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

Low inflation rate expected in 2019, lower than core inflation

The price of oil is, on December 19, 20% below its 2018 average. The contribution of energy to the inflation rate will quickly be negative. Inflation will fall below 1% in the euro zone in 2019. (The energy price is the main source of fluctuations of the inflation rate. Sometimes on the upside sometimes on the downside. Currently it’s on the downside)

For a zero contribution to inflation, on average over 2019, the price of oil should increase by 25% It is only above this 25% increase, on average in 2019, that inflation will go above underlying inflation (close to 1%). No rush for the ECB to change its mind on monetary policy

Wages and the ECB monetary policy

Discussions on wage dynamics in the Euro Area. The momentum is now higher (2%) but not sufficient to push core inflation on the upside. The enigma is not solved yet. That’s the analysis of this NY Times article.

Nevertheless, the example comparing France and Germany in the article is not totally convincing. There is still a lot to understand on the labor market.

Workers may finally be getting a bigger piece of the economic pie — at least in Europe. Just don’t ask why, or whether it will last.

In the decade since the financial crisis, much of the global economy has recovered and is back on stable footing. Companies are reporting record profits, unemployment levels are plummeting and overall global growth is back on track.

Wages in most developed countries, however, have barely budged.

Read the article here. nyti.ms/2mI1Hnv