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The Chief Economist's weekly update

The Chief Economist's weekly update

To help you navigate through the economic news, here is a summary of last week’s main events and what to look out for next week.

Last week’s key economic news (from 12 August to 16 August):

  • In the US, the July core CPI reading of +0.3% m/m was above consensus expectations (+0.2%), which pushed the annual reading up to +2.2% y/y, thus matching the highs seen in January. This strength was broadly based across categories and headline annual inflation rate rose to 1.8% from 1.6%. Retail sales growth was stronger than expected also enjoying strength across categories and underscoring the solidity of consumer activity at the moment. In contrast, industrial production growth declined in July (-0.2% m/m) against expectations of a slight increase (+0.1%) after some stabilisation in May and June.

    Regional manufacturing surveys remained weak but the Philadelphia Fed manufacturing index decreased by less than expected in August, while the Empire manufacturing index increased against expectations of a decline, despite the recent escalation of the trade war. The NFIB small business optimism reading was also better than expected, reaching its second-highest level since late last year. However, the survey was conducted prior to Trump’s tweet about additional tariffs. Figures on productivity in Q2 also provided positive surprises: it was up 1.8% y/y (vs. only 0.8% (annualised) between 2012 and 2016, and 1.3% in 2017), while compensation rose 4.3% y/y and unit labour costs were up 2.5%, painting a healthy picture of the US economy. The NAHB housing market index rose by 1 point to 66 in August against expectations of a flat reading; this matches the 2019 high and was helped by falling mortgage rates.

    Today, housing starts looked weak, but this reflects the volatile multi-family category (-16.2%); single-family starts rose by 1.3%. Moreover, building permits rebounded strongly from June (+8.4%). Finally, the consumer sentiment index (University of Michigan) declined to 92.1, a seven-month low, likely reflecting the recent escalation in the trade war and stock market volatility.

  • In the eurozone, the data highlight was the negative GDP print in Germany, which showed the economy contracted -0.1% q/q as expected. Eurozone GDP growth in Q2 was confirmed at 0.2% q/q.
  • In the UK, both headline (+2.1% y/y) and core (+1.9%) inflation came in higher than expected.  Regular pay growth in the private sector rose from +3.6% y/y to +3.9% y/y - the fastest pace of wage growth seen since June 2008. Retail sales data was surprisingly positive, with the core measure rising +0.2% m/m versus expectations for a -0.2% decline.
  • In Chinagrowth momentum in July slowed by more than expected after a short-lived rebound in June. This was partly due to a slowdown in car sales and production. Retail sales growth slid by 2.2 bps to 7.6% y/y and industrial production slowed to 4.8% y/y (weakest reading since 2002) from 6.3%. In addition to this, new lending saw a big miss on much weaker CNY loans (down to CNY 1,060 billion from CNY 1,664 billion in June). Given this weak data, the likelihood of more forceful policy support has arguably risen.
  • Elsewhere, the Norges Bank issued a surprisingly dovish statement, highlighting the fact that the global risk outlook, “…entails greater uncertainty about policy rates, going forward.” Mexico’s central bank surprised observers by cutting interest rates by 25 bps.


Important for the scenario next week:

  • In the US, it will be a light week in terms of economic data. Existing home sales are expected to creep up, while new home sales should be stable. The tone of the minutes is likely to be on the dovish side but they will probably show a strong reluctance among the FOMC members to commit to further rate cuts. The Jackson Hole Symposium will come into the spotlight, as the Fed will probably try to clarify the outlook on its monetary policy. Flash PMIs should remain nearly unchanged and once again underline the gap between a weak manufacturing sector (the consensus puts this at 50.5) and a robust service sector (52.8).
  • In the eurozone, the consensus expects the manufacturing flash PMI to remain unchanged at 46.5 but its services counterpart is poised to show a slight decline (to 52.8 from 53.2). Consumer confidence is likely to be flat in August. Final headline and core inflation for July should be confirmed as being in line with the flash estimates of 1.1% and 0.9% y/y, respectively.
  • In Japan, the July trade balance figures will be published with both exports and imports expected to be down 2.3% y/y. July’s nationwide core CPI inflation is likely to have stayed flat at 0.6% y/y.

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