of the Trump victory gradually became clear overnight yesterday. The reaction was less violent than after the U.K. Brexit referendum, though, and Mr. Trump's balanced victory speech appears to have calmed nerves for now.
The French manufacturing sector slowed more than we expected in Q1.
Yesterday's economic data in Germany were stellar, but base effects mean that the story for Q4 as a whole is less upbeat.
Manufacturing in France remained on the front foot at the start of Q4.
China's November money and credit data were a little less grim, with only M2 growth slipping, due to unfavourable base effects.
Analysts' forecasts for January's consumer prices report, released on Wednesday, are unusually dispersed.
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.
Argentina's central bank held interest rates at 60% on Wednesday, as was widely expected.
Friday's manufacturing data in the Eurozone were mixed.
Yesterday's IFO data in Germany heaped more misery on the Eurozone economy.
In the short-term, all the housing data are volatile. But you can be sure that if the recent pace of new home sales is sustained, housing construction will rise.
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.
Judging by the monthly production data, construction in the Eurozone slowed sharply in the second half of 2018.
The fall in CPI inflation to 2.6% in June, from 2.9% in May, greatly undershot expectations for an unchanged rate and it has made a vote by the MPC to keep interest rates at 0.25% in August a near certainty.
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.
Evidence of slowing economic activity in Colombia continues to mount. Retail sales fell 2.0% year- over-rate in April, down from a revised plus 3.0% in March; and the underlying trend is falling. This year's consumption tax increase, low confidence, tight credit conditions, and rising unemployment continue to put private consumption under pressure.
The closer we look at the data, the more convinced we become that the rollover in CPI physicians' services prices, which has subtracted nearly 0.1% from core CPI inflation since January, is a response to sharply higher Medicare part B premiums, especially for new enrollees.
The Eurozone economy all but stalled at the start of Q4.
Data this week confirmed that private spending in Colombia stumbled in June. Retail sales fell 0.7% year-over-year, from an already poor -0.4% in May. The underlying trend is negative, following two consecutive declines, for the first time since late 2009. Domestic demand remains subdued as consumers are scaling back spending due to weaker real incomes, lower confidence and tighter credit and labor market conditions.
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.
Data yesterday added further evidence of a slow recovery in Eurozone auto sales.
Boeing's announcement that it will temporarily cut production of 737MAX aircraft to zero in January, from the current 42 per month pace, will depress first quarter economic growth, though not by much.
Colombia and Peru have been among the top performers in LatAm currency markets in recent weeks, both rising above 4% against the dollar. Higher commodity prices seem to be driving the rally as domestic factors haven't changed dramatically.
Our first impression of the proposed Brexit deal between the EU and the U.K. is that it is sufficiently opaque for both sides to claim that they have stuck to their guns, even if in reality, they have both made concessions.
A big picture approach to the China trade war, from the perspective of Mr. Trump, is reasonably positive. The president very clearly wants to be re-elected, and he knows that his chances are better if the economy and the stock market are in good shape.
The first estimate of retail sales growth in August was weaker than implied by the Redbook chainstore sales survey, but our first chart shows that the difference between the numbers was well within the usual margin of error.
Italy's economy is still bumping along the bottom, after emerging from recession in the middle of last year.
As the impeachment hearings gather momentum, we have been asked to provide a cut-out-and-keep guide to the possible outcomes.
The industrial sector in the EZ slowed further at the end of Q3.
Friday's inflation data in the Eurozone added a dovish twist to the story ahead of the key ECB meeting later this month.
Data on EZ consumption were soft while we were enjoying our Christmas break. The advance EC consumer confidence index slipped to a three-year low of -8.1 in December, from -7.2 in November, breaking its recent tight range.
Yesterday's surprising decline in the Eurozone unemployment rate adds further evidence to the story of a slowly healing economy. The rate of joblessness fell to 10.9% in July from 11.1% in June, the lowest since the beginning of 2012, mainly driven by a 0.5 percentage point fall in Italy, and improvement in Spain, where unemployment fell 0.2 pp to 22.2%.
The 1.2% month-to-month fall in retail sales volumes in March undoubtedly was due mostly to the bad weather.
Yesterday's data showed that growth in the EZ slowed in the second quarter.
The run of weak retail sales figures continued yesterday, with the release of November's official data.
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.
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.
Expectations are running high that the MPC will strike a more hawkish tone today in the minutes of this month's meeting and in the quarterly Inflation Report. Investors are pricing in a 45% chance of the MPC raising interest rates before the end of 2017, up from 30% before the last Report in November.
The September NAHB survey, released yesterday, shows, that the housing market took a knock from the hurricanes but the damage, so far at least, appears to be contained.
Colombian activity data released this last week were upbeat, better than we expected, showing a significant pickup in manufacturing output and improving retail sales. Retail sales rose 3.1% year- over-year, after a modest 1.0% increase in June.
The upturn in the Eurozone construction sector likely paused in Q3. Yesterday's August report showed that output fell 0.2% month-to-month, pushing the year-over-year rate down to +1.6%, from a revised +2.8% in July.
Brazil's economy surprised to the upside in early Q3, despite downbeat data released in recent days.
With campaigning for the general election intensifying last week, it was unsurprising that October's money and credit release from the Bank of England received virtually no media or market attention.
LatAm assets and currencies had a bad November, due to global trade war concerns, the USD rebound and domestic factors.
Japan's jobless rate was unchanged, at 2.4% in October, as the market took a breather after September's job losses.
Colombia's economic activity surprised to the upside in February, despite the challenging domestic environment. Private spending rose more than expected, but leading indicators suggest that household consumption will remain weak in Q2. Retail sales jumped 4.6% year-over-year in February, up from a 2.1% increase in January, and the fastest pace since August 2015.
Consumer confidence surveys have risen since the elections to levels consistent with very rapid growth in real spending.
Friday's sole economic report showed that wage growth in France remained robust mid-way through the year. The non-seasonally adjusted private wage index, ex-agriculture and public sector workers, published by the Labour Ministry, rose by 0.3% quarter-on-quarter in Q3.
The New York Times called the China trade agreement reached Friday "half a deal", but that's absurdly generous.
Data released yesterday from Brazil support our view that the economic recovery continues, but progress has been slow.
Ahead of the release of the retail sales report for December 2018, markets expected to see unchanged non-auto sales.
We expect June's consumer prices report, released on Wednesday, to show that CPI inflation increased to 2.7%, from 2.4% in May, above the consensus, 2.6%, and the Bank of England's forecast, 2.5%.
Growth in Eurozone car sales slowed slightly at the end of the first quarter. New car registrations in the euro area rose 5.8% year-over-year in March, down from a 14.4% increase in February. But the 12-month average level of new registrations jumped to new cyclical highs of 440,000 and 252,000 in the core and periphery respectively.
We were surprised by the weakness of the April housing starts report; we expected a robust recovery after the March numbers were depressed by the severe snowstorms across a large swathe of the country. Instead, single-family permits rose only trivially and multi-family activity--which is always volatile--fell by 9% month-to-month.
Last week's packed political agenda in Europe confirmed that political relations between the U.S. and the major Eurozone economies remain difficult.
Yesterday's second estimate of GDP confirmed that Eurozone growth slowed significantly in Q3.
October's 0.1% month-to-month fall in retail sales volumes was disappointing, following substantial improvements in the CBI, BRC and BDO survey measures.
Based on key economic indicators, the Eurozone economy is doing splendidly, relative to its performance in recent years. Real GDP has been growing at 1.6%-to-1.7% year-over-year since the first quarter of last year, bank credit has expanded, and the unemployment rate is declining.
Private consumption remains resilient in Brazil and recent data suggest that growth will continue over the coming months.
The weekly jobless claims numbers are due Thursday, as usual, but in the wake of a flood of emails from readers, all asking a variant of the same question-- should we be worried about the rise in continuing jobless claims?--we want to address the issue now.
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.
Manufacturing is not in recession, yet, despite the reams of gloomy analysis of the sector, including our own.
Yesterday's inflation data in Germany were old news to markets, but the details were spectacular all the same.
The story of U.S. retail sales since last summer is mostly a story about the impact of the hurricanes, Harvey in particular.
Brazil's industrial sector keeps losing momentum, despite interest rates at record lows and improving confidence.
We see downside risk to the housing starts numbers for April, due today. Our core view on housing market activity, both sales and construction activity, is that the next few months, through the summer, will be broadly flat-to-down.
In order to support current market pricing, the MPC will have to be more specific about the timing of the next rate hike in the minutes of next Thursday's meeting.
Evidence in support of our view that the U.S. industrial slowdown is ending continues to mount, though nothing is yet definitive and the re-escalation of the trade war is a threat of uncertain magnitude to the incipient upturn.
Japan's economic data have been very volatile in the last 18 months.
Yesterday's final inflation data in France for September were misleadingly soft.
Final October inflation data surprised to the upside yesterday, consistent with our view that inflation will rise faster than the market and ECB expect in coming months. Inflation rose to 0.1% year-over-year in from -0.1% in September, lifted mainly by higher food inflation due to surging prices for fruits and vegetables. This won't last, but base effects will push the year-over-year rate in energy prices sharply higher into the first quarter, and core inflation is climbing too. Core inflation rose to 1.1% in October from 0.9% in September, higher than the consensus forecast, 1.0%.
The first October survey evidence from the industrial economy, in the form of the Empire State report, is remarkably strong.
Manufacturing is in recession, with few signs yet that a floor is near, still less a recovery.
The Eurozone's trade surplus rebounded slightly over the summer, rising to €16.6B in August from €12.6B in July, helped mainly by a 2.0% month-to- month jump in exports.
The most eye-catching aspect of December's consumer prices report was the pick-up in core inflation to 1.9%, from 1.8% in November, above the no-change consensus.
The market for new cars in the Eurozone remained red-hot last month. New registrations surged 18.4% year-over-year in May, up from a 9.4% rise in April, and pushing the 12-month average level of registrations to a post-crisis high of 843K units. Accelerating growth in Italy and France was the key driver.
The trend in manufacturing output probably is about flat, with no real prospect of any serious improvement in the near term.
The softness of the headline September retail sales numbers hid a decent 0.5% increase in the "control" measure, which is the best guide to consumers' spending on non-durable goods.
Tariffs are a tax on imported goods, and higher taxes depress growth, other things equal.
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.
The November industrial production numbers will be dominated by the rebound in auto production following the end of the GM strike.
Brazil's consumer resilience in Q3 continued to November, but retail sales undershot market expectations, suggesting that the sector is not yet accelerating and that downside risks remain.
The rate of growth of real personal incomes is under sustained downward pressure, slowing to 2.1% year-over-year in December from 3.4% in the year to December 2015. In January, we think real income growth will dip below 2%, thanks to the spike in the headline CPI, reported Wednesday. Our first chart shows that the 0.6% increase in the index likely will translate into a 0.5% jump in the PCE deflator, generating the first month-to-month decline in real incomes since January last year.
The U.S. reached a trade agreement with Canada on Sunday, adding its northern neighbour to the pact sealed a month ago with Mexico.
At the end of last year, U.S. homebuilders were more optimistic than at any time in the previous 18 years, according to the monthly NAHB survey.
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.
A reader sent us last week a series of five simple feedback loops, all of which ended with the Fed remaining "cautious". For example, in a scenario in which the dollar strengthens--perhaps because of stronger U.S. economic data--markets see an increased risk of a Chinese devaluation, which then pummels EM assets, making the Fed nervous about global growth risks to the domestic economy.
While we were away, EM growth prospects and risk appetite deteriorated, due mainly to rising geopolitical risks and Turkey's currency crisis.
With Russia and some other emerging economies now in full panic mode, the financial market story is sharply divided between two narratives. Either the plunge in global energy prices acts as positive catalyst by boosting real incomes and allowing most central banks to run easier monetary policy or it is a sign that risk assets are about to hit a deflationary wall.
Today's economic calendar in the Eurozone is filled to the rafters.
Mexico's survey data have improved significantly over the last few months, reaching levels last since before Donald Trump won the U.S. election in November. This suggest that the economy is in much better shape than feared earlier this year. Consumer confidence, for instance, has continued its recovery.
Since April, the presidential elections in Brazil have dominated local discourse, prompting several market moves.
Mexico's economy continues to withstand several headwinds, especially the sharp currency depreciation--shown in our first chart--falling commodity prices, and the tough external environment. The country is still one of the economic bright spots in the region, thanks to its resilient domestic demand. June retail sales rose 5.4% year-over-year, well above expectations, and up from 4.1% in May. The underlying trend is positive, averaging 4.8% in the second quarter, well above its 2014 pace.
Yesterday's data don't significantly change our view that first quarter GDP growth will be reported at only about 1%, but the foreign trade and consumer confidence numbers support our contention that the underlying trend in growth is rather stronger than that.
Financial markets and economic survey data have been sending a downbeat message on the Eurozone economy so far this year. The composite PMI has declined to a 12-month low, consumer sentiment has weakened, and national business surveys have also been poor.
Yesterday's August PMI data in the euro area ran counter to the otherwise gloomy signals from the ZEW and Sentix investor sentiment indices.
Sentiment in the French business sector ended this year on a high. The headline manufacturing index fell slightly to 112 in December, from an upwardly-revised 113 in November, but the aggregate sentiment gauge edged higher to a new cycle high of 112.
The preliminary April PMIs due today will provide the first economic sentiment data for Q2, and likely will point to a continuation of the cyclical recovery. We think the composite PMI was unchanged at 54.0 in April, driven by a small gain in manufacturing offset by a slight decline in services.
The latest balance of payments figures, released Wednesday, look set to show that the current account deficit widened in Q3, underlying the U.K.'s vulnerability to a sudden change in overseas investor sentiment. The risk of a full-blown sterling crisis, however, is lower than the enormous current account deficit would appear to suggest.
Brazil's recovery has been steady in recent months, and Q1 likely will mark the end of the recession. The gradual recovery of the industrial and agricultural sectors has been the highlight, thanks to improving external demand, the lagged effect of the more competitive BRL, and the more stable political situation, which has boosted sentiment.
The manufacturing industry in France is recovering slowly, but surely. The headline INSEE index rose to 102 in July from 101 in June, close to a post-crisis high, pointing to steady improvement for manufacturers. Our first chart shows the main leading components of the survey, indicating a modest, but positive, trend in output. The increase in sentiment in July was driven by firming new orders--especially in the export sector--pushing the new orders-to-inventory ratio to an 18-month high.
Manufacturing confidence in France remained resilient in the fourth quarter. The INSEE sentiment index rose to 103 in December from 102 in November, lifted by a jump in firms' own production expectations, and a small increase in the new orders-to-inventory ratio. We think production will increase in Q4, lifted by energy output, but the recent jump in the year-over-year rate is unlikely to be sustained, even if we factor in the marginal increase in new orders this month.
Brazil's economic performance has improved marginally in recent months, with inflation falling and economic activity and sentiment data stabilizing, or even increasing modestly. The latest regional economic activity report, for instance, showed that although overall output declined again on a sequential basis in March-to-May, three of the five regions expanded.
The levelling-off in the industrial surveys in recent months is reflected in the consumer sentiment numbers. Anything can happen in any given month, but we'd now be surprised to see sustained further gains in any of the regular monthly surveys.
All the evidence indicates that growth in Eurozone consumers' spending is slowing. We think data today will show that the advance GfK consumer sentiment index in Germany was unchanged at 9.5 in April, but the headline index does not correlate well with spending. The "business expectations" index is better, and while it likely will increase slightly, our first chart shows that it continues to signal a slowdown in consumers' spending growth.
Financial market performance and economic survey data on the Brazilian economy have been better than many investors and commentators feared this year. The composite PMI has improved gradually since November last year, consumer sentiment has stabilized, and national business surveys have been less bleak.
Advance PMI data indicate a slow start to the first quarter for the Eurozone economy. The composite index fell to 53.5 in January from 54.3 in December, due to weakness in both services and manufacturing. The correlation between month-to-month changes in the PMI and MSCI EU ex-UK is a decent 0.4, and we can't rule out the ide a that the horrible equity market performance has dented sentiment. The sudden swoon in markets, however, has also led to fears of an imminent recession. But it would be a major overreaction to extrapolate three weeks' worth of price action in equities to the real economy.
Consensus forecasts expect further gains in this week's key EZ business surveys, but the data will struggle to live up to expectations. The headline EZ PMIs, the IFO in Germany, and French manufacturing sentiment have increased almost uninterruptedly since August, and we think the consensus is getting ahead of itself expecting further gains. Our first chart shows that macroeconomic surprise indices in the euro area have jumped to levels which usually have been followed by mean-reversion.
Yesterday's IFO survey sent a clear signal that the German economy's engine is stuttering. The business climate index fell to a 14-month low of 105.7 in February from 107.3 in January, and the expectations index slumped to 98.8 from 102.3. The weakness was driven by weaker sentiment in manufacturing, which plunged at its fastest rate since November 2008.
French manufacturers recovered their optimism towards the end of Q3. The headline INSEE manufacturing sentiment index rose to 103 in September, from 101 in August, and the composite business confidence gauge also increased. A rebound in transport equipment firms' own production expectations was the key driver of the recovery.
The PMI survey continues to send a downbeat message on growth in the euro area despite signs of improvement in other sentiment data: The final manufacturing PMI in the Eurozone fell to 50.1 in November from 50.6 in October.
Sentiment in Germany has improved slightly this month with the IFO business climate index rising to 106.8 from 106.7 in January, pushed higher by a small increase in the expectations index.
Economic sentiment data, which rebounded in March, continue to suggest slight downside risk to EZ GDP growth in Q1. The composite Eurozone PMI in March rose modestly to 53.7 from 53.0 in February, only partially erasing the weakness in recent months. The PMI dipped slightly over the quarter as a whole, although not enough to change the EZ GDP forecast in a statistically meaningful way.
This year has proved to be challenging for retailers in Mexico. The combination of fiscal reform, the economic slowdown over the first half of the year, and the collapse of consumer sentiment took a significant toll in the sector.
Brazil and Argentina, South America's biggest economies are going through a metamorphosis. Brazil is emerging from its recession and a modest recovery is on the horizon. Exports have rebounded, thanks to the lagged effect of the BRL's sharp sell-off last year, and confidence has improved significantly in recent months. The likelihood that interim President Michel Temer will stay on as head of Brazil's government has also helped to boost sentiment.
We will be paying special attention to the sentiment surveys for Argentina over the coming weeks.
After recent interventionist moves and plans in Mexico from AMLO's incoming administration and his political party, uncertainty and soured sentiment are the name of the game.
Two years ago markets believed that the institutional setup of the Eurozone would be a straitjacket on the ECB, preventing QE. Aggressive policy actions since then have proven this hypothesis wrong. But inflation remains low and sentiment data weakened ominously in the first quarter.
The August NFIB survey of activity and sentiment at small businesses was soft, but it could have been worse.
The likely dip in the headline NFIB index of small business sentiment and activity today will tell us that business owners are unhappy and nervous about the potential impact of the latest China tariffs on their sales and profits.
An upbeat third quarter for GDP growth in France and slightly better sentiment data have offered at least some hope that the economy could stage a comeback into year-end. But yesterday's disappointing industrial production data poured cold water on that idea.
Before last November's election, movements in the headline NFIB index of activity and sentiment among small businesses could be predicted quite reliably from shifts in the key labor market components, which are released in advance of the main survey.
The Brazilian consumer will continue to suffer from high interest rates and a deteriorating labour market this year. But sentiment data imply that the fundamentals are stabilising, at least at the margin. The headline consumer sentiment gauge, published by the FGV, has improved significantly in the past five months, and we expect another modest increase later this month
After a very light week for economic data so far, everything changes today, with an array of reports on both activity and inflation. We expect headline weakness across the board, with downside risks to consensus for the December retail sales and industrial production numbers, and the January Empire State survey and Michigan consumer sentiment. The damage will b e done by a combination of falling oil prices, very warm weather, relative to seasonal norms, and the stock market.
Hot on the heels of yesterday's news that the NAHB index of homebuilders' sentiment and activity dropped by two points this month -- albeit from December's 18-year high -- we expect to learn today that housing starts fell last month.
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.
January's retail sales figures, released today, look set to indicate that consumers are keeping the recovery going, amid deteriorating business sentiment and faltering external trade.
The latest survey evidence strongly supports our view that momentum is building in the industrial economy, but the official production data continue to lag. Yesterday's March Philly Fed survey was remarkably strong, with the correction in the headline sentiment index -- inevitable, after February's 33-year high -- masking increases in all the subindexes.
The rate of growth of Brazil consumers' spending is perhaps beginning to stabilize, though at a very low pace. Core retail sales volumes were flat in Q4 after a 2.7% contraction in Q3, and sentiment data suggest this improving trend should continue, at least in the very near term.
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.
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.
Today's ZEW investor sentiment report in Germany will kick off a busy week for Eurozone economic survey data, which likely will be tainted by the U.K. referendum result. We think the headline ZEW expectations index fell to about five in July, from 19.2 in June, below the consensus forecast, 9.2. Our forecastis based on the experience from recent "unexpected" shocks to investors' sentiment.
The IFO did its part to alleviate the stock market gloom yesterday, with the business climate index rising slightly to 108.3 in August from 108.0 in July. The August reading doesn't reflect the panic in equities, though, and we need to wait until next month to gauge the real hit to business sentiment. The increase in the headline index was driven by businesses assessment of current output, with the key expectations index falling trivially to 102.2 from a revised 102.3 in July. This survey currently points to a stable trend in real GDP growth of about 0.4% quarter-on-quarter, consistent with our expectation of full year growth of about 1.5%.
The headline NFIB index of small business activity and sentiment in July likely will be little changed from June--we expect a half-point dip, while the consensus forecast is for a repeat of June's 94.5--but what we really care about is the capex intentions componen
Economic activity data in Chile have been soft and uneven this year, due mainly to the hit from low commodity prices and uncertainty surrounding the reform agenda, which has badly damaged consumer and investor sentiment. The latest Imacec index, a proxy for GDP, increased just 1.7% year-over-year in October, down from the 2.7% gain in September, and below the 2.2% average seen during Q3 as a whole.
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.
Brazil's March industrial production report, released on Thursday last week, was weaker than we and the markets were expecting, while the recent deterioration in sentiment surveys highlights the downside risks to the rather fragile economic recovery.
LatAm assets have done well in recent weeks on the back of upbeat investor risk sentiment, low volatility in developed markets and a relatively benign USD. A less confrontational approach from the U.S. administration to trade policy has helped too.
The sell-off in bonds and equities continued yesterday, but the reaction bears no resemblance, so far, to the sovereign debt crises in 2012 and 2010. The first evidence from sentiment data in July also points to surprising stability. The headline Sentix index rose to 18.5, up slightly from 17.1 in June, but the expectations index fell marginally, to 22.3 from 22.5.
The tumultuous political and economic crises in Brazil continue to feed off each other, grabbing most of the LatAm headlines. Sentiment will remain depressed, and volatility and uncertainty will persist, hampering any real signs of stabilization in the near-term. The Pacific Alliance countries, by contrast, managed to grow at relatively solid rates during the first half of this year, after absorbing the hit from falling commodity prices.
Household sentiment in Mexico continues to improve, consistent with tailwinds from low inflation, accommodative monetary policy, and the improving labor market. The consumers confidence index rose to 94.7 in June from 92.0 in May, with four of the five components improving, especially big-ticket purchasing expectations and expectations for the economy.
The slew of EZ economic data on Friday supports our view that the economy ended 2016. The Commission's economic sentiment index jumped to 107.8 in December from a revised 106.6 in November. The headline strength was due to a big increase in "business climate indicator" and higher consumer sentiment. In individual countries, solid numbers for German construction and French services sentiment were the stand-out details.
Small business sentiment and activity, as reported by the NFIB survey, has recovered exactly half the drop triggered by the rollover in stock prices in the fourth quarter. This matters, because most people work at small firms, which are responsible for the vast bulk of net job growth.
In one line: Don't panic over the dip in consumer sentiment; net trade likely lifted Q4 GDP growth.
In one line: A further rebound in investor sentiment, and a robust Q1 for the EZ consumer.
In one line: Mexico tariff fears hit sentiment and raised inflation expectations; expect a reversal.
BoJ remains in an alternate reality in order to avoid a rate cut, underlining its concerns over damage to the financial sector. Chances of a serious PBoC blunder are rising. No "Phase 1" sentiment lift for Chinese manufacturers. A sharp fall in China's official services gauge was due. This probably is as good as it'll get for Japanese industrial production. Korean industrial production remains volatile, but the trend is decisively up.
China's manufacturing PMIs turn less grim, but look unsupported, for now. China's non-manufacturing PMI receives a one-off singles day boost. Japan's capex data suggests Q3 upgrade. Net trade is shaping up to be a drag on Q4 GDP, as Korean exports remained weak in November. Korea's exit from deflation is complete, thanks largely to more favourable base effects. Korea's PMI jumps in November... and that's before the likely sentiment boost from normalising ties with Japan.
Three of the big LatAm economies-- Brazil, Colombia and Chile--released October inflation last week; the data are still showing the pass-through effects of currency depreciation during the first half of the year into prices, though, at different degrees. LatAm currencies have been hit by the weakness in commodity prices and negative sentiment towards EM generally.
Tankan reinforces our impression of a nasty Q2. China's manufacturing PMIs show why the authorities are eager for a trade deal. China's non-manufacturing sector holds steady for now. Korean exports disappointed in June, but this probably is as bad as it will get. Ignore Korea's volatile PMI readings... sentiment is improving gradually.
Mr. Draghi was in a slightly more bullish mood yesterday, noting that the significant easing of financial conditions in recent months and improving sentiment show that monetary policy "has worked". Economic risks are tilted to the downside, according to the president, but they have also "diminished".
Mexican asset prices and sentiment have been helped in recent weeks by less-harsh rhetoric from the Trump administration. The headline consumer confidence for February, reported yesterday, rose to 75.7 from 68.5 in January; all the sub-components improved. The data are not seasonally adjusted, so most local analysts look at the data in year-over-year terms.
The E.C.'s Economic Sentiment Indicator for the U.K., released yesterday, painted an upbeat picture of the economy's recent performance. The ESI picked up to 109.4 in February from 107.1 in January; its average level since 1990 is 100. February's reading was the highest since December 2015, and it slightly exceeded the E.U.'s average of 108.9.
At the start of the year, consensus forecasts expected Eurozone equities to outperform their global peers this year, on the back of a strengthening cyclical recovery and an increase in earnings growth. Both of these conditions have been met, and yesterday's sentiment data suggest that EZ equity investors remain constructive.
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.
Brazil's recovery has been steady in recent months, and Q1 likely will mark the end of the recession. The gradual recovery of the industrial and agricultural sectors has been the highlight, thanks to improving external demand, the lagged effect of the more competitive BRL, and the more stable political situation, which has boosted sentiment.
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 July Eurozone PMI survey echoed the message from consumer sentiment earlier of a mild dip in momentum going into Q3. The composite PMI in the euro area fell to 53.7, from 54.2 in June due mainly to a fall in the services index. Companies' own expectations for future business fell in the core, but the survey was conducted soon after the Greek referendum. Markit claims this didn't depress the data, but we are on alert for revisions to the headline and expectations next week, or a rebound next month.
Data today will likely show that consumer sentiment in the Eurozone remains firm. In Germany, we expect a slight dip in the advance headline GFK confidence index to 9.8 in June, from an all-time high of 10.1 in May.
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.
Brazil's macroeconomic scenario is becoming easier to navigate for the central bank. Both actual inflation and expectations are slowing rapidly, as shown in our first chart. And since the March BCB monetary policy meeting, the BRL has appreciated about 10% against the USD, while commodity prices and EM sentiment have also improved markedly.
We will be paying special attention today to the EC sentiment survey for Italy, where the headline index has climbed steadily so far this year. It was unchanged at an eight-year high of 106.1 in April, and even if it fell slightly in May--we expect a dip to 105.0--it still points to an upturn in economic growth.
Today's Sentix survey of Eurozone investor sentiment likely will remain downbeat. We think the headline index rose only trivially, to 6.0 in April from 5.5 in March, and that the expectations index was unchanged at 2.8. Weakness in equities due to global growth fears and negative earnings revisions likely is the key driver of below-par investor sentiment.
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.
It probably would be wise to view the increase in the ISM manufacturing index in December with a degree of skepticism. The index is supposed to record only hard activity, but we can't help but wonder if some of the euphoria evident in surveys of consumers' sentiment has leaked into responses to the ISM. That said, the jump in the key new orders index-- which tends to lead the other components--looked to be overdue, relative to the strength of the import component of China's PMI.
On the face of it, the February consumer spending data, due today, will contradict the upbeat signal from confidence surveys. The dramatic upturn in sentiment since the election is consistent with a rapid surge in real consumption, but we're expecting to see unchanged real spending in February, following a startling 0.3% decline in January.
The Tankan survey--published on Monday--points to still buoyant sentiment, a further tightening of the labour market, and building inflation pressures.
Survey and money supply data remain consistent with an improving Eurozone economy. Yesterday's EC sentiment index fell to 103.7 in April, from 103.9 in March, due to weakness in France and Germany, but it is consistent with GDP growth of about 0.4% quarter-on-quarter in Q2.
We aren't convinced by the idea that consumers' confidence will be depressed as a direct result of the rollover in most of the regular surveys of business sentiment and activity.
Brazil's February industrial production numbers, labour market data, and sentiment indicators are gradually providing clarity on the underlying pace of activity growth, pointing to some red flags.
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Ian Shepherdson's mission is to present complex economic ideas in a clear, understandable and actionable manner to financial market professionals. He has worked in and around financial markets for more than 20 years, developing a strong sense for what is important to investors, traders, salespeople and risk managers.
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