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  2. The Chief Economist's weekly update
Know-how negli investimenti

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 4 Nov. to 8 Nov.):

  • In the US, the services ISM rebounded strongly (to 54.7 from 52.6) due to improving outlooks on activity, new orders and employment; in contrast, the services PMI (a varied sample of firms) weakened from last month and was lower than estimated (50.6 from 50.9) due to weak demand and exports. Final data for durable goods orders confirmed the fall seen in early estimates (-1.2% m/m) and weak core orders (-0.6% m/m). After moderate Q3 GDP growth and a regular rise in total compensation, productivity decreased by more than expected (-0.3% q/q) and unit labour costs accelerated from 2.4% to 3.6% q/q. The JOLTS survey came in lower than expected after strong numbers the previous month, reflecting fewer hirings. On the consumer side, confidence (Michigan index) has slightly increased, with improving sentiment on future economic situation and stable inflation expectations. A moderate trade deficit (USD -52.5 bn down from USD -55 bn last month) was due to falling imports and exports that continue to be weak. Many Fed governors delivered speeches last week: a number of them seemed to favour keeping rates where they are, while confirming that the Fed is data-dependent.
  • In the eurozone, the final manufacturing PMI increased from last month and was better than estimated thanks to a rebound in new orders and improvements in France and Germany. The services PMI rose more solidly than initially estimated (from 51.6 to 52.2) thanks to firmer trends in France, Germany and Italy. For the first time and in both sectors, sentiment in Spain was weaker than the previous month. Retail sales showed a moderate rise over the month (0.1% m/m) after upward revisions to last month’s data (0.6% m/m). German factory orders rebounded by more than expected (1.3% m/m), driven by firmer domestic and foreign demand for capital goods. Nevertheless, industrial production (September) reversed the previous month’s improvement, driven down by activity in the manufacturing sector. Spanish industrial production decreased by 0.8% m/m (from 0.9% m/m in August), while French industrial production has recovered modestly (0.3% m/m) after past month fall. Eurozone PPIs were relatively stable over the month (0.1% m/m) and energy prices were up by 0.5% m/m; its yearly trend slid further into negative territory (from -0.8% y/y last month to -1.2% y/y).
  • In Japan, the decline in the services PMI was greater than expected with the index passing below 50. On the consumer side, household spending has strongly rebounded (9.5% y/y) due to large purchases ahead of the rise in VAT. Labour cash earnings has rebounded to 0.8% y/y after several month of contraction.
  • In the UK, the BoE left its key rates unchanged (0.75%) but revised its growth and inflation outlooks downward, despite assumptions of an orderly Brexit and looser fiscal policy. As global risks remain in place, the BoE is ready to adjust its rates accordingly in view of positive or negative outcomes, but a small easing bias has appeared. Two governors dissented in favour of a 25 bps rate cut. The services PMI rebounded to 50 on the back of the prospect of a Brexit with a deal, but views remain cautious on future demand. BRC sales (the retail sales proxy) made up less ground than expected (0.1% y/y) after last month’s highly negative data (-1.7% y/y).
  • In China, the services PMI (Caixin) eased slightly (from 51.3 to 51.1). The PBOC trimmed money market rates slightly (1-year MLF) from 3.30% to 3.25% The trade surplus has slightly increased (USD 42.8 bn) on less negative exports (-0.9% y/y) than in past month, while imports decreased further.
  • Central bank meetings: Thailand eased its key rates by 25 bps (to 1.25%) as expected. Peru unexpectedly cut its key rates by 25 bp to 2.25%.
  • Official communication on the subject of the US–China trade negotiations remains positive, with the prospects, even still under debate, of a proportionate withdrawal by the US and China of customs duties on products that they put in place in September. The upturn in confidence in major economies’ service sectors (with the exception of Japan) is a positive signal for future activity; that said, real industrial activity data remain in negative territory, with the exception of the recent rebound in order books in Germany. Peru and Thailand central banks lowered their key rates last week, and the BoE opening up its strategy to the possibility of trimming its rates should the Brexit or growth scenarios be disrupted.

Important for the scenario next week:

  • In the US, important data from various sectors will be published during the week. Retail sales are expected to make up ground after disappointing with negative numbers in September, and core sales are expected to be firmer. Inflation is expected to be more sustained over the month (0.3% m/m), but the yearly change should remain stable at 1.7% y/y for headline and 2.4% y/y for core prices. PPI are expected to be up slightly (0.2% m/m) after a 0.3% m/m contraction last month; the yearly trend should remain moderate (1.4% y/y). Industrial production is expected to show another modest contraction (-0.3% m/m), but business surveys (NFIB small firms index; New York Empire manufacturing) are both expected to rebound from last month. Many Fed governors will deliver speeches in the coming week.
  • In the eurozone, industrial production should stay modestly positive but with downside risks persisting after last month’s rebound. Final inflation (October) should confirm the estimated slowdown in headline (0.7% y/y) and the relative stability in core prices (1.1% y/y). Final inflation data by country should confirm the decline in the yearly trend seen in early estimates. The second estimate for eurozone Q3 GDP is expected to remain unchanged, but Q3 data will be published for Germany, which should show a modest contraction (-0.1% q/q) as in Q2. In Germany, the ZEW index should improve after depressed numbers the previous month. In France, the unemployment rate could decline further (it stood at 8.5% last month) and the business survey (Bank of France index) should stay stable. In Italy, industrial production should remain volatile after having enjoyed some improvements in the previous month.
  • In Japan, Q3 GDP is expected to show moderate growth (0.2% q/q) with a firmer trend in capital spending, but there could be a drag from net exports. Final data for industrial production should confirm the estimated monthly rebound (1.4% m/m); services’ tertiary index should improve slightly.
  • In the UK, it will be a busy week in terms of economic indicators. Early Q3 GDP estimates should be flat or slightly negative after contracting in Q2 (-0.2% q/q) but capex may remain negative in light of the uncertainties surrounding Brexit. Industrial production (September) should remain up slightly after the sharp contraction in the previous month (-0.6% m/m). Retail sales are likely to make some gains (October) after flat numbers in September; the labour market should remain healthy, with the unemployment rate remaining low (3.9%), while the jobless claims trend could continue to rise. Inflation is expected to increase slightly over the month, but the yearly trend could remain stable (1.7% y/y) for both headline and core data. PPI are expected to be less negative both over the month and in terms of the annual trend. Various housing prices indices should show improvements after recent weak numbers.
  • In China, economic indicators are expected to stay mixed; both new yuan loans and total aggregate financing are expected to come in lower after the record levels injected last month; retail sales should remain on a stable and sustained trend (7.8% y/y), while industrial production is expected to moderate (5.4% y/y) and fixed asset investment should remain on a moderate trend (5.4% y/y).
  • Central bank meetings: New Zealand, the Philippines and Mexico
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