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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 weeks’ key economic news (from 15th to 19th Oct.):

  • In the US, retail sales disappointed slightly by rising only moderately, as some sectors were impacted by hurricanes; nevertheless there was a positive surprise in the solid rise in core sales (excluding food, gas, autos and building materials), which are a proxy for consumer spending. After strong non-farm payroll data, the JOLTS survey confirmed the healthy labour market trend with a record number of job openings. On the supply side, regional business surveys were mixed, with the Empire New York index rebounding, whereas the Philly Fed retreated slightly: both indices remained high and are still pointing to solid economic activity, however, it should be noted that expectations are no longer accelerating. Industrial production saw a modest rise driven by autos and capital goods. In housing, data were mixed as existing home sales and housing starts fell, but the fall in the latest was partly due to hurricanes, and finally sentiment (NAHB index) increased slightly on firmer sales.
  • The FOMC’s minutes implicitly confirmed another rate hike in December, as views on the economy and inflation are positive. The minutes mentioned that rates could temporarily be above the neutral threshold to avoid any overheating, but governors will continue to debate the upside versus downside risks to the economy in the coming months.
  • In the eurozone, final CPI came in at 2.1% y/y for the headline index and 0.9% y/y for core data, as expected. The monthly rebound (0.5% m/m) was driven by energy and food prices. Industrial foreign orders in Italy also enjoyed a strong rebound.
  • In the UK, labour data were generally positive, with unemployment remaining low, but the number of unemployed increased over the month, while wage growth accelerated slightly to 2.7% y/y, driven by rising pressure on construction, retail and other services. On the inflation front, producer prices continued to rise under the effect of sterling’s weakness and rising oil prices. Nevertheless, the CPI stayed on its declining yearly trend (2.4%), easing pressure on the BoE. Retail sales fell more than expected following strong numbers in August.
  • In Japan, inflation was slightly lower than expected (1.2% y/y), while core inflation stayed close to 1% y/y. Final industrial production data was weaker than expected, being up by 0.2% m/m instead of the 0.7% m/m expected. The trade balance was negative, as expected, and exports were weaker than expected, showing a contraction (-1.2% y/y) in the yearly trend.
  • In China, Q3 GDP came lower than expected (6.5% y/y) and industrial production and investment stayed on a decelerating trend. Nevertheless, some specific manufacturing investment was better oriented, pointing to some positive effects of the previous support. Retail sales were firmer at 9.2% y/y, with a broad-based rebound in purchases, except on autos, benefiting from some tax cuts. Inflation has slightly accelerated (2.5% y/y) with rising food prices; new yuan loans were higher than expected and monetary authorities promised further easing after the release of moderate indicators.
  • September saw some improvement in manufacturing activity and in the energy-related sectors in Russia; on the consumer side, unemployment eased (4.5% y/y) and real wages rebounded (7.2% y/y), but retail sales stayed on a moderate trend (2.4% y/y) as real disposable income was still negative (-1.0% y/y).
  • Central bank meeting: Chile has increased key rates by 25 bp to 2.75% as expected.
  • While politics (particularly in Saudi Arabia) and the trade war continued to dominate news, economic indicators remained broadly positive in the US, pointing towards strong growth in Q3; this opens the way for the Fed to hike rates in December and for the central bank to come under more pressure from the White House. On the opposite, China stays on a weakening trend, which points to further monetary support. The EU summit produced no firm conclusions on Brexit, the European project, or the Italian budget.



Important for the scenario next week:

  • In the US, many important data will be published during the week; Q3 GDP is expected to come it at around 3.2%, but upside surprises look possible given the positive momentum currently in place. First estimates of the manufacturing and services PMI should point to confidence levels still being high with probable positive momentum, while regional business surveys should stay volatile. Durable goods orders should moderate after strong numbers last month. Housing data (pending and new home sales) should at least stabilise in the current environment, but downside risks exist. Separately, the Fed’s Beige Book will be published and it should validate the current solid growth; many Fed governors are expected to speak publicly during the week.
  • In the eurozone, the main important point will be the ECB meeting: no change in strategy is expected but more information about timing on rates, the ECB’s position regarding Italy after the EU summit, and the future credit and bond reinvestment process should be expected by markets. M3 and the quarterly bank lending survey will be published. Preliminary manufacturing and services PMI will be published and should confirm some stabilisation of the composite index, while the IFO may well remain mixed. Consumer confidence data will be published for the eurozone and Germany and these are expected to show signs of stabilising.
  • In Japan, the manufacturing PMI should stay close to previous month’s level.
  • Among the various indicators in Asia, Korean Q3 GDP data will be published.
  • Central bank meetings: Canada, Indonesia and Colombia.
  • US data should confirm the strong momentum in place in the US, while in the eurozone we expect the confirmation of a stabilisation in economic activity.


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Insight 17.10.2018

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