> 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 Fed’s meeting with a press conference and a press release on Wednesday. Two questions: are disagreements between FOMC members remain as high as in September ? Will the Fed cut its target rate ? The dots graph suggests a third cut this year.
> Christine Lagarde will replace Mario Draghi as president of the ECB next Friday. The balance between politics and economics will be different than in the current mandate. The main task for Christine Lagarde will be to maintain the cohesion of the ECB members at a moment where the monetary policy is already very accommodative and the impact of a change will be questioned and lower than in the past.
> On the Brexit side, a vote is expected today on the possibility of general elections on December the 12th Boris Johnson will probably not have the qualified majority for it.
The EU, in a draft, has proposed an extension of the Brexit until the end of next January.
> GDP figures will be released this week in the US and in France (30) and in the Euro Area, Italy and Spain (31). Expectations are on lower figures than in the second quarter. This would be consistent with the business surveys seen during this third quarter.
> ISM index for the manufacturing sector (November 1) will be key to anticipate the business cycle profile in the US. The index was below the 50 threshold in August and September.
> The Chinese official PMI index (31) and the Markit index for the manufacturing sector (1st )
> The Markit indices for the manufacturing sector will be released on November the 1sr except on Continental Europe.
> The US employment report next Friday. The momentum is lower than in the first part of the year even with a very low unemployment rate
> Inflation flash estimates will be released in Europe this week. (Euro Area 31). As the oil price is on average lower than in September (53.7 € in October vs 56.7€ in September ) and has to be compared with a high level in October 2018 (70.3€). The energy contribution will be strongly negative and the inflation rate will be probably below the 0.8% seen in September.
> 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 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.
Markit surveys for September show a slow momentum in the Euro area and in the US. The synthetic index for the Euro Area (weighted average of the manufacturing and non manufacturing synthetic indices) is now close to 50 leading to weaker expectations for the Q3 GDP growth. This reinforces me that GDP growth for 2019 will be circa 1.1%. The impact of the new ECB monetary policy will not lead to an impulse on the upside.
In the US, the synthetic Markit index for the whole economy shows a meager rebound in September despite a stronger manufacturing index. The non manufacturing index has been quite weak in September at 50.9 after 50.7 in August. The services sector doesn’t counterbalance the lack of impulse of the manufacturing sector.The global index is now way below the level seen until last spring and is consistent with a slowdown in the US GDP growth as it was seen in 2016. The more accommodative US monetary policy will not change the picture.
In the short term, the main risk remains in the manufacturing sector. European indices are weak, notably in Germany. This may lead to a recession in this country with a contagion risk to the rest of the euro area. Nevertheless, in the case of a deep recession in Germany, the government would be more active on its fiscal policy, limiting therefore the risk of a recession for the whole zone. This would be the chance for the Eurozone. Inb September, the US is weak but stabilized. The risk of recession is still low at this moment.
> The ECB meeting will be the most important event of the week. Bazooka measures are expected with lower deposit rate (associated with a tiering depending on the size of the bank) and the resumption of the Quantitative Easing Program. > The lower deposit rate with tiering will help the banking system. The EONIA may even be higher than what is currently seen. The QE program will push down all interest rates and reinforce financial repression We do not expect strong impact on the Eurozone growth momentum or on its inflation.
> External trade in Germany will highlight the impact of the world trade lower momentum. Lower exports have pushed the German GDP change in negative territory during the second quarter. An extended slowdown of the world trade (as expected when we look at the worldwide lower exports orders in the Markit survey) would push Germany in recession.
> Retail sales in the US for August (13) are the last good numbers expected. In September, tariffs on Chinese consumer goods imported in the US will have a negative impact on consumers’ behavior. > JOLTS (10) will show the probable change in the US labor market trend > The UK economy had a negative change figure in the second quarter. This will have an impact of the labor market (10) for July.
The ECB will cut interest rates in September with probably a differentiated deposit rate regime depending on the amount of deposits. It is considering the resumption of asset purchases.
The analysis I was doing this morning always seems correct to me (see here).
I will add another remark nonetheless. The risk of recession appears low according to Draghi. What will the ECB do in the event of a recession? It will be necessary at all costs a proactive fiscal policy to get out. That’s a risky bet