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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 July 9nd to July 13th ):

  • In the US, inflation remained moderate in June, with a mix of opposing forces: lower prices for computers, energy and apparel, versus increasing medical costs, rents and the first indirect impact of some rises in tariffs. The yearly trend has increased slightly for both headline (2.9% y/y) and core inflation (2.3% y/y). PPI stayed on a rising trend (0.3% m/m; 3.4% y/y) which could put further pressure on CPI. The JOLTS survey remained high, but with some moderation from the previous month; more interestingly, it pointed towards a higher level of rotation due to more people voluntarily leaving their jobs, as well as towards potential wage pressures in certain sectors. The consumer sentiment index (Michigan) has weakened due to lower sentiment on current situation: concerns are related to households’ financial situation and to trade debate and employment outlook.
  • In the eurozone, industrial production rebounded (1.3% m/m), suggesting some stabilisation around a 2% y/y trend. At country level, industrial activity was still contrasted as production in Italy rebounded (0.7% m/m) but declined further in France (-0.2% m/m) due to strikes; a rebound could follow as French business sentiment increased slightly in June. In Germany, the ZEW index fell more than expected (from -16.1 to -2.4) reflecting concerns on trade, but the German trade surplus remained high in May and export performances were positive.
  • The minutes of the ECB meeting revealed a consensus decision regarding the end of QE and its forward guidance on rates. They reiterated that QE could be extended beyond December if the macro outlook deteriorates; the willingness of the Governing Council was to mitigate precision and be flexible on policy, as key rates were not supposed to move before the “2019 summer”.
  • In Japan, industrial production and machine orders were volatile but stayed on a positive yearly trend and the tertiary index stabilised.
  • In the UK, BRC retail sales remained positive and monthly GDP estimates gave comfort to a stabilisation scenario. Manufacturing production also rebounded in several sectors except consumer spending.
  • In China, inflation was stable (1.9% y/y), as expected, but PPIs have accelerated (4.7% y/y) due to mining and raw material prices. New loans have rebounded from the previous month after the PBC eased its policy. Separately, China’s trade surplus has increased further despite rising imports.
  • Central bank meetings: while key rates were stable in several emerging countries, the Bank of Canada increased its key rates by 25 bp to 1.50%, as inflationary pressures have increased, and in spite of the risks surrounding a trade war.
  • US inflation is expected to reach a peak in the coming months as long as there are no major shocks from increased tariffs, oil and currencies, before moderating by year-end. The US is keeping up the pressure on China but negotiations are continuing and China has only threatened to retaliate. The US also kept up its political pressure on European countries on both trade and defence: official US-EU talks have not yet shown any progress on the trade dispute.
  • In the eurozone, the industrial activity stabilised, giving hope of better-oriented activity in Q3 after some negative surprises. In the UK, activity stabilised somewhat but the political environment remains highly uncertain; the release of a white paper on Brexit by Mrs May has not eased domestic tensions.

Important for the scenario next week:

  • This is a busier week in the US, with retail sales being the most important data release: strong numbers are still expected by the consensus (0.6% m/m; core sales: 0.5% m/m) even if they are down slightly on the May figures. This should validate a strong GDP rebound in Q2. Regional business surveys (New York, Philly Fed) are expected to follow the strong numbers seen in PMI/ISM, suggesting solid confidence from corporates. Indicators on housing (NAHB, housing starts) are expected to weaken further, pointing towards a less bullish trend. The Beige book will be published and Jerome Powell will deliver his half-yearly testimony to Congress.
  • In the eurozone, final June inflation should confirm a rebound to 2% y/y, while core inflation should remain at 1% y/y.
  • In Japan, the balance of trade and machine tool orders should remain volatile on a monthly basis; inflation is expected to remain weak (below 1% y/y).
  • In the UK, retail sales are expected to stay positive (0.2% m/m) and the labour market to remain healthy, with low unemployment (4.2%) but limited wage growth (2.7% y/y). Inflation is expected to rise further to 2.6% y/y, but it should remain below 3% y/y.
  • In Russia, several monthly indicators will be published during the week, including inflation, but no major change is expected from the existing trend. In China, Q2 GDP is expected to show a 6.7% y/y rise (down from 6.8% y/y in Q1); monthly indicators on domestic activity are expected to come in better than in the previous month, particularly consumer spending.
  • Central bank meetings: South Africa, Indonesia.
  • Strong US growth should be validated by data, but the key questions will now be whether the US cycle will peak from Q2 or stay at the top, and how the Fed will react to this growth/inflation/trade environment. In the UK, while the economy is expected to stabilise on a moderate trend, political uncertainties should remain elevated given the fragility of the government. The US-China trade dispute remains acute but, as underlying negotiations continue, we expect some relief on this front and we reiterate that a full trade war is not our base scenario.


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