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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 20 May to 24 May):

  • In the US, early estimates of manufacturing and services PMIs strongly disappointed, with a sharp fall in both indices (-3 points); trade tensions have weighed on industry and contagion effects also appeared in services due to delayed demand and rising uncertainties in the two sectors. The two indices are now just above the 50 mark, which points towards increasing risk on the growth trend. Regional business surveys (Chicago Fed, Kansas) came in lower than expected, both being hit by trade tensions. Durable goods have contracted, as expected, due to lower aircraft orders (Boeing), but core orders also have turned negative after some modest improvement in past months. Housing data also came in lower than expected (new and existing home sales) compared with last month, with lower sales and rising inventories; prices, however, remained on a solid trend. Several Fed governors confirmed that they were in a hurry to ease key rates, but some were also in favour of an average inflation target; Jerome Powell put the focus on rising corporate debt, but he was confident on regulation and the financial system. The Fed FOMC minutes revealed discussions surrounding bonds held by the Fed with an option to decrease the maturity of these holdings. The negative reactions to rising tensions from trade and weakening business indices could put pressure on the Fed at its next meeting in June and show fragilities in the current growth trend.
  • In the eurozone, early manufacturing and services PMI estimates continued to ease from the previous month. Indices weakened further in Germany, while some improvement was seen in French indicators (as well as on national business sentiment). Trade and Brexit issues are weighing more on Germany than on other European countries. The German IFO declined moderately, but expectations stabilised. Q1 German GDP was up by 0.4% q/q (as expected) thanks to sustained consumer spending and investment, whereas net exports were negative. The eurozone consumer confidence index was less depressed than last month, showing a modest rebound in preliminary estimates. The minutes of the latest ECB meeting have pointed out that details on the next TLTROs should be published next June, while governors were divided about the final purpose of these liquidities; separately, minutes have shown some ECB’s governors are not comfortable by the remaining low inflation. European parliamentary elections will take place between 23 and 26 May, with the results set to be published late on Sunday 26 May.
  • In the UK, retail sales were flat after past month rebound, while expectations were negative. Inflation increased by slightly less than feared (0.6% m/m) but it was driven higher by energy, transport, communication and housing prices. The yearly trend increased from 1.9% y/y to 2.1% y/y. PPIs rebounded sharply and by more than expected, leading to input prices being up by 3.8% y/y. Ms May has resigned (effective by June 7), which opens to way for the Conservative Party to choose a new Prime Minister.
  • Japan, Q1 GDP rebounded by 0.5% q/q, contrary to expectations. A rebound in inventories, public spending and exports, with less negative capex fuelled the unexpected rebound. Industrial production (final March data) was less negative than feared in the final estimate, and durable orders rebounded by more than expected; manufacturing PMI slipped below 50 (49.6) due to rising tensions on trade. Inflation (April) settled on a firmer trend (0.9% y/y), including core inflation (0.6% y/y) as expected.
  • In Russia, industrial production rebounded by more than expected, while retail sales have moderated and unemployed slightly increased, but the unemployment ratio remained stable.

Important for the scenario next week:

  • In the US, the second estimate for Q1 GDP should show only a minor change (from 3.2% q/q to 3.1% q/q). Other economic indicators will concern business confidence through various regional surveys in the manufacturing and service sectors (Dallas, Richmond and Chicago). The consensus expects an improvement from last month but risks are on the downside after the negative surprises seen in preliminary PMI indices. Consumer sentiment indices (Michigan and Consumer Board) are also expected to improve but they could be at risk following market turbulence. Housing data (home prices and pending home sales) are expected to remain stable.
  • In the eurozone, the EC confidence indices (industry, service, consumers) should show a further decline in industry and services, as seen in the PMI, while less depressed consumer indices should be confirmed. Trade and employment remain the main sources of uncertainty in the eurozone. The Eurozone M3 could be on a slightly lower trend (4.2% y/y). First estimates of inflation (May) will be published in many countries (Germany, France, Italy and Spain, which should show some easing after the rebound in April. By country, consumer confidence and spending should remain volatile and moderate in France; in Germany, confidence and retail sales are expected to stay on a positive trend, while labour data should confirm a low unemployment ratio and regular job-creation growth. In Italy, consumer and industrial confidence figures will be published, with potential downside risks to both indices.
  • In the UK, the consensus expects consumer confidence to stabilise, albeit at depressed levels, but uncertainties relating to Brexit and the unstable political situation could weigh on sentiment.
  • In Japan, the labour market should remain on a positive trend with another decrease in the unemployment ratio; retail sales are expected to be more positive, despite the fact that the stepped weakening that has been seen in consumer confidence in recent months could cease. Industrial production is also expected to regain after the depressed figures seen last month.
  • In China, the manufacturing and services PMIs are expected to ease marginally from last month, but downside risks are building on the back of rising tensions between the US and China.
  • In Brazil, Q1 GDP should reveal moderate growth at close to or below 1% y/y.
  • Central bank meetings: South Korea, Canada and Hungary.
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