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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 9 Sept. to 13 Sept.):

  • In the US, retail sales rose modestly in August, driven higher by a jump in auto buying and healthy online sales. Control retail sales, which is taken into account in GDP, increased by 0.3% m/m (as expected), the sixth consecutive monthly increase. Consumer confidence (Michigan) jumped after the strong fall last month with expectations and current conditions sentiments slightly increased.  The JOLTS survey disappointed, reflecting slightly fewer job openings, while turnover in the labour market remained high. Headline inflation was moderate (0.1% m/m; 1.7% y/y), but core inflation was firmer than expected (0.3% m/m; 2.4% y/y) due to health costs. PPIs surprised with the rebound in services and in core PPI (0.4% m/m; 1.9% y/y), while the overall PPI remained moderate (0.1% m/m; 1.8% y/y) thanks to lower energy prices. On the supply side, the NFIB index (sentiment on small- and medium-sized firms) weakened on less positive views on the future economy and employment, but capex remained positive. The index remained at buoyant levels.
  • In the eurozone, the ECB finally delivered a comprehensive monetary package on concerns of a persistent, low-growth inflation environment and risks. The deposit rate was cut from -0.40% to -0.50% and the forward guidance was shaped by the inflation pattern; TLTRO III conditions were eased; QE was relaunched (EUR 20 bn per month) and tuned to the inflation scenario. The QE amounts and the changes in rates could be adjusted further if needed, creating a very friendly monetary environment for the coming quarters.
  • Separately, eurozone industrial production continued to contract (-0.4% m/m from -1.4% m/m the previous month). Industrial production disappointed in Spain (-0.4% m/m) with several sectors in contraction, and the yearly trend fell below 1% y/y; the same scenario was seen in Italy (production down by 0.7% m/m), with pharma and machinery the weakest sectors. In France, production rebounded by less than expected, with large disparities across sectors and weak production in autos and intermediate sectors. French business sentiment increased slightly thanks to an improving outlook on production and orders. In Germany, the trade balance (EUR 21.4 bn) rebounded as exports were slightly better oriented (0.7% y/y).
  • In Japan, Q2 GDP data were revised down (from 0.4% to 0.3% q/q), as expected, due to far slower capex growth than initially estimated (from 1.5% q/q to 0.2% q/q). The quarterly Ministry of Finance survey (Q3) on business conditions improved from last quarter, but views on Q4 point on renewed weakness. PPIs contracted (-0.3% m/m) on lower energy prices and the yearly trend has become more negative (-0.9% y/y). Industrial production rebounded after the strong fall in June.  
  • In the UK, the unemployment rate eased further (3.8%), but jobless claims stayed on a rising trend over the past months (28,000) and job creations have slowed. Wage growth accelerated further (4% y/y), particularly in the construction and finance sectors. Industrial production surprised on the upside with a rebound in manufacturing (0.3% m/m) driven by consumer goods. The monthly index for GDP and the index for services both rebounded (0.3% m/m) despite the highly uncertain environment and flat expectations. Sentiment among house professionals (RICS price balance) regained slightly but concerns remained on future prices.
  • In China, inflation remained more sustained than expected (2.8% y/y) due to pork prices, while PPIs turned more negative (-0.8% y/y). The trade surplus decreased sharply (USD 34.8 bn): exports were more negative than expected (-1% y/y) and imports contracted (-5.6% y/y). Total social financing and new yuan loans both rebounded strongly from last month.
  • In Turkey, the central bank has slashed its benchmark interest rate by a further 3.25% (from 19.75% to 16.5%) means that Turkey's central bank has lowered its policy rate by a total of 750 basis points since July.
  • The good performances of UK indicators and the resilience of the domestic economy came as a surprise given the prevailing political confusion. A leaked UK government report on the chaos that the supply chain would suffer if the country left the EU without a deal, along with the current position of the UK parliament, boosted the prospect of another postponement of the exit date (to the end of January 2020), as well as efforts to strike a deal with the EU. The US and China eased trade tensions by postponing the planned imposition of tariff increases; employment and industrial confidence figures for the United States are looking weak, while China is injecting massive amounts of credit into the economy, however, this is being done in a targeted, sector-by-sector way. The rise in core inflation (both CPI and PPI) could pose a problem for the Fed, which would position itself as being less aggressive than the ECB.
  • The ECB rolled out a raft of significant measures and called for fiscal action which would increase the positive effects on the economy. Nonetheless, Germany is still proving to be reluctant to abandon its strict budgetary stance and is working on “green” investments outside the budget.

Important for the scenario next week:


  • In the US, the focus will be on the consumer sector: retail sales are expected to moderate after the strong rebound seen in July (to 0.2% m/m from 0.7% m/m) and core sales should follow the same trend (to 0.3% m/m from 1.0% m/m). Consumer confidence (preliminary Michigan index) is expected to stabilise after having eased last month for both the current situation and expectations. Inflation is expected to be moderate (0.1% m/m; 1.7% y/y expected) as should core inflation (0.2% m/m) but the yearly trend is expected to be a bit firmer (2.3% y/y from 2.2% y/y in July). On the supply side, the NFIB index (sentiment on small- and medium-sized firms) is expected to stay on a moderate but positive recovery and the JOLTS survey should be in line with the non-farm payrolls.
  • In the eurozone, the main event will be the ECB meeting: while expectations have set the bar high (a decrease in rates, a tiering system, the relaunch of QE or friendlier TLRTOs), the risks are skewed towards some disappointment as there is no consensus among the governors about which monetary package to put forward. This puts pressure on Draghi’s communications to convince markets about the ECB’s determination to act boldly. Separately, eurozone industrial production is expected to recover slightly after the sharp fall seen in June (-1.6% m/m). Industrial production will be also published in France, Italy and Spain. Final inflation data (August) will be released for France, Germany and Spain, and should confirm the weaker trends estimated for each country.
  • In Japan, Q2 GDP data should be revised down (from 0.4% to 0.3% q/q) on the back of lower capex growth. The quarterly Ministry of Finance survey (Q3) will be released but no major rebound is expected from the depressed numbers seen in Q2. The estimated rebound in August industrial production should be confirmed.
  • In the UK, labour data is not expected to reveal any change in trend: unemployment is still low (3.9%) but a there is a progressive rise in unemployment claims and wage growth is still solid (3.9% y/y). The monthly index for GDP and industrial production could point towards a flat or slightly negative change over the period, as could the index on services. Sentiment among house-price professionals (RICS price balance) could deteriorate after some improvement in view of the uncertainties surrounding the political situation.
  • In China, inflation should moderate slightly (to 2.6% y/y from 2.8% y/y) and PPIs could turn even more negative (-0.9% y/y). The trade surplus is expected to moderate (in USD terms) and exports are set to be mildly positive. Data on monetary aggregates, total social financing and new loans will be published during the week, with an expected rebound in new yuan loans.
  • Central bank meetings: Malaysia, Poland, Peru and Turkey.



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