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.
> 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 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.
> 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 risk of recession is increasing in #Germany. The figures for industrial production (-7.5% in Q2 at annual rate (see here)) set the context for the GDP figure to be released tomorrow morning. The #ZEW survey for August suggests that the downturn will continue #Recession
=> The recent volatility on financial markets, through lower interest rates, was the consequence of lower expectations on global growth after the White House announcements. In the coming week, there will be data on retail sales in the US (15), China (14) and UK (15). These data will show the robustness of the domestic demand. If these data are strong in the US and in China, financial arbitrage may be modified in favor of risky assets
=> GDP growth in Germany will be, in the Euro Area, the most important indicator of the week (14). The industrial production index dropped dramatically in the second quarter (-7.5% at annual rate) and this downturn is consistent with a negative growth figure (probably more than the consensus at -0.1%). The ZEW survey for August (13) will highlight the duration of this drop Employment figures in the Euro Area and the detail for GDP will be released on August the 14th.
=> Employment figures will be important as the unemployment rate is low now (7.5% in June) and the economic dynamics is lower.
German production fell -1.8% in June over one month (excluding construction). It has fallen in 5 of the last 6 quarters and in Q2 the decline is -7.5% annualized rate. The graph, since 2000, does not reassure me, Germany is heading for recession