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

United Kingdom (confidence), Japan (production) France (consumption)

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Rebound of the UK consumer confidence index in August

After the referendum on Brexit, June the 23rd, households were worried by the consequences of the “Leave” option. They thought that the impact would rapidly be negative. The consumer confidence index dropped deeply in July. It was driven by the uncertainty related to the 12 month outlook for the economy.

Since the referendum, no negative impact was perceived. Continue reading

US, Japan UK, France – What to keep in mind on Tuesday

Five points to keep in mind

Minutes of the Federal Reserve
The good thing with the minutes of the last meeting of the Monetary Policy Committee of the Federal Reserve is that you can find what you want to find.
The main sentence to perceive this is the following “Members generally agreed that, before taking another step in removing monetary accommodation, it was prudent to accumulate more data in order to gauge the underlying momentum in the labor market and economic activity. A couple of members preferred also to wait for more evidence that inflation would rise to 2 percent on a sustained basis.Some other members anticipated that economic conditions would soon warrant taking another step in removing policy accommodation.(page 12)”
The first part tells that the FOMC is cautious but the end of the sentence tells that improvement in macrodata could lead to a new strategy.
The Fed is also very attentive to the international context forcing the US central bank to remain cautious “In addition, it was noted that the dollar is a principal reserve currency and that monetary transmission in the United States occurs through funding markets that are quite globally connected.(page 3)Continue reading

Benchmarks after a vacation period

After a vacation period we all need to look at economic indicators to refresh our perception of the economic outlook. I propose a series of graphs with rapid comments.

Point #1Growth momentum was low in France and in the US during the second quarter.
In France, GDP was marginally down during the second quarter (-0.04% flat and -0.2% at annual rate). In the US, it was up by only 0.3% (flat) (1.2% at annual rate).
For France, this sudden stop is linked to private demand. Its contribution during the first quarter was at 3.6% at annual rate. It was negative at -0.1% during spring. Households’ expenditures slumped with a contribution that was null in Q2 after +2.5% during the first three months of 2016. Corporate investment has had a negative contribution at -0.1% after +1.1% during the first quarter.
The government forecast for 2016 is at 1.5%. It is now an ambitious target as it will be necessary to have a growth number at 0.55% (2.2% at annual rate) during the third and the fourth quarters. We don’t see where this spike would come from. It can work during one quarter, as it was the case during the first quarter of this year, but we cannot expect, for the French economy, two consecutive quarters above its potential growth trend Continue reading