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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 week’s key economic news (from 10 June to 14 June):

  • In the US, retail sales were better than expected (0.5% m/m) and core sales also strong (0.5% m/m) pointing to a still firm domestic demand. The early consumer sentiment estimates (Michigan index) has eased somewhat (97.9 after 100), due to lower expectations on personal finance and the economic situation. The JOLTS survey moderated from last month, but by less than the non-farm payrolls, pointing to still high demand for workers from corporates, while quit rates also remained high. PPIs were moderate (0.1% m/m) due to lower energy and food prices, but core PPIs were firmer than expected (0.4% m/m). The trend moderated for PPIs at 1.8% y/y, while core PPIs were firmer at 2.3% y/y. CPI inflation also moderated, as expected (0.1% m/m), and core inflation was also moderate (0.1% m/m). The yearly trend moderated for both indices to 1.8% y/y for headline inflation and 2% y/y for core inflation. On the supply side, to the surprise of observers, small firms’ sentiment (NFIB index) rebounded, driven by sales and the future economic and employment situation. Industrial production has significantly rebounded (0.4% m/m) due to the auto and utility sectors.

  • US figures point towards a positive momentum in growth, which could alleviate a bit pressures on the next Fed meeting despite a moderate inflation.

  • In the eurozone, industrial production contracted further due to a large fall in all other sectors and despite a rebound in energy. At country level, last month’s moderating inflation was confirmed. In France, business confidence (Bank of France index) remained stable in manufacturing, services and construction, as expected. In Italy, industrial sales and orders were both more negative than expected, reflecting fragile environment for exports and the manufacturing sector.

  • In the UK, industrial production declined by more than expected (-2.7% m/m) and this was broad-based across sectors. The services index stayed flat while the monthly GDP proxy decreased sharply (-0.4% m/m). The labour market remained positive as the unemployment ratio stayed low (3.8%) and wage growth remained sustained (3.4%y/y). Downside risks on activity increased as visibility on Brexit and domestic politics reduced further.

  • In Japan, final Q1 GDP data was confirmed up by 0.6% q/q thanks to firmer investment, but weak consumption. Industrial production has also been confirmed as being up by 0.6% m/m, thanks to firmer production in steel and machinery. Core machine orders were stronger than expected (5.2% m/m), which could point towards investment continuing to be strong. The tertiary index was also higher than expected and bank lending was also firmer (2.6% y/y).

  • In China, fixed investment (5.6% y/y) and industrial production (5%y/y) came lower than expected and past month, while consumption has strongly rebounded (8.6%y/y) after measures adopted in favour of the auto sector. Inflation has gained further (2.7% y/y), but PPIs have moderated (0.6% y/y). Total financing has increased more than expected, but new Yuan loans came below expectations. Chinese data were mixed, as investment has slowed down, but consumption has re-accelerated thanks to the latest fiscal measures.

  • Central bank meetings: the Russian central bank has eased its key rates from 7.75% to 7.50% as expected.

Important for the scenario next week:

  • In the US, many pressures have increased on the Fed’s next meeting: low inflation, rising global risks and renewed criticism from the White House may push the Fed to consider potential rate cuts over the summer, while the FOMC should remain confident on US growth and is unlikely to change rates in June. Expectations are high on the money markets, pointing towards significant easing in H2 19, with risks of them being disappointed unless Fed governors have recently turned more dovish than in their last communication. On the economic front, the manufacturing and services PMI (first estimates) are expected to increase from last month, being significantly above the 50 level, while regional business surveys should remain mixed after last month’s rebound. On housing, housing starts, building permits and existing home sales are expected to rebound and NAHB sentiment is set to increase slightly from last month.

  • In the eurozone the manufacturing and services PMI (flash estimate) are expected to regain slightly in services and to stabilise in the manufacturing sector. Final inflation should confirm the expected moderation in the monthly change and a lower yearly trend (1.2% y/y from 1.7% y/y last month). Early consumer confidence estimates should point towards a continued improvement in sentiment.

  • In the UK, the next meeting of the BoE should not reveal any changes to its current strategy, i.e. a wait-and-see stance. Inflation (CPI and PPI indices) could moderate slightly after last month’s rebound, with headline inflation settling around 2% y/y. Retail sales should remain volatile and are expected to contract further over the month.

  • In Japan, the meeting of the BoJ should not reveal any changes to the already ultra-accommodative monetary policy. Inflation is expected to moderate and to stay below 1% y/y at 0.7% y/y.

  • In Russia, industrial production is expected to remain weak, but retail sales should remain on a moderate trend, while the unemployment ratio could ease somewhat to 7.6%.

  • Central bank meetings: Brazil, Norway, Indonesia, the Philippines and Taiwan.

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