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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 weeks’ key economic news (from 10th to 14th Sept.):

  • In the US, retail sales have moderated after a strong rebound in the prior month, but the trend remains positive: consumption growth will probably grow close to 3% on Q3. The consumer confidence (Michigan) was back to its previous highs, helped by a healthy trend in labour. The JOLTS survey was better than expected, pointing towards rising job openings and higher labour turnover, which could potentially lead to other upside pressures on wages. The Industrial production has rebounded thanks to autos and production of electricity. The NFIB index reached new highs and revealed increasing optimism among small firms. The CPI was lower than expected and its yearly trend moderated from 2.9% y/y to 2.7% y/y; the PPI saw the same scenario, decreasing from the previous month and showing a slower trend (from 3.3% y/ to 2.8% y/y). Finally, the Beige Book confirmed positive but moderate growth across districts. It also pointed to rising concerns surrounding trade policy. The labour market is tight and the labour shortage has spread from high-skilled to low-skilled workers; nevertheless, wages and prices remained on a moderate trend.
  • In the eurozone, the ECB did not change its strategy nor its communications; the growth outlook was revised down slightly (2% for 2018 and 1.8% for 2019), while inflation should stay at a low 1.7% y/y for the next three years. The end of QE in December and QE tapering from October were confirmed, however, rates should not change before Q3 19. Protectionism is the most significant and growing risk for the ECB; Mario Draghi pointed out that the ECB’s QE programme is not designed to help the refinancing of a specific country, and it is crystal clear that Italy has to deliver a 2019 budget in line with EU requests as no specific support will be offered from the ECB. Separately, industrial production was weaker than expected in the eurozone (-0.8% m/m) and it was also depressed in Italy (-1.8% m/m).
  • In Japan, Q2 GDP has been revised up (0.7%q/q) thanks a stronger capex and indicators on services and machine tool orders were also positive, but industrial production remained weak (0.1% m/m; 2.2% y/y).
  • In the UK, industrial production remained weak and manufacturing production declined by 0.2% m/m, contrary to expectations. The supply sector looks fragile given the uncertainties surrounding Brexit. In contrast, the labour market stayed on a positive trend with low unemployment (due to lower immigration) and rising wages (+2.6% y/y), particularly in some specific sectors. Services and consumer demand continuing support growth in Q3. At its MPC meeting, the BoE maintained its current tightening bias: it is still confident on growth and expects a smooth Brexit transition; however, it remained concerned by the potential rise in costs and prices due to reduced slack in the economy.
  • In China, retail sales were firmer than the prior month and inflation has slightly increased (2.3% y/y), but industrial production stayed on a moderate growth (6.1% y/y) and fixed investment has weakened further. New loans have not boomed from past month despite the recent monetary easing and growth seems to have just stabilized.
  • Central bank meetings: in Turkey, the central bank increased its key rates by more than expected to 24%, despite President Erdogan’s request to ease rates. In Russia, the central bank has also increased its key rates (7.50%) on inflation concerns.
  • In the US, very positive momentum on confidence and domestic demand remained in place, while inflation moderated; however, there continues to be upside risks from wages and the labour shortage. While the ECB stayed confident on growth, the main economic indicators remained weak, although they have improved in Japan. In the UK, the BoE is generally still confident but it is also vigilant on inflation and is implicitly betting on a so-called “soft” Brexit.


Important for the scenario next week:

  • In the US, first estimates of manufacturing and services PMI should show a rebound or at least a stabilisation, in line with past ISM data; in parallel, regional business surveys (Empire New York, Philly Fed) should, on average, also stay positive. Several housing indicators (housing starts, NAHB, existing home sales) will be published during the week.
  • In the eurozone, the first estimates for the manufacturing and services PMI should reveal a cautious stabilisation in business confidence. In the consumer sector, the first consumer confidence estimates should also see some stabilisation, but still at a relatively depressed level. Final inflation data should validate the 2% y/y estimate. Separately, an EU council meeting is scheduled for 20 September.
  • In Japan, the only major event will be the BoJ meeting but no major shift in terms of its strategy is expected and its policy should remain broadly accommodative; the growth and inflation scenario could be given a fillip on the way to technically managing the yield curve after small changes were recently carried out.
  • In the UK, the CPI should show strong monthly changes (0.5% m/m expected by the consensus) but the yearly trend should remain quite stable (2.4% y/y); retail sales should also be steady in August after strong data in July.
  • Central bank meetings: Norway, Sweden, Hungary, Brazil, Mexico, Chile, Thailand and SNB.
  • Early PMI estimates in the US and the eurozone, along with another round of central bank meetings, will be the major focus from an economic perspective. In the political world, the US trade dispute with China and the EU summit might finally deliver positive surprises, following the rising uncertainties and risks that have been seen in recent months.







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Analysen 14.08.2018

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