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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 weeks’ key economic news (from May 21st to May 25th):

  • In the US, flash estimates for manufacturing and services PMI were higher than expected, pointing towards a rebound in activity in Q2, validated by the Richmond business survey (the index stood at 16, up from -3) and improving orders on capital goods. Consumer sentiment may well reveal some inflation concerns coming from households. New homes sales have weakened on the back of rising house prices and mortgage rates. The minutes of the latest FOMC meeting confirmed a rate hike in June, but its members were slightly dovish on inflation, growth and the medium-term path of rate hikes. The Fed’s communications on its forward guidance policy on rates should change in the near future to a more neutral stance. There are divisions among Fed governors on the yield curve: for some, its shape has to be actively managed to avoid an inversion, whereas others think this is not a major concern. Turning to politics, uncertainties on talks on NAFTA and on US-China trade continued, despite a joint statement on a reduction of the US deficit with China. Further, the US administration announced a raft of measures on imported cars.
  • While leading indicators confirmed an ongoing rebound in activity, the Fed will continue its progressive policy tightening and political and protectionist risks remain in place.
  • In the eurozone, the flash PMI manufacturing and services both came in lower than expected and pointed towards stable growth but not towards a strong rebound by Q2. This was confirmed by country business surveys in France and Germany. Moreover, the flash eurozone consumer confidence eased from last month (as it did in Germany), reflecting political uncertainties and eroding purchasing power. The minutes of the latest ECB meeting did not reveal anything new, except protectionism being a major source of risk; data will be under scrutiny in June, but the ECB was still confident on growth despite a temporary slowdown in Q1. No decision is likely to come from the next meeting in June, but should be expected in July, as the ECB may well prefer to wait for more data.
  • While leading indicators suggest stable growth in Q2, political concerns have increased as a consequence of the Italian election result: the new prime minister, the new government and its programme will be scrutinised by markets, as worries on debt, the deficit and respecting EU treaties have increased.
  • In the UK, inflation eased as expected (from 2.5% y/y to 2.4% y/y), but pressures could remain in place as input prices have increased slightly (from 4.4% y/y to 5.3% y/y). Retail sales have recovered more than expected (1.3 % m/m), but the underlying trend remains moderate. Mark Carney pointed out that temporary factors were responsible for the slowdown in Q1.
  • The growth outlook remains fragile and the BoE will probably remain cautious before hiking rates further.
  • Central bank meeting: Turkey increased its liquidity rate by 300 bp to 16.5% at an emergency meeting in an effort to support the currency.
  • Flash PMI were more positive in the US but they continued to disappoint in the eurozone and economic indicators have stabilised in the UK. Politics in the US and in Italy have refuelled worries on the outlook and eroded confidence on the markets.


Important for the scenario next week:

  • In the US, it will be a busy week in terms of data; the most important will be the non-farm payrolls (expected to be up by 190,000 after 168,000); unemployment should remain below 4%, while wage growth could pick up slightly (0.3% m/m). Final manufacturing and services PMI and ISM should confirm a rebound in industrial activity in Q2. The second estimate of Q1 GDP should show only minor changes from the first estimate (2.3% q/q). Lastly, consumer confidence, some regional business surveys and data on housing will be also published, along with the Fed Beige Book.
  • These data should confirm an ongoing rebound of activity in Q2, while trade and political development could continue to generate uncertainties.
  • In the eurozone, final PMI manufacturing and services should confirm the decrease seen in the first estimate; separately, household and business confidence both at national and eurozone levels should confirm that growth has stabilised. German retail sales are expected to rebound slightly after weak data in recent months, and German unemployment is expected to remain low. The eurozone flash inflation estimate for May is expected to climb from 1.2% y/y to 1.6% y/y, reinforcing the ECB’s inflation scenario, while concerns might remain in place about moderate growth continuing in Q2 after a weak Q1.
  • In Japan, unemployment is expected to remain low (2.5%) and a rebound in retail sales is expected (1% m/m). Supply-side data should remain positive, with a rebound in industrial production and steady PMI manufacturing. This should stop the negative economic surprises seen in recent weeks.
  • In the UK, the PMI manufacturing may weaken further and downside risks could weigh on consumer confidence, which is already depressed.
  • In emerging countries, PMI manufacturing data will be published next week.
  • Central bank meetings: Israel and Canada
  • While questions are set to continue to surround the pace of growth in the eurozone and Japan, data should confirm more solid domestic demand in the US in Q2. Politics (such as Brexit, China, the Middle East, US policy and Italy) are a source of concern for several regions and this is consequently reducing visibility on the scenario. Rising oil prices, resulting from the geopolitical tensions, could erode consumer purchasing power in several emerging and developed countries. Central banks are being forced to adapt their strategy to the current environment and to adopt a more cautious stance in their communications than they had in Q4 17.


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