> 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 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 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.
German production fell -1.8% in June over one month (excluding construction). It has fallen in 5 of the last 6 quarters and in Q2 the decline is -7.5% annualized rate. The graph, since 2000, does not reassure me, Germany is heading for recession
>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.
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)
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