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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 Dec. to 13 Dec.):

  • In the US, the Fed meeting has not revealed any change in strategy: FOMC looked slightly more confident on growth and inflation and the expectations on rates (the “dots”) revealed no further decrease next year; the multi-year pattern on rates pointed towards modest rises in the years to come, suggesting that current rates are slightly below the neutral rate. Fed remained vigilant regarding tensions in the money markets, and it expects to deliver enough liquidities to keep rates in check at year end; the Fed has not increased its T-bills purchases but is ready to do so, if necessary.
  • Inflation was up slightly (0.3% m/m) on rising food and energy prices; core inflation remained on a stable monthly trend (0.2% m/m), fuelled by rises in rents and healthcare costs; headline inflation increased slightly to 2.1% y/y, but core inflation remained stable at 2.3% y/y. PPIs were weaker than expected (0% m/m) and core PPIs have eased further (-0.2% m/m) leading to lower yearly trend (1.1% y/y for headline prices and 1.3% y/y for core PPIs). Retail sales (November) have disappointed with a modest monthly rise (0.2% m/m vs 0.5% m/m expected) due to lower purchases of clothes, health care and restaurants. These data could favora below 2% GDP growth in Q4. On the supply side, business sentiment among small firms (the NFIB index) rebounded strongly, fuelled by improving opinions on future activity and rising capex.
  • In the eurozone, the ECB meeting and the first Q&A session for its new president Christine Lagarde have confirmed the strategy put in place by former president Draghi. Economic and growth outlook has not much changed and still points to a moderate growth with some strengthening in growth and inflation in 2021. The ECB will review its strategy next year, and Ms Lagarde has announced a large review of tools and means to satisfy the inflation mandate, which opens the door to potential significant changes on ECB’s regulation.
  • On the macro front, industrial production has contracted as expected (-0.5% m/m), due to fall in energy and production of capital goods. In Germany, the trade balance (EUR 21.5 billion) increased as exports rebounded (1.2% m/m); the ZEW survey improved by more than estimated and expectations rebounded into positive territory. In France, industrial production was firmer than expected (0.4% m/m) thanks to a rebound in auto and intermediate sectors. In Italy, in contrast, industrial production was weaker than expected (-0.3% m/m), with a contrasting picture across sectors. Italian orders have increased more than expected thanks to foreign orders, but trend sales and orders remained negative.
  • In Japan, final Q3 GDP was revised up from previous estimates (0.4% q/q) and was higher than expected thanks to firmer growth in consumption (0.5% q/q) and in capex (1.8% q/q). The Tankan survey has weakened, and sentiment eased for both manufacturing and non-manufacturing sectors, and final estimates for industrial production (Oct.) came lower than expected at -4.5% m/m (-7.7 y/y). The trend in PPIs improved slightly from -0.4% y/y the previous month to 0.1% y/y.
  • In the UK, industrial production (0.1% m/m) was mixed, but some manufacturing sectors, such as pharma and transport, showed a rebound in production. The monthly GDP estimate (October) was flat despite a modest rise being expected; capex estimates showed a modest rebound (0.2% m/m).
  • In China, inflation continued to rise and made up slightly more ground than had been expected (4.5% y/y) thanks to rising food prices, whereas PPIs were on a marginally less negative trend (-1.4% y/y). Monetary aggregates were on slightly higher growth pace and aggregate financing and new yuan loans rose more firmly than expected and were up from last month’s levels.
  • Central bank meetings: Brazil has cut rates by 25 bp from 5% to 4.50%; Turkey has decreased key rates by 200 bp to 12%; Russia cut rates by 25 bp to 6.25%.
  • Whereas the new US–Mexico–Canada (USMCA) trade agreement is currently being adopted by Congress, the negotiations to reach a final agreement between the United States and China were still uncertain during the week. But, official communication raises hope that US increases in customs duties on Chinese products are going to be deferred and progresses have been made on the signing of phase one of the US–China deal at the end of the week.
  • Economic indicators continue to paint a mixed picture, suggesting an improving trend, but one which is nonetheless fragile. The Fed and the ECB have both adopted a “wait and see” stance on their strategies, while remaining confident on the economic cycle and inflation.
  • The Conservative Party’s decisive victory in the UK general election clears the way for the British parliament to pass its EU withdrawal agreement into law, which will confirm the UK’s exit from the EU by the end of January, as planned; once this is done, the negotiations on the trade relationship between the two regions can start.

Important for the scenario next week:

  • In the US, the first estimates for manufacturing and services PMI should continue to show a progressive recovery in sentiment in both sectors. Regional business surveys (Philly Fed, Kansas Fed) are expected to remain mixed, while industrial production is expected to rebound following the end of the strike in the auto sector. Housing starts should increase slightly, as should the NAHB sentiment index, while existing home sales should moderate slightly over the month. Final estimates for Q3 GDP should not change (2.1% q/q). The November data for personal income and spending are expected to show some rebound from last month. The JOLTS survey should be on the strong side after the rebound in non-farm payrolls. Several Fed governors will deliver speeches during the week, commenting on the most recent FOMC decisions.
  • In the eurozone, the first estimates for the manufacturing and services PMI should increase slightly over the month. Inflation (November) should be confirmed as being up by 0.7% y/y and core inflation up by 1.3% y/y. The first estimates of consumer confidence should remain mixed after some disappointments last month. In Germany, the Ifo index is expected to regain further after last month’s stabilisation. In France and Italy, industrial confidence could be mixed, as could consumer confidence in Germany and Italy, and spending in France.
  • In Japan, the BoJ meeting is unlikely to reveal any major changes to the current strategy, only some modest revisions to the growth and inflation scenarios; the first estimates for manufacturing and services PMI should increase moderately, moving closer to 50. Inflation should remain generally low despite some volatility related to yearly changes in energy prices.
  • In the UK, it will be a very busy week in terms of economic indicators following the general election. The BoE meeting should not reveal any changes to key rates, but it could mention potential changes in its future strategy in light of the election result and Brexit. The first estimates for manufacturing and services PMI should remain mixed after last month’s disappointment, as should other business surveys (CBI trend, Lloyds business barometer). The final Q3 GDP estimate should not reveal any major changes to the 0.3% q/q rise. On the consumer side, retail sales should rebound after depressed data in October, and labour should remain on a stable trend after changes seen in recent months: the unemployment rate should remain low (3.8%) and wage growth should continue on a sustained trend after the rebound to 3.6% y/y the previous month. Inflation might increase slightly (1.5% y/y) as could PPIs (input and output prices); input PPIs should be slightly less negative.
  • In China, retail sales are expected to be on a firmer trend at close to 8% y/y, while industrial production and fixed-asset investments should remain on a moderate trend compared to recent months. No changes in official key rates are expected by the consensus, but monetary policy could ease the reserve requirement ratio further and boost liquidity injections.
  • Central bank meetings: Thailand, Indonesia, Taiwan, Hungary, Norway, the Czech Republic, Colombia and Mexico.
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Analysen 21.11.2019

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