The ZEW remains weak in September

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.

What to expect next week ? (September 16 – September 22, 2019)

Highlights

> The Fed’s meeting (18) will be the important event of the week. We expect a 25bp drop in the Fed’s main rate and nothing on the balance sheet policy.
The important point will be Powell’s explanation of this move at his press conference. In July, the main explanations of the 25 bp drop were external factors (trade, global growth). Will these elements remain the principal explanation ? What will be the new growth forecasts consistent with this new monetary policy stance ?

> The US industrial momentum (17) will be an important data as the ISM synthetic index for August dropped below the 50 threshold at 49.1. The consistency between the two indicators suggests that the industrial production index YoY change could go in negative territory.  Will the industrial index follow this dynamics in August?
The Empire state (16) and the PhilyFed (19) will give information on the economic situation in September

> The ZEW (17) in Germany for September  will be key to anticipate the possibility of a German recession and therefore the possibility for a more proactive fiscal policy. Draghi, in his press conference last Thursday, said that a eurozone fiscal policy would be complementary to the ECB monetary policy to boost growth and inflation.

> Chinese number (16) will show how the economic policy efficiency of an arbitrage between an external negative shock and the necessity to feed the domestic demand to stabilize the economic activity. Industrial production was weak in July while retail sales were stronger than a few months ago.
> Retail sales in the UK (19) in the midst of a political mayhem. What has been consumers’ behavior ? Have they increased their stocks to prevent the impact of a no deal Brexit ?
> US housing market with Housing starts (18) and Existing home sales (19)? The market is quite stable.
> In Brazil, the Selic will not be pushed down at the next monetary policy meeting (18) as the Brazilian central bank has had strong intervention on the forex market to limit the depreciation of the real.

The detailed document is here
NextWeek-September16-September22-2019

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

Lower ZEW index implies turmoil in Germany

The drop of the #ZEW survey increases the downside risk for the #German economy. It is linked with the rapid slowdown of the world trade. As no agreement is expected rapidly (even with the Trump/XI meeting at the G20), the risk of recession is increasing for Germany.

The current conditions index is far from its recent highs but the June important fact is the strong change in expectations.The 1st component reflects the drop in German exports(-5% in April vs March and -3% in real term since Dec 2018).The momentum will not improve (expectations)
Mario Draghi said in Sintra that the ECB will ease if necessary. It may be sooner than usually expected