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%

What to expect this week (14 October – 20 October 2019)

Highlights

> Next Tuesday, the IMF will release its new forecasts. Comments are bearish, the global economic outlook will weaker than last spring or last July forecasts. In July, the world output growth was expected to be 3.2 % in 2019 and 3.5% in 2020. For the US, numbers were 2,6 and 1.9, for the Euro Area 1.3 and 1.6% and for China 6.2 and 6%.

> The other political event will be the European Summit on Brexit. It will take place on October 17 and 18.  Two questions: will there be a new agreement between the UK and the European Union and will this agreement, if it exists, be voted by the Parliament in London ? If it is not the case, BoJo will have to ask for a delay. The Parliament want to postpone the Brexit until January the 30th , 2020.
> The most important element this week on monetary policy will be the Fed’s Beige Book. Fed’s members are considering a new drop of the US central bank’s interest rate in December (according to the dots’ graph). It will depend on the economic outlook. The Beige Book will give information on this point for a foreseeable future. We will look specifically at elements associated with the international trade.

> Industrial production indices for September in the US (17) and in China (18). August figures were lower in August and negative in the US. We can’t expect a reversal. In the Euro Area the industrial production index for August will be released (14). Could be quite strong after German, Italian and Spanish numbers.

> The inflation rate will be confirmed at 0.9% in the Euro area for September (16). The major question on inflation will be for China as pig price has recently pushed up the inflation rate. It will be released on October 15.
> Chinese foreign trade for the month of September (14). The dynamics of exports is still the key point of this statistic in order to perceive the impact of US tariff measures.

> Retail sales in the US (16), China (18) and the UK (17). These numbers have been rather strong in recent months notably in the US.  We expect robust data in the US but weaker in the UK according to the BRC survey. In China the mild rebound seen recently should hold in September.

> Real estate data will be released in the US notably the Housing Starts figure. The data was stronger than expected in August. Will it last confirming the reversal of the real estate market ?

The detailed document is here
NextWeek-October14-October20-2019

What to expect this week (7 October – 13 October 2019)

Highlights

> The most important data this week will be the industrial production indices in Europe. Germany and Spain (8) and France, Italy and UK (10).
Their momentum will reflect and highlight the risk of recession in Europe as corporate surveys are weak throughout Europe.. Germany has been weak recently and corporate surveys during summer and in September have validated the possibility of a deep recession in Germany.
In Italy, the dynamics remains low and risks are on the downside
In Spain, the momentum is lower since the end of spring. This has forced the Bank of Spain to revised down its forecasts for 2020 and 2021. The industrial figure will show if the downside risk has to be seen as soon as 2019
In the UK, the uncertainty associated with the Brexit leads to lower growth in the industrial sector.
In France, the momentum is still robust

> In Japan, households’ spending in August (8) will be interesting as a VAT rate hike is expected in October.
We remember that after the previous VAT rate hike in April 2014, the impact has been very important and persistent on households’ behavior. It has been depressing at this time. Can we forecast the same dynamics ?

> Jolts survey (9) in the US will probably confirm the change in the labor market trend in the US. That’s already how it is perceived by households.

> Inflation rate in the US with the CPI (10) which has an upside bias when compared to the favored Fed’s measure (PCE). The core inflation rate was at 2.4% in August which is high.

The detailed document is available here
NextWeek-October7-October13-2019

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

United Kingdom – Last exit before inflation

The rapid improvement of retail sales in February (+1.5%) has to be interpreted with care. The retail sales momentum has deeply changed in recent months. After a strong recovery since the end of 2013, its profile has dramatically changed last fall. Since the peak of October 2016 the  trend is still robust but downside oriented. Households continue to spend as far as inflation is not too high.
uk-2017-february-retailsales
In the United Kingdom, inflation is back. The core inflation rate was at 2% in February. Its highest level since June 2014. The interesting point is the food price index trajectory. From the end of 2013 to October 2016, it was decreasing. But since October it recovers rapidly. In October the yearly change for food price was -2.4%, in February it is +0.17%. What is impressive is the upturn since last fall and what is important is the acceleration. This is linked with the sterling depreciation.  Continue reading

3 Graphs on US Retail Sales in September: A Low Momentum

Retail sales were up in September. They increase by 0.6% after a retreat of -0.2% in August and a weak rise (0.1%) in July. On average for the quarter, retail sales are up by 2.9% after 6% during the second quarter. We see the summer change in the graph below. The three measures presented are weaker in July, negative in August and the rise is modest in September
usa-2016-september-retailsales-montlychange.png
The important measure is the core (in red in the graph above) that is defined as retails sales ex auto, gasoline and building materials. It’s an aggregate that is used to calculate households consumption in national accounts. Continue reading

Gloomy Summer for Growth in the US

After the deep drop in the ISM surveys for August (see here and here) we have had two new important data.
Retail sales were down by -0.3% in August after +0.06% in July and core retail sales were down -0.1% in July AND in August. Therefore carry over growth for Q3 at the end of August was 1.8%% at annual rate (after 6% in Q2) for retail sales and 0.7% for core sales after in Q2. Q2 data were exceptional and not the beginning of a strong trend.
The risk is a low contribution of households’ consumption to GDP quarterly growth. Households’ expenditures were a strong support for GDP in the second quarter. This will probably not be the case for Q3. This means a probable downgrade of growth for 2016. We were at 1.4% for the whole year, it will probably be lower.

usa-2016-august-retailsales-core

After a rebound in July (+0.6%), the industrial production index was down in August (-0.5%). For the manufacturing index data were -0.4% and +0.4% for August and July. Therefore carry over growth for Q3 at the end of August is a modest +2.3% (at annual rate) for the industrial index (after -0.6% in Q2) and for the manufacturing index data were +0.7% and -1% respectively. The momentum is still low. The YoY comparison shows that the industrial index is down by -0.7% and the manufacturing index is up by just 0.1%.
usa-2016-august-ipi

After the ISM, employment it is now retail sales that follow a weak trend while the industrial production index is neutral. Where is the risk of an overheating economy mentioned recently by Eric Rosengren from the Boston Fed. It was a cool summer in the US and the Fed has absolutely no reason to change its monetary policy at its next week meeting