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Investment expertise

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 22 to 26 April):

  • In the US, early Q1 GDP estimates came stronger than expected (at 3.2% q/q) on rising inventories and net trade contribution. On the opposite, domestic demand has slowed down from 2.1% q/q in Q4 to 1.4% q/q in Q1. Monthly regional business surveys (Kansas, Richmond) both came lower than expected, but expectations in Richmond index and new orders in Kansas have slightly increased, pointing towards mixed but positive trend in industry. Durable goods orders have strongly rebounded thanks to aircraft but core orders have also rebounded, pointing to more constructive view on capex in future months. Housing data were mixed, with existing home sales having decreased after last month’s rebound, while new home sales rebounded thanks to moderating prices and mortgage rates. Finally, consumer confidence (Michigan index) has fallen less than expected from the prior month, and willingness to buy autos and houses remained high. US GDP growth was artificially stronger than expected on Q1, due to rising inventories and lower imports: while these two sectors may correct on Q2, domestic demand is expected to strengthen to 2%.
  • In the eurozone, early estimates of consumer sentiment showed renewed weakness in confidence after a two-month rebound. Political and employment uncertainties could be the main concerns for households. French business confidence remained generally stable thanks to services, but opinions on the manufacturing outlook – particularly on orders – decreased after having enjoyed a measure of stability in recent months. The French consumer sentiment remained stable, but has shown some worries on the unemployment. The German IFO came in lower than expected, reversing the slight improvement seen last month. The situation offered a stark contrast between a continuing decrease in sentiment in the manufacturing and trade sectors, and the increase in services and construction. In Spain, the unemployment ratio has increased (from 14.45% to 14.7%) in Q1 for the first time since 2012. The outlook remains uncertain and hopes of stabilisation remained fragile as soft data in the manufacturing and consumer sectors reversed.
  • In Japan, the BoJ has not changed its current strategy but revised down its growth and inflation forecasts for 2020, mentioning core inflation to remain below 2%; forward guidance has been amended, saying interest rates should remain low until spring 2020; moreover the BoJ has announced more banks’ assets eligible at BoJ operations (BBB) and new BoJ’s lending facility related to the ETF bought by the BoJ. Labour market remained tight, but the unemployment ratio has slightly increased (2.5%) as well as unemployed over the month. Retail sales stayed on a positive trend (0.2% m/m) despite volatile auto sales. The industrial production has contracted more than expected, due to a reversal in production of capital and consumer goods. While domestic demand looks quite resilient, headwinds for global trade had impacted exports and industrial activity.


Important for the scenario next week:

  • It will be a very busy week in the US: the Fed’s FOMC meeting is expected to deliver a relatively positive message on the US economy and should mention that global risks have receded. Patience on key rates should be reiterated, justified by below-target inflation with no particular bias on rates despite market expectations being in favour of an easing this year. Some information on the Fed’s balance sheet maturity composition could be given out at this meeting, as could information on the debate on inflation targeting.The most important data should be non-farm payrolls, which are expected to moderate to 181,000 after the high of 196,000 seen in March; unemployment is expected to stay at 3.8% and wage growth should remain moderate (0.3% m/m, 3.3% y/y expected).The manufacturing PMI and ISM should stay moderate with no major changes from last month while the final services PMI and ISM should diverge: the services ISM is expected to improve while the PMI index should confirm the moderation seen in the initial estimates. Other regional business surveys (Chicago, Dallas) are unlikely to deliver a clearer message, pointing towards generally mixed economic activity. In contrast, factory orders are expected to be firmer, giving a more optimistic message on future capex. In housing, data should better oriented, notably pending home sales and construction spending. On the consumer side, household confidence (Conference Board) should increase slightly from last month.
  • In the eurozone, a wide range of data will be released next week: Q1 GDP growth should come close to the 0.2% q/q seen in Q4; early estimates for Q1 GDP will also be released for France, Spain and Italy. The EU sentiment index on industry should remain moderate but with the hope of a modest recovery or at least stabilization, while sentiment could be firmer for services; EU consumer sentiment should validate the fall seen in early estimates. M3 growth should remain at around 4.0% y/y, and unemployment is expected to remain stable (7.8%). Final manufacturing PMI data should confirm the modest rebound from the previous month, as seen in early estimates. Initial April estimates for eurozone inflation should point towards both headline and core inflation being lower. German retail sales are expected to decrease slightly after a rebound last month, but consumer confidence should remain stable, as should the labour market and unemployment (4.9%) trends. In France, consumer spending figures should be less depressed than last month. All these data should point to some stabilisation and only a progressive recovery in the next quarters.
  • In UK, the BoE’s Monetary Policy Committee meeting should not reveal any changes to its current “wait-and-see” strategy, as the bank has to wait for more clarity on the final issues regarding Brexit. Consumer confidence (GFK index) should make up some ground from depressed levels but the manufacturing PMI is expected to be weak after having rebounded last month. The services PMI should also continue to be mixed after the fall seen last month. As visibility is low on Brexit, hard and soft data may be highly volatile following political developments.
  • In many emerging countries, manufacturing PMIs will be released during the week.
  • Central bank meetings: Hungary, the Czech Republic.
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