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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 8 to 12 July):

  • In the US, inflation (CPI) was flat over the month as expected and it has eased further from 1.7% y/y to 1.6% y/y; nevertheless, core inflation was firmer than expected (0.3% m/m) and it has slightly accelerated from 2% y/y to 2.1% y/y. PPIs were also moderate over the month, and the yearly trend has eased further from 1.7% y/y to 1.6% y/y. Core PPIs were flat over the month and they eased from 2.3% y/y to 2.1% y/y. On the supply side, the NFIB survey (small firms’ sentiment) has decreased on lower sentiment on capex and future sales, reflecting concerns on trade constraints. As for labour, the JOLTS survey eased, showing fewer job openings and less hiring from corporates; nevertheless the levels remained high, pointing to a still-healthy labour market. The minutes of the latest FOMC meeting and M. Powell’s testimony to Congress have confirmed that the Fed is ready to decrease its key rates, on concerns on global risks and activity. Nevertheless, M. Powell has not confirmed if the easing will be 25 or 50 bp, and this will depend on future economic indicators while core inflation has not fallen further. Moreover, other Fed governors have mentioned in their speeches a wide range of opinions about rate management, pointing to a lack of consensus. This should lead to a 25 bp Fed cut in July at least.
  • In the eurozone, industrial production has rebounded more than expected (0.9%m/m) thanks to a recovery in consumer goods, but the yearly trend remained negative (-0.5% y/y). At country level, industrial activity rebounded strongly in France, Italy, and Germany. However, in Germany the rebound was not strong enough to compensate for the previous fall and it was mainly centred on the auto sector. Final inflation figures (June) for France, Spain and Germany have slightly rebounded in terms of yearly trend, notably in Germany (1.6% y/y), pointing in favour a more stable inflation scenario in the coming months. The minutes of the latest ECB meeting confirmed the ECB is ready to deliver new supports: it agreed on a tired system in the case of more negative interest rates and also to renew its QE for a broader range of assets. There is a more constructive picture in industry, with a large rebound in production in several countries, even if Germany is still lagging behind.
  • In the UK, the monthly GDP proxy (based on industrial data) rebounded in line with expectations (0.3% m/m) after a 0.4% fall, thanks to the energy, manufacturing and construction sectors. Industrial production also rebounded strongly (1.4% m/m) from depressed levels, but by slightly less than expected. On the consumer side, the proxy for retail sales (BRC like-for-like sales) contracted further and was more negative than expected. Sentiment on house prices (RICS house price balance) was less negative than past month, as sales and demand have slightly recovered and prices seemed to stabilize. While consumer spending has weakened, data from industry was better than expected, pointing to activity being more resilient than estimated.
  • In Japan, core machine orders fell by more than expected after last month’s rebound, with negative effects from trade uncertainties continuing to weigh on intermediate sectors such as steel and general machinery. The rebound of the industrial production (May) has been confirmed, showing a firm recovery in a broad range of sectors. On the consumer side, labour cash earnings contracted by less than expected but last month’s data were revised lower: after an improvement last year, the trend in real wages has slipped back into negative territory. PPIs decreased by more than expected due to oil and metal prices, and its yearly trend turned negative (-0.1% y/y) for the first time since 2016.
  • In China, the total social financing has reached new high levels (CNY 2.26 Tr), while new loans have rebounded, but slightly less than expected (CNY 1.66 Tr vs 1.7 Tr expected): nevertheless, these data confirmed the aggressive stance adopted by the monetary policy. Inflation (CPI) remained steady at 2.7%, while PPIs eased by more than expected (0% y/y) due to declining material and durable consumer prices. The trade surplus has increased (USD 50.9 bn after 41.7 bn the prior month) due to a sharp fall in imports (-7% y/y), while exports have contracted further (-1.3% y/y after -2% m/m the prior month).

Important for the scenario next week:

  • In the US, retail sales for June are expected to show moderate growth after the May rebound but core sales should continue to rise steadily (0.3% m/m expected); the preliminary Michigan consumer confidence (July) is also expected to make up some ground after the easing seen in June, which was due to weakening expectations. On the supply side, some regional surveys in manufacturing will be published (New York Empire, Philly Fed) and the consensus expects a nice rebound after depressed figures. In parallel, industrial production (June) is expected to show a moderate rise (0.2% m/m). Turning to housing, the NAHB confidence index is expected to remain stable, whereas housing starts could decrease further. The Fed Beige Book will be published and several speeches from Fed governors are due during the week.
  • In the eurozone, it will be another very light week in terms of economic data. Eurozone headline inflation is expected to be slightly firmer than in the first estimate (1.2% y/y) after the rises seen in some countries, while core inflation should remain low at 1.1% y/y. At country level, the German ZEW confidence index (expectations) is expected to fall further, while in Italy, industrial sales and orders should remain highly volatile, but some rebound could be seen following depressed data.
  • In the UK, inflation is expected to be moderate and headline inflation could slip below 2% y/y, while core inflation is expected to remain moderate at around 1.7% y/y. PPIs (both input and output prices) are also expected to show further moderation on the yearly trend. The labour market should continue to remain relatively strong as the unemployment rate should remain low (3.8%), but jobless claims could be on a rising trend; wage growth is expected to remain on a steady 3% y/y trend. Retail sales are set to be highly volatile and, following recent negative data, a further contraction could be seen after last month’s negative figures.
  • In Japan, inflation could moderate further from an already low level (0.7% y/y for headline, 0.5% y/y for core inflation). The trade balance could provide some interesting information, as exports were heavily depressed in previous months.In Russia, industrial production is expected to accelerate slightly (2% y/y) but real wage growth and retail sales should remain moderate (1.1% y/y expected).
  • In China, industrial production and fixed-asset investment are expected to remain on a steady, moderate trend as seen last month, while retail sales should stay more dynamic (8.5% y/y). The Q2 GDP estimate is expected to show a still relatively sustained 6.3% y/y growth trend after 6.4% y/y in Q1 19.Central bank meetings: South Korea, Indonesia, South Africa and Chile.
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