What to expect this week – 4 November – 10 November 2019


> The ISM global index (5) will be the major data this week. It is consistent with the GDP growth momentum and was particularly weak in September compared to what was seen last summer. A weak number may trigger a change in what the Fed could do in a foreseeable future.

> The Services Markit indices will be released on November 5. But the Euro Area data on manufacturing (4) and on services (6) will be released a little later this month as November 1 is off in most continental Europe countries.
The world markit index for the manufacturng sector will be available on Monday
> The Monetary policy Committee of the Bank of England will meet on November 7. Nothing is expected on its monetary policy stance but extension of the Brexit may imply comments on the impact for the UK economy.
> In the US, we look systematically at details on the labor market. The global employment index of the ISM survey and the JOLTS survey will bring these information. The ISM global index on the labor market was below the 50 threshold in September and maybe a source of concern in case a continuous weakness.

> The Chinese external trade (8) will provide new information on the impact of the trade war on the Chinese economy.

> In Germany, there is a string of data with the industrial orders (6) the industrial production index (7) and the trade balance (8). All of them will highlight the impact of the negative environment on the German short term momentum. Will they increase the risk of a long recession ?
> Japanese households’ expenditures in September at the eve of a VAT rate hike (October). In March 2014 they spend a lot just before the higher VAT rate in April 2014. Have we had the same behavior ?
> General elections in Spain (10) – The probability of a strong majority is low

The global manufacturing sector is strongly constrained

Reduction in new export orders is the most important economic phenomenon for the business cycle in recent months. It cannot be ruled out that measures to constrain international trade have had a negative effect on trade and growth.
In the monthly Markit manufacturing survey, the new orders index for developed countries was at 47.4 in September. Order flows have contracted continuously since January. In these circumstances, it is not surprising that the pace of manufacturing output is also degraded in most countries. In August, it contracts in the US over a year.
In emerging markets, the new orders flow index reflects a contraction at 48.7. Since the beginning of the year, the average index is at 49.7.
The ISM survey export order flow index is at its lowest since the 2009 recession (the previous low point was March 2009). This reflects a particular situation that in the past has penalized the US economy.
The shock is severe and international trade is no longer a source of impetus for the economic activity as in the past, but rather a constraint that permanently penalizes growth.
On the graph, we observe the change of regime throughout the year 2018. Tariff measures, non-cooperative strategies and the political consequences of insufficient growth explain this change in trend. Spontaneously, we do not perceive a rapid reversal of the trend.

The other source of concern in the manufacturing sector is employment . After a strong improvement until early 2018, especially in developed countries, it is now contracting. This means that the solvent demand, which improves with the increase in employment, is deteriorating. Internal dynamics fades.

The growth of the manufacturing sector is now strongly constrained. It no longer has a strong impetus from international trade and the solvency of domestic demand is deteriorating due to the low momentum in the labor market. We can expect a negative contribution from the manufacturing sector to growth in the coming months. The only question now is whether services can compensate for this effect. Generally this is not the case. This argues for a further slowdown in activity.

What to expect this week (September 30 – October 6)


> The most important data of the week will be the US ISM survey for the manufacturing sector (October 1). It was at 49.1 in August down below the 50 threshold for the first time since 2016 (January). This is an important data as it may affect investors ‘ expectations on the downside if it remains below 50. The ISM profile is consistent with the YoY change of the industrial production index. The current consensus for September is above 50. This suggests that it follows the Markit index profile for the manufacturing sector which has rebounded in September (flash estimate).

> The Markit indices for the manufacturing sector will also be important but we already know (flash estimates) that Japan was weaker in September as was the euro area index with a very weak number in Germany This latter would be consistent with a strong negative number for the GDP growth in Q3 in Germany.
The world index was up in August (but remaining in negative territory at 49.5.
Chinese indices will be out on Monday 30 September.
The services indices for the Markit and ISM surveys will be released on October the 3rd.
On October the 1st, the Tankan survey will be released in Japan.

> The US employment for September will be released on Friday 4. The number was weak in August and we do not expect a strong rebound as households’ perception of the labor market was weaker in September (through the conference board consumer confidence survey). One remarks, the private sector momentum is the lowest since 2010. It’s probably the consequence of the 2018 surge but it can also reflect weaker expectations on companies’ side.
In August, the number of public jobs was particularly high due to the 2020 Census. This may still be the case in September.

> Spanish growth second estimate for Q2 will be released on September 30 (the first was at 0.5% non annualized). The Bank of Spain has revised down its growth profile for 2019, 2020 and 2021. It now expects 2% in 2019, 1.7% in 2020 and 1.6% in 2021.

> The Euro Area inflation rate for September (October 1). It may be close to 1% for both the headline and the core. The convergence to 2% is not there yet.
Inflation rates in Spain, in Germany and in Italy are also expected (September 30)

> Unemployment rate for August in the Euro area (September 30), German retail sales for August (September 30). Industrial production index for Japan for August (September 30). Retail sales in the Euro Area (October 3)

On a more political ground, the 70th anniversary of the People’s Republic of China (October 1st) will be a ceremonial event on the Tienanmen square in Beijing. Xi Jinping will give an address to the nation.

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


> 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

Manufacturing ISM down for the 3rd consecutive month

The downward adjustment of the manufacturing sector ISM has continued since the high point of August 2018. The flagship indicator of the US economy must be based on a less volatile and less strong real dynamic. The CFNAI that I take as a reference is calculated as the common trend of 85 indicators of the real economy.
There is still room for adjustment and this will happen in view of the deteriorating international environment and the absence of economic policy measures across the Atlantic that could boost growth very quickly.
This means that the ISM will cross the 50 level in the coming months and will probably fall below it even if only temporarily.

The decline in the ISM is mainly due to lower order flows and lower delivery pressures.

What to expect next week ? (July 1 – July 7, 2019)


  • The ISM index for the manufacturing sector (July 1) will be the main indicator in the coming week. The slowdown in the US business cycle may be confirmed in June. 
  • The US labor market is the other main indicator (July 7). Its dynamics has recently changed as it adjusts to the new business cycle shape.
  • The Markit indices for the manufacturing sector (July 1) and for the services sector (July 3) will show the risk of a global recession for the manufacturing sector. The hope for the Eurozone is a strong services sector index that will allow an extension of the growth momentum.
    The Tankan survey in Japan will be out on July 1.
  • Employment in Germany for June (July 1) and retail sales for May (July 3) will show the possibility of maintaining a robust domestic demand or if it is necessary to have a stronger economic policy to cushion the impact of world trade negative shock on the German economy.
  • Retail sales in the Euro Area (July 4) for May will be a good proxy on the strength of the internal demand for the Euro zone.

    The document is here NextWeek-July1-July7-2019

What to expect next week ?

What do I expect as being important next week: 7 points at least
Markit and ISM indices in the manufacturing sector (June 3)
German Industrial Orders for April (June 6)
US employment for May (June 7)
Euro Area inflation rate for May (June 4)
 ECB meeting (June 6)
Trade war (no specific date)
Inversion of the US yield curve
The document is available here What to expect Next Week June 3 – June 7 2019