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  2. The Chief Economist's weekly update
Expertises d'investissement

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 9 Sept. to 13 Sept.):

  • In the US, retail sales rose modestly in August, driven higher by a jump in auto buying and healthy online sales. Control retail sales, which is taken into account in GDP, increased by 0.3% m/m (as expected), the sixth consecutive monthly increase. Consumer confidence (Michigan) jumped after the strong fall last month with expectations and current conditions sentiments slightly increased.  The JOLTS survey disappointed, reflecting slightly fewer job openings, while turnover in the labour market remained high. Headline inflation was moderate (0.1% m/m; 1.7% y/y), but core inflation was firmer than expected (0.3% m/m; 2.4% y/y) due to health costs. PPIs surprised with the rebound in services and in core PPI (0.4% m/m; 1.9% y/y), while the overall PPI remained moderate (0.1% m/m; 1.8% y/y) thanks to lower energy prices. On the supply side, the NFIB index (sentiment on small- and medium-sized firms) weakened on less positive views on the future economy and employment, but capex remained positive. The index remained at buoyant levels.
  • In the eurozone, the ECB finally delivered a comprehensive monetary package on concerns of a persistent, low-growth inflation environment and risks. The deposit rate was cut from -0.40% to -0.50% and the forward guidance was shaped by the inflation pattern; TLTRO III conditions were eased; QE was relaunched (EUR 20 bn per month) and tuned to the inflation scenario. The QE amounts and the changes in rates could be adjusted further if needed, creating a very friendly monetary environment for the coming quarters.
  • Separately, eurozone industrial production continued to contract (-0.4% m/m from -1.4% m/m the previous month). Industrial production disappointed in Spain (-0.4% m/m) with several sectors in contraction, and the yearly trend fell below 1% y/y; the same scenario was seen in Italy (production down by 0.7% m/m), with pharma and machinery the weakest sectors. In France, production rebounded by less than expected, with large disparities across sectors and weak production in autos and intermediate sectors. French business sentiment increased slightly thanks to an improving outlook on production and orders. In Germany, the trade balance (EUR 21.4 bn) rebounded as exports were slightly better oriented (0.7% y/y).
  • In Japan, Q2 GDP data were revised down (from 0.4% to 0.3% q/q), as expected, due to far slower capex growth than initially estimated (from 1.5% q/q to 0.2% q/q). The quarterly Ministry of Finance survey (Q3) on business conditions improved from last quarter, but views on Q4 point on renewed weakness. PPIs contracted (-0.3% m/m) on lower energy prices and the yearly trend has become more negative (-0.9% y/y). Industrial production rebounded after the strong fall in June.  
  • In the UK, the unemployment rate eased further (3.8%), but jobless claims stayed on a rising trend over the past months (28,000) and job creations have slowed. Wage growth accelerated further (4% y/y), particularly in the construction and finance sectors. Industrial production surprised on the upside with a rebound in manufacturing (0.3% m/m) driven by consumer goods. The monthly index for GDP and the index for services both rebounded (0.3% m/m) despite the highly uncertain environment and flat expectations. Sentiment among house professionals (RICS price balance) regained slightly but concerns remained on future prices.
  • In China, inflation remained more sustained than expected (2.8% y/y) due to pork prices, while PPIs turned more negative (-0.8% y/y). The trade surplus decreased sharply (USD 34.8 bn): exports were more negative than expected (-1% y/y) and imports contracted (-5.6% y/y). Total social financing and new yuan loans both rebounded strongly from last month.
  • In Turkey, the central bank has slashed its benchmark interest rate by a further 3.25% (from 19.75% to 16.5%) means that Turkey's central bank has lowered its policy rate by a total of 750 basis points since July.
  • The good performances of UK indicators and the resilience of the domestic economy came as a surprise given the prevailing political confusion. A leaked UK government report on the chaos that the supply chain would suffer if the country left the EU without a deal, along with the current position of the UK parliament, boosted the prospect of another postponement of the exit date (to the end of January 2020), as well as efforts to strike a deal with the EU. The US and China eased trade tensions by postponing the planned imposition of tariff increases; employment and industrial confidence figures for the United States are looking weak, while China is injecting massive amounts of credit into the economy, however, this is being done in a targeted, sector-by-sector way. The rise in core inflation (both CPI and PPI) could pose a problem for the Fed, which would position itself as being less aggressive than the ECB.
  • The ECB rolled out a raft of significant measures and called for fiscal action which would increase the positive effects on the economy. Nonetheless, Germany is still proving to be reluctant to abandon its strict budgetary stance and is working on “green” investments outside the budget.

Important for the scenario next week:

  • In the US, the main event will be the Fed meeting: a 25 bp rate cut is widely expected and the FOMC should remain divided on the global outlook and the related interest rate management. Despite a weakening ISM manufacturing, risks are probably not urgent enough for the FOMC to adopt a more aggressive stance (i.e. a 50 bp cut) or to engage in a long easing cycle, staying with mid-cycle adjustments and simple insurance cuts. On the supply side, industrial production is expected to regain slightly from the previous month’s contraction, but regional business surveys (New York Empire manufacturing, Philly Fed) are expected by the consensus to weaken after a rebound over the past two months. Several indicators will be published on housing: housing starts and building permits are expected to rebound, while existing home sales and the NAHB confidence index could both remain sluggish.
  • In the eurozone, final inflation data for August should confirm preliminary estimates, pointing towards headline and core inflation below or close to 1% y/y. In Germany, the ZEW index should remain depressed and PPIs are likely to remain on a downward trend. In Italy, industrial sales and orders may remain depressed, even after last month’s large falls, as business confidence and industrial activity have not rebounded significantly.
  • In Japan, the BoJ is unlikely to change its current strategy; nevertheless, markets should wait for more details on yield curve control, and on how the BoJ may adapt if other major central banks are driving key rates lower. The recent shifts in bond purchases has raised questions on the markets; in parallel, BoJ should continue to buy ETFs on stocks. The trade balance should remain negative, while exports should show a slightly less negative trend. Inflation could slow down even further on lower energy prices (0.5% y/y prior month).
  • In the UK, the BoE is not set to change its strategy and will continue to buy financial assets at the same pace; more details could be delivered on the BoE’s no-deal Brexit strategy given the rising political uncertainties. Separately, retail sales (August) should stay relatively firm (0.2% m/m for July) and inflation could also stay steady at around 2% y/y, due to a weak GBP.
  • In China, retail sales should rebound to 8% y/y after weak numbers the previous month and industrial production is also expected to rebound slightly to just above 5% y/y. Fixed asset investment is expected to remain on a stable but moderate trend (5.7%y/y).
  • In Russia, industrial production is likely to moderate (2% y/y) and retail sales (real) are set to be below 1% y/y; the unemployment rate is expected to moderate slightly (4.4%) and real wage growth should slow from 3.5% to 3% y/y.
  • Central bank meetings: Brazil, Indonesia, Taiwan, Norway and South Africa.
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