What to expect this week – 11 November – 17 November 2019

Highlights

> —GDP growth for the third quarter in Germany (Nov.14) and the ZEW survey for November (Nov.12)
The industrial contraction during the third quarter and the fragility seen on the services sector during the third quarter will probably lead to a negative growth rate in the third quarter. Will this technical recession be sufficient to force a more accommodative fiscal policy ? —

> The Eurozone GDP and Employment for the third quarter (Nov.14) and industrial production for September (Nov.15)
The flash estimate for the GDP was at 0.2%, it will be confirmed. The question is on the employment dynamics. Since the beginning of 2018, its quarterly growth has been close to the GDP growth leading to a flat trend in productivity. This is not a positive news. —

> The UK GDP for the third quarter (Nov.11) and Employment for August (Nov.12)
The main concern for the UK is its low productivity growth. Since the beginning of the current recovery, it has grown by only 1%. The change may come in coming months with a downside adjustment on the labor market. —

> GDP growth for the third quarter in Japan (Nov.14)
The figure will take into account the jump in households’ retail sales in September. Their expenditures were increasing to compensate the increase in the VAT rate in October. This is the same phenomena that the one seen in April 2014 with the last TVA rate change. —

> Industrial production index in the US for October (Nov. 15) NY Fed manufacturing survey for November (Nov.15)
The industrial momentum is low in the US as it can be seen with the ISM manufacturing index below the 50 threshold for the last 3 months to October. This will probably push the industrial production index on the downside. —

> Chinese industrial production, retail sales and investment for October (Nov.14)
The momentum is lower in China. It reflects negative external shocks (exports growth is close to zero in recent months) and of an strong internal adjustment (negative growth for imports)

> —Retail sales in the US (Nov.15) and in the UK (Nov.14)
The US sales will continue to be robust as the labor market is still supportive and households are optimistic
In the UK, the perception is weaker as the labor market dynamics has turned negative recently.

> —Inflation in the UK and in the US for October
Will be lower than in September as the energy contribution will be more negative in October. —

> Inflation rates in the Euro Area (15), France (14), Germany(13), Italy(15) and Spain (14)
Confirmation of the flash estimates released at the beginning of the month. The Euro Area inflation rate in October was first estimated at 0.7%

The German saving rate doesn’t depend on the ECB interest rates

There is a lot of talks about the German savings rate, which is supposed to have increased recently in response to the drop in interest rates, notably the ECB rates. The anxiety caused by the fall in interest rates would encourage Germans to save more to counteract this uncertain environment.
It does not work. Germans do not vote against the ECB by increasing their savings as savings rates are stable.
This story about the Germans’ behavior is supposed to show the frustration of our neighbors and the inability of the ECB to manage monetary policy. Very Smart People are still alive and in action.
I have looked at the series of the household savings rate (savings on disposable income) and the global saving rate (Total income minus private consumption minus public consumption as a% of total income). These are the two relevant series for measuring the savings rate, in Germany or elsewhere.These two series, in recent years are flat like the back of the hand.
The household savings rate has fluctuated between 9% and 11.2% since the first quarter of 2009 and stands at 10.8% in the second quarter of 2019. It can even be said that since the start of the euro area, the German household savings rate is stable on these same levels.
Yet since 2009 the refi rate has declined by 250 basis points, same for the deposit facility rate.
There is no impact of the ECB rate on the behavior of the savings rate.
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We can also look at the overall saving rate, that of the German economy as a whole. As the households’ saving rate, this one is stable. Since 1991, it has been slightly above 25% of GDP. It is not an additional saving behavior that explains the increase in the German external balance but the decline in the investment rate (the difference between the savings rate and the investment rate is the current account balance as a% of GDP). For the overall saving rate also, the impact of the Bundesbank rate and then the ECB rate does not seem to exist.
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What to expect next week ? (September 23 – September 29, 2019)

Highlights

> Corporate surveys will highlight the business cycle foreseeable future. The IFO will be released on Tuesday 24 as will be the French Climat des Affaires. The French momentum is currently higher than in Germany as this latter is more exposed to the international backdrop. The Italian survey on corporate confidence will be out on September the 27th and may show the impact of a pro-European government on corporate confidence.

> Markit surveys, flash estimates, will be released on Monday the 23rd for the Euro Area, France, Germany and the US. The Japanese release will be done on September the 24th. These surveys are important but I will carefully look at the New Export Order indices in the Euro Area, US and Japan. Its average is clearly consistent with the world trade profile. In August it was as low as 46.6 giving a signal of continuous contraction in trade. September date will be important.

> Consumer confidence in the US (24 for the conference board and 27 for the Michigan), in France (25), Germany(26) and Italy (27). The US conference board will give us relevant signals on the US labor market dynamics. France index will remain above its average, way above the level it has a year ago when the yellow vests demonstrations started.

> Consumption expenditures in the US (27) and Fed’s preferred measure for inflation for August will be released on August the 27th. Consumers’ behavior is the strongest support of the current US growth momentum. Nevertheless it can be very volatile. We expect that it will be strong in August, consistently with retail sales. No strong expectations on inflation. The July core inflation rate is 1.6%.

> Inflation for September in France and Spain.
> New Home sales in August in the US. The real estate market has been stronger recently. A confirmation is expected as interest rates were low in August.

The document is available here
NextWeek-September 23- September 29-2019

The ZEW remains weak in September

The ZEW measured as the average of its two components remains in very negative territory in September. Its reversal mentioned here and there is very relative. The expectation component is less degraded but remain at a low level. The current conditions component has trending downward for at least a year and September is not immune to this negative dynamic.
The pace of the ZEW still suggests that the GDP figure will still be in the red in the third quarter. The upturn in activity and the reversal of the trend in the fourth quarter are not yet clearly perceptible.

What to expect next week ? (September 9 – September 15, 2019)

Highlights

> The ECB meeting will be the most important event of the week. Bazooka measures are expected with lower deposit rate (associated with a tiering depending on the size of the bank) and the resumption of the Quantitative Easing Program.
> The lower deposit rate with tiering will help the banking system. The EONIA may even be higher than what is currently seen.
The QE program will push down all interest rates and reinforce financial repression
We do not expect strong impact on the Eurozone growth momentum or on its inflation.

> External trade in Germany will highlight the impact of the world trade lower momentum. Lower exports have pushed the German GDP change in negative territory during the second quarter. An extended slowdown of the world trade (as expected when we look at the worldwide lower exports orders in the Markit survey) would push Germany in recession.

> Retail sales in the US for August (13) are the last good numbers expected. In September, tariffs on Chinese consumer goods imported in the US will have a negative impact on consumers’ behavior.
> JOLTS (10) will show the probable change in the US labor market trend
> The UK economy  had a negative change figure in the second quarter. This will have an impact of the labor market (10) for July.

The detailed document can be read here
NextWeek-September9-September15-2019

What to expect next week ? (September 2 – September 8, 2019)

Highlights

> The global economy is slowing very rapidly and the world trade was contracting in June. To anticipate the immediate future on the economic activity, companies’ surveys are key. Next week, the Markit and ISM surveys will be released. On September the 2nd, manufacturing sector surveys for Markit will be out. The ISM will be out on September the 3rd. These number will highlight the short term momentum of the global activity and the future dynamics of world trade.

> On September the 4th the Markit service sector survey will be released and the 5th it will be the ISM survey on services. In the US, the services survey no longer re balance the weakness of the manufacturing sector. The flash estimate for the Markit survey is now below 51. Fragility leading to recession?

> US employment for August will be released on September the 6th. Recent numbers on jobs creation have been revised down (annual revision) leading to a lower dynamics. This change is consistent with the change in trend seen in the JOLTS survey.

> Industrial Orders in Germany for July (September 5) will be another source of information on the strength of the global momentum as this indicator has a profile consistent with the OCDE corporate investment. Recent data show a rapid slowdown.
> Recent developments in the Middle East with higher tensions, this week-end, between Israel, Lebanon and the West Bank. 

The detailed document is here
NextWeek-September2-September 8-2019

What to expect next week ? (August 26 – September 1, 2019)

Highlights

> GDP figures for the second quarter in the US (29), Germany (27), Italy (30) and France (29) will give details on the composition of growth in all these countries, providing a better understanding of the current situation. This will be particularly important at this stage of the business cycle, notably because there are fears of recession in Germany and Italy.

> Many surveys on economic activity. IFO in Germany (26), climat des affaires in France (27) and Business confidence in Italy (28). Risk of a weaker index in Germany and in Italy after the political mayhem seen in August.

> Consumer confidence in the UK (30), one month after Boris Johnson has been appointed as prime minister.
Consumer confidence in the US (August 27) will bring details on the labor market dynamics at a moment where the situation is changing in the US (Markit index for the manufacturing sector at 49.9 in August)
> CPI figures in the Euro Area for August and in the US for July that will bolster central banks in their will to become more and more accommodative.

The detailed document is available here
NextWeek-August26-September1-2019