What to expect next week ? (July 15 – July 21, 2019)

Highlights


> The Chinese GDP growth number for the second quarter (July 15). During the first three months of the year growth was at 6.4% It should be lower as monthly date on industrial production and imports show a poor momentum.
> Retail sales and Industrial production in the US (July 16). They will show the strength of the US economy. These will be important benchmark that may influence the Fed’s strategy. Powell just mentioned this week that there was no improvement despite the strong labor market report.
Associated to these numbers, the Fed’s beige book (July 17) will highlight the Fed’s perception of the economy at a regional level.
> The NY Fed (July 15) and the Phylli Fed (July 18) indices on economic activity will also provide data on the business cycle strength.

> ZEW index in Germany (July 16). A weak number following weak numbers in recent months may force the government to adopt a more proactive economic policy.
> Employment numbers in the UK (July 16) and CPI in the UK (July 17)
Weaker numbers on employment are still to come and will be seen after this summer with the strong slowdown expected in the manufacturing sector.

The document is available here NextWeek-July15-July21-2019

What to expect next week ? (July 8 – July 14, 2019)

Highlights

  • External trade for Germany is the statistics I will focus on this week (July 8). Since the beginning of the year, real exports are slowing down as a consequence of the trade war. Expectations are negative and this is a source of concern for the German growth momentum. The German government may have, in coming weeks, an opportunity to boost domestic demand to cushion this disruption.
  • The Chinese external trade will also be a major indicator (July 12) as a measure of the trade war impact.
  • The German industrial production index will also show a slowdown in May (July 8). This would be consistent with expectations on its external trade and with corporate surveys that reflect pessimism.
    The other point to mention here is that the UK industrial production will show a downward trend (July 11). This would be consistent with the Markit index for the manufacturing sector. In May the Markit synthetic index was at 49.4 (from 53.1 in April).
  • The US inflation rate for June (July 11) will slow as seen in European inflation rates for June (flash estimates) while the Chinese will remain strong (2.7% in May) as food price (pork price precisely) will continue to push up the price index.
  • Financial Stability Report by the Bank of England (July 11 at 1130 CET), Minutes of the last FOMC meeting (June 18-19) on July 10 (2000 CET)  and Minutes of the last ECB meeting (June 5-6) on monetary policy (July 11 at 1330 CET)

The document is available here NextWeek-July8-July14-2019

 

What to expect next week ?

Highlights
  • Chinese trade figures, industrial production and retail sales for May are key to see how China cushions the negative international trade shock. Weak number would imply new measures to support domestic demand
  • The US economy is slowing down on industrial side. This was shown by the ISM manufacturing index in April and the industrial production index is trending downward since the beginning of the year. A negative figure on industrial production for May (June 14) may accelerate the Fed’s monetary policy change (next meeting June 19).
  • This change in the Fed’s strategy may also reflect a lower inflation rate. CPI figure will show a lower headline inflation (2% in April) and stable core inflation rate. Retail sales (June 14) are volatile reflecting a weaker domestic demand. This could add up to CPI and industrial production in the Fed’s decision in June.
  • After weak figures in the in April, the Euro Area industrial production index (June 13) will be down. May be is it the signal Draghi mentioned yesterday in his press conference to move the ECB monetary policy on a more accommodative ground

The document is available here NextWeek-June10-June14-2019

Huawei vs America

Look at this map. Who then can expect a trade deal between China and the USl The real question is about techno leadership? Huawei has a step ahead of the US.

The Chinese company already has deep discussions with many countries throughout the world. From Asia to Europe, Africa and Latin America the Chinese web is already impressive. On the other side, the US has forbidden purchases of infrastructures coming from Huawei. Australia, New Zélande, Japan and Taiwan follow the same rule. But it is a minority.

Recently, the US has generate pressure on Germany to forbid the German to buy Huawei products in the renewal of their mobile network. Germany has not changed its mind and has allowed Huawei to compete.
The balance of strength at the global level may change rapidly at the expense of the US.

How to expect an agreement that would validate the dominance of one over the other? From China to the US?

Industrial production shrinks in Euro zone

With the decline of -0.9% in December, the industrial production of the Euro zone fell by -5.3% over the last quarter (annualized rate). and -2.1% over one year. The slowdown in world trade is an explanation that the European slowdown has itself accentuated.

There is now a more complete picture of industrial activity in 2018. The US is doing well, Japan is still very volatile but Europe is falling back quickly, lacking an internal dynamic capable of offsetting external shocks.
We always fall back on this eternal question of coordinated dynamics to get better. Dependence on impulses from the rest of the world is now too important and this is very worrying


Germany in recession ?

Recent data on the German industrial production show a rapid drop in the economic activity. The quarterly change was already at -5.5% in the third quarter (annual rate). At the end of November, the carryover for the last quarter of 2018 is at -7.8%.
There is a strong consistency between the quarterly change in the industrial production index and the GDP as it is shown on the graph.
During the third quarter of 2018 the GDP was down -0.8% and related to the strong decrease in the German production this winter, the GDP may again shift downward in the last quarter. Germany would then be in recession.
The impact could be strong on the Euro Area’s momentum and leading to a downward revision of the EA growth forecast (the starting point for 2019 would be lower). The convergence to potential growth (1.6%) would then be quicker than expected.
The ECB will not change its monetary policy before long.